<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (date of earliest event reported):
September 29, 1994
CONSECO, INC.
State of Incorporation:
Indiana
Commission File IRS Employer ID.
No. 0-11164 No. 35-1468632
Address of Principal Executive Offices:
11825 North Pennsylvania Street
Carmel, Indiana 46032
Telephone No.
(317) 573-6100
<PAGE>
<PAGE> 2
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
INDEX
Page
----
<S> <C>
Item 2 - Acquisition or Disposition of Assets 3
Item 7 - Financial Statements and Exhibits
(a) The Statesman Group, Inc. and Subsidiaries
Unaudited Consolidated Financial Statements
as of June 30, 1994 and for the six months
ended June 30, 1994 and 1993
Consolidated Balance Sheets 6
Consolidated Statements of Income 8
Consolidated Statements of Cash Flows 9
Notes to Consolidated Financial Statements 10
The Statesman Group, Inc. and Subsidiaries
Audited Consolidated Financial Statements
as of December 31, 1993 and 1992 and for
each of the three years ended December
31, 1993
Report of Independent Auditors 14
Consolidated Balance Sheets 15
Consolidated Statements of Income 17
Consolidated Statements of Stockholders' Equity 18
Consolidated Statement of Cash Flows 19
Notes to Consolidated Financial Statements 21
(b) Pro Forma Consolidated Financial Information
of Conseco, Inc. and Subsidiaries
Pro Forma Consolidated Statement of Operations
for the six months ended June 30, 1994 51
Pro Forma Consolidated Statement of Operations
for the year ended December 31, 1993 53
Pro Forma Consolidated Balance Sheet as of
June 30, 1994 55
Notes to Pro Forma Consolidated Financial
Statements 57
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of May
1, 1994 by and among Conseco Capital Partners
II, L.P., CCP II Acquisition Company and The
Statesman Group, Inc.
4.12 Indenture dated as of September 29, 1994 between
ALHC Merger Corporation and LTCB Trust Company and
First Supplemental Indenture dated as of September
29, 1994 between American Life Holding Company and
the Trustees for the 11-1/4% Senior Subordinated
Notes due 2004.
The document defining the rights of the holders of
the Senior Term Loan obtained by ALHC Merger
Corporation as described in Item 2 has been omitted
as an exhibit to the Form 8-K, pursuant to Item 601
(b)(4)(iii) of Regulation S-K, because the total
amount of the ALHC Senior Term Loan is less than
10 percent of the total assets of the Registrant
and its subsidiaries on a consolidated basis. The
Registrant hereby undertakes to furnish copies of
such documents to the Commission upon request.
</TABLE>
<PAGE>
<PAGE> 3
CONSECO, INC. AND SUBSIDIARIES
ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
II"), a Delaware limited partnership, completed the acquisition (the
"Acquisition") of The Statesman Group, Inc. ("Statesman"). After the
Acquisition and related financing transactions, CCP II owns approximately 80
percent of the outstanding shares of Statesman's common stock. Conseco, Inc.
("Conseco") formed CCP II in February 1994 with several other investors for the
purpose of investing in acquisitions of annuity, life and accident and health
insurance companies and related businesses. Conseco Partnership Management,
Inc., a wholly owned subsidiary of Conseco, is the sole general partner of CCP
II. Because a subsidiary of Conseco is the sole general partner of CCP II,
Conseco controls CCP II and Statesman. Accordingly, Conseco's consolidated
financial statements will include the accounts of CCP II and Statesman.
Conseco, through its direct investment and through its equity interest in the
investments made by Bankers Life Holding Corporation ("BLH"), CCP Insurance,
Inc. ("CCP Insurance") and Western National Corporation ("WNC"), has
approximately a 27 percent ownership interest in Statesman. The remaining 73
percent ownership interest in Statesman is described as the "Statesman Minority
Interest".
The Acquisition was consummated pursuant to an Agreement and Plan
of Merger dated May 1, 1994, providing for the merger of Statesman with a
subsidiary of CCP II. Statesman's former stockholders received $15.25 in cash
per common equivalent share plus a contingent payment right to receive up to
another $2.00 in cash per common equivalent share ("the Contingent
Consideration") based on the outcome of Statesman's pending litigation against
the U.S. Government concerning Statesman's former savings bank subsidiary (the
"Government Litigation").
The Acquisition and related transactions were funded with: (i)
$45.0 million of cash contributions made to CCP II by its partners (including
$7.2 million provided by wholly owned subsidiaries of Conseco, $1.8 million by
BLH, $1.8 million by CCP Insurance, and $3.6 million by WNC), (ii) $57.0
million in cash from the sale in a private placement of the payment-in-kind
preferred stock of Statesman (the "Statesman PIK Preferred Stock") (including
$25.9 million purchased by BLH and $24.0 million purchased by CCP Insurance)
(iii) $150.0 million in cash from the sale in a public offering by ALHC Merger
Corporation, a subsidiary of CCP II which was merged into American Life Holding
Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
$200.0 million in cash from a senior secured loan (the "ALHC Senior Term
Loan") obtained by ALHC Merger Corporation (collectively referred to herein as
the "Statesman Financing"). The sources and uses of this financing are
summarized below (dollars in millions).
<TABLE>
<S> <C>
Sources of Funds:
ALHC Senior Term Loan:
Borrowed upon closing of the Acquisition $170.0
Borrowed upon determination of Government Litigation 30.0 (i)
ALHC Senior Subordinated Notes 150.0
Statesman PIK Preferred Stock 57.0
Common equity contribution from CCP II 45.0
------
Total sources $452.0
======
Uses of Funds:
Payment of cash consideration to acquire Statesman $314.1 (ii)
Payment upon determination of Government Litigation 30.1 (i)
Repayment of bank indebtedness of a subsidiary of Statesman 55.5 (iii)
Transaction fees and expenses 14.8
Purchase of surplus note from American Life and
Casualty Insurance Company ("American Life")
Statesman's principal operating subsidiary 24.0
Cash retained 13.5
------
Total uses $452.0
======
<FN>
(i) In the event of an unfavorable determination of the Government
Litigation against the U.S. Government, $30.1 million would
be paid to the holders of Statesman's 1988 Series I and II
Preferred Stock $1 Par (the "Statesman 1988 Series Preferred
Stock"), which is currently held by the U.S. Government. In the
event of a favorable determination of this litigation, the same
amount, representing a portion of the Contingent Consideration,
would be paid to the other former stockholders of Statesman.
<PAGE>
<PAGE> 4
CONSECO, INC. AND SUBSIDIARIES
(ii) This amount assumes conversion of all outstanding 6-1/4%
Convertible Subordinated Debentures due 2003 of Statesman (the
"Convertible Debentures"), which were convertible into an
aggregate of 4,528,125 shares of Statesman common stock. To
the extent that any holders of the Convertible Debentures do not
convert such securities, the proceeds which would have been used
to pay such holders will be held in escrow until the Convertible
Debentures are converted by the holders thereof, are redeemed
by Statesman, or mature.
(iii) A subsidiary of Statesman was the borrower under a credit
facility with an outstanding balance including accrued interest
and fees of $55.5 million at the Acquisition date which was
repaid with a portion of the proceeds from the Statesman
Financing.
In accordance with the CCP II partnership agreement, Conseco received
fees for services provided of (i) $4.0 million related to the ALHC Senior Term
Loan and the ALHC Senior Subordinated Notes and (ii) $.9 million from the CCP
II Partners.
The ALHC Senior Term Loan was provided by a syndicate of lenders with
Bank of America Illinois (formerly Continental Bank, N.A.) (the "Bank") as the
agent. The loan has two tranches. One tranche has an aggregate principal
amount of $160.0 million ("Tranche A") and the other tranche has an aggregate
principal amount of $40.0 million ("Tranche B"). On the Acquisition date,
$130.0 million and $40.0 million were borrowed under Tranche A and Tranche B,
respectively, with the remaining $30.0 million to be borrowed at a later date
when needed to redeem the Statesman 1988 Series Preferred Stock or pay the
Contingent Consideration, depending on the outcome of the Government
Litigation.
Tranche A and Tranche B bear interest at a rate of either the Banks's
Alternate Reference Rate plus an applicable margin payable monthly or the
Interbank Offered Rate ("IBOR") plus an applicable margin for periods of one,
two, three or six months as selected by ALHC from time to time (such rate
selected for the first three month period was 7.5 percent and 8.0 percent for
Tranche A and Tranche B, respectively.) The applicable margin for the rate
based on the Bank's Alternate Reference Rate will vary from .25 percent to 1.0
percent for Tranche A and from .75 percent to 1.5 percent for Tranche B
depending on the principal amount plus unused commitments. The applicable
margin for the rate based on IBOR will vary from 1.5 percent to 2.25 percent
for Tranche A and from 2.0 percent to 2.75 percent for Tranche B depending on
the principal amount plus unused commitments.
The principal amounts of Tranche A and Tranche B are payable in annual
installments on April 1 of each year according to the following amortization
schedule (dollars in millions):
</TABLE>
<TABLE>
<CAPTION>
Payment Principal Installment
Date Tranche A Tranche B
---- --------- ---------
<S> <C> <C>
1995 $ 15.0 $ -
1996 16.5 .5
1997 23.5 .5
1998 26.0 .5
1999 26.0 .5
2000 26.0 .5
2001 27.0 .5
2002 - 37.0
------ -----
$160.0 $40.0
====== ======
</TABLE>
Mandatory prepayments will be required (i) from 50 percent of Excess
Cash Flow (as defined in the loan agreement), (ii) upon the sale or disposition
of any significant assets other than in the ordinary course of business and
(iii) upon the sale or issuance of debt or equity securities of Statesman or
any of its subsidiaries. The ALHC Senior Term Loan is secured by, among other
things, pledges of the capital stock of ALHC's subsidiaries (American Life and
American Life and Casualty Marketing Division Co. ("AMCO") and the surplus
notes of American Life held by ALHC. The ALHC Senior Term Loan is
unconditionally guaranteed by Statesman and AMCO. Statesman has pledged the
common stock of ALHC as security for its guarantee. In addition, CCP II has
pledged to the lenders the Statesman common stock owned by CCP II.
<PAGE>
<PAGE> 5
CONSECO, INC. AND SUBSIDIARIES
The ALHC Senior Subordinated Notes bear interest at 11.25 percent,
payable semiannually on March 15 and September 15, and will mature on September
15, 2004. The ALHC Senior Subordinated Notes are redeemable at the option of
ALHC, in whole or in part, at any time on and after September 15, 1999,
initially at 105.625 percent of their principal amount, plus accrued interest,
declining to 100 percent of their principal amount, plus accrued interest, on
and after September 15, 2001.
Dividends on the Statesman PIK Preferred Stock accrue annually at 13
percent in additional shares of Statesman PIK Preferred Stock through 2005.
Thereafter, dividends are payable quarterly at 15 percent per annum in cash.
The Statesman PIK Preferred Stock ranks senior to the Statesman common stock
with respect to dividends, and upon liquidation, the Statesman PIK Preferred
Stock will carry a liquidation preference equal to $1,000 per share, plus
accrued unpaid dividends. The Statesman PIK Preferred Stock is redeemable at
the option of Statesman, in whole or from time to time in part. The optional
redemption price of the Statesman PIK Preferred Stock will be $1,000 per share,
plus any accrued and unpaid dividends, and the Statesman PIK Preferred Stock
generally will not have any voting rights. As partial consideration for the
purchase of the Statesman PIK Preferred Stock, the purchasers received common
stock, representing 20 percent of the outstanding common stock of Statesman
immediately after the Acquisition.
<PAGE>
<PAGE> 6
ITEM 7(a). FINANCIAL STATEMENTS
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
June 30, December 31,
-------- ------------
1994 1993
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Investments
Fixed maturities
Held-to-maturity $ 1,395,977 $ 747,741
Available-for-sale 2,611,978 3,136,315
----------- ------------
4,007,955 3,884,056
Equity securities 22,639 20,411
Mortgage loans on real estate 71,000 66,541
Policy loans 58,065 56,265
Short-term investments 110,500 13,919
Other 18,596 14,991
----------- -----------
Total investments 4,288,755 4,056,183
Cash 2,258 9,993
Accrued investment income 56,726 49,653
Accounts and notes receivable 9,778 10,310
Deferred policy acquisition costs 346,193 293,938
Deferred federal income taxes 45,275
Property and equipment 9,916 10,518
Securities segregated for the future redemption of
preferred stock of wholly-owned subsidiary 36,901 35,560
Other assets 13,276 11,747
Assets held in separate accounts 10,680 12,809
----------- -----------
Total assets $ 4,819,758 $ 4,490,711
=========== ===========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 7
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS--(Continued)
(dollars in thousands)
LIABILITIES AND STOCKHOLDERS' EQUITY
June 30, December 31,
-------- ------------
1994 1993
---- ----
(Unaudited) (Audited)
<S> <C> <C>
Liabilities
Policy liabilities and accruals:
Annuity reserves $ 4,089,891 $ 3,690,557
Life insurance reserves 307,370 301,284
Other 15,387 17,226
----------- ------------
4,412,648 4,009,067
Other policyholders' funds 66,761 60,395
Accrued expenses and other liabilities 46,386 44,512
Long-term debt 123,980 120,375
Liabilities related to separate accounts 10,680 12,809
----------- ------------
Total liabilities 4,660,455 4,247,158
Commitments and contingencies
Preferred stock of wholly-owned subsidiary 95,429 95,298
Redeemable preferred stock
1987 Series II Preferred Stock $1 Par, at liquidation
value, less ESOP loan guarantee balance; 100,000
shares issued; 77,130 shares outstanding 3,713 2,963
Stockholders' equity
Series Preferred Stock $1 Par, 5,000,000 shares
authorized including redeemable preferred shares;
issued and outstanding--338,640 shares
(aggregate liquidation preference $15,339) 339 339
Common stock, $1 par value, 35,000,000 shares
authorized; 14,939,899 shares issued 14,940 14,940
Additional paid-in capital 58,616 58,796
Unrealized depreciation of securities (99,970) (345)
Retained earnings 94,307 79,447
Common stock in treasury, at cost--1994--1,525,172
shares; 1993--1,510,243 shares (8,071) (7,885)
----------- ------------
Total stockholders' equity 60,161 145,292
----------- ------------
Total liabilities and stockholders' equity $ 4,819,758 $ 4,490,711
=========== ============
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 8
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(dollars in thousands, except per share amounts)
Six Months
Ended June 30,
--------------
1994 1993
---- ----
<S> <C> <C>
Revenues:
Premiums and policy fund charges $ 26,266 $ 24,335
Net investment income 160,812 144,369
Realized gains (losses) on investments 5,084 10,852
Other 2,746 2,831
-------- --------
194,908 182,387
-------- --------
Benefits, losses and expenses:
Benefits, claims, losses and
settlement expenses 119,114 110,920
Amortization of deferred policy
acquisition costs 22,268 18,546
Underwriting, acquisition, insurance
and other expenses 17,318 17,204
Interest 4,152 2,295
-------- --------
162,852 148,965
-------- --------
Income before income
Taxes and minority interest 32,056 33,422
Federal income tax expense 10,280 11,415
Minority interest-dividends on preferred
stock of wholly-owned subsidiary 4,504 4,271
-------- --------
Net income 17,272 17,736
Less dividend requirements of Series
Preferred Stock $1 Par, less
applicable income tax benefits 796 823
-------- --------
Net income applicable
to common stock $ 16,476 $ 16,913
======== ========
Net income per common share:
Primary $ 1.17 $ 1.17
Fully diluted .84 .89
Average shares outstanding used in
computations (in thousands):
Primary 14,105 14,496
Fully diluted 22,302 19,835
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 9
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(dollars in thousands)
Six Months
Ended June 30,
--------------
1994 1993
---- ----
<S> <C> <C>
Operating activities
Net income $ 17,272 $ 17,736
Adjustments to reconcile net income to net cash
from operating activities 38,600 10,640
----------- ----------
Net cash from operating activities 55,872 28,376
----------- ----------
Investing activities
Purchases of fixed maturity investments (1,122,887) (1,933,346)
Mortgage loans originated (22,802) (1,077)
Purchases of equity securities (20,571) (1,199)
Purchase of securities placed in escrow account (9,895)
Net purchases of short-term and other investments (100,367) (113,365)
Principal repayments on mortgage-backed securities
and proceeds from the redemption and maturity of
fixed maturity investments 351,782 298,643
Proceeds from sales of fixed maturity investments 511,772 1,170,638
Principal repayments on and sales of mortgage loans 17,939 21,843
Proceeds from the redemption and sales of equity securities 7,291 29,585
Proceeds from sales of real estate acquired in
satisfaction of debt 56 3,406
Net sales (purchases) of property and equipment 22 (777)
----------- ----------
Net cash used in investing activities (377,765) (535,544)
----------- ----------
Financing activities
Issuance of long-term debt 20,600 98,694
Payments on long-term debt (16,384) (25,975)
Treasury stock acquired (559) (2,310)
Stock options exercised 193
Receipts from interest-sensitive insurance and
annuity contracts 549,238 565,614
Benefit payments on interest-sensitive insurance
and annuity contracts (236,120) (135,358)
Repayments on interest rate swap transaction (1,164) (1,052)
Dividends paid to stockholders (1,646) (740)
----------- ----------
Net cash from financing activities 314,158 498,873
----------- ----------
Net decrease in cash and cash equivalents (7,735) (8,295)
Cash and cash equivalents at beginning of period 9,993 19,404
----------- ----------
Cash and cash equivalents at end of period $ 2,258 $ 11,109
=========== ==========
Schedule of noncash investing and financing activities:
Reduction in ESOP loan guarantee $ 750 $ 900
Exchange of subordinated debentures for redeemable
preferred stock of wholly-owned subsidiary 30,000
Exchange of treasury stock for exercised stock options 180
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 10
THE STATESMAN GROUP, INC. and Subsidiaries
Notes to Consolidated Financial Statements
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements have
been prepared in accordance with generally accepted accounting principles for
interim financial information and the instructions to Form 10-Q and Article 10
of Regulation S-X. Accordingly, they do not include all of the information and
footnotes necessary for a fair presentation of financial position, results of
operations and cash flows in conformity with generally accepted accounting
principles. In the opinion of management, all adjustments (consisting of
normal recurring accruals) considered necessary for a fair presentation have
been included. For further information, refer to the consolidated financial
statements and notes thereto for the year ended December 31, 1993.
On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP
II"), a Delaware limited partnership, completed the acquisition (the
"Acquisition") of the Company (see Note E). The Acquisition will be accounted
for as a purchase business combination pursuant to which the reported values
of the acquired assets and liabilities of the Company are adjusted to their
estimated fair values at the Acquisition date. As such, future results of
operations and financial condition of the Company may vary significantly from
historical reported results of operations and financial condition.
NOTE B--STOCKHOLDERS' EQUITY AND REDEEMABLE PREFERRED STOCK
On January 13, 1994, the Company's Board of Directors authorized
the repurchase by the Company of up to 1,000,000 shares of the Company's common
stock in the open market at then-current market prices during calendar year
1994. Shares thus acquired will be used for general corporate purposes.
Through June 30, 1994, the Company had acquired 47,312 shares at an aggregate
cost of $559,000 through the repurchase program. As a result of entering into
the merger agreement described in Note E, the Company is prohibited from
acquiring any shares of its capital stock while the merger is pending.
The Board of Directors is authorized to issue 5,000,000 shares
of Series Preferred Stock $1 Par from time to time in one or more series and
to fix the number of shares, designations, voting powers (if any), preferences
and rights, and qualifications, limitations or restrictions of each series.
Each series of Series Preferred Stock $1 Par shall be distinctly designated
and, except as otherwise stated, shall rank equally and be identical in all
respects. There were no changes in the number of shares of issued and
outstanding Series Preferred Stock $1 Par during the period ended June 30,
1994.
The Company's redeemable preferred stock consists of 100,000
shares of 1987 Series II Preferred Stock $1 Par, of which there were 77,130
shares outstanding at June 30, 1994 and December 31, 1993. The preferred
shares provide that the holder may require the Company to redeem the shares if
there is a change in control, as defined, of the Company. The outstanding
redeemable preferred shares are presented at their $100 per share liquidation
preference, less the outstanding ESOP loan guarantee balance of $4,000,000 and
$4,750,000 at June 30, 1994 and December 31, 1993, respectively.
At June 30, 1994 there were 9,183,724 shares of common stock
reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
Subordinated Debentures and for exercise of stock options (includes 1,058,335
shares reserved for conversion of 1987 Series II Preferred Stock $1 Par
reported as redeemable preferred stock).
The Company declared a cash dividend on common stock of $.10 per
share in January 1994, which was paid in February 1994. All cumulative
dividends on the Company's Series Preferred Stock have been declared and paid
by the Company except that cumulative dividends aggregating $4,657,000 have
been declared on the 143,640 issued and outstanding shares of the Company's
1988 Series I and II Preferred Stock (the "1988 Series Preferred Stock") but
have not been paid and cumulative dividends on the 1988 Series Preferred Stock
aggregating $575,000 have not been declared. The Company has set off the
amount of the declared dividends on the 1988 Series Preferred Stock against
damages believed by the Company to be owing to it by the United States of
America arising from pending litigation related to the takeover of the
Company's former savings bank subsidiary by government regulators in July 1990
(see Note C).
<PAGE> 11 THE STATESMAN GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--CONTINGENCIES
The Company's subsidiaries are involved in various pending or
threatened legal proceedings arising from the conduct of their businesses.
These proceedings in some instances include claims for punitive damages and
similar types of relief in unspecified or substantial amounts, in addition to
amounts for alleged contractual liability or claims for equitable relief. In
management's opinion, after consultation with counsel and review of available
facts, these proceedings will be ultimately resolved without materially
affecting the Company's financial condition.
The Company's insurance subsidiaries reinsure with other
reinsurers that portion of risks exceeding each company's retention limit.
These reinsured risks are treated as though, to the extent of the reinsurance,
they are risks for which the subsidiaries are not liable. The Company remains
contingently liable in the event that the reinsuring companies do not meet
their obligations under these reinsurance contracts.
Prior to 1984, a portion of the life insurance subsidiaries'
income was not subject to current income taxation, but was accumulated, for
income tax purposes, in "policyholders' surplus accounts." At December 31,
1993, the balances in the policyholders' surplus accounts aggregated
$12,672,000. These amounts are not taxable unless distributed to stockholders
or unless they exceed certain limitations under the Internal Revenue Code.
Management does not intend to take actions nor does it expect any events to
occur that would cause income tax to be payable on these amounts; therefore,
deferred income taxes of $4,435,000 have not been provided on these amounts.
The Company has entered into employment continuation agreements
with certain executives of the Company and its subsidiaries that provide for
payments to these executives of amounts up to four times their annual
compensation if there is a change in control of the Company (as defined), and
a termination of their employment. The agreements do not constitute employment
contracts and only apply in circumstances following a change in control. The
maximum contingent liability at June 30, 1994 under these agreements is
$6,407,000.
From time to time, mandatory assessments are levied on the
Company's insurance subsidiaries by life and health guaranty associations of
most states in which these subsidiaries are licensed to cover losses to
policyholders of insolvent or rehabilitated insurance companies. These
associations levy assessments (up to prescribed limits) on all member insurers
in a particular state in order to pay claims on the basis of the proportionate
share of premiums written by member insurers in the lines of business in which
the insolvent or rehabilitated insurer engaged. These assessments may be
deferred or forgiven in certain states if they would threaten an insurer's
financial strength and, in some states, these assessments can be partially
recovered through a reduction in future premium taxes. Prior to 1991, these
assessments were not material to the Company's financial statements. However,
during 1989 through 1992, the economy and other factors caused a number of
failures of several large life insurance companies which could result in
future assessments in material amounts. Assessments levied against the
Company's insurance subsidiaries and charged to expense for the six months
ended June 30, 1994 and 1993 and for the three months ended June 30, 1994 and
1993 were $934,000, $228,000, $614,000 and $65,000, respectively. The
accompanying consolidated financial statements include provisions for all known
assessments that will be levied against the Company as indicated to date by the
various state guaranty associations. At the present time, the Company is not
able to reasonably estimate what amounts will ultimately be assessed to its
subsidiaries in the future for failures that have occurred to date and, as
such, the accompanying consolidated financial statements do not include any
provision for such potential assessments.
In August 1990, the Company filed suit in the United States
Claims Court (the "Claims Court") against the United States of America. The
pending lawsuit concerns contractual agreements which were made by the Federal
Savings and Loan Insurance Corporation and the Federal Home Loan Bank Board,
former government regulatory agencies that were abolished by the Financial
Institutions Reform, Recovery and Enforcement Act of 1989, to induce the
Company to capitalize Statesman Bank for Savings, FSB (the "savings bank"),
formerly a wholly-owned subsidiary of the Company, for the purpose of acquiring
four failed thrift institutions. In the lawsuit, the Company claims that the
defendant has breached its contractual agreements with respect to regulatory
capital. Accordingly, the pending lawsuit contends that this breach of
contract, which resulted in the disallowance of $21 million of capital which
the defendant promised would be perpetual for regulatory accounting purposes,
constitutes a taking of the Company's property without just compensation and
due process of law, in violation of the Fifth Amendment of the United States
Constitution.
<PAGE>
<PAGE> 12
THE STATESMAN GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE C--CONTINGENCIES--Continued
The pending lawsuit seeks rescission of the transaction between
the Company and the government agencies and recovery of the Company's
investment plus compensation for monies expended, costs incurred and the value
of benefits conferred on the defendant through the Company's purchase,
operation and management of the savings bank. Total restitution sought exceeds
$30 million.
In July 1992, the Claims Court granted the Company's motion for
summary judgment as to the defendant's liability in the above-described
lawsuit. The Claims Court also consolidated this case with two others and
certified these cases for interlocutory appeal to the United States Court of
Appeals for the Federal Circuit (the "Court of Appeals"). Subsequently, the
Court of Appeals reversed the order of the Claims Court by a margin of two to
one and the Company filed a Petition for Rehearing with Suggestion for
Rehearing in Banc (the "Rehearing Petition") with the Court of Appeals. On
August 18, 1993, the Court of Appeals accepted the Rehearing Petition, vacated
its judgment entered on May 25, 1993 in favor of the defendant and withdrew its
opinion accompanying the judgment. The rehearing was held on February 10, 1994
and a decision is pending.
In 1985 the Company sold Statesman Insurance Company, a former
property-casualty insurance subsidiary. As part of this sale and as part of
a certain reinsurance agreement between Statesman Insurance Company and an
unconsolidated affiliated property-casualty insurance company, the Company
guaranteed and indemnified Statesman Insurance Company that it would suffer no
loss on the insurance liability reinsured by it in excess of the loss and loss
adjustment expense reserves transferred to the affiliate pursuant to the terms
of the reinsurance agreement. The Company does not believe that the ultimate
settlement of the remaining outstanding claims covered by this guarantee will
materially exceed existing liabilities provided for such contingency.
NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD
In May 1993, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 115, "Accounting for Certain
Investments in Debt and Equity Securities," that became effective for fiscal
years beginning after December 15, 1993. The primary impact of Statement 115
is to require companies to classify their securities into categories based upon
the company's intent relative to the eventual disposition of the securities.
Under the new rules, the Company's investments in debt securities (including
mortgage-backed securities) and equity securities that have readily
determinable fair values are to be classified in three categories and accounted
for as follows:
Held-to-Maturity Securities: Debt securities which the Company
has the positive intent and ability to hold until maturity shall be reported
at amortized cost.
Trading Securities: Debt and marketable equity securities
purchased with the intent to sell in the near term shall be reported at fair
value and unrealized gains and losses shall be included in results of
operations.
Available-for-Sale Securities: Debt and marketable equity
securities not classified as either held-to-maturity or trading shall be
reported at fair value with unrealized gains and losses reported as adjustments
to stockholders' equity.
Beginning in the fourth quarter of 1992 and prior to the adoption
of this standard, the Company segregated its fixed maturity investments into
those that would be held until maturity and those that would be available for
sale. Available-for-sale fixed maturity investments were reported at the lower
of cost or estimated fair value, in the aggregate. At December 31, 1993 there
was no unrealized net loss on these investments.<PAGE>
<PAGE> 13
THE STATESMAN GROUP, INC. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE D--ADOPTION OF NEW ACCOUNTING STANDARD--Continued
As of January 1, 1994, the Company adopted the provisions of
Statement 115 for investments held as of or acquired after that date. In
accordance with Statement 115, prior-period financial statements have not been
restated to reflect the change in accounting principle. The cumulative effect
as of January 1, 1994 of adopting Statement 115 increased stockholders' equity
by $38,171,000 (net of adjustments to deferred policy acquisition costs of
$41,831,000 and deferred income taxes of $20,554,000) to reflect the net
unrealized holding gains on securities previously carried at amortized cost;
there was no effect on net income as a result of the adoption of Statement 115.
In the six-month period ended June 30, 1994, those net unrealized holding gains
decreased by $136,109,000 (net of adjustments to deferred policy acquisition
costs of $59,616,000 and deferred income taxes of $73,290,000). As of June 30,
1994, the Company's available-for-sale fixed maturity securities had net
unrealized losses of $97,938,000 (net of adjustments to deferred policy
acquisition costs of $17,785,000 and deferred income taxes of $52,736,000).
NOTE E--MERGER AGREEMENT
On September 29, 1994, CCP II completed the Acquisition of the
Company. Pursuant to an Agreement and Plan of Merger, the Company's former
stockholders received $15.25 in cash per common equivalent share, plus the
right to receive up to another $2.00 in cash per common equivalent share based
on the outcome of the Company's pending litigation against the U. S. Government
concerning the Company's former savings bank subsidiary. CCP II is a Delaware
limited partnership which was formed by Conseco, Inc. ("Conseco") to invest in
acquisitions of annuity, life, and accident and health insurance companies and
related businesses. In connection with the Acquisition, the line of credit of
a subsidiary of the Company with a balance at the acquisition date of
approximately $54,800,000 was repaid.
The Acquisition will be accounted for as a purchase business
combination pursuant to which the reported values of the acquired assets and
liabilities of the Company are adjusted to their estimated fair values at the
Acquisition date. The Company incurred indebtedness aggregating $350 million
to partially finance the Acquisition. As such, future results of operations
and the financial condition of the Company may vary significantly from
historical reported results of operations and financial condition.
The Company and certain of the persons then serving on the Board
of Directors have been named in a purported class action suit commenced on May
3, 1994 relating to the Acquisition. The complainant seeks injunctive relief
and compensatory damages. The Company believes that such suit is without
merit and intends to contest it vigorously.
<PAGE>
<PAGE> 14
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
The Statesman Group, Inc.
We have audited the accompanying consolidated balance
sheets of The Statesman Group, Inc. and subsidiaries as of December 31, 1993
and 1992, and the related consolidated statements of income, stockholders'
equity, and cash flows for each of the three years in the period ended December
31, 1993. 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 in accordance with generally
accepted auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the consolidated
financial position of The Statesman Group, Inc. and subsidiaries at December
31, 1993 and 1992, and the consolidated results of their operations and their
cash flows for each of the three years in the period ended December 31, 1993,
in conformity with generally accepted accounting principles.
As discussed in Note C to the consolidated financial
statements, during 1993 the Company changed its method of accounting for income
taxes.
ERNST & YOUNG LLP
Des Moines, Iowa
January 27, 1994
<PAGE>
<PAGE> 15
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
ASSETS
December 31,
-----------------------------------
1993 1992
---- ----
<S> <C> <C>
Investments:
Fixed maturities:
Held for investment (market: 1993--$777,975; 1992--$2,393,615) $ 747,741 $2,329,571
Available for sale (market: 1993--$3,221,593; 1992--$586,389) 3,136,315 580,977
---------- ----------
3,884,056 2,910,548
Equity securities (cost: 1993--$20,942; 1992--$39,647) 20,411 38,160
Mortgage loans on real estate, less allowances for loan losses of
$1,000 in 1993 and 1992 66,541 87,086
Policy loans 56,265 53,403
Short-term investments 13,919 7,712
Other 14,991 4,546
---------- ----------
Total investments 4,056,183 3,101,455
Cash 9,993 19,404
Accrued investment income 49,653 42,779
Accounts and notes receivable, less allowances for doubtful accounts
of $2,636 in 1993 and $3,330 in 1992 10,310 5,744
Deferred policy acquisition costs 293,938 235,071
Property and equipment, less allowances for depreciation of
$10,592 in 1993 and $9,596 in 1992 10,518 10,334
Securities segregated for the future redemption of preferred
stock of wholly-owned subsidiary 35,560 23,183
Other assets 11,747 11,075
Assets held in separate accounts 12,809 17,002
---------- ----------
Total assets $4,490,711 $3,466,047
========== ==========
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 16
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS--(Continued)
(dollars in thousands, except per share amounts)
LIABILITIES AND STOCKHOLDERS' EQUITY
December 31,
-----------------------------------
1993 1992
---- ----
<S> <C> <C>
Liabilities:
Policy liabilities and accruals:
Annuity reserves $3,690,557 $2,798,602
Life insurance reserves 301,284 286,904
Other 17,226 14,342
---------- ----------
4,009,067 3,099,848
Other policyholders' funds 60,395 53,964
Accrued expenses and other liabilities 44,512 42,398
Long-term debt 120,375 71,633
Liabilities related to separate accounts 12,809 17,002
---------- ----------
4,247,158 3,284,845
Commitments and contingencies
Preferred stock of wholly-owned subsidiary 95,298 65,172
Redeemable preferred stock
1987 Series II Preferred Stock $1 Par, at liquidation value,
less ESOP loan guarantee balance; issued--100,000 shares;
outstanding--1993--77,130 shares; 1992--81,901 shares 2,963 2,290
Stockholders' equity:
Series Preferred Stock $1 Par, 5,000,000 shares authorized
including redeemable preferred shares; issued and
outstanding--1993--338,640 shares (aggregate liquidation
preference $15,339); 1992--343,640 shares 339 344
Common stock, $1 par value, 35,000,000 shares authorized;
issued--1993--14,939,899 shares; 1992--14,252,127 shares 14,940 14,252
Additional paid-in capital 58,796 50,594
Unrealized depreciation of equity securities (345) (1,487)
Retained earnings 79,447 52,968
Common stock in treasury, at cost--1993--1,510,243 shares;
1992--1,142,888 shares (7,885) (2,931)
---------- ----------
Total stockholders' equity 145,292 113,740
---------- ----------
Total liabilities and stockholders' equity $4,490,711 $3,466,047
========== ==========
<FN>
See accompanying notes. </TABLE>
<PAGE>
<PAGE> 17
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share amounts)
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
Revenues:
Premiums and policy fund charges $ 49,959 $ 51,723 $ 53,321
Net investment income 298,902 272,231 244,409
Realized gains on investments 24,803 12,369 10,655
Other 5,557 3,712 3,468
------- ------- -------
379,221 340,035 311,853
------- ------- -------
Benefits, losses and expenses:
Benefits, claims, losses and settlement expenses 227,642 225,184 222,002
Amortization of deferred policy acquisition costs 41,559 30,727 16,881
Underwriting, acquisition, insurance and other expenses 35,461 35,500 31,477
Interest 6,097 5,570 5,846
------- ------- -------
310,759 296,981 276,206
------- ------- -------
Income from continuing operations before
income taxes and minority interest 68,462 43,054 35,647
Federal income tax expense 22,440 14,867 12,240
Minority interest--dividends on preferred stock of
wholly-owned subsidiary 8,775 2,170
------- ------- -------
Income from continuing operations 37,247 26,017 23,407
Discontinued operations:
Net loss from operations and in 1991, net
loss on disposal of subsidiaries of $541 (71) (756)
------- ------- -------
Income before extraordinary credit 37,247 25,946 22,651
Extraordinary credit--reduction of federal income tax expense
arising
from carryforward of prior years' realized losses on
investments
and non-life operating losses 4,875 5,750
------- ------- -------
Net income 37,247 30,821 28,401
Less dividend requirements of Series Preferred Stock
$1 Par, less applicable income tax benefits 1,593 1,650 1,776
------- ------- -------
Net income applicable to common stock $ 35,654 $ 29,171 $ 26,625
======= ======= =======
Primary earnings per common share:
Income from continuing operations $ 2.49 $ 1.71 $ 1.57
Loss from discontinued operations (.06)
Extraordinary credit .34 .42
------- ------- -------
Net income $ 2.49 $ 2.05 $ 1.93
======= ======= =======
Weighted average shares outstanding (in thousands) 14,322 14,258 13,777
======= ======= =======
Fully diluted earnings per common share:
Income from continuing operations $ 1.85 $ 1.42 $ 1.29
Loss from discontinued operations (.04)
Extraordinary credit .27 .33
------- ------- -------
Net income $ 1.85 $ 1.69 $ 1.58
======= ======= =======
Weighted average shares outstanding (in thousands) 21,111 18,050 17,681
======= ======= =======
<FN>
See accompanying notes.
</TABLE>
<PAGE> 18
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(dollars in thousands, except per share amounts)
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
Series Preferred Stock $1 Par:
Balance, beginning of year $ 344 $ 344 $ 344
Conversion into common stock (5)
------- ------- -------
Balance, end of year $ 339 $ 344 $ 344
======= ======= =======
Common stock:
Balance, beginning of year $14,252 $14,252 $14,231
5% stock dividend 688
Exercise of stock options 21
------- ------- -------
Balance, end of year $14,940 $14,252 $14,252
======= ======= =======
Additional paid-in capital:
Balance, beginning of year $50,594 $50,371 $50,246
5% stock dividend 8,683
Issuance of treasury stock to employee benefit plans 88 (205)
Exchange of common stock for 1987 Series II
Preferred Stock 270 135 309
Conversion of 1976 Series Preferred Stock (39)
Tax benefit related to issuance of shares
under stock option plan 180
Exercise of stock options (892) 21
------- ------- -------
Balance, end of year $58,796 $50,594 $50,371
======= ======= =======
Unrealized depreciation of equity securities:
Balance, beginning of year $(1,487) $ (678) $ (923)
(Increase) decrease during year 1,142 (809) 245
------- ------- -------
Balance, end of year $ (345) $(1,487) $ (678)
======= ======= =======
Retained earnings (deficit):
Balance, beginning of year $52,968 $26,839 $ (744)
Net income 37,247 30,821 28,401
Cash dividends:
1976 Series Preferred Stock (85) (85) (85)
1987 Series II Preferred Stock (555) (621) (904)
1988 Series I and II Preferred Stock (287) (3,508)
Common stock (1993 and 1992--$.05 per share) (655) (653)
5% stock dividend (9,371)
Tax benefit on 1987 Series II Preferred Stock
dividends 185 175 300
Redemption of preferred stock purchase rights (129)
------- ------- -------
Balance, end of year $79,447 $52,968 $26,839
======= ======= =======
Common stock in treasury:
Balance, beginning of year $(2,931) $(3,092) $(4,220)
Cost of shares acquired (6,189)
Issued to employee benefit plans 65 703
Net issuance under stock option plans 984
Exchange of common stock for 1987 Series II
Preferred Stock 207 96 425
Conversion of 1976 Series Preferred Stock 44
------- ------- -------
Balance, end of year $(7,885) $(2,931) $(3,092)
======= ======= =======
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 19
THE STATESMAN GROUP, INC. and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
OPERATING ACTIVITIES
Continuing operations:
Income from continuing operations $ 37,247 $ 26,017 $ 23,407
Adjustments to reconcile income from continuing
operations to net cash provided by
continuing operations:
Changes in:
Policy liabilities and accruals 157,756 144,952 141,328
Other policyholders' funds, accrued expenses
and other liabilities 10,967 12,377 22,181
Accrued investment income (6,874) (5,648) (4,634)
Accounts and notes receivable (7,982) 1,798 66
Deferred policy acquisition costs (58,867) (12,411) (17,159)
Amortization of discounts and premiums on
investments, net (53,568) (43,761) (13,262)
Provision for depreciation and amortization 1,432 1,412 1,475
Realized gains on investments (24,803) (12,369) (10,655)
Other (3,159) (3,846) (2,153)
-------- -------- --------
Net cash provided by continuing operations 52,149 108,521 140,594
-------- -------- --------
Net cash provided by (used in) discontinued operations:
Net loss (71) (756)
Items not affecting cash (463)
-------- -------- --------
(71) (1,219)
-------- -------- --------
Net cash provided by operating activities 52,149 108,450 139,375
-------- -------- --------
INVESTING ACTIVITIES
Purchases of fixed maturity investments (3,817,415) (1,705,842) (1,994,318)
Mortgage loans originated (7,318) (16,765) (64,861)
Purchases of equity securities (23,898) (9,698) (2,753)
Purchases of short-term and other investments (17,325) (2,262) (5,054)
Purchases of securities placed in escrow account (9,895) (22,588)
Principal repayments on mortgage-backed securities
and proceeds from the redemption and maturity
of fixed maturity investments 755,245 430,348 112,621
Proceeds from sales of fixed maturity investments 2,166,253 816,701 1,572,416
Principal repayments on and sales of mortgage loans 26,671 81,290 19,409
Proceeds from sales and maturities of short-term and
other investments 484 246 44,921
Proceeds from sales of equity securities 41,092 1,550 413
Proceeds from sales of real estate acquired in
satisfaction of debt 5,514 2,768 3,234
Proceeds from the sale of subsidiary 1,011
Net purchases of property and equipment (1,205) (514) (1,240)
-------- -------- --------
Net cash used in investing activities (881,797) (424,766) (314,201)
-------- -------- --------
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 20
THE STATESMAN GROUP, INC. and Subsidiaries
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS--(Continued)
(dollars in thousands)
Year Ended December 31,
-------------------------------
1993 1992 1991
---- ---- -----
<S> <C> <C> <C>
FINANCING ACTIVITIES
Issuance of long-term debt $ 115,656 $ 16,677 $ 21,100
Payments on long-term debt (37,332) (9,133) (6,344)
Issuance of preferred stock by wholly-owned subsidiary 65,088
Issuance of common stock 91 42
Treasury stock acquired (6,189)
Receipts from interest-sensitive insurance
and annuity contracts 1,035,003 478,237 354,018
Benefit payments on interest-sensitive insurance
and annuity contracts (283,539) (217,787) (190,906)
Repayments on interest rate swap transaction (2,158) (1,950) (1,762)
Dividends paid to stockholders and redemption of stock
purchase rights (1,295) (1,359) (1,118)
-------- -------- --------
Net cash provided by financing activities 820,237 329,773 175,030
-------- -------- --------
Net increase (decrease) in cash (9,411) 13,457 204
Cash and cash equivalents, beginning of year 19,404 5,947 5,743
-------- -------- --------
Cash and cash equivalents, end of year $ 9,993 $ 19,404 $ 5,947
======== ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest $ 4,801 $ 5,872 $ 5,717
Income taxes 19,963 12,575 5,150
Noncash Investing and Financing Activities:
Reduction in ESOP loan guarantee balance 1,150 1,100 1,000
Exchange of subordinated debentures for redeemable
preferred stock of wholly-owned subsidiary 30,000
Exchange of common stock for 1987 Series II
Preferred Stock 477 231 734
Exchange of treasury stock for exercised stock options 809
Conversion of 1976 Series Preferred Stock
into common stock 44
Common stock issued to employee benefit plans 153 498
Foreclosure on mortgage of subsidiary's home
office building 2,616
Equity security received upon sale of subsidiary 127
<FN>
See accompanying notes.
</TABLE>
<PAGE>
<PAGE> 21
NOTE A--SIGNIFICANT ACCOUNTING POLICIES
The accompanying consolidated financial statements have been prepared in
conformity with generally accepted accounting principles ("GAAP"), which, as
to the subsidiary insurance companies, differ in some respects from statutory
accounting practices followed in the preparation of financial statements
submitted to state insurance departments.
Principles of Consolidation: The consolidated financial statements include
the accounts of the Company and its subsidiaries after elimination of all
significant intercompany accounts and transactions.
Investments: Fixed maturity investments (bonds, notes and redeemable
preferred stocks) are reported at amortized cost less adjustments for other
than temporary declines in value and the allowance for credit losses unless
they have been identified for possible sale prior to maturity, in which case
they are carried at the lower of cost or estimated fair value, in the aggregate
(see Note B for discussion of the impact of the adoption of Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities," on January 1, 1994). The Company has the ability
and the intent to hold those fixed maturities reported as held for investment
until maturity. Actual principal prepayments and estimates of future principal
prepayments are used in the determination of amortized cost for certain
mortgage-backed securities. Factors used in determining estimates of future
prepayments include historical prepayment data and expected prepayment
performance under varying interest rate scenarios.
Equity securities (common and non-redeemable preferred stocks) are carried
at current market value. Mortgage loans and policy loans are reported at
unpaid principal less allowance for loan losses. Short-term investments are
carried at amortized cost, which approximates fair value.
Realized gains and losses on sales of investments are determined on the
specific identification basis and are recognized in net income upon sale.
Unrealized gains and losses on equity securities and unrealized net losses on
fixed maturities available for sale net of applicable deferred income taxes,
are included directly in stockholders' equity and, accordingly, have no effect
on net income.
Recognition of Revenues: Premiums for traditional life insurance products,
which include those products with fixed and guaranteed premiums and benefits,
are recognized as revenues when due. Accident and health insurance premiums
are earned pro rata over the periods to which the premiums relate.
Revenues for investment contracts (principally deferred annuities) and
universal life and single premium whole life insurance policies consist of
policy fund charges for cost of insurance, policy administration, and surrender
charges assessed against policyholder account balances and amortization of
policy initiation fees. Universal life insurance, single premium whole life
insurance and immediate annuity policies generate unearned policy fund charges
that represent fees assessed against policyholder fund balances in the policy
issue year. These unearned charges are included in other liabilities and are
amortized into income over the period benefitted using the same assumptions and
factors used to amortize deferred policy acquisition costs.
Deferred Policy Acquisition Costs: Commissions and other costs of issuing
and acquiring new business that vary with and are primarily related to the
production of new and renewal business, to the extent recoverable, have been
deferred.
Traditional life insurance deferred policy acquisition costs are being
amortized (with interest) over the expected premium-paying period of the
related policies using assumptions consistent with those used in computing
policy benefit reserves, including provisions for possible unfavorable
deviations.
<PAGE>
<PAGE> 22
For deferred annuity contracts and universal life and single premium whole
life insurance policies, deferred policy acquisition costs are being amortized
generally in proportion to the present value (using the assumed crediting rate)
of expected gross profits from surrender charges and investment, mortality and
expense margins over the expected life of the policies, but not more than
fifteen years. This amortization is adjusted retrospectively when estimates
of current or future gross profits to be realized are revised. In 1993 and
1992, realized investment gains resulted in accelerated amortization expense
of $9,760,000 and $5,250,000, respectively.
Policy Liabilities and Accruals -- Future Policy Benefits and Unearned
Premiums: Benefit reserves for deferred annuity contracts and universal life
and single premium whole life insurance policies are computed under a
retrospective deposit method and represent policyholder account balances before
applicable surrender charges. Policyholder account balances consist of
policyholder deposits accumulated at credited interest rates generally ranging
from 5.00% to 8.10% in 1993, 6.00% to 8.10% in 1992 and 7.00% to 8.95% in 1991,
less withdrawals and charges for mortality, administrative and policy
initiation expenses. Policy benefits and claims that are charged to expense
include benefit claims incurred in the period in excess of related policyholder
account balances.
The liabilities for traditional life insurance policy benefits have been
determined using the net level reserve method
including assumptions as to investment yields, mortality, withdrawals and other
assumptions based on the life insurance
subsidiaries' prior experience modified as necessary to reflect anticipated
trends and to include provisions for possible
unfavorable deviations. Reserve interest assumptions generally range from
2.75% to 8.75%. Policy benefit claims are
charged to expense in the period that claims are incurred. Participating
business is immaterial and dividends related to such
business are included as part of the policy reserves.
Accident and health insurance reserves are comprised of unearned premium
reserves computed on the pro rata basis, and return of premium reserves and the
present value of amounts not yet due on long-term disability policies computed
on the same basis as life insurance.
Reinsurance: Effective January 1, 1993, the Company adopted Statement of
Financial Accounting Standard No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts." Under Statement
113, insurance liabilities are reported before the effects of reinsurance.
Reinsurance receivables, including amounts related to insurance liabilities,
are reported as assets. Amounts recoverable from reinsurers are estimated in
a manner consistent with the liabilities relating to the underlying reinsured
contracts.
Prior to the adoption of Statement 113, insurance liabilities were reported
net of amounts ceded to and recoverable from reinsurers. As permitted by
Statement 113, the Company has elected not to reclassify prior year balance
sheet amounts to conform to the 1993 presentation and accordingly, policy
liabilities and accruals at December 31, 1992 were reduced by $6,089,000 for
estimated recoveries under reinsurance contracts.
Separate Account Assets and Liabilities: Separate account assets and
liabilities represent funds held for the exclusive benefit of certain annuity
contract holders. Fees are received for administrative expenses and for
assuming certain mortality, investment and expense risks. Operations of the
separate account are not included in the accompanying consolidated financial
statements.
Real Estate Acquired in Satisfaction of Debt: Real estate acquired in
satisfaction of debt is reported at the lower of the recorded investment in the
loan satisfied or estimated fair value of the assets received, adjusted for
estimated disposal costs. Specific write-downs for the estimated losses are
provided when the carrying value of real estate acquired exceeds the
estimated disposal value based on current appraisal.
<PAGE>
<PAGE> 23
Property and Equipment: Property and equipment, which includes a building
and equipment recorded under a capitalized lease obligation, are reported at
cost, less accumulated depreciation and amortization. Provisions for
depreciation and amortization are computed by straight-line and
declining-balance methods over the estimated useful lives of the assets.
Excess of Cost Over Net Assets of Acquired Subsidiaries ("Goodwill"):
Goodwill arising from acquisitions after 1970 is amortized over 40 years on a
straight-line basis, while amounts arising from acquisitions prior to 1971 are
not amortized because, in the opinion of management, there is a continuing
benefit.
Income Taxes: As discussed in Note C, effective January 1, 1993, the
Company adopted Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes." Under Statement 109, deferred income tax assets
or liabilities are computed based on the difference between the financial
statement and income tax bases of assets and liabilities and are measured using
the enacted marginal tax rates and laws that will be in effect when the
differences are expected to reverse. Deferred income tax expenses or credits
are based on the changes in the asset or liability from period to period.
Prior to the adoption of Statement 109, deferred income tax expenses or credits
were recorded to reflect the income tax consequences of timing differences
between the recording of income and expenses for financial reporting purposes
and for purposes of filing federal income tax returns at income tax rates in
effect when the difference arose.
Interest Rate Swaps and Collar: Net interest received or paid on interest
rate swap and collar contracts that qualify as hedges is recognized as an
interest adjustment as earned or incurred over the term of the contract. Gains
or losses on termination of such contracts are deferred and amortized as an
interest adjustment over the remaining original term of the contract. Interest
rate swaps that do not qualify as hedges are reported at the lower of cost
(accrued value of periodic net settlement amounts) or market, with changes in
the value of such swaps recognized in net investment income.
Employee Benefits: Effective January 1, 1993, the Company adopted Statement
of Financial Accounting Standards No. 106, "Employers' Accounting for
Post-retirement Benefits Other Than Pensions," and Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." Statements 106 and 112 required companies to recognize expense
related to anticipated postretirement and postemployment benefits, other than
pensions, for current or former employees, their beneficiaries and covered
dependents and retirees. Adoption of these new statements did not have a
material impact on results of operations for the year ended December 31, 1993
and the cumulative effect of the change in accounting was not material. Prior
year financial statements were not restated to reflect adoption of these new
statements.
Earnings Per Share: Primary earnings per common share is based on the
weighted average number of common and common equivalent shares outstanding and
net income, after recognition of dividend requirements of the Series Preferred
Stock $1 Par and the tax benefits on the 1987 Series II Preferred Stock
dividends.
<PAGE>
<PAGE> 24
Fully diluted earnings per common share assumes that the Series Preferred
Stock $1 Par and the 6 1/4% Convertible Subordinated Debentures were converted
into common stock as of the date of issuance and that the related dividend and
interest requirements were eliminated. In addition, net income has been
reduced by the additional contribution to the employee stock ownership plan
("ESOP"), less applicable income tax benefits, that would be required to
service the ESOP debt, if the shares of 1987 Series II Preferred Stock were
converted into common stock.
The number of shares and per share amounts reported for earnings per share
have been restated to give retroactive effect to the 5% stock dividend paid in
December 1993.
Cash Flow Information: For purposes of the consolidated statements of cash
flows, the Company considers all demand deposits and all interest-bearing
accounts not related to the investment function to be cash equivalents.
Business Segments: The Company operates in the single business segment of
providing individual life insurance and annuity coverage within the United
States.
Fair Values of Financial Instruments: The following methods and assumptions
were used by the Company in determining estimated fair values of financial
instruments:
Cash and cash equivalents, short-term investments: The carrying amount
reported in the consolidated balance sheets for these instruments approximates
their estimated fair value.
Investment securities: Estimated fair values for fixed maturity securities
and equity securities are based on quoted market prices, where available. For
investment securities not actively traded, estimated fair values are determined
using values obtained from independent pricing services or, in the case of
private placements, are determined by discounting expected future cash flows
using current market interest rates applicable to the yield, credit quality,
and for fixed maturity securities, maturity of the investments. The estimated
fair values for equity securities are recognized in the consolidated balance
sheets.
Mortgage loans and policy loans: The estimated fair values of mortgage
loans and policy loans are determined by discounting future expected cash flow,
using interest rates currently being offered for similar loans to borrowers
with similar credit ratings. Loans with similar characteristics are aggregated
for purposes of the calculations.
Off-balance sheet financial instruments: Estimated fair values of interest
rate swaps and the collar are based on bids from swap dealers which represent
the net value or cost of terminating the contracts at the balance sheet date.
Estimated fair values for the Company's lending commitments are based on fees
currently charged to enter into similar agreements, taking into account the
remaining terms of the agreements and the counterparties' credit standing.
Investment contracts: Estimated fair values of the Company's annuity
contracts are equal to the cash surrender value available to the policyholder
on the balance sheet date. Estimated fair values for the Company's liabilities
under other investment-type insurance contracts, such as supplementary
contracts without life contingencies, are determined by discounting expected
future cash flows using interest rates currently being offered for similar
contracts with maturities consistent with those remaining for the contracts
being valued.
<PAGE>
<PAGE> 25
The following table presents the reported value and estimated fair value of
deferred and immediate annuities and supplementary contracts without life
contingencies at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
Reported Fair
Value Value
----- -----
(dollars in thousands)
<S> <C> <C>
December 31, 1993
Deferred and immediate annuities $3,690,557 $3,446,954
Supplementary contracts without life contingencies 58,483 60,821
---------- ----------
$3,749,040 $3,507,775
========== ==========
December 31, 1992
Deferred and immediate annuities $2,798,602 $2,612,922
Supplementary contracts without life contingencies 51,358 53,056
---------- ----------
$2,849,960 $2,665,978
========== ==========
</TABLE>
Estimated fair values of the Company's insurance contracts other than
investment contracts are not required to be disclosed. However, the estimated
fair values of liabilities under all insurance contracts are taken into
consideration in the Company's overall management of interest rate risk.
Long-term debt: The estimated fair value of the Company's
publicly-traded convertible subordinated debentures is based on quoted market
prices. The estimated fair value of other fixed rate long-term debt is
determined by discounting expected future cash flows using assumed incremental
borrowing rates for similar duration borrowing arrangements. The estimated
fair value of variable rate long-term debt approximates its reported value.
Redeemable preferred stock: The estimated fair value of the
publicly-traded redeemable preferred stock issued by the Company's wholly-owned
subsidiary is based on quoted market prices. The estimated fair value of the
privately placed redeemable preferred stock issued by the Company's
wholly-owned subsidiary is determined by discounting expected future cash flows
using assumed incremental dividend rates for similar duration securities. The
estimated fair value of the parent company's redeemable preferred stock (1987
Series II) is determined using pricing models for convertible equity
securities.
Pending Accounting Standards: In May 1993, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan."
Statement 114 applies to all loans except large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment, loans
measured at fair value or at lower of cost or fair value, leases and debt
securities as defined in Statement 115. Statement 114 requires that impaired
loans be valued at the present value of expected future cash flows discounted
at the loan's effective interest rate or at the loan's observable market price
or the fair market value of the collateral if the loan is collateral dependent.
Statement 114 is effective for fiscal years beginning after December 15, 1994,
with earlier adoption encouraged.
Statement 114 applies primarily to the Company's mortgage loan
portfolio. The Company actively monitors this portfolio and evaluates the net
realizable value of any loan which is deemed to be impaired. Net realizable
value is generally assessed based upon current appraisal value of the
underlying collateral. If carrying value exceeds this estimated realizable
value, carrying value is reduced to the estimated realizable value by a charge
to earnings (realized loss on investments). As such, this statement does not
represent a material change from the Company's current accounting practices and
the Company does not expect adoption of this Statement to have any material
effect on its reported financial results.
<PAGE>
<PAGE> 26
In June 1993, the FASB issued an Exposure Draft entitled "Accounting for
Stock-based Compensation." If adopted as a SFAS in its present form, this
exposure draft would require that compensation expense be recognized for all
stock options in an amount equal to "fair value" on the date of grant. Fair
value is to be calculated using an option pricing model or similar valuation
technique. Recognition of compensation expense using this methodology is
expected to be required for options granted after December 31, 1996 with
pro-forma disclosure for the options granted after December 31, 1993. The
terms of the stock options granted by the Company in recent years have always
been fixed with option prices equal to market value on the date of grant. As
a result, the Company does not currently recognize compensation expense on
these options. The final form of the proposed SFAS has not been issued and,
accordingly, the effect of implementation of the proposed SFAS on the Company
has not been determined.
Reclassification: Certain items in the 1992 and 1991 consolidated
financial statements and notes thereto have been reclassified to conform to the
presentations made in the 1993 consolidated financial statements.
NOTE B--INVESTMENTS
In May 1993, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 115, "Accounting for Certain Investments
in Debt and Equity Securities," that becomes effective for fiscal years
beginning after December 15, 1993. The primary impact of Statement 115 is to
require companies to classify their securities into categories based upon the
company's intent relative to the eventual disposition of the securities. Under
the new rules, the Company's investments in debt securities (including
mortgage-backed securities) and equity securities that have readily
determinable fair values are to be classified in three categories and accounted
for as follows:
Held-to-Maturity Securities: Debt securities which the Company has the
positive intent and ability to hold until maturity shall be reported at
amortized cost.
Trading Securities: Debt and marketable equity securities purchased
with the intent to sell in the near term shall be reported at fair value and
unrealized gains and losses shall be included in results of operations.
Available-for-Sale: Debt and marketable equity securities not
classified as either held-to-maturity or trading shall be reported at fair
value with unrealized gains and losses reported as adjustments to stockholders'
equity.
During the fourth quarter of 1992, the Company segregated its fixed
maturity investments into those that would be held until maturity and those
that would be available for sale. Available for sale fixed maturity
investments are presently reported at the lower of cost or estimated fair
value, in the aggregate. Unrealized net losses on these investments were $0
at December 31, 1993 and 1992. Statement 115 precludes sales of securities
classified as held-to-maturity as well as transfers of such securities to one
of the other two classifications except in very limited circumstances. As a
result, a greater portion of the Company's fixed maturity investments are
classified as available for sale at December 31, 1993 than at December 31,
1992.
The adoption of Statement 115 will expose the Company's stockholders'
equity to greater volatility due to changes in market interest rates and the
attendant changes in the reported value of securities classified as
available-for-sale. The Company presently does not anticipate entering into
certain portfolio management practices, such as hedging transactions, to
minimize this volatility; however, the Company will continue to study this
matter. The Company intends to adopt Statement 115 on January 1, 1994. Upon
adoption, there may be some changes in the classifications of securities from
those reported herein but such changes are not expected to be significant.
<PAGE>
<PAGE> 27
Upon adoption of Statement 115 on January 1, 1994, stockholders' equity
will increase by the amount of net unrealized gain on securities designated as
available-for-sale ($85,278,000 at December 31, 1993) less adjustments for (a)
additional amortization of certain deferred policy acquisition costs that would
have been reported if such gains were realized estimated at 40% - 50% of the
net unrealized gain and (b) applicable federal income taxes of 35% of the
difference between the net unrealized gain and the deferred policy acquisition
cost adjustment. The net increase in stockholders' equity attributable to the
adoption of Statement 115 is estimated to be $30,000,000 - $35,000,000.
The reported value and estimated fair value of fixed maturity
investments are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Reported Unrealized Unrealized Fair
Value Gains Losses Value
----- ----- ------ -----
(dollars in thousands)
<S> <C> <C> <C> <C>
December 31, 1993
Held for investment:
U.S. Treasury securities $ 22,537 $ 3,046 $ 25,583
Corporate securities 453,490 25,628 $ 1,513 477,605
Mortgage-backed securities 271,714 5,482 2,409 274,787
---------- -------- ------- ----------
$ 747,741 $ 34,156 $ 3,922 $ 777,975
========== ======== ======= ==========
Available for sale:
U.S. Treasury securities $ 88,579 $ 8,846 $ 15 $ 97,410
Corporate securities 1,018,191 49,746 7,836 1,060,101
Mortgage-backed securities 2,019,545 49,596 16,185 2,052,956
Other debt securities 10,000 1,126 11,126
---------- -------- ------- ----------
$3,136,315 $109,314 $24,036 $3,221,593
========== ======== ======= ==========
December 31, 1992
Held for investment:
U.S. Treasury securities and obligations
of U.S. government corporations
and agencies $ 111,386 $ 2,239 $ 315 $ 113,310
Corporate securities 725,028 22,743 4,509 743,262
Mortgage-backed securities 1,480,903 69,916 26,196 1,524,623
Other debt securities 12,254 244 78 12,420
---------- -------- ------- ----------
$2,329,571 $ 95,142 $31,098 $2,393,615
========== ======== ======= ==========
Available for sale:
U.S. Treasury securities $ 39,879 $ 414 $ 153 $ 40,140
Mortgage-backed securities 541,098 16,276 11,125 546,249
---------- -------- ------- ----------
$ 580,977 $ 16,690 $11,278 $ 586,389
========== ======== ======= ==========
</TABLE>
<PAGE>
<PAGE> 28
The reported value and estimated fair value of fixed maturity securities
at December 31, 1993 including those available for sale, by contractual
maturity, are as follows. Expected maturities will differ from contractual
maturities because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
<TABLE>
<CAPTION>
Estimated
Reported Fair
Value Value
----- -----
(dollars in thousands)
<S> <C> <C>
Due in one year or less $ 7,576 $ 7,766
Due after one year through five years 44,987 47,183
Due after five years through ten years 154,163 166,709
Due after ten years 1,386,071 1,450,167
---------- ----------
1,592,797 1,671,825
Mortgage-backed securities 2,291,259 2,327,743
---------- ----------
$3,884,056 $3,999,568
========== ==========
</TABLE>
Proceeds from sales of fixed maturity investments were $2,166 million,
$817 million and $1,572 million for the years ended December 31, 1993, 1992 and
1991, respectively. Realized gains (losses) on investments included in
revenues are as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 84,595 $ 32,675 $ 53,088
Gross losses (55,680) (15,368) (20,989)
Security writedowns and
increase in allowance
for credit losses (3,106) (16,370)
-------- -------- --------
28,915 14,201 15,729
Equity securities (2,895) (166) 106
Mortgage loans on real estate (1,027) (1,182) (2,708)
Other (190) (484) (2,472)
-------- -------- --------
$ 24,803 $ 12,369 $ 10,655
======== ======== ========
</TABLE>
At December 31, 1993, there were no fixed maturity securities which had
been written down to net realizable value. The $3,000,000 allowance for credit
losses established in 1991 to provide a general allowance for potential losses
on fixed maturity securities for which specific write-downs are not yet
required was unchanged at December 31, 1993 and 1992.
<PAGE>
<PAGE> 29
Net investment income is summarized as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Fixed maturities $281,713 $250,937 $223,119
Equity securities 1,444 3,154 14
Mortgage loans on real estate 8,206 14,946 15,750
Policy loans 3,366 3,515 3,322
Short-term investments 6,138 1,427 4,389
Other 2,538 1,196 527
-------- -------- --------
303,405 275,175 247,121
Less investment expenses 4,503 2,944 2,712
-------- -------- --------
$298,902 $272,231 $244,409
======== ======== ========
</TABLE>
Mortgage loans on real estate and other investments with reported values
at December 31, 1993 of $98,000 and $345,000, respectively, were non-income
producing for the year ended December 31, 1993.
The changes in unrealized appreciation (depreciation) of investments are
as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Equity securities $ 956 $ (809) $ 245
Deferred income tax benefit 186
------- -------- --------
1,142 (809) 245
Fixed maturities 46,056 (9,750) 135,422
------- -------- --------
$47,198 $(10,559) $135,667
======= ======== ========
</TABLE>
At December 31, 1993, gross unrealized appreciation pertaining to equity
securities was $313,000 and gross unrealized depreciation was $844,000 (before
federal income tax benefit of $186,000).
The estimated fair value of policy loans at December 31, 1993 and 1992
was $53,424,000 and $51,606,000, respectively.
<PAGE>
<PAGE> 30
The Company's mortgage loans on real estate, which represented less than
2% of total investments, are diversified by geographic location and property
type. The reported value and estimated fair value of the Company's mortgage
loans on real estate are as follows:
<TABLE>
<CAPTION> Estimated
Reported Fair
Value Value
----- -----
(dollars in thousands)
<S> <C> <C>
December 31, 1993
Commercial mortgages $55,453 $56,906
Residential mortgages 12,088 12,250
------- -------
Total mortgage loans $67,541 $69,156
======= =======
December 31, 1992
Commercial mortgages $68,344 $69,101
Residential mortgages 19,742 20,076
------- -------
Total mortgage loans $88,086 $89,177
======= =======
</TABLE>
The Company manages its investments to limit credit risk by diversifying
its portfolio among various security types and industry sectors. At December
31, 1993, the Company's unrated or below investment grade corporate fixed
maturities amounted to 1% of the Company's fixed maturity investments and less
than 1% of total investments and total assets.
Investments in mortgage-backed securities at December 31, 1993
principally consisted of collateralized mortgage obligations ("CMOs") and
comprised 59% of the Company's fixed maturity investments at that date.
Included in such investments were $1.5 billion of CMOs and mortgage-backed
pass-through securities issued by non-government agencies (39% of total fixed
maturity investments). The Company's holdings primarily consist of senior
securities in the CMO structures which are collateralized by first mortgage
liens on single family and multifamily residences. Approximately 53% of such
investments are secured by properties located in California with no other state
representing more than 7%. All of these securities are rated investment grade
with more than 85% of such securities rated AAA by Standard & Poor's
Corporation, or the comparable equivalent rating by another independent
nationally recognized rating agency.
Investments, all of which are fixed maturities, in any entity in excess
of ten percent of stockholders' equity at December 31, 1993, other than
investments in affiliates and investments issued or guaranteed by the United
States Government or a United States Government agency, are as follows.
Mortgage-backed securities issued by non-government entities are aggregated by
the issuing entity with the number of individual securities identified
parenthetically following the issuer's name. The creditworthiness of these
securities is based solely on the underlying segregated pools of mortgage loan
collateral and related credit enhancements rather than the general
creditworthiness of the issuing entity.
<PAGE>
<PAGE> 31
<TABLE>
<CAPTION>
Estimated
Reported Fair
Value Value
----- -----
(dollars in thousands)
<S> <C> <C>
Allegheny Generating Company $ 20,180 $ 19,475
Borden, Inc. 14,940 15,188
Chemical Mortgage Securities 18,886 18,895
Cincinnati Bell Telephone 19,926 19,550
Countrywide Funding (3 issues) 107,351 104,849
Dayton Hudson 20,466 21,966
Florida Power & Light 20,750 21,220
GE Capital Mortgage Corp. (4 issues) 137,587 137,170
GTE Corporation 15,209 15,600
Housing Securities Inc. (2 issues) 73,784 74,451
Interstate Power 16,716 17,289
K Mart Corporation 15,087 15,415
Limited Inc. 16,329 16,500
Loral 15,309 14,260
Metropolitan Life Insurance 20,406 19,885
New York Telephone 20,644 19,475
Northern Indiana Public Service 15,500 15,554
Nova Alberta Corporation 15,155 15,900
Pacific Gas & Electric 22,917 22,475
Pacificcorp 15,500 15,832
Prudential Home Mortgage (17 issues) 469,582 468,430
Residential Funding Corp. (8 issues) 272,894 275,970
Ryland Acceptance Corp. 36,153 35,989
Sears Mortgage Securities (2 issues) 49,986 50,769
Securitized Asset Sales 25,713 24,948
SMART Mortgage 28,503 29,272
Southern California Edison 20,522 19,885
U.S. West Communications 27,583 27,875
</TABLE>
NOTE C--INCOME TAXES
Effective January 1, 1993, the Company changed its method of accounting
for income taxes from the deferred method to the liability method required by
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (see Note A). The cumulative effect of adopting Statement 109 as of
January 1, 1993 and the effect of the change on federal income tax expense for
the year ended December 31, 1993 was not material. Under Statement 109, the
Company no longer reports the tax benefits from operating and capital loss
carryforwards as extraordinary credits. As permitted by Statement 109, the
Company has elected not to restate prior years' financial statements.
<PAGE>
<PAGE> 32
Under Statement 109, deferred income taxes reflect the net income tax
effects of temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income
tax purposes. Income tax liabilities and assets as of December 31, 1993 and
January 1, 1993 are as follows:
<TABLE>
<CAPTION>
Dec. 31 Jan. 1
------- ------
(dollars in thousands)
<S> <C> <C>
Deferred income tax liabilities
Deferred policy acquisition costs and
policy initiation fees $93,688 $75,073
Payment-in-kind dividends 3,245
Other items 859 1,001
------- -------
Total deferred income tax liabilities 94,547 79,319
------- -------
Deferred income tax assets
Policy liabilities and accruals 78,954 66,416
Net operating loss carryforwards 9,143 8,330
Reduction in reported values
of investments not currently
deductible for tax 3,867 4,806
Accrued expenses 1,334 1,254
Allowance for doubtful accounts 1,052 1,254
Other items 1,059 1,042
------- -------
Total deferred income tax assets 95,409 83,102
Valuation allowance, including
$506 attributable to unrealized
depreciation of equity securities
at January 1, 1993 2,688 4,575
------- -------
Net deferred income tax assets 92,721 78,527
------- -------
Net deferred income tax liabilities $ 1,826 $ 792
======= =======
Current income tax liabilities (assets) $ 150 $ (742)
======= =======
</TABLE>
<PAGE>
<PAGE> 33
Federal income tax expense is included in the accompanying consolidated
statements of income as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Continuing operations
Current $21,220 $12,274 $13,019
Deferred 1,220 2,593 (779)
------- ------- -------
Subtotal 22,440 14,867 12,240
------- ------- -------
Discontinued operations
-current (37) (365)
Extraordinary credit
-current (2,712) (5,879)
-deferred (2,163) 129
------- ------- -------
Subtotal (4,875) (5,750)
------- ------- -------
Total $22,440 $ 9,955 $ 6,125
======= ======= =======
</TABLE>
Federal income tax expense differs from that computed at the applicable
statutory federal income tax rate (35% in 1993, 34% in 1992 and 1991) as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Computed income tax expense
at statutory rate $23,962 $14,638 $12,120
Change in valuation allowance
for deferred income tax assets,
excluding impact on unrealized
depreciation of equity securities (1,381)
Other items--net (141) 229 120
------- ------- -------
$22,440 $14,867 $12,240
======= ======= =======
</TABLE>
The Company files a consolidated federal income tax return including all
eligible subsidiaries. At December 31, 1993, the Company has net operating
loss carry-forwards of $26,123,000 which expire in 1999 through 2008. These
loss carryforwards relate to the operations of the non-life consolidated group.
Utilization of these loss carryforwards to offset taxable income of the life
insurance subsidiaries is limited under existing federal income tax rules and
regulations. Valuation allowances of $2,688,000 and $4,069,000 have been
established at December 31, 1993 and January 1, 1993, respectively, to offset
the related deferred income tax assets due to the uncertainty of realizing the
benefit of the loss carryforwards.
The Omnibus Reconciliation Act of 1993 changed the Company's prevailing
federal income tax rate from 34% to 35% effective January 1, 1993. The
Company's additional federal income tax expense for 1993 due to the increase
in the tax rate was $685,000. The application of the 35% tax rate to the
December 31, 1992 deferred income tax liability balance did not have a material
effect on the Company's 1993 provision for federal income taxes.
<PAGE>
<PAGE> 34
The components of deferred income tax expense (benefit) for the years
ended December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
1992 1991
---- ----
(dollars in thousands)
<S> <C> <C>
Deferred policy acquisition costs
and policy initiation fees $ 444 $2,070
Policy and other reserves (2,873) (2,809)
Utilization of net operating losses
and capital losses to offset
deferred income taxes (4,828) (127)
Deferred income taxes arising from
utilization of net operating
loss carryforwards 1,553 1,567
Investment income items 2,009 1,287
Capital losses 2,665 (1,311)
Losses on mortgage loans and other
invested assets 693 (1,110)
Allowance for uncollectible
accounts receivable 1,117
Other items--net (350) (217)
------ ------
$ 430 $ (650)
====== ======
</TABLE>
Prior to 1984, a portion of the life insurance subsidiaries' income was
not subject to current income taxation, but was accumulated, for income tax
purposes, in "policyholders' surplus accounts." At December 31, 1993, the
balances in the policyholder surplus accounts aggregated $12,672,000. These
amounts are not taxable unless distributed to stockholders or unless they
exceed certain limitations under the Internal Revenue Code. Management does
not intend to take actions nor does it expect any events to occur that would
cause income tax to be payable on these amounts; therefore, deferred income
taxes of $4,435,000 have not been provided on these amounts.
<PAGE>
<PAGE> 35
NOTE D--LONG-TERM DEBT
Long-term debt is summarized as follows:
<TABLE>
<CAPTION>
December 31,
1993 1992
---- ----
(dollars in thousands)
<S> <C> <C>
Reported Value
Parent Company:
6 1/4% convertible subordinated debentures $ 66,347
Senior bank debt and ESOP notes 4,750 $ 15,400
By Subsidiaries:
11 1/2% subordinated debentures 30,000
Bank line of credit 45,366 22,110
10% real estate mortgage 2,281 2,387
10% capitalized lease obligation 1,619 1,662
Other 12 74
-------- -------
$120,375 $71,633
======== =======
Estimated Fair Value $128,278 $74,721
======== =======
</TABLE>
6 1/4% Convertible Subordinated Debentures Due 2003: On April 28, 1993,
the Company issued $69 million face amount of 6 1/4% Convertible Subordinated
Debentures due 2003. Net proceeds from the public offering of $66,161,000 were
used to retire all outstanding senior bank debt, to repurchase 516,600 shares
of the Company's common stock through open market purchases, to fund a $35
million capital contribution to the Company's primary life insurance subsidiary
and for general corporate purposes.
The debentures are presented at their face amount less unamortized
issuance costs, pay interest semi-annually and are subordinated in right of
payment to all senior indebtedness as defined in the indenture governing the
debentures. The indenture does not restrict the Company or any subsidiary from
incurring additional senior indebtedness or other obligations.
The debentures are convertible at any time prior to maturity, unless
previously redeemed, into shares of the Company's common stock at a conversion
ratio of 65.625 shares of common stock for each 1,000 principal amount of
debentures ($15.24 per share of common stock). The debentures are redeemable,
in whole or in part, at the option of the Company, at any time on or after May
1, 1996 initially at 106% of the principal amount and declining to 100% of the
principal amount on or after May 1, 1999. In the event of a change in control
as defined in the indenture, debenture holders have the right to require the
Company to purchase all or any part of such holder's debentures at 100% of the
principal amount plus accrued interest. At the option of the Company, such
purchase may be made for cash or shares of the Company's common stock.
<PAGE>
<PAGE> 36
Senior Bank Debt and ESOP Notes: In January 1993, the Company entered
into a new senior credit facility with a commercial bank. Under the new
facility, the final maturity of the Company's then outstanding term loan was
extended until July 1997 and the Company borrowed an additional $10,000,000
under a new $10,000,000 revolving line of credit. Proceeds from the additional
borrowing were used to fund an escrow account established by the Company's
subsidiary in connection with the exchange of that subsidiary's 11 1/2%
subordinated debentures for redeemable preferred stock issued by the subsidiary
(see Note G). In April 1993, the Company used a portion of the net proceeds
from the sale of its 6 1/4% convertible subordinated debentures to retire all
of its outstanding senior bank debt and the revolving line of credit facility
was terminated.
The commercial bank referred to above also holds the outstanding notes
issued by the Company's employee stock ownership plan (the "ESOP"). The
$4,750,000 outstanding principal balance on these notes at December 31, 1993
is repayable as follows: $750,000 in 1994, annual installments of $1,000,000
each in 1995 and 1996 and two $1,000,000 installments in 1997. Interest
charges on the ESOP notes are payable quarterly at 97% of the prime rate of the
commercial bank. The annual rate of interest is subject to adjustment in the
event that certain changes in federal income tax laws or rates occur. In
addition, the Company has agreed to pay the commercial bank a quarterly fee so
that, after giving effect to such fee and the interest paid by the ESOP, the
commercial bank would receive an aggregate payment equal to the greater of the
prime rate of the commercial bank plus .5% or the Federal Funds Rate plus 1%.
The obligations to the commercial bank for the ESOP notes are secured
by a pledge of, and a security interest in, 37,396 shares of the Company's 1987
Series II Preferred Stock $1 Par owned by the ESOP. The ESOP loan is further
secured by the Company's guaranty and the Company's agreement to make
contributions to the ESOP from time to time in such amounts as may be necessary
to enable the ESOP to make all payments of principal and interest on the ESOP
notes when due.
The ESOP credit agreement contains restrictions and covenants which,
among other things, limit the amount of future indebtedness, limit the amounts
and types of investments including investments in below investment grade bonds,
equity securities and real property, require the maintenance of specified
amounts of consolidated tangible net worth, statutory capital and surplus and
fixed charge coverage and limit the payment of cash dividends. Under the most
restrictive of these covenants, $17,042,000 of consolidated retained earnings
at December 31, 1993 is not restricted as to the declaration or payment of cash
dividends. The credit agreement also contains a change of control covenant
that may result in the acceleration of the payment of all amounts due under the
ESOP notes in the event of a change in control as defined in the agreement.
11 1/2% Subordinated Debentures: In 1991 and 1990, a wholly-owned
subsidiary of the Company issued $30,000,000 of 11 1/2% subordinated
debentures. Proceeds from the debenture issues were invested in preferred
stock and surplus notes issued by the Company's primary life insurance
subsidiary. On February 2, 1993, the Company's subsidiary redeemed the
debentures at par by exchanging $30,000,000 of a new series of its redeemable
preferred stock for all of the outstanding debentures (see Note G).
<PAGE>
<PAGE> 37
Subsidiary's Bank Line of Credit: On September 30, 1993, a
non-insurance subsidiary of the Company entered into an amended and restated
credit agreement with several commercial banks pursuant to which the banks
agreed to provide this subsidiary with a $125,000,000 line of credit. The new
agreement amended and restated an existing agreement previously entered into
in May 1990, as subsequently amended, between the Company's noninsurance
subsidiary and the commercial bank referred to above to provide for, among
other things, an increase in the amount of the credit facility and for
additional lenders to become parties thereto. At December 31, 1993,
$79,798,000 remains available through June 1995 under this line of credit. The
actual amount funded will be determined based on the amount of new annuity
business written by the Company's primary life insurance subsidiary during the
funding period.
Principal and interest on the funds drawn under this line of credit are
payable in sixteen quarterly installments beginning on the eighth calendar day
following the end of each calendar year quarter in which the funds are drawn.
The credit agreement requires the Company's subsidiary to make loan prepayments
with any excess funds not otherwise used to fund commission payments to agents
or to make scheduled principal and interest payments. Interest charges are,
at the Company's option, LIBOR plus 1.25% or the greater of the agent bank's
prime rate or the Federal Funds Rate plus .5%, and a quarterly commitment fee
is charged equal to .375% per annum of the average daily unused amount of the
line of credit. The weighted average interest rate on the outstanding loan
balance at December 31, 1993 was 4.74%.
Borrowings under the line of credit are principally secured by a pledge
of certain contract rights between the Company's primary life insurance
subsidiary and the Company's non-insurance subsidiary. The credit agreement
imposes various restrictions on the Company's non-insurance subsidiary and
requires it to hedge at least $25,000,000 of borrowings through July 1996 to
protect itself against three-month LIBOR exceeding 4.74% per annum. Pursuant
to that requirement, this subsidiary is the fixed rate payor under an interest
rate swap contract having a notional amount of $25,000,000 and a term of three
years ending July 1996 (see Note I).
In addition to customary events of default, the credit agreement
specifies certain events of default with respect to the Company and its
subsidiaries, including its primary life insurance subsidiary, which include,
among other things, the occurrence of a change in control, as defined in the
credit agreement, of the Company, its non-insurance subsidiary, its primary
life insurance subsidiary and another non-insurance subsidiary, payment
defaults by the Company or its primary life insurance subsidiary on certain
obligations to the non-insurance subsidiary, and failure by the primary life
insurance subsidiary to maintain specified amounts of statutory capital and
surplus and to limit the amount of future indebtedness and the amount of its
investments in below investment grade bonds, equity securities and real
property. The occurrence of any event of default could result in the
commercial banks terminating their commitments under the credit agreement
and/or accelerating the payment of amounts due thereunder. The credit
agreement is an "evergreen" agreement renewable for additional eighteen month
periods by mutual consent of the Company, its subsidiaries and the commercial
banks. The line of credit is not guaranteed by the Company, its primary life
insurance subsidiary or any of its other subsidiaries.
Real Estate Mortgage: The 10% real estate mortgage is payable in
monthly installments of $28,000 including interest, through 1994 with a balloon
payment of $2,185,000 due in December 1994. The net book value at December 31,
1993 of the Company's home office building pledged as collateral for the loan
is $4,067,000. <PAGE>
<PAGE> 38
Capitalized Lease Obligation: The 10% capitalized lease obligation
requires monthly payments of $17,000, including interest, through 2009. The
lease relates to a subsidiary's former home office building financed through
the issuance of a municipality's industrial development revenue bonds. The
subsidiary's former home office building, land and equipment, having a cost of
$3,101,000 and accumulated amortization of $1,050,000 at December 31, 1993, are
pledged as collateral for the lease obligation. Approximately 90% of this
building is subleased to unrelated parties under sublease agreements expiring
in 1995 and 1998 with aggregate annual sublease payments of $475,000.
Aggregate Maturities of Long-term Debt: Aggregate maturities of
long-term debt, including the present value of the 10% capitalized lease
obligation, during each of the five years subsequent to 1993 are as follows:
1994--$19,909,000; 1995--$15,120,000; 1996--$11,771,000; 1997--$5,813,000 and
1998--$66,000.
NOTE E--SERIES PREFERRED STOCK
The Board of Directors is authorized to issue 5,000,000 shares of Series
Preferred Stock $1 Par from time to time in one or more series and to fix the
number of shares, designations, voting powers (if any), preferences and rights,
and qualifications, limitations or restrictions of each series. Each series
of Series Preferred Stock $1 Par shall be distinctly designated and, except as
otherwise stated, shall rank equally and be identical in all respects.
Redeemable Preferred Stock: There were 77,130 shares and 81,901 shares
of 1987 Series II Preferred Stock $1 Par outstanding at December 31, 1993 and
1992, respectively. All of the 1987 Series II shares are owned by the
Company's employee stock ownership plan (the "ESOP") (see Note H) and the
shares are presented at their $100 per share liquidation preference less the
outstanding ESOP loan guarantee balance (see Note D). The estimated fair value
of the 1987 Series II shares at December 31, 1993 and 1992 was $14,848,000 and
$14,496,000, respectively.
The 1987 Series II shares are entitled to annual cumulative cash
dividends equal to the issue price multiplied by the prime rate of a specified
commercial bank plus 3/4 of 1% (6.75% at December 31, 1993), payable quarterly.
Cash dividends paid in 1993, 1992 and 1991 were equivalent to $6.75 per share,
$7.37 per share and $9.87 per share, respectively.
The Company may, at its option, redeem the 1987 Series II shares, in
whole or in part, at any time after ten years from date of issue at a price of
$100 per share plus cumulative unpaid dividends. In the event of a change in
control of the Company, as specified in the resolution creating the series,
each 1987 Series II share shall be redeemed at a price equal to the greater of
$100 per share, plus cumulative unpaid dividends or the fair market value
thereof. In liquidation, 1987 Series II stockholders are entitled to $100 per
share (aggregate $7,713,000) plus cumulative unpaid dividends before any
distribution shall be made to common stockholders. The 1987 Series II shares
rank on parity with the other Series Preferred Stock shares with respect to
dividends and distributions.
During 1993, 1992, and 1991, the Company exchanged 70,510 shares, 32,403
shares and 126,166 shares, respectively, of its common stock with the ESOP for
4,771 shares, 2,312 shares and 7,334 shares, respectively, of its 1987 Series
II Preferred Stock for the purpose of making distributions of the 1987 Series
II shares to terminated ESOP plan
participants.
Each 1987 Series II share is entitled to eleven votes on each matter
submitted to a vote at any meeting of the Company's stockholders. In addition,
with respect to the approval of certain business combinations, the 1987 Series
II shares are entitled to vote separately as a class, and the affirmative vote
of at least 75% of the outstanding 1987 Series II shares is required for such
approval.
Each 1987 Series II share is convertible at any time into 13.7214 shares
of common stock. Antidilution rights of the owners of 1987 Series II shares
are specified in the resolutions creating the series. At December 31, 1993,
1,058,335 shares of common stock are reserved for conversion of the 1987 Series
II shares.
<PAGE>
<PAGE> 39
1976 Series Preferred Stock: The Company has issued 200,000 shares of
1976 Series Preferred Stock $1 Par, of which there were 195,000 shares and
200,000 shares outstanding at December 31, 1993 and 1992, respectively. During
1993, 5,000 1976 Series shares were converted into 15,281 shares of common
stock.
The 1976 Series shares are entitled to annual cumulative cash dividends
of $.425 per share, payable semi-annually. All of the 1976 Series shares are
owned by the ESOP (see Note H). The Company may, at its option, redeem the
1976 Series shares, in whole or in part, at any time at a price of $5 per share
plus cumulative unpaid dividends. In liquidation, 1976 Series stockholders are
entitled to receive $5 per share (aggregate $975,000) plus cumulative unpaid
dividends before any distribution shall be made to common stockholders. The
1976 Series shares rank on parity with the other Series Preferred Stock shares
with respect to dividends and distributions.
Each 1976 Series share is entitled to one vote and is convertible at any
time into 3.21 shares of common stock. Antidilution rights of the owners of
1976 Series shares are specified in the resolutions creating the series. At
December 31, 1993, 625,769 shares of common stock are reserved for conversion
of the 1976 Series shares.
1988 Series I and Series II Preferred Stock: In 1988 and 1989, the
Company issued a total of 143,640 shares of 1988 Series I and Series II
Preferred Stock (the "1988 Series shares") to its former savings bank
subsidiary which was taken over by government regulators in 1990 (see Note K).
The Company has a lawsuit pending against the United States government which
litigation seeks, among other things, recovery of the Company's investment in
its former savings bank subsidiary, including the 1988 Series shares. Because
there is no assurance beyond a reasonable doubt that the Company will prevail
in its lawsuit, the 1988 Series shares are presented as issued and outstanding
in the accompanying consolidated financial statements as of December 31, 1993
and 1992 and were given full recognition in the computations of primary and
fully diluted earnings per share for all periods presented.
Beginning in 1990, the 1988 Series shares are entitled to annual
cumulative cash dividends of $8 per share, payable quarterly. The Company has
declared but not paid cumulative dividends on the 1988 Series shares
aggregating $4,657,000 ($40 per share on 7,560 shares of 1988 Series II
Preferred Stock and $32 per share on the balance of the 1988 Series shares),
including $862,000 ($6 per share) declared in January 1994. As discussed
above, the 1988 Series shares are involved in the pending litigation related
to the takeover of the Company's former savings bank subsidiary (see Note K)
and the Company has set off the amount of the declared dividends against
damages believed by the Company to be owing to the Company by the United States
of America.
The Company may, at its option, redeem the 1988 Series shares, in whole
or in part, at any time after ten years (five years for the 1988 Series II
shares) from the date of issue at a price of $100 per share plus cumulative
unpaid dividends. In liquidation, 1988 Series stockholders are entitled to
$100 per share (aggregate $14,364,000) plus cumulative unpaid dividends before
any distribution shall be made to common stockholders. The 1988 Series shares
rank on parity with the other Series Preferred Stock shares with respect to
dividends and distributions.
<PAGE>
<PAGE> 40
The 1988 Series shares are non-voting except as required by the Delaware
General Corporation Law and except if the Company fails to pay dividends on
such shares for six consecutive quarters, in which case holders of the 1988
Series shares are entitled to one vote per share on each matter submitted to
a vote at any meeting of the Company's stockholders. Each 1988 Series share
is convertible at any time into 13.7214 shares of common stock. Antidilution
rights of the owners of 1988 Series shares are specified in the resolutions
creating the series. At December 31, 1993, 1,970,942 shares of common stock
are reserved for conversion of the 1988 Series shares.
Preferred Stock Purchase Rights: In April 1991, the Company redeemed
all of its outstanding preferred stock purchase rights that had been issued
pursuant to a Rights Agreement adopted in 1987. Each share of the Company's
common stock had one preferred stock purchase right attached and received the
redemption price of $.01 per right. Subsequent to the rights redemption, the
Board of Directors eliminated the series of 250,000 shares of Series A Junior
Participating Preferred Stock, which had been designated and reserved for
issuance upon exercise of the now redeemed rights, from the Company's
Certificate of Incorporation.
NOTE F--STOCKHOLDERS' EQUITY AND RESTRICTIONS
Changes in the number of shares of common stock outstanding are as
follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Outstanding at beginning of year 13,109,239 13,055,186 12,708,020
5% stock dividend
Shares issued (a) 687,772
Shares acquired for treasury (b) (52,628)
Shares acquired through open market purchases (516,600)
Issued in exchange for 1987 Series II
Preferred Stock 70,510 32,403 126,166
Conversion of 1976 Series Preferred Stock 15,281
Issued to employee benefit plans 21,650 200,000
Issued upon exercise of stock options 116,082 21,000 (a)
---------- ---------- ----------
Outstanding at end of year 13,429,656 13,109,239 13,055,186
========== ========== ==========
<FN>
__________
(a) Issued from authorized but unissued shares. All other issuances were from common stock in treasury.
(b) Includes 50,823 shares issued to a subsidiary and 1,805 fractional shares purchased for cash.
</TABLE>
On May 5, 1993, the Company's stockholders approved an amendment to the
Company's Certificate of Incorporation increasing the number of authorized
shares of common stock from 25,000,000 to 35,000,000 shares. On May 19, 1993,
the Company's Board of Directors authorized the repurchase by the Company of
up to 1,000,000 shares of the Company's common stock. This authorization
expired on December 31, 1993 and 516,600 shares were acquired for treasury
through the repurchase program. Authorization for the Company to repurchase
up to 1,000,000 additional shares of its common stock during calendar year 1994
was approved by its Board of Directors on January 13, 1994.
<PAGE>
<PAGE> 41
At December 31, 1993, there were 9,224,270 shares of common stock
reserved for conversion of the Series Preferred Stock and 6 1/4% Convertible
Subordinated Debentures and for exercise of stock options. Treasury stock at
December 31, 1993 and 1992 included 927,299 shares and 1,016,476 shares,
respectively, of common stock owned by a subsidiary of the Company. Treasury
shares held by subsidiaries are entitled to dividends but do not have voting
rights.
The net assets of the insurance subsidiaries available for transfer to
the Company are limited to the amounts by which the insurance subsidiaries' net
assets, as determined in accordance with statutory accounting practices
prescribed or permitted by state regulatory authorities, exceed minimum
regulatory statutory capital and surplus requirements; however, payment of
dividends or other distributions to stockholders may also be subject to prior
approval by regulatory authorities. In addition, the ability of the insurance
subsidiaries to transfer funds to the Company is limited by certain provisions
in the Company's loan agreements relating to the maintenance of specified
minimum levels of statutory capital and surplus (see Note D). At December 31,
1993, $43,856,000 of consolidated stockholders' equity (based on amounts
reported in accordance with statutory accounting practices) represents net
assets of the insurance subsidiaries that cannot be transferred to the Company
in the form of dividends, surplus note payments, loans or advances.
Combined capital and surplus of the insurance subsidiaries, as reported
in accordance with statutory accounting practices of their respective states
of domicile, was $214,317,000 and $178,842,000 at December 31, 1993 and 1992,
respectively. Combined statutory net income for 1993, 1992 and 1991 was
$32,019,000, $16,538,000 and $32,566,000, respectively.
NOTE G--PREFERRED STOCK OF WHOLLY-OWNED SUBSIDIARY
On August 25, 1992, a wholly-owned subsidiary of the Company issued
2,760,000 shares of non-convertible redeemable preferred stock at a public
offering price of $25 per share. $42,500,000 of the net proceeds from the
offering were contributed to the capital of the Company's primary life
insurance subsidiary. Remaining net proceeds of approximately $22,600,000 were
used to purchase $69,000,000 face amount of zero coupon U.S. Treasury
securities maturing in August 2007. These securities have been placed in an
escrow account to be used for the future redemption of the redeemable preferred
stock on or before its mandatory redemption date in 2007.
The subsidiary's redeemable preferred stock is entitled to annual
cumulative cash dividends of $2.16 per share, payable quarterly. The
redeemable preferred stock is mandatorily redeemable in September 2007 at a
redemption price of $25 per share, plus cumulative unpaid dividends. In
liquidation, holders of the subsidiary's redeemable preferred stock are
entitled to $25 per share (aggregate $69,000,000) plus cumulative unpaid
dividends.
On February 2, 1993, the subsidiary referred to above issued 1,200,000
shares of a non-convertible redeemable preferred stock at an issue price of $25
per share (aggregate $30,000,000) in exchange for all of the subsidiary's
outstanding 11 1/2% subordinated debentures which were retired (see Note D).
In connection therewith, the subsidiary purchased $30,000,000 face amount of
zero coupon U.S. Treasury securities maturing in February 2008 with the
proceeds of a $10,000,000 borrowing under the Company's revolving line of
credit (see Note D). These securities have been placed in an escrow account
to be used for the future redemption of the second series of redeemable
preferred stock on or before its mandatory redemption date in 2008.
<PAGE>
<PAGE> 42
The second series of the subsidiary's redeemable preferred stock is
entitled to annual cumulative cash dividends of $2.32 per share, payable
quarterly. This series of redeemable preferred stock is mandatorily redeemable
in February 2008 at a redemption price of $25 per share, plus cumulative unpaid
dividends. In liquidation, holders of this series of the subsidiary's
redeemable preferred stock are entitled to $25 per share (aggregate
$30,000,000) plus cumulative unpaid dividends.
The subsidiary's redeemable preferred stock is presented at its fair
value on the date of issue ($69,000,000 and $30,000,000, respectively) less
unamortized issue costs. The excess of the mandatory redemption value over the
reported value is being accreted by periodic charges to income from continuing
operations over the life of the issue. The aggregate fair value of the
subsidiary's redeemable preferred stock was $109,276,000 and $65,895,000, at
December 31, 1993 and 1992, respectively.
NOTE H--EMPLOYEE BENEFIT PLANS
The Company and its subsidiaries participate in a qualified trusteed
plan, The Statesman Group, Inc. Employee Stock Ownership Plan and Trust
("Plan"), which provides for a uniform noncontributory retirement program
covering all eligible employees of the Company and its subsidiaries.
Contributions to the Plan are equal to 10% of eligible compensation of all
participants plus such additional amounts (2.9%, 3.1% and 1.8% for 1993, 1992
and 1991, respectively) as may be determined annually by the Board of
Directors. In addition, the Company has agreed that it will make contributions
to the Plan from time to time in such amounts as may be necessary to enable the
Plan to make all payments of principal and interest on the Plan's bank loan
when due (see Note D). Total plan expense for 1993, 1992 and 1991 amounted to
$900,000, $900,000 and $815,000, respectively.
In 1987, the Plan purchased 100,000 shares of the Company's 1987 Series
II Preferred Stock $1 Par for $10,000,000 financed by a ten-year bank loan
guaranteed by the Company (see Note D). For the years ended December 31, 1993,
1992 and 1991, interest expense of $293,000, $367,000 and $577,000,
respectively, on the ESOP loan was funded by the dividends received on the 1987
Series II Preferred Stock. The remaining ESOP loan guarantee balance of
$4,750,000 at December 31, 1993, which is included in long-term debt and
deducted from redeemable preferred stock in the accompanying consolidated
balance sheets, will be further reduced in future years as the Plan's debt is
reduced and shares are allocated to Plan participants. At December 31, 1993,
the Plan owned 44,757 shares of the Company's common stock, 195,000 shares of
the Company's 1976 Series Preferred Stock $1 Par and 77,130 shares of the
Company's 1987 Series II Preferred Stock $1 Par.
The Company and its subsidiaries participate in the Statesman Savings
Plan 401(k) (the "401(k) plan"), a qualified salary deferral retirement plan
covering all eligible employees of the Company and its subsidiaries. Employees
may contribute a portion of their annual salary, subject to limitation, to the
401(k) plan. The Company and its subsidiaries contribute an additional amount,
subject to limitation but not to exceed 2% of eligible compensation, based on
the voluntary contributions of the employees. The 401(k) plan provides that
all employer matching contributions will be invested in shares of Company
stock. At December 31, 1993, the 401(k) plan held 55,900 shares of the
Company's common stock. Plan contributions charged to expense for 1993, 1992
and 1991 were $90,000, $85,000 and $76,000, respectively. <PAGE>
<PAGE> 43
NOTE I--COMMITMENTS AND CONTINGENCIES
Litigation: The Company's subsidiaries are involved in various pending
or threatened legal proceedings arising from the conduct of their businesses.
These proceedings in some instances include claims for punitive damages and
similar types of relief in unspecified or substantial amounts, in addition to
amounts for alleged contractual liability or claims for equitable relief. In
management's opinion, after consultation with counsel and review of available
facts, these proceedings will ultimately be resolved without materially
affecting the Company's financial condition.
Reinsurance: In the normal course of business, the Company seeks to
limit its exposure to loss on any single insured and to recover a portion of
benefits paid by ceding reinsurance to other insurance enterprises or
reinsurers. The Company's maximum retention limit on any one life is $100,000.
Reinsurance assumed from other companies is not significant.
Reinsurance contracts do not relieve the Company from its obligations
to its policyholders. The Company remains contingently liable to its
policyholders for the portion reinsured to the extent that the reinsuring
companies do not meet their obligations assumed under the reinsurance
agreements. The aggregate receivable from reinsurers at December 31, 1993 was
$6,026,000, all of which was deemed collectible. Ceded reinsurance premiums
deducted from premiums and policy fund charges were $4,437,000, $4,389,000 and
$4,724,000 for the years ended December 31, 1993, 1992 and 1991, respectively.
Certain policy liabilities were reinsured under reinsurance transactions
which represented financing arrangements and, in accordance with generally
accepted accounting principles, are not reflected in the accompanying
consolidated financial statements except for the risk fees paid to reinsurers.
These transactions were effectively terminated as of December 31, 1993. Net
statutory surplus provided by such treaties totaled $24.7 million at December
31, 1992. Risk fees paid to the reinsurers approximated 2.75% of the net
amount of surplus provided.
Employment Arrangements: The Company has entered into employment
continuation agreements with certain executives of the Company and its
subsidiaries that provide for payments to these executives of amounts up to
four times their annual compensation if there is a change in control of the
Company (as defined), and a termination of their employment. The agreements
do not constitute employment contracts and only apply in circumstances
following a change in control. The maximum contingent liability at December
31, 1993 under these agreements is $6,167,000.
Guaranty Fund Assessments: From time to time, mandatory assessments are
levied on the Company's insurance subsidiaries by life and health guaranty
associations of most states in which these subsidiaries are licensed to cover
losses to policyholders of insolvent or rehabilitated insurance companies.
These associations levy assessments (up to prescribed limits) on all member
insurers in a particular state in order to pay claims on the basis of the
proportionate share of premiums written by member insurers in the lines of
business in which the insolvent or rehabilitated insurer engaged. These
assessments may be deferred or forgiven in certain states if they would
threaten an insurer's financial strength and, in some states, these assessments
can be partially recovered through a reduction in future premium taxes. Prior
to 1991, these assessments were not material to the Company's financial
statements. However, the economy and other factors have recently caused a
number of failures of substantially larger companies which could result in
future assessments in material amounts. Assessments levied against the
Company's insurance subsidiaries and charged to expense in 1993, 1992 and 1991
were $2,623,000, $2,233,000, and $638,000, respectively. The accompanying
consolidated financial statements include provisions for all known assessments
that will be levied against the Company's insurance subsidiaries by various
state guaranty associations. At the present time, the Company is not able to
reasonably estimate what amounts will ultimately be assessed to its
subsidiaries in the future for failures that have occurred to date and, as
such, the accompanying consolidated financial statements do not include any
provision for such potential assessments.
<PAGE>
<PAGE> 44
Interest Rate Swaps: The Company has entered into certain interest rate
swap and collar agreements to match the interest rate characteristics of
investments and related insurance liabilities for a portion of its single
premium deferred annuity liabilities. These agreements involve the exchange
of fixed and floating rate interest payments without an exchange of the
underlying notional principal amounts. The interest rate swap and collar
agreements effectively modify the interest rate characteristics of the single
premium deferred annuity liabilities which reprice annually at discretionary
rates determined by the Company to be less sensitive to changes in interest
rates. In addition, a non-insurance subsidiary of the Company has entered into
interest rate swap agreements to limit its exposure to increases in short-term
borrowing rates.
Swap agreements subject the Company to the risk that the swap
counterparty will fail to perform. However, the potential credit loss is
limited to the periodic net settlement amounts due under the agreements and
nonperformance is not anticipated. In addition, with respect to those swap
contracts that do not qualify as hedges, the Company is subject to market risk
associated with changes in interest rates and declines in value of the
underlying financial instrument and with respect to the interest rate swaps
used to hedge floating rate bank debt, the Company has incurred higher interest
costs than if these agreements were not in place because short-term borrowing
rates have been lower than the applicable fixed rates indicated in the swap
agreements.
The notional amounts of interest rate swap and collar financial
instruments in effect at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
1993 1992
---- ----
(dollars in millions)
<S> <C> <C>
Used to hedge single premium deferred annuity liabilities:
Receive variable rates:
Interest rate collar $ 250 $ 250
Interest rate swap 50 50
Used to offset a portion of the costs of interest
rate collar and swap used as hedges:
Receive fixed rates 300 300
Received variable rates 250
Used to hedge non-insurance subsidiary's floating
rate bank debt 25 5
</TABLE>
The interest rate collar and $250 million of interest rate swaps on
which the Company receives fixed rates expire in May 1996. The interest rate
collar is a combination of an interest rate cap and floor whereby the Company
is to receive payment if the six-month LIBOR exceeds 14% (the "cap") or is to
make payment if the six-month LIBOR is less than 7.35% (the "floor"). There
is no cost to either party while the six-month LIBOR is between 7.35% and 14%.
At December 31, 1993, the effective six-month LIBOR rate under this agreement
was 3.50%.
The interest rate swaps which expire in May 1996 discussed above offset
a portion of the cost of the floor and, as long as the six-month LIBOR remains
at or below the 7.35% floor rate, the net cost of the floor is fixed as the
difference between 7.35% and the weighted average fixed rate under the swaps
of 6.59%. Amounts payable under the floor are netted against amounts
receivable under the interest rate swaps.
<PAGE>
<PAGE> 45
The Company also has a $250 million interest rate swap in effect at
December 31, 1993 under which the Company receives six-month LIBOR and pays the
swap counterparty six-month LIBOR minus .37%. In the event that six-month LIBOR
increases by more than .50% on any semi-annual reset date, the amount the
Company receives for the subsequent six month period is capped at the previous
six-month LIBOR plus .50%. The purpose of this swap is to further reduce the
cost of the interest rate floor described above, however this swap exposes the
Company to incremental liability in the event that the six-month LIBOR
increases at a faster rate than .87% every six months. This swap expires in
May 1996.
In 1989, the Company entered into a $50 million interest rate swap
contract and, at the inception of this agreement, received a $10,000,000
advance payment of the swap counterparty's obligations over the term of the
swap agreement, which amount is being repaid with interest as an adjustment to
the net interest settlements during the five year term of the swap. This
advance, net of a $150,000 arrangement fee, is being amortized on the interest
method over the term of the swap using the interest rate implicit in the
payment adjustment. The unamortized amount of the advance included in accrued
expenses and other liabilities in the accompanying consolidated balance sheets
was $2,388,000 and $4,545,000 at December 31, 1993 and 1992, respectively.
In May 1991, the Company effectively terminated the $50 million interest
rate swap referred to above by entering into an offsetting $50 million interest
rate swap. The loss on termination of $1,312,000, which was equal to the
discounted present value of the net future payments under both swaps of
$435,000 annually, exclusive of the repayment of the $10,000,000 advance, is
being recognized over three and one-half years, the remaining term of both
swaps on the date of termination. The unrecognized loss on termination was
$354,000 and $740,000 at December 31, 1993 and 1992, respectively, and the
remaining term of the two offsetting $50 million interest rate swaps at
December 31, 1993 was eleven months.
Under the $25 million interest rate swap used to hedge floating rate
bank debt, the Company receives a floating rate equal to three-month LIBOR and
pays the swap counterparty a fixed rate of 4.74%. This swap expires in July
1996.
Income (expense) recognized in the accompanying consolidated statements
of income for interest rate swaps and the interest rate collar, including
periodic settlement amounts and realized and unrealized gains and losses
recognized on interest rate swaps that do not qualify as hedges, is as follows:
<TABLE>
<CAPTION>
Year Ended December 31
1993 1992 1991
---- ---- ----
(dollars in thousands)
<S> <C> <C> <C>
Reported as
Net investment income $(2,143) $ 898 $(1,002)
Interest expense (281) (284) (160)
</TABLE>
<PAGE>
<PAGE> 46
The reported amount and estimated fair value of the Company's
liabilities (assets) under the interest rate swaps and the interest rate collar
are as follows:
<TABLE>
<CAPTION>
Estimated
Reported Fair
Amount Value
------ -----
(dollars in thousands)
<S> <C> <C>
December 31, 1993
Qualifying for hedge accounting $ 2,852 $ 6,043
Not qualifying for hedge accounting (157) 15
December 31, 1992 $ 5,276 $13,216
</TABLE>
Leases: Total rental expense for all leases is as follows: 1993 --
$1,238,000; 1992 -- $1,141,000; and 1991 -- $1,346,000. Future minimum rental
commitments for operating leases having initial or remaining noncancelable
lease terms in excess of one year are not material.
NOTE J--STOCK OPTIONS AND STOCK APPRECIATION RIGHTS
Under the terms of two stock option plans adopted by the Company's
stockholders in 1984, certain officers and key employees of the Company and its
subsidiaries may be granted options to purchase up to 1,246,292 shares of the
Company's common stock. Because the exercise price of all stock options
awarded under these plans can be no less than the fair market value of a share
of optioned stock at the date of grant, no compensation expense has been
recorded for these awards. Options expire no later than ten years after the
date of grant and no options can be granted after 1993.
In addition, one of the stock option plans provides for the granting of
stock appreciation rights ("SARs") on a maximum of 465,034 shares of the
Company's common stock. SARs entitle the holder to receive, upon exercise, a
cash payment equal to the excess of the fair market value of a share of common
stock on the date of exercise over the option price. Compensation expense of
$31,000, $610,000 and $90,000 is included in the 1993, 1992 and 1991
consolidated statement of income, respectively, based on the difference between
the market value of the rights outstanding at the end of each year and the
option price and cash payments made during each year on SARs exercised.
<PAGE>
<PAGE> 47
Information concerning stock options and SARs is as follows. All shares
and option prices have been adjusted to give retroactive effect to stock
dividends declared subsequent to the date of grant. Outstanding stock options
and SARs will expire over periods ending no later than November 2003.
<TABLE>
<CAPTION>
Number of Shares Price
Options SARs Per Share
------- ---- ---------
<S> <C> <C> <C>
Outstanding, January 1, 1991 434,601 161,831 $1.90-$ 4.81
Granted 641,550 2.38- 2.60
Exercised (22,050) 1.90
Terminated or expired (5,775) (26,973) 2.60- 4.81
--------- -------
Outstanding, December 31, 1991 1,048,326 134,858 2.38- 4.81
Exercised (28,832) 4.81
--------- -------
Outstanding, December 31, 1992 1,048,326 106,026 2.38- 4.81
Granted 170,500 157,500 12.38
Exercised (177,727) (28,832) 2.60- 4.81
--------- -------
Outstanding, December 31, 1993 1,041,099 234,694 2.38- 12.38
========= =======
Exercisable, December 31, 1993 1,000,849 77,194 2.38- 12.38
========= =======
Available for future grant,
December 31, 1992 175,916 195,315
========= =======
</TABLE>
NOTE K--DISCONTINUED OPERATIONS
In July 1990, the Office of Thrift Supervision ("OTS"), an office of the
United States Department of Treasury, placed Statesman Bank for Savings, FSB
(the "savings bank"), formerly a wholly-owned subsidiary of the Company, in
receivership and a new federal institution, operating under the oversight of
the Resolution Trust Corporation, assumed the savings bank's assets and
liabilities. The OTS action was predicated on its assertion that the savings
bank failed to meet the minimum federal regulatory capital requirements under
the Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") which became effective in December 1989. The Company had previously
capitalized the savings bank with $8,400,000 of cash and 126,000 shares of its
1988 Series Preferred Stock $1 Par (see Note E) in March 1988 for the purpose
of acquiring four failed thrift institutions with federal agency financial
assistance. The Company reduced the carrying value of its investment in the
savings bank to zero and recognized a loss on disposal in its 1990 consolidated
financial statements.
In August 1990, the Company filed suit in the United States Claims Court
(the "Claims Court") against the United States of America. The pending lawsuit
concerns contractual agreements which were made by the Federal Savings and Loan
Insurance Corporation and the Federal Home Loan Bank Board, former government
regulatory agencies that were abolished by FIRREA, to induce the Company to
capitalize the savings bank, for the purpose of acquiring the four failed
thrift institutions. In the lawsuit, the Company claims that the defendant has
breached its contractual agreements with respect to regulatory capital.
Accordingly, the pending lawsuit contends that this breach of contract, which
resulted in the disallowance of $21 million of capital which the defendant
promised would be perpetual for regulatory accounting purposes, constitutes a
taking of the Company's property without just compensation and due process of
law, in violation of the Fifth Amendment of the United States Constitution.
<PAGE>
<PAGE> 48
The pending lawsuit seeks rescission of the transaction between the
Company and the government agencies and recovery of the Company's investment
plus compensation for monies expended, costs incurred and the value of benefits
conferred on the defendant through the Company's purchase, operation and
management of the savings bank. Total restitution sought exceeds $30 million.
In July 1992, the Claims Court granted the Company's motion for summary
judgment as to the defendant's liability in the above-described lawsuit. The
Claims Court also consolidated this case with two others and certified these
cases for interlocutory appeal to the United States Court of Appeals for the
Federal Circuit (the "Court of Appeals"). Subsequently, the Court of Appeals
reversed the order of the Claims Court by a margin of two to one and the
Company filed a Petition for Rehearing with Suggestion for Rehearing in Banc
(the "Rehearing Petition") with the Court of Appeals. On August 18, 1993, the
Court of Appeals accepted the Company's Rehearing Petition. The Court of
Appeals also vacated its judgment entered on May 25, 1993 in favor of the
defendant and withdrew its opinion accompanying the judgment. The rehearing
is currently scheduled for February 10, 1994.
In 1985, the Company sold Statesman Insurance Company, a former
property-casualty insurance subsidiary. As part of this sale and as part of
a certain reinsurance agreement between Statesman Insurance Company and another
former affiliate, the Company guaranteed and indemnified Statesman Insurance
Company that it would suffer no loss on the insurance liability reinsured by
it in excess of the loss and loss adjustment expense reserves transferred to
the affiliate pursuant to the terms of the reinsurance agreement. The Company
does not believe that the ultimate settlement of the remaining outstanding
claims covered by this guarantee will materially exceed existing liabilities
provided for such contingency.
In 1989, the Company sold its investment banking and retail brokerage
subsidiary. The stock purchase agreement between the Company and the purchaser
provided in part that the Company could be required to indemnify the purchaser
for certain uncollectible receivables and debits of the former subsidiary and
certain claims by or against the former subsidiary. In 1990, the purchaser
filed for bankruptcy protection under Chapter 7 of the federal bankruptcy laws
and the Bankruptcy Trustee for the purchaser purported to assign the
purchaser's indemnification rights, if any, under the stock purchase agreement
to the former subsidiary.
In January 1991, the former subsidiary filed a declaratory judgement
action seeking indemnification by the Company with respect to certain claims
by or against the former subsidiary. The Company vigorously disputed its
former subsidiary's claim to indemnification and believes that it had
meritorious defenses to such claim. To avoid the cost and uncertainty of
long-term litigation, the Company entered into a settlement agreement and
release with the former subsidiary in October 1991. The charge related to the
settlement, including related attorneys' fees in excess of amounts previously
accrued at December 31, 1990, was recognized in the fourth quarter of 1991 as
a loss on disposal of subsidiaries and did not have a material effect on the
Company's financial position or results of operations.
<PAGE>
<PAGE> 49
NOTE L--QUARTERLY FINANCIAL INFORMATION (Unaudited)
Unaudited quarterly results of operations are as follows:
<TABLE>
<CAPTION>
Quarter
1st 2nd 3rd 4th
--- --- --- ---
(dollars in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Year Ended December 31, 1993
Premiums and policy fund charges $12,812 $11,523 $12,388 $13,236
Net investment income 70,494 73,875 78,259 76,274
Realized gains on investments 6,423 4,429 6,274 7,677
Total revenues 91,054 91,333 98,329 98,505
Net income 8,947 8,789 9,392 10,119
Net income applicable to common stock 8,536 8,377 8,981 9,760
Primary earnings per common share .59 .58 .63 .69
Fully diluted earnings per common share .49 .41 .47 .48
Year Ended December 31, 1992
Premiums and policy fund charges 13,675 13,247 11,921 12,880
Net investment income 65,136 67,245 69,515 70,335
Realized gains on investments 1,382 2,318 3,120 5,549
Total revenues 80,959 83,580 85,522 89,974
Income from continuing operations 5,779 6,665 7,705 5,868
Income before extraordinary credit 5,769 6,619 7,690 5,868
Extraordinary credit 550 810 1,090 2,425
Net income 6,319 7,429 8,780 8,293
Net income applicable to common stock 5,892 7,002 8,363 7,914
Primary earnings per common share
Income from continuing operations .38 .44 .51 .38
Income before extraordinary credit .38 .44 .51 .38
Extraordinary credit .04 .05 .08 .17
Net income .42 .49 .59 .55
Fully diluted earnings per common share
Income from continuing operations .32 .36 .42 .32
Income before extraordinary credit .32 .36 .42 .32
Extraordinary credit .03 .05 .06 .13
Net income .35 .41 .48 .45
</TABLE>
Earnings per share amounts for each quarter are computed independently
of earnings per share amounts for the year. All per share amounts prior to the
fourth quarter of 1993 have been restated to give retroactive effect to the 5%
stock dividend paid in December 1993.
Amounts previously reported as discontinued operations for the first
three quarters of 1993 have been reclassified to be consistent with the year
end presentation.
Insurance operations are typically not seasonal in nature. However, the
recognition of realized gains and losses on investments may vary from quarter
to quarter as indicated above. Fourth quarter 1992 operations include
additional amortization of deferred policy acquisition costs related to
realized gains on investments of $4,125,000.
<PAGE>
<PAGE> 50
NOTE M -- SUBSEQUENT EVENT (UNAUDITED)
On September 29, 1994, CCP II completed the Acquisition of the Company.
Pursuant to an Agreement and Plan of Merger, the Company's former stockholders
received $15.25 in cash per common equivalent share, plus the right to receive
up to another $2.00 in cash per common equivalent share based on the outcome
of the Company's pending litigation against the U. S. Government concerning the
Company's former savings bank subsidiary. CCP II is a Delaware limited
partnership which was formed by Conseco, Inc. ("Conseco") to invest in
acquisitions of annuity, life, and accident and health insurance companies and
related businesses. In connection with the Acquisition, the line of credit of
a subsidiary of the Company with a balance at the acquisition date of
approximately $54,800,000 was repaid.
The Acquisition will be accounted for as a purchase business combination
pursuant to which the reported values of the acquired assets and liabilities
of the Company are adjusted to their estimated fair values at the Acquisition
date. The Company incurred indebtedness aggregating $350 million to partially
finance the Acquisition. As such, future results of operations and the
financial condition of the Company may vary significantly from historical
reported results of operations and financial condition.
The Company and certain of the persons then serving on the Board of
Directors have been named in a purported class action suit commenced on May 3,
1994 relating to the Acquisition. The complainant seeks injunctive relief and
compensatory damages. The Company believes that such suit is without merit and
intends to contest it vigorously.
<PAGE>
<PAGE> 51
ITEM 7(b). PRO FORMA CONSOLIDATED FINANCIAL INFORMATION OF CONSECO, INC.
AND SUBSIDIARIES.
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Six Months Ended June 30, 1994
(Dollars in millions, except per share amounts)
(Unaudited)
Pro Forma Pro Forma
Conseco Adjustments
Before the Relating to
Statesman Statesman the Statesman Pro Forma
Acquisition Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income $633.9 $ 26.3 ($.2) (1) $660.0
Investment activity:
Net investment income 142.4 160.8 (.3) (2) 302.4
(.5) (2)
Net trading loss (2.4) (2.4)
Net realized gain (loss) (7.4) 5.1 (3.9) (2) (6.2)
Fee and commission revenue 28.1 28.1
Equity in earnings of CCP Insurance, Inc. 17.2 (.1) (2) 17.1
Equity in earnings of Western National
Corporation 20.3 20.3
Other income .2 2.7 2.9
----- ------ ---- -------
Total revenues 832.3 194.9 (5.0) 1,022.2
----- ------ ---- -------
Benefits and expenses:
Insurance policy benefits and change in
future policy benefits 476.7 16.3 493.0
Interest expense on annuities and financial
products 32.8 102.8 135.6
Interest expense on long-term debt 24.2 4.1 11.1 (3) 39.4
Interest expense on short-term debt 4.9 4.9
Amortization related to operations 64.0 19.5 1.4 (1) 87.2
2.3 (4)
Amortization and change in future policy
benefits related to realized gains (.3) 2.8 (1.8) (5) .7
Other operating costs and expenses 103.6 17.3 120.9
----- ------ ---- -------
Total benefits and expenses 705.9 162.8 13.0 881.7
----- ------ ---- -------
Income before income taxes, minority
interest and extraordinary charge 126.4 32.1 (18.0) 140.5
Income tax expense 37.7 10.3 (5.5) (6) 42.5
----- ------ ---- -------
(Continued on next page)
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
<PAGE>
<PAGE> 52
CONSECO, INC. AND SUBSIDIARIES
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENTS OF OPERATIONS
For the Six Months Ended June 30, 1994, continued
(Dollars in millions, except per share amounts)
(Unaudited)
Pro Forma Pro Forma
Conseco Adjustments
Before the Relating to
Statesman Statesman the Statesman Pro Forma
Acquisition Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Income before minority interest and
extraordinary charge 88.7 21.8 (12.5) 98.0
Less minority interest 22.6 4.5 .7 (7) 29.0
(1.1) (8)
2.3 (9)
------- ----- ------ -----
Income before extraordinary charge $ 66.1 $17.3 ($14.4) $69.0
======= ===== ====== =====
Earnings before extraordinary charge
per common share and common
equivalent share:
Primary:
Weighted average shares 27,396,000 27,396,000
========== ==========
Earnings before extraordinary
charge $2.07 $2.18
===== =====
Fully diluted:
Weighted average shares 31,905,000 31,905,000
========== ==========
Earnings before extraordinary
charge $2.07 $2.16
===== =====
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 53
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1993
(Dollars in millions, except per share amounts)
(unaudited)
Pro Forma Pro Forma
Conseco Adjustments
Before the Relating to
Statesman Statesman the Statesman Pro Forma
Acquisition Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income $1,272.7 $50.0 ($.4)(1) $1,322.3
Investment activity:
Net investment income 279.5 298.9 (.2)(2) 577.1
(1.1)(2)
Net trading income 44.9 44.9
Net realized gains 64.9 24.8 (13.0)(2) 76.7
Equity in earnings of CCP Insurance, Inc. 40.1 (.2)(2) 39.9
Equity in earnings of Western National
Corporation 47.4 47.4
Fee and commission revenue 41.5 41.5
Other income 1.4 5.5 6.9
------- ----- ----- -------
Total revenues 1,792.4 379.2 (14.9) 2,156.7
------- ----- ----- -------
Benefits and expenses:
Insurance policy benefits and change in future
policy benefits 943.2 31.7 974.9
Interest expense on annuities and financial
products 75.4 195.9 271.3
Interest expense on long-term debt 54.4 6.1 24.4 (3) 84.9
Interest expense on short-term debt 4.4 4.4
Amortization related to operations 134.2 31.7 4.4 (1) 174.9
4.6 (4)
Amortization and change in future policy
benefits related to realized gains 47.6 9.8 (3.2)(5) 54.2
Other operating costs and expenses 219.6 35.5 255.1
------- ----- ----- -------
Total benefits and expenses 1,478.8 310.7 30.2 1,819.7
------- ----- ----- -------
Income before income taxes, minority
interest and extraordinary charge 313.6 68.5 (45.1) 337.0
Income tax expense 99.0 22.5 (13.1) (6) 108.4
------- ----- ----- -------
(Continued on next page)
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 54
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 1993, continued
(Dollars in millions, except per share amounts)
(unaudited)
Pro Forma Pro Forma
Conseco Adjustments
Before the Relating to
Statesman Statesman the Statesman Pro Forma
Acquisition Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Income before minority interest and
extraordinary charge 214.6 46.0 (32.0) 228.6
Less minority interest 56.3 8.8 (.9) (7) 66.1
(2.2) (8)
4.1 (9)
------- ------- ------ --------
Income before extraordinary charge $ 158.3 $ 37.2 ($33.0) $ 162.5
======= ======= ====== ========
Earnings before extraordinary charge per common
share and common equivalent share:
Primary:
Weighted average shares 29,245,000 29,245,000
========== ==========
Earnings before extraordinary
charge $4.71 $4.85
===== =====
Fully diluted:
Weighted average shares 33,495,000 33,495,000
========== ==========
Earnings before extraordinary
charge $4.62 $4.75
===== =====
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 55
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1994
(Dollars in millions)
Pro Forma
Adjustments
Relating to
Conseco Statesman the Statesman Pro Forma
as Reported Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Assets
Investments:
Fixed maturities:
Actively managed $2,788.5 $2,612.0 $1,240.5 (10) $6,641.0
Held to maturity - 1,396.0 (1,240.5)(10) -
(155.5)(11)
Equity securities 14.7 22.6 37.3
Mortgage loans 77.2 71.0 .9 (11) 149.1
Credit-tenant loans 46.0 46.0
Policy loans 116.9 58.1 175.0
Investment in CCP Insurance, Inc. 218.1 218.1
Investment in Western National Corporation 193.1 193.1
Other invested assets 49.2 18.6 67.8
Trading account securities 27.8 27.8
Short-term investments 472.0 110.5 2.3 (12) 595.8
422.0 (12)
(380.8)(13)
(30.2)(14)
Assets held in separate accounts 73.7 10.7 84.4
-------- -------- ------ ---------
Total investments 4,077.2 4,299.5 (141.3) 8,235.4
Cash - 2.3 (2.3)(12) -
Accrued investment income 56.9 56.7 113.6
Reinsurance receivables 39.4 39.4
Deferred income taxes 48.0 45.3 14.8 (15) 108.1
Cost of policies purchased 621.6 478.2 (16) 1,099.8
Cost of policies produced 216.7 346.2 (346.2)(17) 216.7
Goodwill 316.0 2.8 244.3 (18) 563.1
Property and equipment 74.3 9.9 2.2 (11) 86.4
Securities segregated for the future
redemption of preferred stock of
wholly owned subsidiary - 36.9 (1.1)(11) 35.8
Other assets 149.3 20.2 (5.2)(19) 164.3
-------- -------- ------ ---------
Total assets $5,599.4 $4,819.8 $243.4 $10,662.6
======== ======== ====== =========
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 56
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED BALANCE SHEET
June 30, 1994
(Dollars in millions)
Pro Forma
Adjustments
Relating to
Conseco Statesman the Statesman Pro Forma
as Reported Historical Acquisition Conseco
----------- ---------- ----------- -------
<S> <C> <C> <C> <C>
Liabilities:
Insurance liabilities $3,527.6 $4,479.4 $8,007.0
Investment borrowings 189.7 189.7
Other liabilities 258.2 46.4 22.5 (20) 353.7
(3.5)(21)
30.1 (22)
Liabilities related to separate accounts 72.9 10.7 83.6
Long-term debt 230.5 230.5
Notes payable of CCP II entities, not
direct obligations of Conseco - 124.0 182.8 (23) 306.8
Notes payable of BLH, not direct
obligations of Conseco 279.7 279.7
-------- -------- -------- ---------
Total liabilities 4,558.6 4,660.5 231.9 9,451.0
-------- -------- -------- ---------
Minority interest 185.9 95.4 67.1 (24) 354.4
6.0 (25)
Redeemable preferred stock - 3.7 (3.7)(26) -
Shareholders' equity:
Preferred stock 287.5 287.5
Series Preferred Stock - .3 (.3)(26)
Common stock and additional
paid-in capital 172.4 65.5 (65.5)(26) 172.4
Unrealized depreciation (118.5) (99.9) 99.9 (26) (118.5)
Retained earnings 513.5 94.3 (94.3)(26) 515.8
2.3 (14)
-------- -------- -------- ---------
Total shareholders' equity 854.9 60.2 (57.9) 857.2
-------- -------- -------- ---------
Total liabilities and
shareholders' equity $5,599.4 $4,819.8 $ 243.4 $10,662.6
======== ======== ======== =========
<FN>
The accompanying notes are an integral part of the pro forma consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 57
CONSECO, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA
CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
On September 29, 1994, Conseco Capital Partners II, L.P. ("CCP II"), a
Delaware limited partnership, completed the acquisition (the "Acquisition") of
The Statesman Group, Inc. ("Statesman"). After the Acquisition and related
financing transactions, CCP II owns approximately 80 percent of the outstanding
shares of Statesman's common stock. Conseco, Inc. ("Conseco") formed CCP II
in February 1994 with several other investors for the purpose of investing in
acquisitions of annuity, life and accident and health insurance companies and
related businesses. Conseco Partnership Management, Inc., a wholly owned
subsidiary of Conseco, is the sole general partner of CCP II. Because a
subsidiary of Conseco is the sole general partner of CCP II, Conseco controls
CCP II and Statesman. Accordingly, Conseco's consolidated financial statements
will include the accounts of CCP II and Statesman. Conseco, through its direct
investment and through its equity interest in the investments made by Bankers
Life Holding Corporation ("BLH"), CCP Insurance, Inc. ("CCP Insurance") and
Western National Corporation ("WNC"), has a 27 percent ownership interest in
Statesman. The remaining 73 percent ownership interest in Statesman is
described as the "Statesman Minority Interest."
The unaudited pro forma consolidated statements of operations of Conseco
for the year ended December 31, 1993, and the six months ended June 30, 1994,
present the consolidated operating results for Conseco as if the Acquisition
had occurred on January 1, 1993. The unaudited pro forma consolidated balance
sheet as of June 30, 1994, gives effect to the Acquisition as if it had
occurred on June 30, 1994. The historical statement of operations data for
Conseco set forth in the unaudited pro forma consolidated statements of
operations for the year ended December 31, 1993, and for the six months ended
June 30, 1994, under the column "Pro Forma Conseco Before the Statesman
Acquisition", to which the pro forma adjustments for the Acquisition are being
applied, already reflect the prior application of certain pro forma adjustments
for the following transactions, all of which occurred prior to June 30, 1994,
as if such transactions had occurred on January 1, 1993: the initial public
offering of WNC, the initial public offering of BLH, the purchase by Conseco
of 13.3 million additional shares of BLH common stock in September 1993 and the
purchase by Conseco of 2.0 million additional shares of CCP Insurance common
stock in September 1993. These pro forma adjustments are set forth in Exhibit
99.1 to Conseco's Form 10-Q for the quarterly period ended June 30, 1994.
The unaudited pro forma consolidated financial statements should be read
in conjunction with the accompanying notes, the historical financial statements
and notes thereto of Conseco, the historical financial statements of Statesman
as of June 30, 1994, and for the six months then ended and for the year ended
December 31, 1993 included in Item 7(a) herein, and the unaudited pro forma
financial information of Conseco as of June 30, 1994, and for the six months
then ended and for the year ended December 31, 1993, contained in Exhibit 99.1
to Conseco's Form 10-Q for the quarterly period ended June 30, 1994. Certain
amounts from the prior periods have been reclassified to conform to the current
presentation.
PRO FORMA ADJUSTMENTS
Transactions Relating to the Acquisition of Statesman
The Acquisition was consummated pursuant to an Agreement and Plan of
Merger dated May 1, 1994, providing for the merger of Statesman with a
subsidiary of CCP II. Statesman's former stockholders received $15.25 in cash
per common equivalent share plus a contingent payment right to receive up to
another $2.00 in cash per common equivalent share ("the Contingent
Consideration") based on the outcome of Statesman's pending litigation against
the U.S. Government concerning Statesman's former savings bank subsidiary (the
"Government Litigation").
<PAGE>
<PAGE> 58
The Acquisition and related transactions were funded with: (i) $45.0
million of cash contributions made to CCP II by its partners (including $7.2
million provided by wholly owned subsidiaries of Conseco, $1.8 million by BLH,
$1.8 million by CCP Insurance and $3.6 million by WNC), (ii) $57.0 million in
cash from the sale in a private placement of the payment-in-kind preferred
stock of Statesman (the "Statesman PIK Preferred Stock") (including $25.9
million purchased by BLH and $24.0 million purchased by CCP Insurance), (iii)
$150.0 million in cash from the sale in a public offering by ALHC Merger
Corporation, a subsidiary of CCP II which was merged into American Life Holding
Company ("ALHC"), a wholly owned subsidiary of Statesman, of its 11-1/4% Senior
Subordinated Notes due 2004 (the "ALHC Senior Subordinated Notes") and (iv)
$200.0 million in cash from a senior secured loan (the "ALHC Senior Term Loan")
obtained by ALHC Merger Corporation (collectively referred to herein as the
"Statesman Financing"). The sources and uses of this financing are summarized
below (dollars in millions).
<TABLE>
<S> <C>
Sources of Funds:
ALHC Senior Term Loan:
Borrowed upon closing of the Acquisition $170.0
Borrowed upon determination of Government Litigation 30.0 (i)
ALHC Senior Subordinated Notes 150.0
Statesman PIK Preferred Stock 57.0
Common equity contribution from CCP II 45.0
------
Total sources $452.0
======
Uses of Funds:
Payment of cash consideration to acquire Statesman $314.1 (ii)
Payment upon determination of Government Litigation 30.1 (i)
Repayment of bank indebtedness of a subsidiary of Statesman 55.5 (iii)
Transaction fees and expenses 14.8
Purchase of surplus note from American Life and Casualty
Insurance Company ("American Life"), Statesman's
principal operating subsidiary 24.0
Cash retained 13.5
------
Total uses $452.0
======
<FN>
(i) In the event of an unfavorable determination of the Government
Litigation, $30.1 million would be paid to the holders of Statesman's
1988 Series I and II Preferred Stock $1 Par (the "Statesman 1988 Series
Preferred Stock"), which is currently held by the U.S. Government. In
the event of a favorable determination of this litigation, the same
amount, representing a portion of the Contingent Consideration, would
be paid to the other former stockholders of Statesman.
(ii) This amount assumes conversion of all outstanding 6-1/4% Convertible
Subordinated Debentures due 2003 of Statesman (the "Convertible
Debentures"), which are convertible into an aggregate of 4,528,125
shares of Statesman common stock. To the extent that any holders of
the Convertible Debentures do not convert such securities, the
proceeds which would have been used to pay such holders will be held
in escrow until the Convertible Debentures are converted by the
holders, are redeemed by Statesman, or mature.
(iii) A subsidiary of Statesman was the borrower under a credit facility with
an outstanding balance of $51.9 million at June 30, 1994. The
outstanding balance under this facility (which totalled $55.5 million
at the Acquisition date) was repaid with a portion of the proceeds from
the Statesman Financing.
</TABLE>
<PAGE>
<PAGE> 59
The pro forma adjustments are applied to the historical consolidated
financial statements of Conseco and Statesman to account for the Acquisition
using the purchase method of accounting. Under purchase accounting, the total
purchase cost of Statesman will be allocated to the assets and liabilities
acquired based on their relative fair values as of the date of acquisition,
with any excess of the total purchase cost over the fair value of the assets
acquired less the fair value of the liabilities assumed recorded as goodwill.
The cost allocations will be based on appraisals and other studies, which are
not yet completed. Accordingly, the final allocations will be different from
the amounts reflected herein. Although the final allocations will differ, the
pro forma consolidated financial statements reflect management's best estimate
based on currently available information.
Adjustments to give effect to the Acquisition and related transactions
are summarized as follows:
(1) Amortization of deferred acquisition costs and the recognition of
deferred revenues for policies sold by Statesman prior to January 1, 1993, are
replaced with the amortization of cost of policies purchased (amortized in
relation to estimated profits on the policies purchased with interest equal
to the liability or contract rates ranging from 5.3% to 8.2%). See Note 16
below.
(2) Net investment income and net realized gains of Statesman are
adjusted to include the effect of the restatement of (i) fixed maturities, (ii)
mortgage loan investments and (iii) interest rate swap and collar agreements
to estimated fair value as of January 1, 1993, the assumed date of the
Acquisition. The reported value and estimated fair value of fixed maturities,
mortgage loan investments and interest rate swap and collar agreements as of
January 1, 1993, are as follows (dollars in millions):
<TABLE>
<CAPTION>
Reported Estimated
Value Fair Value
----- ----------
<S> <C> <C>
Fixed maturities $2,910.6 $2,980.0
Mortgage loan investments 87.1 88.2
Interest rate swap and collar agreements (.7) (7.5)
</TABLE>
In addition, net investment income is reduced to reflect the reduction
in short-term investments in connection with the purchase of investments in CCP
II and the Statesman PIK Preferred Stock by Conseco and its consolidated
subsidiaries. Additionally, equity in earnings of CCP Insurance is reduced to
reflect the reduction in net investment income as a result of its investment
in CCP II and the Statesman PIK Preferred Stock.
No additional investment income is assumed to be earned on the cash
retained from the proceeds of the Statesman Financing after payment of the
costs of the Acquisition and related transactions. Pro forma net realized gain
(loss) represents the difference between (i) the actual proceeds from the sales
of investments and (ii) the fair value of the investments as of the assumed
date of the Acquisition, adjusted for the accretion of discount or premium
based on the new cost basis.
<PAGE>
<PAGE> 60
(3) Interest expense is adjusted to reflect the following transactions
as if they occurred as of the assumed date of the Acquisition:
<TABLE>
<CAPTION>
Six Months
Year Ended Ended
December 31, 1993 June 30, 1994
----------------- -------------
<S> <C> <C>
Use of proceeds to repay certain bank
indebtedness of a subsidiary of Statesman $(2.4) $(1.6)
The assumed conversion of all of the Convertible Debentures (3.3) (2.4)
The borrowings under the ALHC Senior Term Loan (i) 12.1 6.1
The issuance of the ALHC Senior Subordinated Notes (ii) 16.9 8.4
Amortization of debt issuance costs (iii) 1.1 .6
----- -----
$24.4 $11.1
===== =====
<FN>
(i) Based on borrowings of $170.0 million ($130.0 million at an
assumed interest rate of 7.0% and $40.0 million at an assumed
interest rate of 7.5%).
(ii) Based on a principal amount of $150.0 million at an assumed
interest rate of 11.25%.
(iii) Based on debt issuance costs of $6.8 million and $8.0 million
related to the ALHC Senior Subordinated Notes and the ALHC
Senior Term Loan, respectively, which are amortized at a level
yield over the term of such debt.
</TABLE>
A change in interest rates on the ALHC Senior Term Loan of .5% would
result in (i) an increase (or decrease) in pro forma interest expense of $.9
million and $.4 million for the year ended December 31, 1993 and the six months
ended June 30, 1994, respectively, and (ii) a decrease (or increase) in pro
forma net income of $.1 million and $.1 million for the same respective
periods. Under the terms of the ALHC Senior Term Loan, $30 million will remain
available to borrow at a later date when needed to pay a portion of the
Contingent Consideration or to pay to the holders of the Statesman 1988 Series
Preferred Stock upon the determination of the Government Litigation. If such
$30 million were outstanding during 1993 and the six months ended June 30, 1994
(with an assumed interest rate of 7.0% during such periods), pro forma interest
expense would increase by $2.1 million and $1.1 million, respectively, and pro
forma net income would decrease by $.3 million and $.2 million, respectively.
(4) Amortization of goodwill calculated as of January 1, 1993 is
recognized over a 40-year period on a straight-line basis.
(5) Anticipated returns, including realized gains and losses, from the
investment of policyholder balances are considered in determining the
amortization of the cost of policies purchased. Amortization of cost of
policies purchased is adjusted to reflect amortization related to pro forma
realized gains by Statesman during the period.
(6) All applicable pro forma adjustments to operations are tax effected
at the appropriate rate. Additionally, for the year ended December 31, 1993,
income tax expense is increased by $1.1 million to reflect the effect of the
increase in the corporate income tax rate to 35% from 34% on adjustments to
deferred income tax liabilities resulting from pro forma adjustments.
(7) The Statesman Minority Interest in the earnings of Statesman is
recognized.
<PAGE>
<PAGE> 61
(8) After the Acquisition, investment advisory services are provided to
Statesman by a subsidiary of Conseco. Statesman's historical net investment
income is not reduced to reflect the advisory fees to be paid under the
agreement in excess of investment expenses incurred prior to the Acquisition,
since, in accordance with GAAP, such intercompany fees are eliminated in
consolidation. Minority interest, however, is adjusted to charge the Statesman
Minority Interest for its portion of such investment advisory fees. Net
investment income is not increased to reflect any additional investment income
and realized gains which may be earned as a result of services provided by the
Conseco subsidiary.
(9) All investors in the Statesman PIK Preferred Stock, other than BLH
and CCP Insurance to the extent of Conseco's interest therein, have
approximately a 56 percent ownership interest in such Statesman PIK Preferred
Stock (the "Statesman PIK Preferred Minority Interest"). Income is reduced to
reflect the dividends accrued on the Statesman PIK Preferred Stock attributable
to the Statesman PIK Preferred Minority Interest.
(10) After the Acquisition, all existing fixed maturity investments are
classified as available-for-sale. Fixed maturities previously classified as
held-to-maturity are reclassified as available-for-sale.
(11) Statesman's fixed maturity investments, mortgage loans, property
and equipment and securities segregated for the future redemption of preferred
stock of a wholly owned subsidiary are restated to market value as of the
assumed date of the Acquisition.
(12) After the Acquisition, all cash is invested in short-term
investments. Short-term investments are increased to reflect the gross
proceeds from the Statesman Financing.
(13) Short-term investments are reduced for the amounts distributed
related to the Acquisition.
(14) Short-term investments are reduced to reflect the investment of
Conseco and its consolidated subsidiaries in CCP II related to the Acquisition
and in Statesman PIK Preferred Stock, offset by fees of $4.9 million paid to
Conseco. Retained earnings is increased by $2.3 million to reflect net income
attributable to the fees collected from the Statesman Minority Interest.
(15) All of the applicable pro forma balance sheet adjustments are tax
effected at the appropriate rate.
(16) Cost of policies purchased reflects the estimated fair value of
the business in force and represents the portion of the cost to acquire
Statesman that is allocated to the value of the right to receive future cash
flows from insurance contracts existing as of the assumed date of the
Acquisition. Such value is the present value of the actuarially determined
projected cash flows from the acquired policies.
The 15% discount rate used to determine such value is the rate of return
required by CCP II to invest in the business being acquired. In determining
such rate of return, the following factors are considered:
-- The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows.
-- Cost of capital available to fund the acquisition.
-- The perceived likelihood of changes in insurance regulations and
tax laws.
-- Complexity of the acquired company.
-- Prices paid (i.e., discount rates used in determining
valuations) on similar blocks of business sold recently.
<PAGE>
<PAGE> 62
The value allocated to cost of policies purchased is based on a
preliminary valuation; accordingly, this allocation may be adjusted upon final
determination of such value. On a pro forma basis, assuming that the
Acquisition occurred as of June 30, 1994, expected gross amortization using
current assumptions and accretion of interest based on an interest rate equal
to the liability or contract rate (such rates ranging from 5.3% to 7.7%) for
each of the years in the five-year period ending June 30, 1999 is as follows
(dollars in millions):
<TABLE>
<CAPTION>
Year ended Beginning Gross Accretion Net Ending
June 30 Balance Amortization of Interest Amortization Balance
------- ------- ------------ ----------- ------------ -------
<S> <C> <C> <C> <C> <C>
1995 $478.2 $68.5 $24.9 $43.6 $434.6
1996 434.6 69.6 22.0 47.6 387.0
1997 387.0 65.7 19.5 46.2 340.8
1998 340.8 61.4 17.1 44.3 296.5
1999 296.5 56.2 14.8 41.4 255.1
</TABLE>
(17) Deferred acquisition costs of Statesman are eliminated since such
amounts are reflected in the determination of the cost of policies purchased.
(18) Goodwill reflects the excess of cost of investment in Statesman
over the net assets acquired.
(19) Several deferred costs of Statesman that are not relevant after
the acquisition are eliminated as of the assumed date of the Acquisition.
(20) A liability is established to reflect the fair value of interest
rate swap and collar agreements of Statesman outstanding as of the assumed date
of the Acquisition. The fair value was determined based on estimates obtained
from an unaffiliated dealer in such instruments.
(21) Deferred revenues on certain life insurance and annuity policies
of Statesman are eliminated, since such amounts are reflected in the
determination of the cost of policies purchased.
(22) A liability is established for the amount payable when the outcome
of the Government Litigation is determined.
(23) Long-term debt is reduced as of June 30, 1994 to reflect the
repayment of the bank debt of a subsidiary of Statesman (with a principal
balance as of June 30, 1994 of $51.9 million), repayment of notes payable
issued by Statesman's employee stock ownership plan (principal balance as of
June 30, 1994 of $4.0 million) and the assumed conversion and retirement of the
Convertible Debentures. Additionally, long-term debt is increased to reflect
(i) $170.0 million gross proceeds from the ALHC Senior Term Loan and (ii)
$150.0 million gross proceeds from the ALHC Senior Subordinated Notes, reduced
by $14.8 million to reflect the costs associated with the issuance of such
debt. Under the terms of the ALHC Senior Term Loan, $30.0 million will remain
available to borrow when needed to pay a portion of the Contingent
Consideration or to pay to the holder of the Statesman 1988 Series Preferred
Stock upon the determination of the Government Litigation. See Note 22 above.
(24) An adjustment is made to reflect the Statesman Minority Interest
in the common equity of Statesman and the Statesman PIK Preferred Minority
Interest related to the Statesman PIK Preferred Stock.
(25) The carrying value of the preferred stock of a wholly owned
subsidiary of Statesman is adjusted to its estimated fair value as of the
assumed date of the Acquisition.
(26) The prior shareholders' equity and the redeemable preferred stock
of Statesman are eliminated in conjunction with the Acquisition and related
transactions.<PAGE>
<PAGE> 63
ITEM 7(c). EXHIBIT.
(c) Exhibits
2.1 Agreement and Plan of Merger dated as of May 1,
1994 by and among Conseco Capital Partners II,
L.P., CCP II Acquisition Company and The
Statesman Group, Inc.
4.12 Indenture dated as of September 29, 1994
between ALHC Merger Corporation and LTCB Trust
Company and First Supplemental Indenture dated
as of September 29, 1994 between American Life
Holding Company and the Trustees for the 11-1/4%
Senior Subordinated Notes due 2004.
The document defining the rights of the holders
of the Senior Term Loan obtained by ALHC Merger
Corporation (the "ALHC Senior Term Loan") as
described in Item 2 has been omitted as an
exhibit to the Form 8-K, pursuant to Item
601(b)(4)(iii) of Regulation S-K, because the
total amount of the ALHC Senior Term Loan is
less than 10 percent of the total assets of the
Registrant and its subsidiaries on a
consolidated basis. The Registrant hereby
undertakes to furnish copies of such documents
to the Commission upon request.
<PAGE>
<PAGE> 64
CONSECO, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
CONSECO, INC.
Dated: October 13, 1994 By: /s/ ROLLIN M. DICK
--------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and
principal financial officer)
<PAGE> 1
AGREEMENT AND PLAN OF MERGER
DATED AS OF May 1, 1994
By and Among
CONSECO CAPITAL PARTNERS II, L.P.,
CCP II ACQUISITION COMPANY
and
THE STATESMAN GROUP, INC.
<PAGE>
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE I DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . 6
ARTICLE II THE MERGER
2.1 The Merger. . . . . . . . . . . . . . . . . 6
2.2 Effective Time. . . . . . . . . . . . . . . 7
2.3 Effects of the Merger . . . . . . . . . . . 7
2.4 Certificate of Incorporation. . . . . . . . 7
2.5 By-Laws . . . . . . . . . . . . . . . . . . 8
2.6 Directors . . . . . . . . . . . . . . . . . 8
2.7 Officers. . . . . . . . . . . . . . . . . . 8
2.8 Conversion of Shares, Preferred, Stock,
Options and SARs. . . . . . . . . . . . . . 8
2.9 Contingent Payment Rights . . . . . . . . . 9
2.10 Appraisal Shares. . . . . . . . . . . . . . 20
2.11 Conversion of CCP II Acquisition
Common Stock. . . . . . . . . . . . . . . . 20
2.12 Shareholders' Meeting . . . . . . . . . . . 20
2.13 Exchange of Shares. . . . . . . . . . . . . 22
2.14 Closing . . . . . . . . . . . . . . . . . . 23
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY
3.1 Organization of the Company and
its Subsidiaries. . . . . . . . . . . . . . 24
3.2 Authority of the Company. . . . . . . . . . 24
3.3 Capital Stock . . . . . . . . . . . . . . . 25
3.4 Subsidiaries. . . . . . . . . . . . . . . . 25
3.5 Conflicts or Violations . . . . . . . . . . 26
3.6 SAP Statements. . . . . . . . . . . . . . . 27
3.7 Reserves. . . . . . . . . . . . . . . . . . 27
3.8 SEC Documents; No Undisclosed
Liabilities . . . . . . . . . . . . . . . . 28
3.9 Absence of Changes. . . . . . . . . . . . . 28
3.10 Taxes . . . . . . . . . . . . . . . . . . . 30
3.11 Litigation. . . . . . . . . . . . . . . . . 31
3.12 Compliance With Laws. . . . . . . . . . . . 32
3.13 Benefit Plans, ERISA. . . . . . . . . . . . 32
3.14 Properties. . . . . . . . . . . . . . . . . 33
3.15 Contracts . . . . . . . . . . . . . . . . . 33
3.16 Insurance Issued by Insurance
Subsidiaries. . . . . . . . . . . . . . . . 34
3.17 Licenses and Permits. . . . . . . . . . . . 34
</TABLE>
(i)
<PAGE>
<PAGE> 3
<TABLE>
<CAPTION>
Page
----
<S> <C>
3.18 Actuarial Report. . . . . . . . . . . . . . 35
3.19 Opinion of Financial Adviser. . . . . . . . 35
3.20 Brokers . . . . . . . . . . . . . . . . . . 35
3.21 Proxy Statement . . . . . . . . . . . . . . 35
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF CCP II AND
CCP II ACQUISITION
4.1 Organization of CCP II and
CCP II Acquisition. . . . . . . . . . . . . 36
4.2 Authority of CCP II and
CCP II Acquisition. . . . . . . . . . . . . 36
4.3 Conflicts or Violations . . . . . . . . . . 36
4.4 Litigation. . . . . . . . . . . . . . . . . 38
4.5 Financing . . . . . . . . . . . . . . . . . 38
4.6 No Regulatory Disqualifiers . . . . . . . . 38
4.7 Brokers . . . . . . . . . . . . . . . . . . 38
4.8 Proxy Statement . . . . . . . . . . . . . . 38
ARTICLE V COVENANTS OF THE COMPANY
5.1 Regulatory and Other Approvals. . . . . . . 38
5.2 HSR Filings . . . . . . . . . . . . . . . . 39
5.3 Investigation by CCP II . . . . . . . . . . 39
5.4 No Negotiations, etc. . . . . . . . . . . . 39
5.5 Conduct of Business . . . . . . . . . . . . 40
5.6 Financial Statements, Reports and
SEC Filings . . . . . . . . . . . . . . . . 41
5.7 Investments . . . . . . . . . . . . . . . . 42
5.8 Employee Matters. . . . . . . . . . . . . . 42
5.9 No Charter Amendments . . . . . . . . . . . 43
5.10 No Issuance of Securities . . . . . . . . . 43
5.11 No Dividends. . . . . . . . . . . . . . . . 43
5.12 No Disposal of Property . . . . . . . . . . 44
5.13 No Breach or Default. . . . . . . . . . . . 44
5.14 No Indebtedness . . . . . . . . . . . . . . 44
5.15 No Acquisitions . . . . . . . . . . . . . . 44
5.16 Resignations of Directors . . . . . . . . . 44
5.17 Tax Matters . . . . . . . . . . . . . . . . 44
5.18 Appraisal Rights. . . . . . . . . . . . . . 45
5.19 The ESOP. . . . . . . . . . . . . . . . . . 45
5.20 Notice. . . . . . . . . . . . . . . . . . . 46
</TABLE>
(ii)<PAGE>
<PAGE> 4
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE VI COVENANTS OF CCP II AND CCP II ACQUISITION
6.1 Regulatory and Other Approvals. . . . . . . 46
6.2 HSR Filings . . . . . . . . . . . . . . . . 46
6.3 Notice. . . . . . . . . . . . . . . . . . . 46
6.4 Indemnification . . . . . . . . . . . . . . 47
6.5 Employment Continuation Agreements. . . . . 48
6.6 Guarantee of Performance. . . . . . . . . . 49
6.7 The ESOP. . . . . . . . . . . . . . . . . . 49
ARTICLE VII CONDITIONS TO OBLIGATIONS OF CCP II AND
CCP II ACQUISITION
7.1 Representations and Warranties. . . . . . . 50
7.2 Performance . . . . . . . . . . . . . . . . 50
7.3 Officer's Certificates. . . . . . . . . . . 50
7.4 HSR Act Approval. . . . . . . . . . . . . . 51
7.5 No Injunction . . . . . . . . . . . . . . . 51
7.6 Consents, Authorizations, etc.. . . . . . . 51
7.7 Appraisal Shares. . . . . . . . . . . . . . 51
ARTICLE VIII CONDITIONS TO OBLIGATIONS OF COMPANY
8.1 Representations and Warranties. . . . . . . 51
8.2 Performance . . . . . . . . . . . . . . . . 52
8.3 Officer's Certificates. . . . . . . . . . . 52
8.4 HSR Act Approval. . . . . . . . . . . . . . 52
8.5 No Injunction . . . . . . . . . . . . . . . 52
8.6 Consents, Authorizations, etc.. . . . . . . 52
ARTICLE IX SURVIVAL OF PROVISIONS
9.1 Survival. . . . . . . . . . . . . . . . . . 53
ARTICLE X TERMINATION
10.1 Termination . . . . . . . . . . . . . . . . 53
10.2 Effect of Termination . . . . . . . . . . . 54
ARTICLE XI NOTICES
11.1 Notices . . . . . . . . . . . . . . . . . . 54
</TABLE>
(iii)<PAGE>
<PAGE> 5
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE XII MISCELLANEOUS
12.1 Entire Agreement. . . . . . . . . . . . . . 55
12.2 Expenses. . . . . . . . . . . . . . . . . . 56
12.3 Public Announcements. . . . . . . . . . . . 56
12.4 Confidentiality . . . . . . . . . . . . . . 56
12.5 Waiver. . . . . . . . . . . . . . . . . . . 56
12.6 Amendment . . . . . . . . . . . . . . . . . 57
12.7 Counterparts. . . . . . . . . . . . . . . . 57
12.8 No Third Party Beneficiary. . . . . . . . . 57
12.9 Governing Law . . . . . . . . . . . . . . . 57
12.10 Binding Effect. . . . . . . . . . . . . . . 57
12.11 Assignment Limited. . . . . . . . . . . . . 57
12.12 Headings, Gender, etc.. . . . . . . . . . . 57
12.13 Invalid Provisions. . . . . . . . . . . . . 57
</TABLE>
(iv)<PAGE>
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (the "Agreement") is made
and entered into as of May 1, 1994 by and among CONSECO CAPITAL
PARTNERS II, L.P., a Delaware limited partnership ("CCP II"), CCP
II ACQUISITION COMPANY, a Delaware corporation and wholly-owned
subsidiary of CCP II ("CCP II Acquisition"), and THE STATESMAN
GROUP, INC., a Delaware corporation (the "Company"). CCP II
Acquisition and the Company are sometimes referred to collectively
herein as the "Constituent Corporations."
PREAMBLE
WHEREAS, the respective Boards of Directors of Conseco
Partnership Management, Inc., an Indiana corporation and the sole
general partner of CCP II ("CPMI"), CCP II Acquisition and the
Company have approved the merger of CCP II Acquisition with and
into the Company, upon the terms and subject to the conditions set
forth herein; and
WHEREAS, CPMI, CCP II, CCP II Acquisition and the Company
desire to make certain representations, warranties, covenants and
agreements in connection with such merger and also to prescribe
various conditions to such merger;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and
valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. The capitalized terms used in this
Agreement and not defined herein shall have the meanings specified
in Exhibit A. Unless the context otherwise requires, such
capitalized terms shall include the singular and plural and the
conjunctive and disjunctive forms of the terms defined.
ARTICLE II
THE MERGER
2.1 The Merger. Subject to the terms and conditions of this
Agreement, at the Effective Time (as such term is defined in
Section 2.2 hereof), CCP II Acquisition shall be merged with and
into the Company (the "Merger") in accordance with the Delaware
General Corporation Law (the "Delaware Code") and the separate
corporate existence of CCP II Acquisition shall cease and the
Company shall continue as the surviving corporation under the laws
of the State of Delaware under the name "The Statesman Group, Inc."
(the "Surviving Corporation") with all the rights, privileges,
immunities and powers, and subject to all the duties and
liabilities, of a corporation organized under the Delaware Code.
<PAGE>
<PAGE> 7
2.2 Effective Time. The Merger shall be effected as promptly
as practicable after satisfaction or, if permissible, waiver of the
Conditions set forth in Article VII and Article VIII and in no
event later than 10 business days thereafter, by the filing of a
duly executed Certificate of Merger in proper form required by the
Delaware Code with the Secretary of State of the State of Delaware.
When used in this Agreement, the term "Effective Time" shall mean
the date and time at which the Certificate of Merger is filed with
the Secretary of State of the State of Delaware.
2.3. Effects of the Merger. At the Effective Time, the
separate existence of CCP II Acquisition shall cease and the
Constituent Corporations shall be merged into the Surviving
Corporation, with the Surviving Corporation possessing all the
rights, privileges, powers and franchises of both a public and
private nature, and being subject to all the restrictions,
disabilities and duties of each of such corporations so merged; and
all the rights, privileges, powers and franchises of each of the
Constituent Corporations, and all property, real, personal and
mixed, and all debts due to any of said Constituent Corporations on
whatever account, as well for stock subscriptions as all other
things in action or belonging to each of such Constituent
Corporations shall be vested in the Surviving Corporation; and all
property, rights, privileges, powers and franchises, and all other
interests shall be thereafter as effectually the property of the
Surviving Corporation as they were of the several and respective
Constituent Corporations, and the title to any real estate vested
by deed or otherwise, under the laws of the State of Delaware, in
any of such Constituent Corporations, shall not revert or in any
way be impaired by reason of the Merger. All rights of creditors
and all liens upon any property of any of the Constituent
Corporations shall be preserved unimpaired, and all debts,
liabilities, and duties of the respective Constituent Corporations
shall attach to the Surviving Corporation, and may be enforced
against it to the same extent as if said debts, liabilities and
duties had been incurred or contracted by it. The Surviving
Corporation shall be substituted in any action or proceeding,
whether civil, criminal or administrative, pending by or against
any of the Constituent Corporations.
2.4 Certificate of Incorporation. The Certificate of
Incorporation of the Company, as in effect immediately prior to the
Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by Law.
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<PAGE> 8
2.5 By-Laws. The By-Laws of the Company, as in effect
immediately prior to the Effective Time, shall be the By-Laws of
the Surviving Corporation until thereafter amended as provided by
Law.
2.6 Directors. The directors of CCP II Acquisition at the
Effective Time shall be the directors of the Surviving Corporation
and will hold office from the Effective Time until their respective
successors are duly elected or appointed and qualify in the manner
provided in the Certificate of Incorporation and By-Laws of the
Surviving Corporation, or as otherwise provided by Law.
2.7 Officers. The officers of the Company at the Effective
Time shall be the officers of the Surviving Corporation.
2.8 Conversion of Shares, Preferred Stock, Options and SARs.
(a) Each of the Shares issued and outstanding immediately prior to
the Effective Time (other than Shares held as treasury shares by
the Company or held by any direct or indirect majority-owned
subsidiary of the Company and other than Appraisal Shares, as
defined in Section 2.10 hereof) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted
into (i) a right to receive $15.25 in cash (the "Cash Merger
Consideration") payable to the holder thereof, without interest
thereon, upon surrender of the certificate representing such Share
or Shares at any time after the Effective Time and (ii) a right to
receive a contingent right to receive up to $2.00 in future cash
distributions as set forth in Section 2.9 hereof (a "Contingent
Payment Right").
(b) Each Share issued and outstanding immediately prior to
the Effective Time which is then held as a treasury share by the
Company immediately prior to the Effective Time shall, by virtue of
the Merger and without any action on the part of the Company, be
canceled and retired and cease to exist, without any conversion
thereof. Each Share issued and outstanding prior to the Effective
Time which is then held by any direct or indirect majority-owned
subsidiary of the Company shall remain outstanding and shall not be
entitled to receive the consideration set forth in Section 2.8(a).
(c) Each Option outstanding immediately prior to the
Effective Time, whether or not such Option is then vested or
exercisable, shall, by virtue of the Merger and without any action
on the part of the holder thereof, be canceled and converted into
(i) the right to receive in cash an amount equal to (x) the
difference between (A) the Cash Merger Consideration and (B) the
exercise price of such Option multiplied by (y) the number of
Shares covered by the Option and (ii) the right to receive a
Contingent Payment Right for each Share covered by the Option.
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<PAGE> 9
(d) Each SAR outstanding immediately prior to the Effective
Time, whether or not such SAR is then vested or exercisable, shall,
by virtue of the Merger and without any action on the part of the
holder thereof, be canceled and converted into (i) the right to
receive in cash an amount equal to (x) the difference between (A)
the Cash Merger Consideration and (B) the exercise price of such
SAR multiplied by (y) the number of Shares subject to such SAR and
(ii) the right to receive a Contingent Payment Right for each Share
subject to such SAR.
(e) Prior to the Effective Time, the Company shall (i) use
its best efforts to obtain any consents from holders of Options and
SARs granted under the Company's stock or compensation plans or
arrangements, and (ii) make any amendments to the terms of such
stock or compensation plans or arrangements that, in the case of
either clauses (i) or (ii), are necessary to give effect to the
conversions contemplated by Section 2.8(c) and (d).
Notwithstanding any other provision of this Section 2.8, payment
may be withheld in respect of any Option or SAR until any necessary
consents are obtained.
(f) Each share of 1976 Series Preferred Stock $1 Par (the
"1976 Series Preferred Shares") and 1987 Series II Preferred Stock
$1 Par (the "1987 Series Preferred Shares") issued and outstanding
immediately prior to the Effective Time (other than shares held as
treasury shares by the Company or Appraisal Shares) shall, by
virtue of the Merger and without any action on the part of the
holder thereof, be converted into (i) the right to receive, in
cash, (x) the Cash Merger Consideration multiplied by (y) the
number of Shares into which such 1976 Series Preferred Share or
1987 Series Preferred Share, as the case may be, was convertible
immediately prior to the Effective Time pursuant to the terms of
the applicable certificate of designations for such 1976 Series
Preferred Share or 1987 Series Preferred Share, as the case may be,
payable to the holder thereof, without interest thereon, upon
surrender of the certificate representing such share and (ii) the
right to receive a Contingent Payment Right for each Share into
which such 1976 Series Preferred Share or 1987 Series Preferred
Share, as the case may be, was convertible immediately prior to the
Effective Time.
2.9 Contingent Payment Rights. (a)Appointment of Trustee;
Issuance of the Note. Prior to the Effective Time, the Company
shall appoint a trustee (the "Trustee"), to serve as such from and
after the Effective Time, for the Persons entitled to receive Con-
tingent Payment Rights (the "Rights Holders") pursuant to Section
2.8. At the Effective Time, the Surviving Corporation shall deliv-
er to the Trustee for the benefit of the Rights Holders a contin-
gent payment note (the "Note"), a form of which is attached hereto
as Exhibit B. The Trustee shall hold, receive and make payments
with respect to the Note as provided in a note trust agreement (the
"Note Trust Agreement") which shall provide for the matters set
forth in this Section 2.9 and otherwise shall be on terms reason-
ably satisfactory to CCP II and the Company and which shall be
entered into on or before the Effective Time.
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<PAGE> 10
(b) Nature of the Rights. The Contingent Payment Rights
shall be non-transferable (other than pursuant to the laws of
descent and distribution or by operation of law or by the trustee
of any Benefit Plan to any participant or successor Benefit Plan
pursuant to the operation of such plan), shall be governed solely
by the terms of this Agreement, the Note and the Note Trust Agree-
ment and shall not be represented by any certificate or other
instrument.
(c) Principal Balance of the Note and Adjustments. The
outstanding principal balance of the Note (the "Principal Balance")
shall initially be $46,000,000 and shall not bear interest. The
Principal Balance shall be increased or decreased, as the case may
be, as provided in this Section 2.9 and the Note Trust Agreement.
Any required increases or decreases to the Principal Balance (each,
an "Adjustment") shall be made by the Trustee on behalf of the
Surviving Corporation and the Rights Holders in accordance with the
procedures set forth in Section 2.9(e) by the amounts set forth in
this Section 2.9(c) below:
(i) the Principal Balance shall be decreased by an
amount equal to all payments made by the Surviving Corporation
on account of cumulative unpaid dividends, redemption value or
conversion value, or otherwise, to the holder of record at the
Effective Time of the Company's 1988 Series I Preferred Shares
or 1988 Series II Preferred Shares (other than such shares
held by, or any such payments made to, the Surviving
Corporation or any Subsidiary); provided, however, that if
such holder of the 1988 Series I Preferred Shares and 1988
Series II Preferred Shares exercises its right to convert such
Preferred Shares to Shares prior to the Effective Time and it
is determined in a Partial Litigation Resolution or Final
Litigation Resolution that such holder's Shares are entitled
to receive payments in respect of their Contingent Payment
Rights and are included in the pro rata calculation in Section
2.9(g)(iv) by the terms thereof, no reduction shall be made to
the Principal Balance pursuant to this clause (i) relating to
such payments; provided, further, that in all other cases in
which it is determined in a Partial Litigation Resolution or
Final Litigation Resolution that such holder is entitled to
receive payments with respect to Contingent Payment Rights on
the same basis as if such Preferred Shares had been converted
to Shares prior to the Effective Time, the reduction to the
Principal Balance relating to payments on the Contingent
Payment Rights of such holder shall be equal to the amount
obtained by making the pro rata calculation in 2.9(g)(iv)
assuming (A) such holder's 1988 Series I Preferred Shares and
1988 Series II Preferred Shares are included therein (on an
as-converted basis) and (B) no payments were made for the
Contingent Payment Rights of such holder.
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<PAGE> 11
(ii) the Principal Balance shall be (A) decreased
by the amount by which the total cash proceeds and fair market
value of any other consideration or amounts received by the
Surviving Corporation or any Subsidiary, excluding any recov-
ery relating to the return or cancellation of the 1988 Series
I Preferred Shares or 1988 Series II Preferred Shares by the
holder to the Surviving Corporation or any Subsidiary (in the
aggregate, the "Recovery Amount") in the lawsuit against the
United States of America currently pending in the United
States Court of Claims as disclosed in the Filed SEC
Documents, or in any other court to which such proceedings may
be transferred (the "Company Litigation") is less than Sixteen
Million Dollars ($16,000,000) or (B) increased by the amount
by which the Recovery Amount is greater than Sixteen Million
Dollars ($16,000,000). For purposes of this Section
2.9(c)(ii), "fair market value of any other consideration or
amounts received" shall be determined in good faith by mutual
agreement of the Surviving Corporation and the Committee;
(iii) the Principal Balance shall be decreased by
an amount equal to all out-of-pocket costs and expenses rea-
sonably incurred by the Surviving Corporation or any
Subsidiary after December 31, 1993, including, without limita-
tion, all reasonable legal or other professional fees and
costs and travel expenses incurred by the Surviving Corpora-
tion in connection with prosecuting or settling the Company
Litigation, to the extent such costs and expenses (A) are in
excess of $400,000 (the accrued expense liability established
in preparing the balance sheets of the Insurance Subsidiaries
in accordance with SAP as of December 31, 1993) and (B) are
not recovered by the Surviving Corporation or any Subsidiary
in such Company Litigation (collectively, "Costs and Expens-
es");
(iv) The Principal Balance shall be decreased by
(A) all costs and expenses of the Trustee and the Committee
which are reimbursed by the Surviving Corporation pursuant to
Sections 2.9(k) and 2.9(l) hereof and (B) all payments in
respect of the Surviving Corporation's indemnification
obligations under Section 2.9(m) or Section 2.9(n); provided,
however, that the Principal Balance shall not be decreased as
a result of costs and expenses incurred by the Trustee or the
Committee and reimbursed by the Surviving Corporation under
Sections 2.9(k) and 2.9(l) or indemnification payments made by
the Surviving Corporation under Sections 2.9(m) or 2.9(n), if
such costs and expenses or indemnification payments are
related to the Trustee's or the Committee's enforcing against
the Surviving Corporation their respective rights to collect
or the Surviving Corporation's obligations to make payments
due under Section 2.9(g);
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<PAGE> 12
(v) the Principal Balance shall be decreased by
$150,000 on the first anniversary date of the Effective Time
and by $100,000 on each of the next three succeeding
anniversary dates thereafter; provided, that, if the
Adjustment is calculated other than on an anniversary date,
the decrease shall be prorated based on the actual days
elapsed from the preceding anniversary date to the date the
Adjustment is determined;
(vi) the Principal Balance shall be decreased by an
amount equal to the difference (if positive) between (A) all
federal income taxes payable with respect to the cash proceeds
and other consideration or amounts received by the Surviving
Corporation or any Subsidiary with respect to the Company
Litigation assuming that no net operating loss is utilized in
such calculation, and (B) any allowable decrease in federal
income taxes payable by the Surviving Corporation or any
Subsidiary attributable to payments, costs and expenses, as
the case may be, referred to above in Section 2.9(c),
including any amounts under Section (c)(v); and
(vii) the Principal Balance shall be decreased by
the amount of any Principal Payment made by the Surviving
Corporation to the Rights Holders under the Note.
(d) Settlement Procedures.
(i) In the course of prosecuting or settling the
Company Litigation, the Surviving Corporation shall consult
with the Committee regarding the status of such Company
Litigation and any pending negotiations with respect thereto
and provide to the Committee any applicable documents and
other information so as to permit the Committee to evaluate
the status of such Company Litigation.
(ii) In addition to the requirements of Section
2.9(d)(i) above, neither CCP II nor the Surviving Corporation
shall enter into or agree to any settlement which would give
rise to an Adjustment Event under Section 2.9, without the
prior written consent of the Committee (which consent shall
not be unreasonably withheld).
(e) Procedures Regarding Adjustments.
(i) No Adjustments shall be made except those made
in compliance with this Agreement, including, without
limitation, this Section 2.9(e).
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<PAGE> 13
(ii) Within 30 days following a Partial Litigation
Resolution or the Final Litigation Resolution, the Surviving
Corporation shall give the Trustee and the Committee written
notice (an "Adjustment Notice") setting forth (A) the amount
of the proposed Adjustment ("Proposed Adjustment"), (B) a
summary of the Adjustment Events giving rise to the Proposed
Adjustment and (C) copies of all relevant documentation in the
possession of the Surviving Corporation or any Subsidiary or
any of their respective legal or financial advisors relating
to the Adjustment Events and Proposed Adjustment.
(iii) If the Committee objects to such Proposed
Adjustment, it shall give written notice of its objection to
the Trustee and the Surviving Corporation within thirty (30)
days after receipt of the Adjustment Notice. If the Committee
so notifies the Surviving Corporation and the Trustee of its
objection to the Proposed Adjustment, the Surviving Corpora-
tion and the Committee shall, within 30 days following such
notice (the "Resolution Period"), attempt in good faith to re-
solve the dispute and any resolution by them as to any disput-
ed items shall be final and binding. Any amounts remaining in
dispute after the Resolution Period shall be resolved by
binding arbitration pursuant to Section 2.9(f) hereof. No
Adjustment to the Principal Balance shall be made by the
Trustee until the objection is withdrawn, the dispute is set-
tled between the parties and notice of such settlement is
provided to the Trustee or an arbitration award with respect
thereto shall have been issued and a copy provided to the
Trustee. The Trustee shall, on the tenth (10th) day following
the date on which the Trustee receives the withdrawal of the
objection, notice of settlement or copy of the arbitration
award, as the case may be, adjust the Principal Balance in
accordance with and as directed by such withdrawal, notice of
settlement or arbitration award, as the case may be.
(iv) If no objection to a Proposed Adjustment shall
have been received by the Trustee within thirty (30) days
after the date of the applicable Adjustment Notice, the
Committee shall be deemed to have acknowledged the correctness
of and accepted such Adjustment, and the Trustee shall, on the
thirty-fifth (35th) day following the date of the Adjustment
Notice, increase or reduce the Principal Balance by the amount
of the Adjustment.
(v) Prior to a Principal Payment in connection with
the Final Litigation Resolution, if after an Adjustment has
been made in accordance with the foregoing procedures, but
within 360 days from the date of the Adjustment, circumstances
change or facts are discovered resulting in the Adjustment
being inapplicable or inappropriate, in whole or in part, then
upon 30 days notice by the Committee or the Surviving Corpora-
tion, as the case may be, to the Trustee and the other Person,
either party may request a reconsideration of the Adjustment.
The parties shall follow similar procedures regarding the
reconsideration as were applicable with respect to the
Proposed Adjustment.
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<PAGE> 14
(f) Binding Arbitration. Any dispute between the
Committee and the Surviving Corporation arising under or
related in any way to the Contingent Payment Rights under
Sections 2.9(c) and (e) shall be submitted to a firm of
nationally recognized independent public accountants (the
"Neutral Auditors") selected by the Surviving Corporation and
the Committee for binding arbitration in Chicago, Illinois.
If the Surviving Corporation and the Committee are unable to
agree on the Neutral Auditors, the Surviving Corporation and
the Committee shall each have the right to request the Ameri-
can Arbitration Association to appoint the Neutral Auditors
who shall not have had a material relationship with the
Surviving Corporation, CCP II or any of their respective
affiliates within the past four years. Each party agrees to
execute, if requested by the Neutral Auditors, a reasonable
engagement letter. All fees and expenses relating to the
work, if any, to be performed by the Neutral Auditors shall be
borne equally by the Surviving Corporation and the Committee.
The Neutral Auditors may upon application compel the pro-
duction of relevant, non-privileged documents or other
evidence and a disclosure of a complete list of witnesses who
may testify at hearings. The party seeking such discovery may
be ordered to pay the reasonable costs thereof. The Neutral
Auditor's determination rendered in these proceedings shall be
made within 60 days of their selection, shall be set forth in
a written statement delivered to the Surviving Corporation and
the Committee, shall be final, binding and conclusive and
shall be enforceable in any court of competent jurisdiction.
(g) Payment Dates; Payment Procedures.
(i) Upon the occurrence of (A) each partial
resolution of the Company Litigation, whether by settlement or
final non-appealable decision of a court of competent
jurisdiction (a "Partial Litigation Resolution") or (B) the
final resolution of the Company Litigation, whether by
settlement or final non-appealable decision of a court of
competent jurisdiction (the "Final Litigation Resolution"),
the Note shall become due and payable (a "Principal Payment")
to the Trustee in an amount equal to the then Principal
Balance, as adjusted pursuant to Section 2.9(c), less any
amounts that the Committee and the Surviving Corporation shall
agree in good faith are reasonably required as a reserve to
cover any remaining unresolved Adjustment Events pursuant to
Section 2.9(c). The Principal Payment required to be made
pursuant to this paragraph (g)(i) shall be paid within 10
business days after the Adjustments have been determined
pursuant to Section 2.9(e).
(ii) If any Principal Payment is not made within
three (3) days of the date when due pursuant to paragraph
(g)(i) above, the unpaid installment of such Principal Balance
shall bear interest from the date due until paid at a rate of
ten percent (10%) per annum.
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<PAGE> 15
(iii) Notwithstanding any other provision of this
Section 2.9 to the contrary, if the Committee and the Sur-
viving Corporation shall mutually agree (in writing signed by
the parties) to modify, add or supplement the terms and
provisions regarding Adjustments of and payments on the
Principal Balance, then the Principal Balance shall be
adjusted and paid in accordance with such modified, additional
or supplemental terms.
(iv) Upon receipt of any Principal Payment pursuant
to Section 2.9(g)(i), the Trustee shall immediately deposit
all of such funds ("Proceeds") in a segregated account in
accordance with the Note Trust Agreement. Within thirty (30)
days of the receipt of any Proceeds, the Trustee shall make
payments of cash to the Rights Holders. All payments to
Rights Holders hereunder shall be made pro rata to each Rights
Holder pursuant to the following formula: the then balance of
the Proceeds times a fraction, the numerator of which is the
sum of (A) the number of Shares held of record by such Rights
Holder at the Effective Time, (B) the number of Shares into
which all 1976 Series Preferred Shares and 1987 Series Pre-
ferred Shares held of record by such Rights Holder at the
Effective Time are convertible immediately prior to the Effec-
tive Time, (C) the number of Shares covered by all Options
held by such Rights Holder at the Effective Time and (D) the
number of Shares subject to all SARs held by such Rights
Holder at the Effective Time, and the denominator of which is
the sum of (I) the number of Shares held of record by all
Rights Holders at the Effective Time, (II) the number of
Shares into which all 1976 Series Preferred Shares and 1987
Series Preferred Shares held of record by all Rights Holders
at the Effective Time are convertible immediately prior to the
Effective Time, (III) the number of Shares covered by all Op-
tions held by all Rights Holders at the Effective Time, (IV)
the number of Shares subject to all SARs held by all Rights
Holders at the Effective Time and (V) the number of Shares
into which all issued and outstanding Convertible Debentures
at the Effective Time were convertible immediately prior to
the Effective Time. Any payments of cash pursuant to this
Section 2.9(g)(iv) shall be made to each Rights Holder by
check drawn by the Trustee payable to the order of the Rights
Holder and mailed to such person at the address shown on the
list referred to in the Note Trust Agreement. Ten (10) days
prior to the date the Trustee mails payments to Rights
Holders, the Trustee shall publish a general notice that such
payments are being made, in a daily newspaper of national
circulation, which shall be The Wall Street Journal, unless it
is not then so circulated. Any monies on deposit with the
Trustee in respect of any Principal Payment shall be invested
by the Trustee as provided in the Note Trust Agreement. In
the event any checks representing a payment of Contingent
Payment Rights shall not be presented for payment, the Trustee
shall hold such cash in the segregated account without liabil-
ity to the Rights Holders for interest thereon, for the
benefit of the respective Rights Holders. After any such cash
has been held in such segregated account for nine (9) months
after the final distribution of checks to Rights Holders, the
Trustee shall certify the respective amounts thereof and the
identity of the Rights Holders and deliver such certificate
and such cash to the Surviving Corporation. Thereafter, such
Rights Holders shall have an unsecured claim against the
Surviving Corporation in respect of payment of such cash.
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<PAGE> 16
(v) Upon payment by the Surviving Corporation to
the Trustee of any remaining Principal Balance pursuant to
Section 2.9(g)(i), the Note shall be canceled and returned to
the Surviving Corporation and all of the Surviving Corpora-
tion's obligations under this Section 2.9 shall be fully
satisfied and discharged, except with respect to its
obligations pursuant to Sections 2.9(k), (l), (m) and (n),
which shall remain in full force and effect.
(vi) Notwithstanding any other provision of this
Section 2.9 or the Note Trust Agreement, at such time as the
Surviving Corporation shall have made aggregate Principal Pay-
ments equal to $2.00 multiplied by the aggregate number of
Contingent Payment Rights, the Note shall be canceled and re-
turned to the Surviving Corporation and all of the Surviving
Corporation's obligations under this Section 2.9 shall be
fully satisfied and discharged, except with respect to its
obligations pursuant to Sections 2.9(k), (l), (m) and (n),
which shall remain in full force and effect. No Principal
Payment shall be required to be made, if the Principal Balance
does not then exceed $1,000,000. If such Principal Balance
does not exceed $1,000,000 on the fourth anniversary of the
Effective Time, the Note shall be canceled and returned to
the Surviving Corporation and all of the Surviving
Corporation's obligations under this Section 2.9 shall be
fully satisfied and discharged, except with respect to its
obligations under Sections 2.9(k), (l), (m) and (n), which
shall remain in full force and effect.
(h) Obligations of the Surviving Corporation. After the
Effective Time, the Surviving Corporation shall use its reasonable
efforts to resolve all potential Adjustment Events on a basis which
will preserve the initial Principal Balance to the maximum extent.
<PAGE>
<PAGE> 17
(i) The Contingent Rights Committee; Limitations on
Privileges of Rights Holders.
(i) Prior to the Effective Time,the Company shall
name three persons who shall serve as the initial members of
the Contingent Rights Committee (the "Committee"). The Com-
mittee shall at all times have three members. The Committee
may act only with the concurrence of a majority of its mem-
bers, and all writings to be signed by the Committee must be
executed by at least two members.
(ii) The Committee shall be charged with making, on
behalf of all Rights Holders, not singly but as a whole, any
and all determinations, decisions and judgments for all
purposes and with respect to (A) the matters set forth in
Section 2.9(e) hereof, (B) all other matters expressly set
forth herein and in the Note Trust Agreement and (C) any other
such matters in order to cure any ambiguity or to correct or
supplement any provision herein, including, without limi-
tation, (x) determining (subject to the Surviving
Corporation's rights hereunder and under the Note Trust Agree-
ment) when the Rights Holders are entitled to receive payments
on account of Contingent Payment Rights pursuant to the terms
of this Agreement and the Note Trust Agreement, (y) sending
notices to the Trustee and the Surviving Corporation and ob-
jecting to notices sent by the Surviving Corporation pursuant
to the terms hereof and of the Note Trust Agreement and (z)
resolving, compromising and settling any and all claims and
disputes that may arise. All rights of action on behalf of
the Rights Holders with respect to the Contingent Payment
Rights, the Note Trust Agreement and the Note shall be vested
solely in the Trustee and the Committee.
(iii) The Committee shall have no duties or
responsibilities hereunder except as expressly set forth
herein or in the Note Trust Agreement. The Committee shall,
when exercising the rights granted to it herein, exercise and
use the same degree of skill and care as a reasonably prudent
person would exercise or use in a similar situation. In
taking any action hereunder, or in refraining therefrom, the
Committee, and the members thereof, shall be protected in
relying upon any notice, paper or other document believed by
it or them to be genuine and signed by the proper parties, or
upon any evidence deemed by it or them to be sufficient. The
Committee, and the members thereof, may rely on the statements
contained in such writings. In no event shall the Committee
or any member thereof be liable to other Rights Holders for
any act or omission by it or any of the members in the absence
of gross negligence or willful misconduct. In the event that
the Committee, or the members thereof, consult with counsel or
financial or accounting advisors or other experts in connec-
tion with its or their duties hereunder, it and they shall be
fully protected by any act taken, suffered or permitted by it
or them in good faith and in accordance with the advice of
such counsel or financial or accounting advisors or other
experts. The Committee shall not be bound in any way by any
agreement or contract (other than this Agreement and the Note
Trust Agreement) between any of the parties hereto or thereto
(whether or not it has knowledge thereof).
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<PAGE> 18
(iv) Neither the Committee nor its members shall be
required to post any bond or other security with respect to
its or their duties and responsibilities hereunder.
(v) If, prior to the Effective Time, any member of
the Committee shall resign, die or become incapacitated or
otherwise unable to act as a member of the Committee
hereunder, the Company shall appoint a successor. If these
events occur after the Effective Time, the remaining members
of the Committee shall appoint a successor. If the two
remaining members are unable to agree on a successor, the
Trustee, in its capacity as a fiduciary for the Rights
Holders, shall also be entitled to vote to select a third
member of the Committee, who shall then be elected by a
majority vote. The successor shall be entitled to all the
rights, powers, immunities and privileges as was his or her
predecessor, without the need of any further act or writing.
(j) Limitation on Expenses. In the event that the
actual aggregate out-of-pocket Costs and Expenses incurred by the
Surviving Corporation (excluding any amounts paid by the Surviving
Corporation pursuant to Sections 2.9(k), (l), (m) and (n)) in
prosecuting or settling the Company Litigation shall exceed an
amount equal to (A) the cash proceeds and fair market value of any
other consideration or amounts, including any recovery relating to
the return or cancellation of the 1988 Series I Preferred Shares or
the 1988 Series II Preferred Shares, received in respect of the
Company Litigation plus (B) (i) $1,500,000, to the extent such
Costs and Expenses are incurred in connection with the determi-
nation of liability of the United States of America in the Company
Litigation or (ii) $3,000,000 to the extent such Costs and Expenses
are incurred in connection with the determination of such liability
and/or damages to be paid by the United States of America in the
Company Litigation, then the Note shall be canceled and shall be
returned to the Surviving Corporation and all of the Surviving
Corporation's obligations under this Section 2.9 shall be fully
satisfied and discharged, except with respect to Sections 2.9(k),
(l), (m) and (n), which shall remain in full force and effect;
provided, however, notwithstanding the foregoing, the Committee
may, in its sole discretion, advance additional sums for such Costs
and Expenses and in such event the Note shall remain in full force
and effect and any such amounts so advanced shall be repaid to the
Committee by the Surviving Corporation out of any amount recovered
by the Surviving Corporation or any subsidiary in the Company
Litigation, including any Recovery Amount and any recovery relating
to the return or cancellation of the 1988 Series I Preferred Shares
or 1988 Series II Preferred Shares.
<PAGE>
<PAGE> 19
(k) Compensation to and Expenses of the Trustee. The
Trustee shall be entitled to receive compensation from the
Surviving Corporation for its regular services as Trustee in accor-
dance with a fee schedule to be agreed to by the Trustee, CCP II
and the Company prior to the Effective Time, and the Trustee shall
be reimbursed by the Surviving Corporation for all reasonable ex-
penses it incurs in fulfilling its obligations under this Section
2.9, including the reasonable fees and disbursements of legal coun-
sel. The reimbursement of such amounts shall result in an Adjust-
ment Event pursuant to Section 2.9(c)(iv).
(l) Compensation to and Expenses of the Committee. Nei-
ther the Committee nor the members thereof shall be compensated for
serving as such hereunder. The Committee shall be reimbursed by
the Surviving Corporation for all reasonable out-of-pocket costs
and expenses it incurs in fulfilling its obligations under this
Section 2.9, including reasonable fees and disbursements of legal
counsel and financial or accounting advisors or other experts. The
reimbursement of such amounts shall result in an Adjustment Event
pursuant to Section 2.9(c)(iv).
(m) Indemnification of Trustee. It is understood and
agreed that the Surviving Corporation shall indemnify the Trustee,
its officers, directors, employees and agents, and hold it and them
harmless from and against any and all claims, liabilities, losses,
actions, suits or proceedings, at law or in equity, which it or
they may incur or with which it or they may be threatened by reason
of its acting as Trustee under this Agreement or the Note Trust
Agreement including, without limitation, for the prosecution of any
claim to collect on the Note, except in the case of the Trustee's
own willful misconduct or gross negligence; and in connection
therewith to indemnify the Trustee, its officers, directors, em-
ployees and agents against any and all expenses, including rea-
sonable attorneys' fees and the cost of defending or prosecuting
any action, suit or proceeding, or resisting any claim. The
provisions of this Section 2.9(m) are intended to be for the
benefit of and shall be enforceable by each such indemnified party
and each such indemnified party's successors, heirs and
representatives.
(n) Indemnification of the Committee. It is understood
and agreed that the Surviving Corporation shall indemnify the Com-
mittee, its members and agents, and hold it and them harmless from
and against any and all claims, liabilities, losses, actions, suits
or proceedings, at law or in equity, which it or they may incur or
with which it or they may be threatened by reason of their acting
as the Committee under this Agreement or the Note Trust Agreement,
including, without limitation, for the prosecution of any claim to
collect on the Note, except in the case of the Committees' own
willful misconduct or gross negligence; and in connection therewith
to indemnify the Committee, its members and agents against any and
all expenses, including reasonable attorneys' fees and the cost of
defending or prosecuting any action, suit or proceeding, or
resisting any claim. The provisions of this Section 2.9(n) are
intended to be for the benefit of and shall be enforceable by each
such indemnified party and each such indemnified party's heirs and
representatives.
<PAGE>
<PAGE> 20
2.10 Appraisal Shares. If provided for under the Delaware
Code, notwithstanding anything in this Agreement to the contrary,
each Share or Preferred Share which is issued and outstanding
immediately prior to the Effective Time and which is held by a
holder, who has timely filed with the Company a written demand for
appraisal pursuant to Section 262 of the Delaware Code ("Section
262") and, as of the Effective Time, has not failed to perfect or
effectively withdrawn or lost such holder's appraisal rights under
Section 262, is herein called an "Appraisal Share." Each Appraisal
Share shall not be converted into or represent a right to receive
the consideration with respect thereto pursuant to Section 2.8
hereof and the holder thereof shall be entitled only to such rights
as are granted by Section 262. Each holder of Appraisal Shares who
becomes entitled to payment for such Appraisal Shares pursuant to
the provisions of Section 262 shall receive payment therefor from
the Surviving Corporation (but only after the amount thereof shall
have been agreed upon or finally determined pursuant to such
provisions). The Company shall give CCP II (i) prompt notice of
any demands received from any shareholder pursuant to such
provisions and (ii) the opportunity to direct all negotiations and
proceedings with respect to demands for appraisal pursuant to such
provisions. If the holder of Appraisal Shares shall have failed to
perfect, or shall have effectively withdrawn or lost, such holder's
right to appraisal and payment for such Shares under Section 262,
each such Share or Preferred Share shall thereupon be deemed to
have been converted, as of the Effective Time, into and represent
the right to receive the consideration set forth in Section 2.8.
2.11 Conversion of CCP II Acquisition Common Stock. All of
the shares of common stock, no par value per share, of CCP II
Acquisition issued and outstanding immediately prior to the
Effective Time shall, by virtue of the Merger and without any
action on the part of the holder thereof, be converted into and
exchangeable for a number of shares of common stock, $1 par value
per share, of the Surviving Corporation equal to the number of
shares of common stock, $1 par value per share, of the Company,
outstanding immediately prior to the Effective Time other than
Shares held by any direct or indirect majority-owned subsidiary of
the Company.
2.12 Shareholders' Meeting. (a) The Company, acting through
its Board of Directors, shall, in accordance with applicable law:
<PAGE>
<PAGE> 21
(i) (A) duly call and give notice of a special
meeting (the "Special Meeting") of its shareholders, as
soon as reasonably practicable following the execution of
this Agreement, for the purpose of voting upon the
approval and adoption of this Agreement and the Merger
and (B) thereafter convene and hold the Special Meeting;
(ii) include in the Proxy Statement (as hereinafter
defined) sent to shareholders of the Company the
recommendation of its Board of Directors that
shareholders of the Company vote in favor of the approval
and adoption of this Agreement and the Merger; and
(iii) use its best efforts as promptly as
practicable (A) to obtain and furnish the information
required to be included by it in the Proxy Statement, and
(x) file the Proxy Statement with the applicable
regulatory authorities, (y) respond promptly to any
comments made by the applicable regulatory authorities
with respect to the Proxy Statement and any preliminary
version thereof and (z) cause the Proxy Statement to be
mailed to its shareholders in accordance with Subsection
2.12(a)(i)(A) above and (B) to have the necessary vote on
this Agreement and the Merger by its shareholders.
(b) CCP II shall use its best efforts to obtain and
furnish promptly the information required to be included by it and
CCP II Acquisition, or such other information reasonably requested
by the Company or required by the applicable regulatory authorities
for inclusion, in the Proxy Statement.
(c) Notwithstanding the foregoing, the Company shall not
be obligated to use its best efforts or take any action pursuant to
this Section 2.12 if the Board of Directors has determined in good
faith after consultation with, and based as to legal matters upon,
the advice of its counsel that such actions would be inconsistent
with its fiduciary duties to the Company's shareholders under
applicable law.
<PAGE>
<PAGE> 22
2.13 Exchange of Shares.
(a) Pursuant to an agreement (the "Disbursing Agent
Agreement") which shall provide for the matters set forth in
this Section 2.13 and otherwise on terms reasonably
satisfactory to CCP II and the Company and which shall be
entered into on or before the Effective Time between CCP II
Acquisition and a disbursing agent reasonably satisfactory to
the Company and CCP II Acquisition (the "Disbursing Agent"),
CCP II Acquisition shall deposit with the Disbursing Agent at
the Effective Time in trust for the benefit of the
shareholders of the Company and other Persons who have rights
to receive payments upon consummation of the Merger, pursuant
to Section 2.8 hereof, the Cash Merger Consideration (in
immediately available funds) to which holders of Shares, 1976
Series Preferred Shares, 1987 Series Preferred Shares, Options
and SARs shall be entitled pursuant to Section 2.8. The
Disbursing Agent shall invest portions of the cash deposited
with it in such manner as the Surviving Corporation directs,
provided that all of such investments be in obligations of or
guaranteed by the United States of America (collectively,
"Permitted Investments") or in money market funds which are
invested solely in Permitted Investments; provided, further,
that the maturities of Permitted Investments shall be such as
to permit the Disbursing Agent to make prompt payment of the
Cash Merger Consideration to shareholders of the Company and
other Persons who have rights to receive payments upon
consummation of the Merger pursuant to Section 2.8 hereof.
Any interest or income produced by Permitted Investments shall
be payable to the Surviving Corporation. The Surviving
Corporation shall replace any monies lost through any
investment made at its direction pursuant to this Section
2.13(a). If outstanding certificates for Shares, 1976 Series
Preferred Shares or 1987 Series Preferred Shares are not
surrendered or the Cash Merger Consideration therefor set
forth in Section 2.8 hereof is not claimed prior to the two
hundred seventieth (270th) day after the Closing Date, the
unclaimed amounts shall be returned to the Surviving
Corporation and persons entitled thereto may look only to the
Surviving Corporation for payment thereof.
(b) As soon as practicable after the Effective Time, the
Disbursing Agent shall send a notice and form of letter of
transmittal (which shall specify that delivery shall be
effected and risk of loss and title to the certificates shall
pass, only upon proper delivery of the certificate to the
Disbursing Agent) to each record holder of a certificate which
evidenced Shares, 1976 Series Preferred Shares or 1987 Series
Preferred Shares immediately prior to the Effective Time
(other than certificates representing Shares held as treasury
shares by the Company or held by any direct or indirect
majority-owned subsidiary of the Company and other than
Appraisal Shares) advising such holder of the effectiveness of
the Merger and the procedure for surrendering to the
Disbursing Agent (who may appoint forwarding agents with the
approval of CCP II) such certificate or certificates for
exchange into the consideration set forth in Section 2.8.
Each holder of a certificate theretofore evidencing Shares,
1976 Series Preferred Shares or 1987 Series Preferred Shares
converted into a right to receive the consideration set forth
in Section 2.8, upon surrender thereof to the Disbursing Agent
together with and in accordance with a duly executed letter of
transmittal, shall be entitled to receive in exchange therefor
the consideration set forth in Section 2.8 payable (as to the
Cash Merger Consideration, in the form of a check or, if so
<PAGE>
<PAGE> 23
requested by such holder, wire transfer) in respect of each
Share, 1976 Series Preferred Share or 1987 Series Preferred
Share theretofore evidenced by the certificate or certificates
so surrendered. Any payments due with respect to the
Contingent Payment Rights shall be made pursuant to Section
2.9 hereof and the Note Trust Agreement. Upon such surrender,
the Disbursing Agent will, as promptly as practicable pay the
Cash Merger Consideration. Until surrendered, each such
certificate which immediately prior to the Effective Time
evidenced Shares, 1976 Series Preferred Shares or 1987 Series
Preferred Shares (other than certificates representing shares
held as treasury shares by the Company or held by any direct
or indirect majority-owned subsidiary of the Company and other
than Appraisal Shares), shall be deemed for all purposes to
evidence only the right to receive the consideration set forth
in Section 2.8. In no event shall the holder of any such
surrendered certificate be entitled to receive interest on the
Cash Merger Consideration set forth in Section 2.8.
(c) If the Cash Merger Consideration (or any portion
thereof) is to be delivered to a person other than the person
in whose name the certificates surrendered in exchange
therefor are registered, it shall be a condition to the
payment of the Cash Merger Consideration that the certificates
so surrendered shall be properly endorsed and otherwise in
proper form for transfer, that such transfer otherwise be
proper and that the person requesting such transfer pay to the
Disbursing Agent any transfer or other taxes payable by reason
of the foregoing or establish to the satisfaction of the
Disbursing Agent that such taxes have been paid or are not
required to be paid.
(d) Cash payments made pursuant to Section 2.8 for
Options and SARs shall be made by the Company at or prior to
the Effective Time.
(e) From and after the Effective Time, the stock
transfer books of the Company in place prior to the Effective
Time shall be closed, and thereafter there shall be no
transfers on such books (other than transfers by, to or for
the Company or CCP II) of the Shares, 1976 Series Preferred
Shares or 1987 Series Preferred Shares which were outstanding
immediately prior to the Effective Time. If, after the
Effective Time, certificates are presented to the Surviving
Corporation, they shall be canceled and exchanged for the
Cash Merger Consideration as provided in Section 2.8.
2.14 Closing. The Closing shall (unless the parties hereto
otherwise agree) take place on the Closing Date at the offices of
Skadden, Arps, Slate, Meagher & Flom in Chicago, Illinois at 10:00
a.m. or such other date and time as the Company and CCP II shall
mutually agree.<PAGE>
<PAGE> 24
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to CCP II and CCP
II Acquisition as follows:
3.1 Organization of the Company and its Subsidiaries. Each
of the Company and its Subsidiaries is a corporation duly
organized, validly existing, and in good standing under the laws of
its respective jurisdiction of organization and the Company has the
requisite corporate power and authority to enter into this
Agreement and to perform its obligations under this Agreement
(other than, with respect to the Merger, the approval and adoption
of this Agreement by the holders of a majority of the voting power
of the Shares and Preferred Shares entitled to vote thereon and
filing and recordation of the appropriate documents under the
Delaware Code). Each of the Company and its Subsidiaries is duly
licensed, qualified, or admitted to do business and is in good
standing in all jurisdictions in which the failure to be so
licensed, qualified, or admitted and in good standing, individually
or in the aggregate with other such failures, has or would
reasonably be expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the ability of the
Company to perform its obligations under this Agreement, or on the
Business or Condition of the Company and its Subsidiaries, taken as
a whole. The Company has furnished to CCP II true and complete
copies of the articles or certificate of incorporation or
organization and the by-laws of each of the Company and its
Significant Subsidiaries, in each case including all amendments
thereto. After the date hereof, the Company shall furnish to CCP
II true and complete copies of the articles or certificate of
incorporation or organization and the by-laws of each other
Subsidiary of the Company.
3.2 Authority of the Company. The Board of Directors of the
Company has duly and validly approved this Agreement and the
transactions contemplated hereby. The execution and delivery of
this Agreement by the Company and the performance by the Company of
its obligations under this Agreement have been duly and validly
authorized by all necessary corporate action on the part of the
Company (other than, with respect to the Merger, the approval and
adoption of this Agreement by the holders of a majority of the
voting power of the Shares and Preferred Shares entitled to vote
thereon and filing and recordation of the appropriate documents
under the Delaware Code). Assuming the due authorization,
execution and delivery by CCP II and CCP II Acquisition of this
Agreement, this Agreement constitutes a valid and binding
obligation of the Company and is enforceable against the Company in
accordance with its terms, except to the extent that (a)
enforcement may be limited by or subject to any bankruptcy,
insolvency, reorganization, moratorium, or similar Laws now or
hereafter in effect relating to or limiting creditors' rights
generally and (b) the remedy of specific performance and injunctive
and other forms of equitable relief are subject to certain
equitable defenses and to the discretion of the court or other
similar entity before which any proceeding therefor may be brought.
<PAGE>
<PAGE> 25
3.3 Capital Stock. The authorized capital stock of the
Company consists of 35,000,000 shares of Common Stock par value
$1.00 per share (the "Shares"), and 5,000,000 shares of Series
Preferred Stock $1 par (the "Preferred Shares"). As of March 31,
1994, (i) 13,399,727 Shares, 195,000 1976 Series Preferred Shares,
77,130.267 1987 Series Preferred Shares, 126,000 shares of 1988
Series I Preferred Stock $1 Par ("1988 Series I Preferred Shares"),
and 17,640 shares of 1988 Series II Preferred Stock $1 Par ("1988
Series II Preferred Shares") were issued and outstanding (excluding
Shares held in treasury or by any Subsidiary), (ii) 612,873 Shares
were held by the Company in its treasury, (iii) 927,299 Shares were
held by Vulcan Life Insurance Company, an indirect majority-owned
Subsidiary of the Company, (iv) 22,869.733 1987 Series Preferred
Shares were held by the Company in its treasury (v) 625,768.95
Shares were reserved for conversion of the 1976 Series Preferred
Shares, (v) 1,058,335.24561 Shares were reserved for conversion of
the 1987 Series II Preferred Shares, (vii) 1,728,896.4 Shares were
reserved for conversion of the 1988 Series I Preferred Shares,
(vii) 242,045.496 Shares were reserved for conversion of the 1988
Series II Preferred Shares, and (ix) 4,528,125 Shares were reserved
for conversion of the Convertible Debentures. All outstanding
Shares and Preferred Shares are duly authorized, validly issued,
fully paid and nonassessable, and no class of capital stock of the
Company is entitled to preemptive rights. Except as disclosed in
Section 3.9 of the Disclosure Schedule, there are outstanding on
the date hereof no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued
or unissued capital stock of the Company or any of its Subsidiaries
to issue or sell any shares of capital stock of, or other equity
interests in, the Company or any of its Subsidiaries other than (i)
the right to convert Preferred Shares into Shares and the
Convertible Debentures into Shares, and (ii) Options representing
in the aggregate the right to purchase up to 1,015,553 Shares and
SARs with respect to 234,694 Shares. Except as disclosed in the
Filed SEC Documents or in Section 3.3 of the Disclosure Schedule,
all outstanding shares of capital stock of the Company's
Subsidiaries are duly authorized, validly issued, fully paid and
nonassessable and owned by the Company or another Subsidiary, and
each such share owned by the Company or by another Subsidiary is
owned free and clear of all Liens.
3.4 Subsidiaries. Except as disclosed in Section 3.4 of the
Disclosure Schedule, the Company has no subsidiaries and does not
Control any other Person.
<PAGE>
<PAGE> 26
3.5 Conflicts or Violations. Except as disclosed in Section
3.5 of the Disclosure Schedule, the execution and delivery of this
Agreement by the Company does not, and the performance by the
Company of its obligations under this Agreement will not:
(a) subject to obtaining the approvals contemplated
by Sections 5.1 and 5.2 and Sections 6.1 and 6.2 hereof,
violate any term or provision of any Law or any writ,
judgment, decree, injunction, or similar order applicable
to the Company or any of its Subsidiaries except for such
violations as would not individually or in the aggregate
be reasonably likely to have a material adverse effect on
the ability of the Company to perform its obligations
under this Agreement or have a material adverse effect on
the Business or Condition of the Company and its
Subsidiaries, taken as a whole;
(b) conflict with or result in a violation or
breach of any of the terms, conditions or provisions of
the articles or certificate of incorporation or by-laws
of the Company or any of its Subsidiaries;
(c) result in the creation or imposition of any
Lien upon the Company or any of its Subsidiaries, or any
of their respective Assets and Properties under any
Contract to which the Company or any of its Subsidiaries
is bound or any of their Assets and Properties are bound
or affected, that individually or in the aggregate has or
would reasonably be expected to have a material adverse
effect on the validity or enforceability of this
Agreement, on the ability of the Company to perform its
obligations under this Agreement, or on the Business or
Condition of the Company and its Subsidiaries, taken as
a whole;
(d) conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse
of time or both) a default under, or give to any Person
any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which
the Company or any of its Subsidiaries is a party or by
which any of their respective Assets or Properties may be
bound and as to which any such conflicts, violations,
breaches, defaults, or rights individually or in the
aggregate have or would reasonably be expected to have a
material adverse effect on the validity or enforceability
of this Agreement, on the ability of the Company to
perform its obligations under this Agreement, or on the
Business or Condition of the Company and its Subsidiaries
taken, as a whole; or
<PAGE>
<PAGE> 27
(e) require the Company or any of its Subsidiaries
to obtain any consent, approval, or action of, or make
any filing with or give any notice to, any Person except
(i) as contemplated in Section 5.1 or 5.2 and 6.1 or 6.2
hereof, (ii) as disclosed in Section 3.5 of the
Disclosure Schedule, or (iii) those which the failure to
obtain, make, or give individually or in the aggregate
with any other such failures has or would reasonably be
expected to have no material adverse effect on the
validity or enforceability of this Agreement, on the
ability of the Company to perform its obligations under
this Agreement, or on the Business or Condition of the
Company and its Subsidiaries, taken as a whole.
3.6 SAP Statements. The Company has previously delivered to
CCP II true and complete copies of the Annual Statements for each
Insurance Subsidiary for each of the years ended December 31, 1991,
1992 and 1993.
Each such SAP Statement was timely filed with the insurance
regulatory authorities as required under applicable insurance laws,
rules and regulations. Each such SAP Statement complied in all
material respects with all applicable insurance laws, rules and
regulations when filed. Except as disclosed in Section 3.6 of the
Disclosure Schedule, each such SAP Statement, including without
limitation each balance sheet and each of the statements of
operations, changes in capital and surplus, and cash flows
contained in the respective SAP Statement, was prepared in
accordance with SAP and fairly presents in all material respects
the admitted assets, liabilities, and capital and surplus of each
Insurance Subsidiary as of the respective dates thereof and their
respective results of operations and cash flows for the respective
periods covered thereby.
3.7 Reserves. All material reserves and other material
liabilities with respect to insurance and annuities and for claims
and benefits incurred but not reported, as established or reflected
in the respective SAP Statements of each Insurance Subsidiary, were
determined in accordance with GAAS consistently applied, are fairly
stated in all material respects in accordance with sound actuarial
principles, are based on actuarial assumptions that are in
accordance in all material respects with those called for by the
provisions of the related insurance and annuity contracts and in
the related reinsurance, coinsurance and other similar contracts,
and meet the requirements in all material respects of the insurance
laws, rules and regulations of the respective states in which they
are domiciled. Adequate provision for all such reserves and
liabilities has been made in all material respects (under GAAS
consistently applied) to cover the total amount of all reasonably
anticipated matured and unmatured benefits, dividends, claims and
other liabilities of each Insurance Subsidiary under all insurance
and annuity contracts under which any Insurance Subsidiary has any
liability (including without limitation any liability arising under
or as a result of any reinsurance, coinsurance or other similar
Contract) on the respective dates of each such SAP Statement based
on then current information and assumptions regarding investment
income, mortality and morbidity experience, persistency and
expenses. Each Insurance Subsidiary owns assets that qualify as
legal reserve assets under applicable insurance laws, rules and
regulations of their respective state of domicile in an amount at
least equal to all such material reserves and liabilities.
<PAGE>
<PAGE> 28
3.8 SEC Documents; No Undisclosed Liabilities. The Company
has filed all SEC Documents since January 1, 1991. As of their
respective dates, the SEC Documents, as amended, complied in all
material respects with the requirements of the Securities Act or
the Exchange Act, as the case may be, and the rules and regulations
of the SEC promulgated thereunder applicable to such SEC Documents,
and none of the SEC Documents, as of its respective date, contained
any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order
to make the statements therein, in light of the circumstances under
which they were made, not misleading. The financial statements of
the Company included in the SEC Documents have been prepared in
accordance with GAAP applied on a consistent basis (except as may
be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end
adjustments). Except as set forth in the Filed SEC Documents or in
Section 3.8 of the Disclosure Schedule, and except for liabilities
and obligations incurred in the ordinary course of business
consistent with past practice since the date of the most recent
audited consolidated balance sheet included in the Filed SEC
Documents, neither the Company nor any of its Subsidiaries has any
liabilities or obligations of any nature (whether accrued,
absolute, contingent or otherwise) required by GAAP to be
recognized or disclosed on a consolidated balance sheet of the
Company and its consolidated Subsidiaries or in the notes thereto
which would individually or in the aggregate have a material
adverse effect on the Business or Condition of the Company and its
Subsidiaries, taken as a whole.
3.9 Absence of Changes. Except as disclosed in the Filed SEC
Documents or in Section 3.9 of the Disclosure Schedule, since the
date of the most recent audited financial statements included in
the Filed SEC Documents or except for changes or developments which
occur as a result of actions taken by the Company in conducting the
business of the Company and its Subsidiaries after the date of this
Agreement which are taken in accordance with this Agreement, (i)
there has not occurred any material adverse change in the Business
or Condition of the Company and its Subsidiaries, taken as a whole,
(ii) the Company and each Significant Subsidiary has operated only
in the ordinary course of business and consistent with past
practice, and (iii) (without limiting the generality of the
foregoing) there has not been, occurred or arisen:
<PAGE>
<PAGE> 29
(a) any declaration, setting aside, or payment of
any dividend or other distribution in respect of the
capital stock of the Company or any of its Subsidiaries
or any direct or indirect redemption, purchase or other
acquisition by the Company or any of its Subsidiaries of
any such stock or of any interest in or right to acquire
any such stock;
(b) any increase in the salary, wages, or other
compensation of any kind, whether current or deferred, of
any Employee of the Company or any Subsidiary, other than
increases that were made in the ordinary course of
business and consistent with past practice or as required
by applicable employment agreements or Benefit Plans or
applicable Law; or any creation of any Benefit Plan or
any amendment or modification to increase the level of
benefits under any Benefit Plan; or any election by or on
behalf of the Company or any Subsidiary made pursuant to
the provisions of any Benefit Plan to accelerate any
payments, obligations or vesting schedules under any
Benefit Plan;
(c) any material work stoppage, strike, labor
difficulty or union organizational campaign (in process
or, to the Knowledge of the Company, threatened) at or
affecting the Company or any Significant Subsidiary;
(d) any change in accounting practice or policy
followed by the Company or any Subsidiary other than as
required by a change in GAAP or SAP;
(e) any amendment to the articles or certificate of
incorporation or by-laws of the Company or any
Subsidiary;
(f) any material expenditure or commitment for
additions to property, plant, equipment or other tangible
or intangible capital assets of the Company or any
Subsidiary;
(g) any issuance of Options, Preferred Shares or
SARs; or
(h) any Contract to take any of the actions
described in this Section 3.9 other than actions
expressly permitted under this Section 3.9.
<PAGE>
<PAGE> 30
3.10 Taxes. Except as disclosed in the Filed SEC Documents or
in Section 3.10 of the Disclosure Schedule (with paragraph
references corresponding to those set forth below):
(a) All material Tax Returns required to be filed
with respect to the Company and the Subsidiaries have
been duly and timely filed, and all such Tax Returns are
true and complete in all material respects. The Company
and each of the Subsidiaries have duly and timely paid
all Taxes that are shown as due, or claimed or asserted
by any taxing authority to be due, from it for the
periods covered by such Tax Returns and have made all
required estimated payments of Taxes sufficient to avoid
any penalties for underpayment, or have duly provided for
all such Taxes in the financial statements included in
the Filed SEC Documents and in the SAP Statements. There
are no Liens with respect to Taxes (except for Liens for
Taxes not yet due) upon any of the Assets and Properties
of the Company or any Subsidiary.
(b) With respect to any period for which Tax
Returns have not yet been filed, or for which Taxes are
not yet due or owing, the Company and its Insurance
Subsidiaries have made sufficient current accruals for
such Taxes in accordance with SAP and GAAP, and such
current accruals through December 31, 1993 are duly
provided for in the financial statements included in the
Filed SEC Documents and in the SAP Statements.
(c) The material Tax Returns of the Company and its
Subsidiaries have not been audited or examined by the
IRS, and the statute of limitations for all periods
through 1989 has expired. There are no outstanding
agreements, waivers or arrangements extending the
statutory period of limitation applicable to any claim
for, or the period for the collection or assessment of,
Taxes due from the Company or any Subsidiary for any
taxable period. The Company has previously delivered to
CCP II true and complete copies of each of the United
States federal, state, local and foreign income Tax
Returns, for each of the last three taxable years, filed
by the Company or any Subsidiary.
(d) No audit or other proceeding by any court,
governmental or regulatory authority, or similar entity
is pending or, to the Knowledge of Company, threatened
with respect to any material Taxes due from the Company
or any Subsidiary or any material Tax Return filed by or
relating to the Company or any Subsidiary. To the
Knowledge of Company, no assessment of Tax is proposed
or, based on existing facts and circumstances, is
threatened against the Company or any Subsidiary or any
of their respective Assets and Properties.
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<PAGE> 31
(e) No election under any of Section 108, 338, or
4977 of the Code (or any predecessor provisions) has been
made or filed by or with respect to the Company or any
Subsidiary or any of their Assets and Properties. No
consent to the application of Section 341(f)(2) of the
Code (or any predecessor provision) has been made or
filed by or with respect to the Company or any Subsidiary
or any of their Assets and Properties.
(f) Neither the Company nor any Subsidiary has
agreed to or is required to make any adjustment pursuant
to Section 481(a) of the Code (or any predecessor
provision) by reason of any change in any accounting
method or has any application pending with any taxing
authority requesting permission for any changes in any
accounting method of any of them, and the IRS has not
proposed any such adjustment or change in accounting
method.
(g) Neither the Company nor any Subsidiary has been
or is in violation (or with notice or lapse of time or
both, would be in violation) of any applicable Law
relating to the payment or withholding of any material
Taxes. The Company and its Subsidiaries have duly and
timely withheld from employee salaries, wages and other
compensation and paid over to the appropriate taxing
authorities all material amounts required to be so
withheld and paid over for all periods under all
applicable Laws based upon information provided by such
employees to the Company and its Subsidiaries.
3.11 Litigation. Except as disclosed in the Filed SEC
Documents or in Section 3.11 of the Disclosure Schedule, there are
no actions, suits, investigations or proceedings pending or, to the
Knowledge of Company, threatened that individually or in the
aggregate have or would reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement,
on the ability of the Company to perform its obligations under this
Agreement or on the Business or Condition of the Company and its
Subsidiaries, taken as a whole. There are no writs, judgments,
decrees or similar orders of any court, regulator, arbitrator or
governmental or administrative body outstanding against the Company
or its Subsidiaries that individually or in the aggregate have or
would reasonably be expected to have a material adverse effect on
the Business or Condition of the Company and its Subsidiaries,
taken as a whole, and there are no injunctions or similar orders of
any court, regulator, arbitrator or governmental or administrative
body outstanding against the Company or its Subsidiaries which
individually or in the aggregate have or would be reasonably likely
to have a material adverse effect on the Business or Condition of
the Company and its Subsidiaries, taken as a whole.
<PAGE>
<PAGE> 32
3.12 Compliance With Laws. Except as disclosed in the Filed
SEC Documents, neither the Company nor any Subsidiary is in
violation of any term or provision of any Law or any writ,
judgment, decree, injunction or similar order applicable to any of
them or any of their respective Assets and Properties which
violations, individually or in the aggregate, have or would
reasonably be expected to have a material adverse effect on the
Business or Condition of the Company and its Subsidiaries, taken as
a whole.
3.13 Benefit Plans, ERISA.
(a) No Employee Pension Benefit Plan or Employee
Welfare Benefit Plan constitutes a "multiemployer plan",
as defined in Section 3(37) of ERISA (a "Multiemployer
Plan").
(b) No "accumulated funding deficiency", as defined
in Section 412 of the Code, has been incurred with
respect to any Employee Pension Benefit Plan subject to
Title IV of ERISA, whether or not waived.
(c) To the Knowledge of the Company, there exists
no "reportable event", within the meaning of Section 4043
of ERISA, with respect to any Employee Pension Benefit
Plan subject to Title IV of ERISA which will have a
material adverse effect on the Business or Condition of
the Company and its Subsidiaries, taken as a whole.
(d) Neither the Company nor any of its affiliates
has incurred any liability under Title IV of ERISA
arising in connection with the termination of any
Employee Pension Benefit Plan subject to Title IV of
ERISA or complete or partial withdrawal from any
Multiemployer Plan which could have a material adverse
effect on the Business or Condition of the Company and
its Subsidiaries, taken as a whole. For purposes of this
Section 3.13, "affiliate" of any Person means any other
Person which, together with such Person, would be treated
as a single employer under Section 414 of the Code.
(e) To the Knowledge of the Company, no transaction
or holding of any asset under or in connection with any
Employee Pension Benefit Plan or Employee Welfare Benefit
Plan has or will make the Company or any Subsidiary, any
officer or director of the Company or any Subsidiary
subject to any liability under Title I of ERISA or liable
for any tax pursuant to Section 4975 of the Code which
could have a material adverse effect on the Business or
Condition of the Company and its Subsidiaries, taken as
a whole.
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<PAGE> 33
(f) Except as disclosed in Section 3.13(f) of the
Disclosure Schedule, the Company has received a
determination letter from the IRS with respect to each
Employee Pension Benefit Plan intended to qualify under
Section 401(a) of the Code and, to the Knowledge of the
Company, no event has occurred since the date of such
letter that would jeopardize the qualified status of such
plan.
3.14 Properties. Except as disclosed in the Filed SEC
Documents:
(a) each of the Company and its Subsidiaries has
good and valid title, or valid leasehold rights in the
case of leased property, to all real property and all
material personal property owned or leased by it, free
and clear of all Liens except Liens which, when viewed in
the aggregate, are not material to the Business or
Condition of the Company and its Subsidiaries, taken as
a whole.
(b) the Company and each of its Subsidiaries owns
or has adequate rights to use (i) all marks, names,
trademarks, service marks, patents, patent rights,
assumed names, logos, trade secrets, copyrights, trade
names, and service marks that are used in and material to
the conduct of its business, operations, or affairs, and
(ii) all computer software, programs, and similar systems
that are used in and material to the conduct of its
business, operations, or affairs. To the Knowledge of
the Company, neither the Company nor any Subsidiary is in
conflict with or in violation or infringement of, nor has
the Company or any Subsidiary received any notice of any
conflict with or violation or infringement of or any
claimed conflict with any asserted rights of any other
Person with respect to any intellectual property or any
computer software, programs, or similar systems used by
them in the conduct of their business, operations or
affairs which conflicts, violations or infringements,
individually or in the aggregate, have or would be
reasonably expected to have a material adverse effect on
the Business or Condition of the Company and its
Subsidiaries, taken as a whole.
3.15 Contracts. Except as disclosed in Section 3.15 of the
Disclosure Schedule, neither the Company nor any of the
Subsidiaries has violated, breached or defaulted under any Contract
or, with or without notice or lapse of time or both, would be in
<PAGE>
<PAGE> 34
violation or breach of or default under any Contract, except for
breaches, violations or defaults which, individually or in the
aggregate do not have or would not reasonably be expected to have
a material adverse effect on the Business or Condition of the
Company and its Subsidiaries, taken as a whole. Except as
disclosed in the Filed SEC Documents or in Section 3.15 of the
Disclosure Schedule, neither the Company nor any of the
Subsidiaries is a party to or bound by any Contract that was not
entered into in the ordinary course of business and consistent with
past practice and the performance of which by the Company or any of
the Subsidiaries or the failure to perform by the other party has
or would reasonably be expected to have, individually or in the
aggregate with the performance of or failure to perform pursuant to
any other such Contracts, a material adverse effect on the Business
or Condition of the Company and its Subsidiaries, taken as a whole.
Neither the Company nor any of the Subsidiaries is a party to or
bound by any collective bargaining or similar labor Contract.
3.16 Insurance Issued by Insurance Subsidiaries. Except as
disclosed in the Filed SEC Documents:
(a) No outstanding insurance or annuity Contract
issued, reinsured, or underwritten by any Insurance
Subsidiary entitles the holder thereof or any other
Person to receive dividends, distributions, or other
benefits based on the revenues or earnings of such
Insurance Subsidiary or any other Person.
(b) The underwriting standards utilized and ratings
applied by each Insurance Subsidiary and, to the
Knowledge of Company, by any other Person that is a party
to or bound by any reinsurance, coinsurance, or other
similar Contract with each Insurance Subsidiary conform
in all material respects to the standards and ratings
required pursuant to the terms of the applicable
reinsurance, coinsurance, or other similar Contracts, if
any.
(c) To the Knowledge of the Company, no party to
any material reinsurance, coinsurance, or other similar
Contracts with any Insurance Subsidiary is so impaired as
to materially and adversely affect its ability to perform
its obligations under such Contract.
3.17 Licenses and Permits. Except as disclosed in the Filed
SEC Documents, the Company and each Subsidiary owns or validly
holds all licenses, franchises, permits, approvals,
authorizations, exemptions, classifications, certificates,
registrations, and similar documents or instruments that are
legally required for its business, operation, and affairs
("Licenses"); and all such Licenses are valid, binding, and in full
force and effect except where the failure to own or validly hold
any such License or for such License to be valid, binding and in
full force and effect, individually or in the aggregate, has not
had or would not reasonably be expected to have a material adverse
effect on the Business or Condition of the Company and its
Subsidiaries, taken as a whole.
<PAGE>
<PAGE> 35
3.18 Actuarial Report. The Company has delivered to CCP II a
true and complete copy of any actuarial reports prepared by
independent actuaries with respect to any of the Company's
Insurance Subsidiaries during the 12 month period ended April 15,
1994, and all attachments, addenda, supplements and modifications
thereto (the "Actuarial Analyses"). To the Knowledge of the
Company, at the time delivered, the policy information and
experience data furnished by the Company to its independent
actuaries in connection with the preparation of the Actuarial
Analyses were accurate in all material respects.
3.19 Opinion of Financial Adviser. The Company has provided
CCP II with a signed copy of the opinion of Bear, Stearns & Co.
Inc., dated on or prior to the date of this Agreement, received by
the Company's Board of Directors in connection with the Merger.
3.20 Brokers. Except with respect to Kemper Securities, Inc.
and Bear, Stearns & Co. Inc., all negotiations relative to this
Agreement and the transactions contemplated hereby have been
carried out by the Company directly with CCP II, without the
intervention of any Person on behalf of the Company in such manner
as to give rise to any valid claim by any Person against CCP II,
the Company or any Subsidiary for a finder's fee, brokerage
commission, or similar payment.
3.21 Proxy Statement. The Proxy Statement (other than the
portions thereof containing information supplied for inclusion
therein by CCP II, CCP II Acquisition or their representatives), at
the time of filing with the SEC and of mailing to shareholders (a)
will not contain an untrue statement of a material fact or omit to
state any material fact required to be stated therein or necessary
in order to make the statements therein, in light of the
circumstances under which they are made, not misleading and (b)
will comply in all material respects with the applicable rules and
regulations prescribed by the SEC. The letter to shareholders,
notice of meeting, proxy, form of proxy, or the information
statement, as the case may be, to be distributed to shareholders in
connection with the Merger, or any schedule required to be filed
with the SEC and any other applicable regulatory authority in
connection therewith are collectively referred to herein as the
"Proxy Statement."<PAGE>
<PAGE> 36
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF CCP II AND CCP II ACQUISITION
CCP II and CCP II Acquisition hereby represent and warrant to
the Company as follows:
4.1 Organization of CCP II and CCP II Acquisition. Each of
CCP II and CCP II Acquisition is duly organized, validly existing,
and in good standing under the laws of its respective jurisdiction
of organization and has the requisite power and authority to enter
into this Agreement and to perform its obligations under this
Agreement. Each of CCP II and CCP II Acquisition is duly licensed,
qualified, or admitted to do business in all jurisdictions in which
the failure to be so licensed, qualified, or admitted and is in
good standing, individually or in the aggregate with other such
failures, has or would reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement,
on the ability of CCP II or CCP II Acquisition to perform its
obligations under this Agreement or on the Business or Condition of
CCP II or CCP II Acquisition.
4.2 Authority of CCP II and CCP II Acquisition. The Board of
Directors of CCP II Acquisition and CPMI have duly and validly
approved this Agreement and the transactions contemplated hereby.
The execution and delivery of this Agreement by CCP II and CCP II
Acquisition and the performance by each of CCP II and CCP II
Acquisition of its obligations under this Agreement have been duly
and validly authorized by all necessary partnership or corporate
action on the part of CCP II and CCP II Acquisition, respectively.
Assuming the due authorization, execution and delivery by the
Company of this Agreement, this Agreement constitutes a valid, and
binding obligation of CCP II and CCP II Acquisition and is
enforceable against CCP II and CCP II Acquisition in accordance
with its terms, except to the extent that (a) enforcement may be
limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium, or similar Laws now or hereafter in
effect relating to or limiting creditors' rights generally and (b)
the remedy of specific performance and injunctive and other forms
of equitable relief are subject to certain equitable defenses and
to the discretion of the court or other similar entity before which
any proceeding therefor may be brought.
4.3 Conflicts or Violations. The execution and delivery of
this Agreement by CCP II and CCP II Acquisition do not, and the
performance by CCP II and CCP II Acquisition of their respective
obligations under this Agreement will not:
(a) subject to obtaining the approvals contemplated
by Sections 5.1 and 5.2 and 6.1 and 6.2 hereof, violate
any term or provision of any Law or any writ, judgment,
decree, injunction, or similar order applicable to CCP II
or CCP II Acquisition except for such violations as would
not, individually or in the aggregate, be reasonably
likely to have a material adverse effect on the ability
of CCP II or CCP II Acquisition to perform their
respective obligations under this Agreement or have a
material adverse effect on the Business or Condition of
CCP II or CCP II Acquisition;
<PAGE>
<PAGE> 37
(b) conflict with or result in a violation or
breach of any of the terms, conditions, or provisions of
the Agreement of Limited Partnership of CCP II or the
certificate of incorporation of CCP II Acquisition;
(c) result in the creation or imposition of any
Lien upon CCP II or CCP II Acquisition or any of their
respective Assets and Properties under any Contract to
which CCP II or CCP II Acquisition is bound or any of
their Assets and Properties are bound or affected, that
individually or in the aggregate has or would reasonably
be expected to have a material adverse effect on the
validity or enforceability of this Agreement, on the
ability of CCP II or CCP II Acquisition to perform its
obligations under this Agreement or on the Business or
Condition of CCP II or CCP II Acquisition;
(d) conflict with or result in a violation or
breach of, or constitute (with or without notice or lapse
of time or both) a default under, or give to any Person
any right of termination, cancellation, acceleration, or
modification in or with respect to, any Contract to which
CCP II or CCP II Acquisition is a party or by which any
of their respective Assets and Properties may be bound
and as to which any such conflicts, violations, breaches,
defaults, or rights individually or in the aggregate have
or would reasonably be expected to have a material
adverse effect on the validity or enforceability of this
Agreement, on the ability of CCP II or CCP II Acquisition
to perform its obligations under this Agreement or on the
Business or Condition of CCP II or CCP II Acquisition; or
(e) require CCP II or CCP II Acquisition to obtain
any consent, approval, or action of, or make any filing
with or give any notice to, any Person except (i) as
contemplated in Section 6.1 or 6.2 hereof, (ii) or those
which the failure to obtain, make, or give individually
or in the aggregate with other such failures has or would
reasonably be expected to have no material adverse effect
on the validity or enforceability of this Agreement, on
the ability of CCP II or CCP II Acquisition to perform
its obligations under this Agreement or on the Business
or Condition of CCP II or CCP II Acquisition.
<PAGE>
<PAGE> 38
4.4 Litigation. There are no actions, suits, investigations,
or proceedings pending against CCP II or CCP II Acquisition, or, to
the Knowledge of CCP II, threatened, that individually or in the
aggregate have or would reasonably be expected to have a material
adverse effect on the validity or enforceability of this Agreement,
on the ability of CCP II or CCP II Acquisition to perform its
obligations under this Agreement or on the Business or Condition of
CCP II or CCP II Acquisition.
4.5 Financing. CCP II has or will have available on the
Closing Date cash in an amount sufficient to consummate the Merger
as contemplated hereby.
4.6 No Regulatory Disqualifiers. To the Knowledge of CCP II,
no event has occurred or condition exists or, to the extent it is
within the control of CCP II, will occur or exist with respect to
CCP II that, in connection with the Merger would cause CCP II or
CCP II Acquisition to fail to satisfy on its face any applicable
statute or written regulation of any applicable insurance
regulatory authority.
4.7 Brokers. All negotiations relative to this Agreement and
the transactions contemplated hereby have been carried out by CCP
II directly with the Company, without the intervention of any
Person on behalf of CCP II in such manner as to give rise to any
valid claim by any Person against the Company or any of the
Subsidiaries for a finder's fee, brokerage commission, or similar
payment.
4.8 Proxy Statement. None of the information supplied by CCP
II, CCP II Acquisition or their representatives for inclusion in
the Proxy Statement will, at the time of filing with the SEC and of
mailing to the shareholders of the Company, contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they
were made, not misleading.
ARTICLE V
COVENANTS OF THE COMPANY
The Company covenants and agrees with CCP II that, at all
times before the Closing, the Company will comply, and will cause
its Subsidiaries to comply, with all covenants and provisions of
this Article V, except to the extent CCP II may otherwise consent
in writing.
5.1 Regulatory and Other Approvals. Subject to the terms and
conditions herein provided, the Company will, and will cause its
<PAGE>
<PAGE> 39
Subsidiaries to (a) subject to its fiduciary duties under
applicable Law as determined by the Board of Directors in good
faith after consultation with and based as to legal matters upon
the advice of counsel or as otherwise provided in this Agreement,
use reasonable efforts to obtain shareholder approval of this
Agreement, (b) take all reasonable steps necessary or desirable,
and proceed diligently and in good faith and use all reasonable
efforts to obtain all approvals required by any applicable Contract
of the Company and its Subsidiaries to consummate the transactions
contemplated hereby, (c) take all reasonable steps necessary or
desirable, and proceed diligently and in good faith and use all
reasonable efforts to obtain all approvals, authorizations, and
clearances of governmental and regulatory authorities required of
the Company and its Subsidiaries to permit the Company to
consummate the transactions contemplated hereby, (d) provide such
other information and communications to such governmental and
regulatory authorities as CCP II or such authorities may reasonably
request, and (e) cooperate with CCP II in obtaining all approvals,
authorizations, and clearances of governmental or regulatory
authorities and others required of CCP II to consummate the
transactions contemplated hereby, including without limitation any
required approvals of the regulatory authorities in Alabama and
Iowa.
5.2 HSR Filings. The Company will (a) take promptly all
actions necessary to make the filings required of the Company under
the HSR Act, (b) comply at the earliest practicable date with any
request for additional information received by the Company from the
Federal Trade Commission or Antitrust Division of the Department of
Justice pursuant to the HSR Act, (c) cooperate with CCP II in
connection with CCP II's filings under the HSR Act, and (d) request
early termination of the applicable waiting period.
5.3 Investigation by CCP II. Subject to any currently
existing contractual and legal restrictions applicable to the
Company, the Company will provide, and will cause its Subsidiaries
to provide CCP II, its lenders, and their respective counsel,
accountants, actuaries, and other representatives (collectively
"Representatives") with reasonable access, upon reasonable notice
and during normal business hours, to all facilities, officers,
employees, accountants, actuaries, Assets and Properties, and Books
and Records of the Company and its Subsidiaries and will furnish
CCP II and such Representatives during such period with all such
information and data (including without limitation copies of
Contracts, Benefit Plans, and other Books and Records) concerning
the business, operations, and affairs of the Company and its
Subsidiaries as CCP II or any Representatives reasonably may
request.
5.4 No Negotiations, etc. (a) Subject to Subsection 5.4(b)
below, the Company will not, and will not permit any Subsidiary and
will use their reasonable best efforts to cause their respective
officers, directors, employees and agents retained by the Company
<PAGE>
<PAGE> 40
and its Subsidiaries not to (i) take, directly or indirectly, any
action, except as permitted or required by this Agreement, to seek
or encourage any offer or proposal from any Person relating to any
acquisition, business combination or purchase of all or any
significant portion of the Assets and Properties of (other than
with respect to sales of investments in the ordinary course of
business) or any direct or indirect equity interest in the Company
or any of its Subsidiaries (a "Transaction"), or (ii) furnish or
cause to be furnished any non-public information with respect to
the Company or any Subsidiary to any Person relating to or
concerning a Transaction. If the Company receives from any Person
(other than CCP II or CCP II Acquisition) any bona fide offer,
proposal, or informational request that it believes is subject to
this Section 5.4, the Company will promptly deliver a copy, if such
offer, proposal or request is in writing, or a summary of material
terms, if such offer, proposal or request is oral, to CCP II.
(b) In the event that, notwithstanding the compliance by the
Company with subsection (a) above, an unsolicited offer, proposal
or request for information relating to any merger, sale of assets,
sale of shares of capital stock of the Company or any Subsidiary
(an "Acquisition Proposal") from a Person other than CCP II is
received by the Company while this Agreement remains in effect, the
Company may directly or indirectly, furnish information and access
to such Person and may participate in negotiations with such Person
concerning the Acquisition Proposal if the Board of Directors
determines in good faith after consultation with and based, as to
legal matters, upon the advice of counsel, that failing to take
such action would be a breach of its fiduciary duties under
applicable law. If the Board of Directors determines in good faith
after consultation with and based, as to legal matters, upon the
advice of counsel that it would breach its fiduciary duties to the
stockholders of the Company by not accepting such Acquisition
Proposal and entering into a definitive agreement pursuant thereto,
or modifying or withdrawing its recommendation of the Merger, then
the Company may cancel and terminate this Agreement by delivering
a written notice of such cancellation to CCP II, together with
copies of the pertinent Acquisition Proposal, and paying or causing
to be paid to CCP II, as liquidated damages and not as a penalty,
the sum of $7,500,000, in immediately available funds, such payment
to accompany the written notice delivered to CCP II.
5.5 Conduct of Business. The Company will and will cause its
Subsidiaries to conduct their business only in the ordinary course
and consistent with past practice, except as otherwise provided in
this Agreement or except as may be consented to in writing by CCP
II. Without limiting the generality of the foregoing, the Company
will or will cause its Subsidiaries to:
(a) use all reasonable efforts to (i) preserve
intact its present business organization, reputation, and
policyholder or customer relations (ii) keep available
<PAGE>
<PAGE> 41
the services of its present key officers, directors,
employees, agents, consultants, and other similar
representatives, (iii) maintain all licenses,
qualifications, and authorizations to do business in each
jurisdiction in which it is so licensed, qualified, or
authorized, (iv) maintain in full force and effect all
Contracts, documents, and arrangements disclosed in the
Filed SEC Documents which are materially beneficial to
the Company, (v) maintain all of its Assets and
Properties in good working order and condition, ordinary
wear and tear excepted, (vi) continue all current
marketing and selling activities relating to its
business, operations, or affairs in accordance with its
current marketing plan, and (vii) with respect to each
Insurance Subsidiary, maintain the rating classification,
or its equivalent, assigned as of the date hereof to it
by A. M. Best Company, Inc.
(b) not permit a material change in any applicable
underwriting, investment, actuarial, financial reporting,
accounting practice or policy or reserving method of the
Company or any Significant Subsidiary or in any
assumption underlying such a practice or policy, or in
any method of calculating any bad debt, contingency, or
other reserve for financial reporting purposes or for
other accounting purposes (including without limitation
any practice, policy, assumption, or method relating to
or affecting the determination of insurance or annuities
in force, premium or investment income, reserve
liabilities, or operating ratios with respect to
expenses, losses, or lapses), except as may be required
to conform with changes in SAP, GAAS or GAAP or as
otherwise required by Law.
(c) use all reasonable efforts to maintain in full
force and effect until the Closing substantially the same
levels of coverage as the insurance afforded under the
Contracts existing on the date hereof.
5.6 Financial Statements, Reports and SEC Filings.
(a) As promptly as practicable after each calendar
quarter and year ending between the date hereof and the
Closing Date, the Company will deliver to CCP II true and
complete copies of the following:
(i) the Annual Statement and Quarterly
Statement filed by each Insurance Subsidiary
for each year and quarter then ended; and
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<PAGE> 42
(ii) presentations for American Life and
Casualty Insurance Company reflecting, as of
the end of each such quarter, the information
of the type required by the line items set
forth on pages 2, 3, 4, 4A, 5, 8, 9, 12, 12A,
and 14 and on Schedules A through DB and S of
the December 31, 1993 Annual Statement.
(b) As promptly as practicable after the end of each
month prior to the Effective Time, the Company shall
furnish to CCP II (i) a production report, (ii) a
schedule setting forth the information that would be
included in the Schedule D for each Insurance Subsidiary
in its Annual Statement and (ii) a general ledger trial
balance.
(c) As promptly as practicable between the date
hereof and the Closing Date, the Company will deliver to
CCP II true and complete copies of any and all filings
made by the Company with the SEC.
5.7 Investments. Each of the Company and its Subsidiaries
will invest its future cash flow, any cash from matured and
maturing investments, any cash proceeds from the sale of its Assets
and Properties, and any cash funds currently held by it,
exclusively in cash equivalent assets or in short-term investments
(consisting of United States government issued or guaranteed
securities, or commercial paper rated A-1 or P-1), except (i) as
otherwise required by Law, (ii) as required to provide cash (in the
ordinary course of business and consistent with past practice) to
meet its actual or anticipated obligations or (iii) in accordance
with the investment policy of the Company or any Subsidiary in
effect on the date hereof.
5.8 Employee Matters.
(a) Except as may be required by Law or in
fulfilling its obligations under this Agreement, the
Company will refrain, and will cause the Company and any
of the Subsidiaries to refrain from, directly or
indirectly:
(i) making any representation or
promise, oral or written, to any Employee or
former director, officer or employee of the
Company or any subsidiary which is
inconsistent with the terms of any Benefit
Plan;
(ii) making any change to, or amending in
any way, the Contracts, salaries, wages, or
other compensation of any Employee or any
agent or consultant of the Company or any
subsidiary whose annual compensation exceeds
$75,000 other than routine changes or
amendments that (a) are made in the ordinary
course of business and consistent with past
practice, (b) are required under existing
Contracts or (c) do not and will not cause a
material increase in benefits or compensation
expense to the Company;
<PAGE>
<PAGE> 43
(iii) adopting, entering into, amending,
altering or terminating, partially or
completely, any Benefit Plan or any election
made pursuant to the provisions of any Benefit
Plan, to accelerate any payments, obligations
or vesting schedules under any Benefit Plan;
or
(iv) approving any general or company-
wide pay increases for Employees other than in
ordinary course of business consistent with
past practice.
5.9 No Charter Amendments. Except as disclosed in Schedule
3.9 of the Disclosure Schedule, the Company will and will cause
each of the Subsidiaries to refrain from amending its articles or
certificate of incorporation or organization or by-laws and from
taking any action with respect to any such amendment.
5.10 No Issuance of Securities. The Company will and will
cause each of the Subsidiaries to refrain from authorizing or
issuing any shares of its capital stock or other equity securities
or entering into any Contract or granting any option, warrant, or
right calling for the authorization or issuance of any such shares
or other equity securities, or creating or issuing any securities
directly or indirectly convertible into or exchangeable for any
such shares or other equity securities, or issuing any options,
warrants, or rights to purchase any such convertible securities
(other than pursuant to the exercise of issued and outstanding
Options or SARs or upon conversion of the Convertible Debentures or
the Preferred Shares or pursuant to any existing Benefit Plan with
an employee stock fund, dividend reinvestment plan or employee
stock ownership feature or pursuant to the issuance or exercise of
Options granted to the outside directors of the Company in
accordance with the 1994 Stock Option Plan of the Company).
5.11 No Dividends. Except for dividends paid on the preferred
stock of the Company or its Subsidiaries issued and outstanding on
the date hereof, in accordance with the terms of their respective
certificates of designation, or as otherwise required to fund the
current obligations of the Company or any of the Subsidiaries, the
Company will and will cause each of the Subsidiaries to refrain
from declaring, setting aside, or paying any dividend or other
distribution in respect of its capital stock (not including surplus
notes) and from directly or indirectly redeeming, purchasing, or
otherwise acquiring any of its capital stock (not including surplus
notes) or any interest in or right to acquire any such stock.
<PAGE>
<PAGE> 44
5.12 No Disposal of Property. Except as otherwise expressly
provided in this Agreement, the Company will and will cause each of
the Subsidiaries to refrain from (a) disposing of any of its
material Assets and Properties (other than investments disposed of
in the ordinary course of business and in compliance with the
investment policy of the Company in effect on the date hereof) and
from permitting any of its material Assets and Properties to be
subjected to any Liens, except to the extent any such disposition
or any such Lien is made or incurred in the ordinary course of the
business and consistent with past practice, (b) entering into any
Contracts obligating it to administer the insurance operations of
any other Person and (c) entering into any Contracts permitting any
other Person to administer its insurance operations.
5.13 No Breach or Default. The Company will and will cause
each of the Subsidiaries to refrain from taking or failing to take
any action which would make any of the representations and
warranties of the Company contained in this Agreement untrue or
incorrect as of the date when made.
5.14 No Indebtedness. The Company will and will cause each of
the Subsidiaries to refrain from (i) creating, incurring or
assuming any long-term or short-term indebtedness or issuing any
debt securities except for borrowings under existing lines of
credit in the ordinary course of business consistent with past
practice or pursuant to the terms of the Convertible Debentures or
(ii) guaranteeing or otherwise becoming liable for the obligations
of any other Person except in the ordinary course of business
consistent with past practice and in amounts not material to the
Company and its Subsidiaries, taken as a whole.
5.15 No Acquisitions. The Company will and will cause each of
the Subsidiaries to refrain from acquiring (a) by merger,
consolidation, or otherwise any other Person, or (b) all or
substantially all of the Assets and Properties or capital stock or
other equity securities of any other Person.
5.16 Resignations of Directors. The Company will cause such
members of the Boards of Directors of the Company and its
Subsidiaries as are designated by CCP II in writing at least 5 days
prior to the Closing Date to tender, effective at the Closing,
their resignations from such Boards of Directors.
5.17 Tax Matters. The Company will refrain and will cause
each of its Subsidiaries to refrain from making, filing, or
entering into (whether before or after the closing) any election,
consent, or agreement with respect to any material tax liability of
the Company.
<PAGE>
<PAGE> 45
5.18 Appraisal Rights. The Company shall not settle or
compromise any claim relating to a shareholder's appraisal rights
under the Delaware Code prior to the Effective Time.
5.19 The ESOP. The Company shall use its reasonable efforts
to obtain, prior to the Effective Time, a determination from the
IRS on the qualified status of the ESOP, as amended through
December 31, 1993. Furthermore, the Company shall take such steps
as may be necessary (including amending the ESOP and its related
trust) to cause the Trustee of the ESOP and the Administrative
Committee to (i) allocate the aggregate consideration received
pursuant to Section 2.8 hereof with respect to shares of the
capital stock of the Company (as described in Section 3.3 hereof)
that were held in any Participant's (as such term is defined in the
ESOP) ESOP account(s) immediately prior to the Effective Time to
such Participant's ESOP account(s); (ii) use the aggregate
consideration received pursuant to Section 2.8 hereof with respect
to shares of the capital stock of the Company (as described in
Section 3.3 hereof) that were held in the Loan Suspense Account (as
such term is defined in the ESOP) immediately prior to the
Effective Time to pay off the balance of the Acquisition Loan (as
such term is defined in the ESOP) and interest owing thereon; (iii)
allocate any excess of such aggregate consideration remaining after
the Acquisition Loan is paid off solely among all Participants'
accounts existing under the ESOP immediately prior to the Effective
Time on a pro rata basis in accordance with the provisions of the
ESOP regarding the allocation of trust earnings; and (iv) offer
each ESOP Participant the opportunity to receive the vested portion
of his account balances under the ESOP in a lump sum distribution
as soon as practicable after the later of (x) such Participant's
termination of employment following the Effective Time or (y) the
date the amounts described herein have been allocated; provided,
however, that the allocation described in (iii) above is contingent
upon the receipt of a favorable determination letter from the IRS
providing that such allocation will not adversely affect the
qualified status of the ESOP, and provided, further, that if the
Company or the Surviving Corporation does not receive such a
favorable determination from the IRS, the Company (or if the
Effective Time has occurred, the Surviving Corporation) shall take
all such actions as may be necessary and appropriate to provide for
such allocation without adversely affecting the qualified status of
the ESOP, provided further, that if after taking all such actions
as may be necessary and appropriate to provide for such allocation,
the Company or the Surviving Corporation, as the case may be, is
not able to obtain a favorable determination from the IRS providing
that such allocation will not adversely affect the qualified status
of the ESOP, the Company or the Surviving Corporation, as the case
may be, shall take all such actions as may be necessary and
appropriate to retain the qualified status of the ESOP. The
provisions of this Section 5.19 are intended to be for the benefit
of, and shall be enforceable by, each ESOP Participant and each
ESOP Participant's heirs and assigns.
<PAGE>
<PAGE> 46
5.20 Notice. The Company will notify CCP II promptly in
writing of any event, transaction, or circumstance occurring after
the date of this Agreement that causes or will likely cause any
covenant or agreement of the Company under this Agreement to be
breached, or that renders or will likely render untrue any
representation or warranty of the Company contained in this
Agreement.
ARTICLE VI
COVENANTS OF CCP II AND CCP II ACQUISITION
CCP II and CCP II Acquisition covenant and agree with the
Company that, at all times before the Closing, CCP II and CCP II
Acquisition will comply with all covenants and provisions of this
Article VI, except to the extent the Company may otherwise consent
in writing.
6.1 Regulatory and Other Approvals. Subject to the terms and
conditions herein provided, CCP II and CCP II Acquisition will (a)
take all reasonable steps necessary or desirable, and proceed
diligently and in good faith and use all reasonable efforts to
obtain, all approvals, authorizations, and clearances of
governmental and regulatory authorities required of CCP II and CCP
II Acquisition to consummate the transactions contemplated hereby,
including without limitation any required approvals of the
regulatory authorities in Alabama and Iowa, (b) provide such other
information and communications to such governmental and regulatory
authorities as the Company or such authorities may reasonably
request, and (c) cooperate with the Company and the Subsidiaries in
obtaining all approvals, authorizations, and clearances of
governmental or regulatory authorities required of the Company and
the Subsidiaries to consummate the transactions contemplated
hereby.
6.2 HSR Filings. CCP II and CCP II Acquisition will (a) take
promptly all actions necessary to make the filings required of CCP
II and CCP II Acquisition or their Affiliates under the HSR Act,
(b) comply at the earliest practicable date with any request for
additional information received by CCP II and CCP II Acquisition or
their Affiliates from the Federal Trade Commission or Antitrust
Division of the Department of Justice pursuant to the HSR Act, (c)
cooperate with the Company in connection with the Company's filings
under the HSR Act, and (d) request early termination of the
applicable waiting period.
6.3 Notice. CCP II or CCP II Acquisition will notify the
Company promptly in writing of any event, transaction, or
circumstance occurring after the date of this Agreement that causes
or will likely cause any covenant or agreement of CCP II or CCP II
Acquisition under this Agreement to be breached, or that renders or
will likely render untrue any representation or warranty of CCP II
or CCP II Acquisition contained in this Agreement.
<PAGE>
<PAGE> 47
6.4 Indemnification. (a) In the event of any threatened or
actual claim, suit, proceeding or investigation, whether civil,
criminal or administrative, in which any of the present or former
directors, officers or employees or the trustee and the
Administrative Committee of the ESOP (the "Indemnified Parties") of
the Company or any of its Subsidiaries is, or is threatened to be,
made a party by reason of the fact that he or she is or was a
director, officer, employee or agent of the Company or any of its
Subsidiaries, or is or was serving at the request of the Company or
any of its Subsidiaries as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust or other
enterprise, whether before or after the Effective Time (including,
without limitation, the transactions contemplated by this
Agreement), the parties hereto agree to cooperate and use their
best efforts to defend against and respond thereto. It is
understood and agreed that the Surviving Corporation shall
indemnify and hold harmless to the fullest extent permitted under
applicable law (and shall also advance expenses incurred to the
fullest extent permitted under applicable law, provided that the
person to whom expenses are advanced provides an undertaking to
repay such advances if it is ultimately determined that such person
is not entitled to indemnification), each such Indemnified Party
against any losses, claims, damages, liabilities, costs, expenses
(including attorneys' fees), judgments, fines and amounts paid in
settlement in connection with any such claim, action, suit,
proceeding or investigation, and in the event of any such claim,
action, suit, proceeding or investigation (whether arising before
or after the Effective Time), (i) the Indemnified Parties may
retain counsel satisfactory to them, and the Surviving Corporation
shall pay all fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received and (ii) the
Surviving Corporation will use its best efforts to assist in the
vigorous defense of any such matter; provided that the Surviving
Corporation shall not be liable for any settlement effected without
its prior written consent (which consent shall not be unreasonably
withheld); and provided further that the Surviving Corporation
shall have no obligation hereunder to any Indemnified Party when
and if a court of competent jurisdiction shall ultimately
determine, and such determination shall have become final and non-
appealable, that indemnification of such Indemnified Party in the
manner contemplated hereby is prohibited by applicable law. Any
Indemnified Party wishing to claim indemnification under this
Section 6.4(a), upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Surviving
Corporation.
(b) CCP II agrees that all rights to indemnification
(including with respect to the advancement of expenses) for acts or
omissions occurring prior to the Effective Time now existing in
favor of the Indemnified Parties as provided in the certificates of
incorporation or by-laws of the Company or its Subsidiaries shall
survive the Merger and shall continue in full force and effect in
accordance with their terms for a period of three years following
the Effective Time; provided, however, that all rights to
indemnification in respect to any claim ("Claim") asserted or made
within such period shall continue until disposition of such Claim.
<PAGE>
<PAGE> 48
(c) CCP II will cause to be maintained for a period of not
less than three years from the Effective Time of the Merger each of
the Company's current directors' and officers' insurance and
indemnification policy (the "D&O Insurance") and Pension and
Welfare Fund and Fiduciary Responsibility insurance policy
("Fiduciary Insurance") to the extent that they provide coverage
for events occurring prior to the Effective Time of the Merger, so
long as the annual premium for each such policy would not be in
excess of 200% of its last annual premium for each such policy paid
prior to the date of this Agreement (the "Maximum Premium"). CCP
II may, in lieu of maintaining such current policies as provided
above, cause comparable coverage to be provided under another
policy or policies so long as the material terms thereof are no
less advantageous than the existing D&O Insurance or Fiduciary
Insurance, as the case may be. If the existing D&O Insurance or
Fiduciary Insurance as the case may be expires, is terminated or
canceled during such three-year period, CCP II will use reasonable
efforts to cause to be obtained as much D&O Insurance or Fiduciary
Insurance, as the case may be, as can be obtained for the remainder
of such period for an annualized premium not in excess of the
Maximum Premium for each such policy, on terms and conditions no
less advantageous than the existing D&O Insurance or Fiduciary
Insurance, as the case may be. The Company represents to CCP II
that the Maximum Premium for the D&O Insurance is $349,000 and the
Maximum Premium for the Fiduciary Insurance is $15,670.
(d) The provisions of this Section 6.4 are intended to be for
the benefit of, and shall be enforceable by, each such Indemnified
Party and each such Indemnified Party's heirs and representatives.
6.5 Employment Continuation Agreements. (a) CCP II agrees
and acknowledges that the consummation of the Merger shall
constitute a "Change of Control of the Company" and the Effective
Time shall be deemed the "Change Date" under each of the Employment
Continuation Agreements set forth in the Filed SEC Documents and
agrees that following the consummation of the Merger, it shall, and
shall cause the Surviving Corporation to, satisfy and discharge the
terms and provisions of the Employment Continuation Agreements,
including the obligations resulting from such a Change of Control
of the Company.
(b) The provisions of Section 6.5(a) are intended to be for
the benefit of, and shall be enforceable by the officers and
employees party to such Employment Continuation Agreements and
their respective heirs and representatives.
<PAGE>
<PAGE> 49
6.6 Guarantee of Performance. CCP II hereby guarantees (i)
the performance by CCP II Acquisition of its obligations under this
Agreement (ii) the obligations of the Surviving Corporation to make
the payments required by Article II hereof, subject to the terms
and conditions of this Agreement and (iii) the indemnification
obligations of the Surviving Corporation pursuant to Section 6.4.
6.7 The ESOP. CCP II or CCP II Acquisition shall take such
steps as may be necessary (including amending the ESOP and its
related trust) to cause the Trustee of the ESOP and the
Administrative Committee to (i) use the aggregate consideration
received pursuant to Section 2.8 hereof with respect to shares of
the capital stock of the Company (as described in Section 3.3
hereof) that were held in the Loan Suspense Account (as such term
is defined in the ESOP) immediately prior to the Effective Time to
pay off the balance of the Acquisition Loan (as such term is
defined in the ESOP) and interest owing thereon; (ii) allocate any
excess of such aggregate consideration remaining after the
Acquisition Loan is paid off solely among all Participants'
accounts existing under the ESOP immediately prior to the Effective
Time on a pro rata basis in accordance with the provisions of the
ESOP regarding the allocation of trust earnings; and (iii) offer
each ESOP Participant the opportunity to receive the vested portion
of his account balances under the ESOP in a lump sum distribution
as soon as practicable after the later of (x) such Participant's
termination of employment following the Effective Time or (y) the
date the amounts described herein have been allocated; provided,
however, that the allocation described in (ii) above is contingent
upon the receipt of a favorable determination letter from the IRS
providing that such allocation will not adversely affect the
qualified status of the ESOP, and provided, further, that if the
Surviving Corporation does not receive such a favorable
determination from the IRS, the Surviving Corporation, if the
Effective Time has occurred, shall take all such actions as may be
necessary and appropriate to provide for such allocation without
adversely affecting the qualified status of the ESOP, provided
further, that if after taking all such actions as may be necessary
and appropriate to provide for such allocation, the Surviving
Corporation is not able to obtain a favorable determination from
the IRS providing that such allocation will not adversely affect
the qualified status of the ESOP, the Surviving Corporation shall
take all such actions as may be necessary and appropriate to retain
the qualified status of the ESOP. The provisions of this Section
6.7 are intended to be for the benefit of, and shall be enforceable
by, each ESOP Participant and each ESOP Participant's heirs and
assigns.<PAGE>
<PAGE> 50
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF CCP II AND CCP II ACQUISITION
The obligations of CCP II and CCP II Acquisition hereunder are
subject to the fulfillment, at or before the Closing, of each of
the following conditions (all or any of which may be waived in
whole or in part by CCP II and CCP II Acquisition).
7.1 Representations and Warranties. The representations and
warranties made by the Company in this Agreement shall be true as
of the Closing Date as though such representations, warranties, and
statements were made on and as of the Closing Date except to the
extent such representations and warranties expressly relate to a
date or dates other than the Closing Date; provided, however, that
notwithstanding anything to the contrary contained in this Section
7.1, this Section 7.1 shall be deemed to be satisfied even if such
representations and warranties are not true and correct unless the
failure to be so true and correct would be reasonably likely to
have, individually or in the aggregate, a material adverse effect
on the Business or Condition of the Company and its Subsidiaries,
taken as a whole or on the ability of the Company to perform its
obligations under this Agreement.
7.2 Performance. The Company shall have performed and
complied with in all material respects all agreements, covenants,
obligations, and conditions required by this Agreement to be so
performed or complied with by the Company at or before the Closing,
including those specifically referred to elsewhere in this Article
VII.
7.3 Officer's Certificates. The Company shall have delivered
to CCP II and CCP II Acquisition a certificate, dated the Closing
Date in form reasonably acceptable to CCP II and CCP II Acquisition
and executed by the chief executive officer or chief financial
officer of the Company, certifying (with respect to the Company
and, as appropriate, the Company and the Subsidiaries) as to the
fulfillment of the conditions set forth in Sections 7.1 and 7.2
hereof. In addition, the Company shall have delivered to CCP II a
certificate, dated the Closing Date and executed by the secretary
or any assistant secretary of the Company, certifying that the
Company has duly and validly taken all corporate action necessary
to authorize its execution and delivery of this Agreement and its
performance of its obligations under this Agreement, and that the
resolutions (true and complete copies of which shall be attached to
the certificate) of the Board of Directors of the Company with
respect to this Agreement and the transactions contemplated hereby
have been duly and validly adopted and are in full force and
effect.
<PAGE>
<PAGE> 51
7.4 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR
Act shall have expired or been terminated.
7.5 No Injunction. There shall not be in effect on the
Closing Date any writ, judgment, injunction, decree, or similar
order of any court or governmental agency of competent jurisdiction
restraining, enjoining, or otherwise preventing consummation of any
of the transactions contemplated by this Agreement.
7.6 Consents, Authorizations, etc. This Agreement shall have
been approved and adopted by the affirmative vote of the holders of
a majority of the voting power of the Shares and Preferred Shares
entitled to vote thereon in accordance with the Delaware Code and
the Company's certificate of incorporation. All orders, consents,
permits, authorizations, approvals, and waivers required to be
obtained to permit CCP II to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby
and to permit CCP II Acquisition to acquire the Shares and the
Preferred Shares pursuant to this Agreement (including without
limitation any requisite action of the regulatory authorities in
Alabama and Iowa, in each case without the material abrogation or
material diminishment of the authority or license of the Company or
any Significant Subsidiary or the imposition of restrictions upon
the transactions contemplated hereby) shall have been obtained and
shall be in full force and effect except where the failure to
obtain or be in full force and effect would not be reasonably
likely to have, individually or in the aggregate, a material
adverse effect on the abilities of CCP II and CCP II Acquisition to
perform their respective obligations hereunder or the Business or
Condition of the Surviving Corporation after the Effective Time.
7.7 Appraisal Shares. No more than 20% of the Shares (other
than Shares held as treasury shares by the Company or held by any
direct or indirect majority-owned subsidiary of the Company) shall
have become Appraisal Shares.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF COMPANY
The obligations of the Company hereunder are subject to the
fulfillment, at or before the Closing, of each of the following
conditions (all or any of which may be waived in whole or in part
by the Company).
8.1 Representations and Warranties. The representations and
warranties made by each of CCP II and CCP II Acquisition in this
Agreement shall be true as of the Closing Date as though such
representations, warranties, and statements were made on and as of
the Closing Date except to the extent such representations and
warranties expressly relate to a date or dates other than the
Effective Date; provided however, that notwithstanding anything to
the contrary contained in this Section 8.1, this Section 8.1 shall
be deemed to be satisfied even if such representations and
warranties are not true and correct unless the failure to be so
true and correct would be reasonably likely, individually or in the
aggregate to have a material adverse effect on the ability of CCP
II and CCP II Acquisition to perform their respective obligations
hereunder.
<PAGE>
<PAGE> 52
8.2 Performance. Each of CCP II and CCP II Acquisition shall
have performed and complied in all material respects with all
agreements, covenants, obligations, and conditions required by this
Agreement to be so performed or complied with by them at or before
the Closing.
8.3 Officer's Certificates. Each of CPMI and CCP II
Acquisition shall have delivered to the Company a certificate,
dated the Closing Date in form reasonably acceptable to Company and
executed by the chief executive officer or the chief financial
officer of CPMI and CCP II Acquisition, respectively, certifying as
to the fulfillment of the conditions set forth in Sections 8.1 and
8.2 hereof, as applicable. In addition, each of CPMI and CCP II
Acquisition shall have delivered to the Company a certificate,
dated the Closing Date and executed by the secretary or any
assistant secretary of CPMI and CCP II Acquisition, respectively,
certifying that it has duly and validly taken all action necessary
to authorize its execution and delivery of this Agreement and its
performance of its obligations under this Agreement, that it has
duly and validly taken all corporate action necessary to authorize
the acquisition of the Shares, and that the resolutions (true and
complete copies of which shall be attached to the certificate) of
the respective Board of Directors of CPMI and CCP II Acquisition
with respect to this Agreement and the transactions contemplated
hereby have been duly and validly adopted and are in full force and
effect.
8.4 HSR Act Approval. All waiting periods applicable to this
Agreement and the transactions contemplated hereby under the HSR
Act shall have expired or been terminated.
8.5 No Injunction. There shall not be in effect on the
Closing Date any writ, judgment, injunction, decree, or similar
order of any court or governmental agency of competent jurisdiction
restraining, enjoining, or otherwise preventing consummation of any
of the transactions contemplated by this Agreement.
8.6 Consents, Authorizations, etc. This Agreement shall have
been approved and adopted by the affirmative vote of the holders of
a majority of the voting power of the Shares and the Preferred
Shares entitled to vote thereon in accordance with the Delaware
Code and the Company's certificate of incorporation. All orders,
consents, permits, authorizations, approvals and waivers required
to permit the Company to perform its obligations under this
Agreement and to consummate the transactions contemplated hereby
shall have been obtained and shall be in full force and effect
except where failure to obtain or be in full force and effect would
not be reasonably likely to have, individually or in the aggregate,
a material adverse effect on the Business or Condition of the
Company and its Subsidiaries, taken as a whole, or on the Company's
ability to perform its obligations under this Agreement.
<PAGE>
<PAGE> 53
ARTICLE IX
SURVIVAL OF PROVISIONS
9.1 Survival. The representations and warranties
respectively required to be made by the Company, CCP II and CCP II
Acquisition in this Agreement, or in any certificate, respectively,
delivered by the Company or CCP II pursuant to Section 7.3 or
Section 8.3 hereof will not survive the Closing.
ARTICLE X
TERMINATION
10.1 Termination. This Agreement may be terminated, and the
transactions contemplated hereby may be abandoned, upon notice by
the terminating party to the other party:
(a) pursuant to the provisions of Section 5.4(b)
hereof;
(b) at any time before the Closing, by mutual
written agreement of the Company and CCP II;
(c) at any time by the Company if any breach of any
representation, warranty, covenant or agreement on the
part of CCP II or CCP II Acquisition or if any
representation or warranty of CCP II or CCP II
Acquisition shall have become untrue, in either case such
that the conditions set forth in Section 8.1 and 8.2 are
incapable of being satisfied by December 31, 1994 (or as
otherwise extended);
(d) at any time by CCP II if any breach of any
representation, warranty, covenant or agreement on the
part of the Company or if any representation or warranty
of the Company shall have become untrue in either case
such that the conditions set forth in Sections 7.1 and
7.2 are incapable of being satisfied by December 31, 1994
(or as otherwise extended);
<PAGE>
<PAGE> 54
(e) by either the Company or CCP II, upon a vote at
a duly held meeting of the shareholders of the Company or
any adjournment thereof, if any required approval of the
shareholders shall not have been obtained or any
permanent injunction or action by any court, arbitrator,
governmental body or agency shall have become final and
non-appealable; or
(f) at any time after December 31, 1994, by the
Company or CCP II, if the transactions contemplated by
this Agreement have not been consummated on or before
such date and such failure to consummate is not caused by
a breach of this Agreement (or any representation,
warranty, covenant, or agreement included herein) by the
party electing to terminate pursuant to this clause (d);
provided, however, that either party may by notice to the
other extend such date to March 31, 1995 if the only
conditions to Closing not satisfied as of December 31,
1994 are those set forth in Sections 7.4, 7.6, 8.4 or 8.6
hereof.
10.2 Effect of Termination. Except as set forth in Section
5.4(b) hereof, if this Agreement is validly terminated pursuant to
Section 10.1 hereof, this Agreement will thereupon become null and
void, and there will be no Liability on the part of the Company or
CCP II (or any of their respective officers, directors, employees,
agents, consultants, or other representatives), except that (a) the
provisions relating to confidentiality in Section 12.4 hereof will
continue to apply following any such termination and (b) any such
termination shall be without prejudice to any claim which either
party may have against the other for willful breach of this
Agreement (or any representation, warranty, covenant, or agreement
included herein).
ARTICLE XI
NOTICES
11.1 Notices. All notices and other communications under this
Agreement must be in writing and will be deemed to have been duly
given if delivered, telecopied or mailed, by certified mail, return
receipt requested, first-class postage prepaid, to the parties at
the following addresses:
If to the Company, to:
The Statesman Group, Inc.
1400 Des Moines Building
Des Moines, Iowa 50309
Attention: David J. Noble
Telephone: (515) 284-7505
Telecopy: (515) 242-3208
<PAGE>
<PAGE> 55
with a copy to:
Skadden, Arps, Slate, Meagher & Flom
333 West Wacker Drive
Chicago, Illinois 60606
Attention: Wayne W. Whalen
Telephone: (312) 407-0600
Telecopy: (312) 407-0411
If to CCP II, to:
Conseco Capital Partners II, L.P.
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
Telephone: (317) 573-6163
Telecopy: (317) 573-6327
If to CCP II Acquisition, to:
CCP II Acquisition Company
11825 N. Pennsylvania Street
Carmel, Indiana 46032
Attention: Lawrence W. Inlow, Esq.
Telephone: (317) 573-6163
Telecopy: (317) 573-6327
All notices and other communications required or permitted under
this Agreement that are addressed as provided in this Article XI
will, if delivered personally, be deemed given upon delivery, will,
if delivered by telecopy, be deemed delivered when confirmed and
will, if delivered by mail in the manner described above, be deemed
given on the third Business Day after the day it is deposited in a
regular depository of the United States mail. Any party from time
to time may change its address for the purpose of notices to that
party by giving a similar notice specifying a new address, but no
such notice will be deemed to have been given until it is actually
received by the party sought to be charged with the contents
thereof.
ARTICLE XII
MISCELLANEOUS
12.1 Entire Agreement. Except for documents executed by the
Company, CCP II and CCP II Acquisition pursuant hereto, this
Agreement supersedes all prior discussions and agreements between
the parties with respect to the subject matter of this Agreement,
and this Agreement (including the exhibits hereto, the Disclosure
Schedule, and other Contracts and documents delivered in connection
herewith) and the Confidentiality Agreement contain the sole and
entire agreement between the parties hereto with respect to the
subject matter hereof.
<PAGE>
<PAGE> 56
12.2 Expenses. Except as otherwise expressly provided in this
Agreement, each of the Company, CCP II and CCP II Acquisition will
pay its own costs and expenses in connection with this Agreement
and the transactions contemplated hereby.
12.3 Public Announcements. At all times at or before the
Closing, the Company and CCP II will each consult with the other
before issuing or making any reports, statements, or releases to
the public with respect to this Agreement or the transactions
contemplated hereby and will use good faith efforts to agree on the
text of a joint public report, statement, or release or will use
good faith efforts to obtain the other party's approval of the text
of any public report, statement, or release to be made solely on
behalf of a party. If the Company and CCP II are unable to agree
on or approve any such public report, statement, or release and
such report, statement, or release is, in the opinion of legal
counsel to a party, required by Law or the rules and regulations of
any applicable stock exchange or may be appropriate in order to
discharge such party's disclosure obligations, then such party may
make or issue the legally required report, statement, or release.
Any such report, statement, or release approved or permitted to be
made pursuant to this Section 12.3 may be disclosed or otherwise
provided by the Company or CCP II to any Person, including without
limitation to any employee or customer of either party hereto and
to any governmental or regulatory authority.
12.4 Confidentiality. Each of the Company and CCP II will
hold, and will cause its respective Affiliates and their respective
officers, directors, employees, agents, consultants, and other
representatives to hold, in strict confidence, all confidential
documents and confidential or proprietary information concerning
the other party furnished to it by the other party or such other
party's officers, directors, employees, agents, consultants, or
representatives in connection with this Agreement or the
transactions contemplated hereby on the terms and conditions
consistent with the terms and conditions contained in the
Confidentiality Agreement.
12.5 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit
thereof; such waiver must be in writing and must be executed by the
Chairman of the Board, chief executive officer, chief financial
officer, general counsel, or chief operating officer of such party.
A waiver on one occasion will not be deemed to be a waiver of the
same or any other breach on a future occasion. All remedies,
either under this Agreement, or by Law or otherwise afforded, will
be cumulative and not alternative.
<PAGE>
<PAGE> 57
12.6 Amendment. This Agreement may be modified or amended
only by a writing duly executed by or on behalf of all parties
hereto.
12.7 Counterparts. This Agreement may be executed
simultaneously in any number of counterparts, each of which will be
deemed an original, but all of which will constitute one and the
same instrument.
12.8 No Third Party Beneficiary. Except as otherwise provided
herein, the terms and provisions of this Agreement are intended
solely for the benefit of the parties hereto, and their respective
successors or assigns, and it is not the intention of the parties
to confer third-party beneficiary rights upon any other Person.
12.9 Governing Law. This Agreement shall be governed by and
construed in accordance with the Laws of the State of Delaware.
12.10 Binding Effect. This Agreement is binding upon and
will inure to the benefit of the parties and their respective
successors and assignees.
12.11 Assignment Limited. Except as otherwise provided
herein, this Agreement or any right hereunder or part hereof may
not be assigned by any party hereto without the prior written
consent of the other party hereto.
12.12 Headings, Gender, etc. The headings used in this
Agreement have been inserted for convenience and do not constitute
matter to be construed or interpreted in connection with this
Agreement. Unless the context of this Agreement otherwise
requires, (a) words of any gender are deemed to include each other
gender; (b) words using the singular or plural number also include
the plural or singular number, respectively; (c) the terms
"hereof," "herein," "hereby," "hereto," and derivative or similar
words refer to this entire Agreement; (d) the terms "Article" or
"Section" refer to the specified Article or Section of this
Agreement; and (e) all references to "dollars" or "$" refer to
currency of the United States of America.
12.13 Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid, or unenforceable under any present
or future Law, and if the rights or obligations of the Company or
CCP II under this Agreement will not be materially and adversely
affected thereby, (a) such provision will be fully severable; (b)
this Agreement will be construed and enforced as if such illegal,
invalid, or unenforceable provision had never comprised a part
hereof; and (c) the remaining provisions of this Agreement will
remain in full force and effect and will not be affected by the
illegal, invalid, or unenforceable provision or by its severance
herefrom.
<PAGE>
<PAGE> 58
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the Company, CCP II
and CCP II Acquisition effective as of the date first written
above.
CONSECO CAPITAL PARTNERS II, L.P.
By: CONSECO PARTNERSHIP
MANAGEMENT, INC., its
sole general partner
By: /s/ ROLLIN M. DICK
-------------------
Rollin M. Dick,
Executive Vice President
CCP II ACQUISITION COMPANY
By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick,
Executive Vice President
THE STATESMAN GROUP, INC.
By: /s/ DAVID J. NOBLE
------------------
David J. Noble,
Chairman of the Board, President
and Chief Executive Officer
<PAGE>
<PAGE> 59
Exhibit A
DEFINITIONS OF TERMS
"Acquisition Proposal" shall have the meaning ascribed to it
in Section 5.4(b) of this Agreement.
"Actuarial Analyses" shall have the meaning ascribed to it in
Section 3.18 of this Agreement.
"Adjustment" shall have the meaning ascribed to it in Section
2.9(c) of this Agreement.
"Adjustment Event" shall mean any event or occurrence that
would give rise to an Adjustment.
"Adjustment Notice" shall have the meaning ascribed to it in
Section 2.9(e) of this Agreement.
"Affiliate" shall mean any Person that directly, or indirectly
through one or more intermediaries, Controls, is Controlled by, or
is under common Control with the Person specified.
"Agreement" shall mean this Agreement and Plan of Merger,
together with the exhibits attached hereto and the Disclosure
Schedule.
"Annual Statement" shall mean any annual statement of an
Insurance Subsidiary filed with or submitted to the regulatory
authority in the state in which it is domiciled on forms prescribed
or permitted by such authority.
"Appraisal Share" shall have the meaning ascribed to it in
Section 2.10 of this Agreement.
"Assets and Properties" shall mean all assets or properties of
every kind, nature, character, and description (whether real,
personal, or mixed, whether tangible or intangible, whether
absolute, accrued, contingent, fixed, or otherwise, and wherever
situated) as now operated, owned, or leased by a specified Person,
including without limitation cash, cash equivalents, securities,
accounts and notes receivable, real estate, equipment, furniture,
fixtures and insurance or annuities in force.
"Benefit Plans" shall mean all Employee Pension Benefit Plans,
all Employee Welfare Benefit Plans, all stock bonus, stock
ownership, stock option, stock purchase, stock appreciation rights,
phantom stock, and other stock plans (whether qualified or non-
qualified), and all other pension, welfare, severance, retirement,
bonus, deferred compensation, incentive compensation, insurance
(whether life, accident and health, or other and whether key man,
group, workers compensation, or other), profit sharing, disability,
thrift, day care, legal services, leave of absence, layoff, and
supplemental or excess benefit plans, and all other benefit
Contracts, arrangements, or procedures having the effect of a plan,
in each case existing on or before the Closing Date under which the
Company or any Subsidiary is or may hereafter become obligated in
any manner (including without limitation obligations to make
contributions or other payments) and which cover some or all of the
Employees or former directors, officers or employees of the Company
or any Subsidiary; provided, however, that such term shall include
severance benefit programs but shall not include (a) routine
employment policies and procedures developed and applied in the
ordinary course of business and consistent with past practice,
including without limitation sick leave, vacation, and (b)
directors and officers liability insurance.
<PAGE>
<PAGE> 60
"Books and Records" shall mean all accounting, financial
reporting, Tax, business, marketing, corporate, and other files,
documents, instruments, papers, books, and records of a specified
Person, including without limitation financial statements, budgets,
projections, ledgers, journals, deeds, titles, policies, manuals,
minute books, stock certificates and books, stock transfer ledgers,
Contracts, franchises, permits, agency lists, policyholder lists,
supplier lists, reports, computer files, retrieval programs,
operating data or plans, and environmental studies or plans.
"Business Day" shall mean a day other than Saturday, Sunday,
or any day on which the principal commercial banks located in New
York are authorized or obligated to close under the Laws of New
York.
"Business or Condition" shall mean the business, financial
condition, results of operations, of a specified Person.
"Cash Merger Consideration" shall have the meaning ascribed to
it in Section 2.8 of this Agreement.
"CCP II" shall have the meaning ascribed to it in the preamble
of this Agreement.
"CCP II Acquisition" shall have the meaning ascribed to it in
the preamble of this Agreement.
"Closing" shall mean the closing of the transactions
contemplated by this Agreement.
"Closing Date" shall mean (a) the date upon which the
Effective Time occurs, or (b) such other date as CCP II and Company
may mutually agree upon in writing.
"Code" shall mean the Internal Revenue Code of 1986, as
amended (including without limitation any successor code), and the
rules and regulations promulgated thereunder.
<PAGE>
<PAGE> 61
"Committee" shall have the meaning ascribed to it in Section
2.9(i) of this Agreement.
"Company" shall have the meaning ascribed to it in the
preamble of this Agreement.
"Company Litigation" shall have the meaning ascribed to it in
Section 2.9(c) of this Agreement.
"Confidentiality Agreement" means the confidentiality
agreement dated April 22, 1994, by and between Conseco, Inc. and
the Company.
"Constituent Corporations" shall have the meaning ascribed to
it in the preamble of this Agreement.
"Contingent Payment Right" shall have the meaning ascribed to
it in Section 2.8 of this Agreement.
"Contract" shall mean any agreement, lease, sublease, license,
sublicense, promissory note, evidence of indebtedness, insurance
policy, annuity, or other contract or commitment.
"Control" (and its derivative terms "Controlled" "Controls",
etc.) shall mean the ability to determine the actions and decisions
of another Person, whether by ownership of Voting Securities, the
ability to elect a majority of the Board of Directors or other
managing board or committee, management contract, or otherwise.
"Costs and Expenses" shall have the meaning ascribed to it in
Section 2.9(c) of this Agreement.
"Convertible Debentures" shall mean the Company's 6 1/4%
Convertible Subordinated Debentures due 2003, issued pursuant to
the Indenture, dated as of April 21, 1993, between the Company and
Boatmen's Trust Company, as trustee.
"CPMI" shall have the meaning ascribed to it in the preamble
of this Agreement.
"Disbursing Agent" shall have the meaning ascribed to it in
Section 2.13 of this Agreement.
"Disbursing Agent Agreement" shall have the meaning ascribed
to it in Section 2.13 of this Agreement.
"Disclosure Schedule" shall mean the bound record dated as of
the date of this Agreement furnished by the Company to CCP II, and
containing all lists, descriptions, exceptions, and other
information and materials as are required to be included therein
pursuant to this Agreement.
<PAGE>
<PAGE> 62
"Effective Time" shall have the meaning ascribed to it in
Section 2.2 of this Agreement.
"Employee" shall mean any present officer, director or
employee, of the Company or any Subsidiary.
"Employee Pension Benefit Plan" shall mean each employee
pension benefit plan (whether or not insured), as defined in
Section 3(2) of ERISA which is or was in existence on or before the
Closing Date and to which the Company or any of the Subsidiaries is
or would hereafter become obligated in any manner as an employer.
"Employee Stock Ownership Plan" shall mean any defined
contribution plan which is an employee stock ownership plan within
the meaning of Section 4975(e)(7) of the Code.
"Employee Welfare Benefit Plan" shall mean each employee
welfare benefit plan (whether or not insured), as defined in
Section 3(1) of ERISA, which is or was in existence on or before
the Closing Date and to which the Company or any of the
Subsidiaries is or would hereafter become obligated in any manner
as an employer.
"ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as amended (including without limitation any successor
act), and the rules and regulations promulgated thereunder.
"ERISA Affiliate" shall mean any Person under common Control
(as defined in Section 414 of the Code) with the Company or any of
the Subsidiaries.
"ESOP" shall mean "The Statesman Group, Inc. Employee Stock
Ownership Plan and Trust (a Stock Bonus Plan)," effective January
1, 1989, as amended, including "The Statesman Group, Inc. Leveraged
ESOP."
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
"Filed SEC Documents" shall mean all of the SEC Documents
filed and publicly available prior to the date of this Agreement.
"Final Litigation Resolution" shall have the meaning ascribed
to it in Section 2.9(g).
"GAAP" shall mean generally accepted accounting principles,
consistently applied throughout the specified period and in the
immediately prior comparable period, except as disclosed in the
notes to the Company's financial statements.
"GAAS" shall mean generally accepted actuarial standards.
<PAGE>
<PAGE> 63
"HSR Act" shall mean Section 7A of the Clayton Act (Title II
of the Hart-Scott-Rodino Antitrust Improvements Act of 1976), as
amended (including without limitation any successor act), and the
rules and regulations promulgated thereunder.
"Indemnified Parties" shall have the meaning ascribed to it in
Section 6.4(a).
"Insurance Subsidiary" means each Subsidiary of the Company
which is organized, qualified, or licensed as a company authorized
to conduct the business of underwriting, issuing or reinsuring
insurance policies.
"IRS" shall mean the United States Internal Revenue Service or
any successor agency.
"Knowledge of CCP II" means the actual knowledge of any
officer of CPMI.
"Knowledge of Company" means the actual knowledge of any one
or more of any officer of the Company or any Significant
Subsidiary.
"Laws" shall mean all laws, statutes, ordinances and
regulations, having the effect of law of the United States of
America, or any state, commonwealth, city, municipality, court,
tribunal, agency, governmental agency or authority, arbitrator, or
instrumentality thereof.
"Liabilities" shall mean all debts, obligations, and other
liabilities of a Person (whether absolute, accrued, contingent,
fixed, or otherwise, or whether due or to become due) which are
recognized as liabilities in accordance with SAP or GAAP.
"Licenses" shall have the meaning ascribed to it in Section
3.19 of this Agreement.
"Lien" shall mean any mortgage, pledge, assessment, security
interest, lien, adverse claim, levy, charge, or other encumbrance
of any kind, or any conditional sale Contract, title retention
Contract, or other Contract to give or to refrain from giving any
of the foregoing other than Permitted Encumbrances.
"1988 Series I Preferred Shares" shall have the meaning
ascribed to it in Section 3.3 of this Agreement.
"1988 Series II Preferred Shares" shall have the meaning
ascribed to it in Section 3.3 of this Agreement.
"1987 Series Preferred Shares" shall have the meaning ascribed
to it in Section 2.8 of this Agreement.
<PAGE>
<PAGE> 64
"1976 Series Preferred Shares" shall have the meaning ascribed
to it in Section 2.8 of this Agreement.
"Litigation Resolution" shall have the meaning ascribed to it
in Section 2.9(g) of this Agreement.
"Neutral Auditors" shall have the meaning ascribed to it in
Section 2.9(f) of this Agreement.
"Note" shall have the meaning ascribed to it in Section 2.9(a)
of this Agreement.
"Note Trust Agreement" shall have the meaning ascribed to it
in Section 2.9(a) of this Agreement.
"Option" shall mean any option to purchase shares of the
common capital stock of the Company which has been granted to
officers, employees or directors of the Company and remains
outstanding immediately prior to the Effective Time.
"PBGC" shall mean the Pension Benefit Guaranty Corporation
established under ERISA.
"Partial Litigation Resolution" shall have the meaning
ascribed to it in Section 2.9(g).
"Permitted Encumbrances" shall mean the following
encumbrances: (i) Liens for taxes or assessments or other
governmental charges or levies, either not yet due and payable or
to the extent that nonpayment thereof is permitted by the terms of
this Agreement; (ii) pledges or deposits securing obligations under
worker's compensation, unemployment insurance, social security or
public liability laws or similar legislation; (iii) pledges or
deposits securing bids, tenders, contracts (other than contracts
for the payment of money) or leases to which Company or any of its
Affiliates is a party as lessee made in the ordinary course of
business; (iv) deposits securing public or statutory obligations of
Company or any of its Affiliates; (v) workers', mechanics',
suppliers', carriers', warehousemen's or other similar liens
arising in the ordinary course of business, not yet due and
payable; (vi) deposits securing or in lieu of surety, appeal or
customs bonds in proceedings to which Company or any of its
Affiliates is a party; (vii) pledges or deposits effected by
Company as a condition to obtaining or maintaining any License of
such Person; (viii) any attachment or judgment lien, unless the
judgment it secures shall not, within 60 days after the entry
thereof, have been discharged or execution thereof stayed pending
appeal, or shall not have been discharged within 60 days after the
expiration of any such stay; and (ix) zoning restrictions,
easements, licenses, or other restrictions on the use of real
property or other minor irregularities in title (including
leasehold title) thereto, so long as the same do not materially
impair the use, value, or marketability of such real property,
leases or leasehold estates.
<PAGE>
<PAGE> 65
"Permitted Investments" shall have the meaning ascribed to it
in Section 2.13(a) of this Agreement.
"Person" shall mean any natural person, corporation, limited
liability company, general partnership, limited partnership, or
other entity, enterprise, authority, or business organization.
"Preferred Shares" shall have the meaning ascribed to it in
Section 3.3 of this Agreement.
"Principal Balance" shall have the meaning ascribed to it in
Section 2.9(c) of this Agreement.
"Principal Payment" shall have the meaning ascribed to it in
Section 2.9(g).
"Proceeds" shall have the meaning ascribed to it in Section
2.9(g) of this Agreement.
"Proposed Adjustment" shall have the meaning ascribed to it in
Section 2.9(e) of this Agreement.
"Proxy Statement" shall have the meaning ascribed to it in
Section 3.21 of this Agreement.
"Quarterly Statement" shall mean any quarterly statement of an
Insurance Subsidiary filed with or submitted to the regulatory
authority in the state in which it is domiciled on forms prescribed
or permitted by such authority.
"Real Estate" means all real property and interests therein,
including without limitation leasehold interests, owned or held at
any time by the Company or any Subsidiary or nominee thereof.
"Recovery Amount" shall have the meaning ascribed to it in
Section 2.9(c) of this Agreement.
"Representative" shall have the meaning ascribed to it in
Section 5.3 of this Agreement.
"Reserve Amounts" shall have the meaning ascribed to it in
Section 2.9(g) of this Agreement.
"Resolution Period" shall have the meaning ascribed to it in
Section 2.9(e) of this Agreement.
"Rights Holders" shall have the meaning ascribed to it in
Section 2.9(a) of this Agreement.
<PAGE>
<PAGE> 66
"SAP" shall mean the accounting practices prescribed or
permitted by the regulatory authority in the state in which each
Insurance Subsidiary is domiciled, as the case may be, consistently
applied throughout the specified period and in the immediately
prior comparable period.
"SAP Statements" shall mean the Annual Statements and
Quarterly Statements prepared in accordance with SAP and delivered
to CCP II pursuant to this Agreement.
"SAR" shall mean any stock appreciation right on the common
capital stock of the Company which has been granted to certain
officers and key employees of the Company and remains outstanding
immediately prior to the Effective Time.
"SEC" shall mean the Securities and Exchange Commission or any
successor agency.
"SEC Documents" shall mean all reports, schedules, forms,
statements and other documents required to be filed with the SEC
under the Securities Act or Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Shares" shall have the meaning ascribed to it in Section 3.3
of this Agreement.
"Significant Subsidiary" shall mean any of the Subsidiaries
which falls within the meaning of Section 1-02 of Regulation S-X
promulgated by the SEC.
"Subsidiaries" shall mean all subsidiaries of the Company as
of the date hereof, including those listed in Section 3.4 of the
Disclosure Schedule.
"subsidiary" shall mean each of those Persons, regardless of
jurisdiction of organization, of which another Person, directly or
indirectly through one or more subsidiaries, Controls securities
having more than 50% of the voting power of such Person (without
giving effect to any contingent voting rights).
"Taxes" shall mean all taxes, charges, fees, levies, or other
similar assessments or Liabilities, including without limitation
income, gross receipts, ad valorem, premium, excise, real property,
personal property, windfall profit, sales, use, transfer,
licensing, withholding, employment, payroll, Phase III, and
franchise taxes imposed by the United States of America or any
state, local, or foreign government, or any subdivision, agency, or
other similar Person of the United States or any such government;
and such term shall include any interest, fines, penalties,
assessments, or additions to tax resulting from, attributable to,
or incurred in connection with any such tax or any contest or
dispute thereof.
<PAGE>
<PAGE> 67
"Tax Returns" shall mean any report, return, or other
information required to be supplied to a taxing authority in
connection with Taxes.
"Transaction" shall have the meaning ascribed to it in Section
5.4 of this Agreement.
"Trustee" shall have the meaning ascribed to it in Section
2.9(a) of this Agreement.
<PAGE> 1
CONFORMED COPY
ALHC MERGER CORPORATION
11-1/4% Senior Subordinated Notes Due 2004
INDENTURE
Dated as of September 29, 1994
LTCB TRUST COMPANY
Trustee
<PAGE>
<PAGE> 2
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
----
<S> <C>
ARTICLE 1. Definitions and Incorporation by Reference. . . 6
SECTION 1.01. Definitions. . . . . . . . . . . . . . . . 6
SECTION 1.02. Other Definitions. . . . . . . . . . . . . 24
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act. . . . . . . . . . . . . . . 24
SECTION 1.04. Rules of Construction. . . . . . . . . . . 25
ARTICLE 2. The Securities. . . . . . . . . . . . . . . . . 25
SECTION 2.01. Form and Dating. . . . . . . . . . . . . . 25
SECTION 2.02. Execution and Authentication . . . . . . . 26
SECTION 2.03. Registrar and Paying Agent . . . . . . . . 26
SECTION 2.04. Paying Agent To Hold Money in Trust. . . . 27
SECTION 2.05. Securityholder Lists . . . . . . . . . . . 27
SECTION 2.06. Transfer and Exchange. . . . . . . . . . . 27
SECTION 2.07. Replacement Securities . . . . . . . . . . 28
SECTION 2.08. Outstanding Securities . . . . . . . . . . 28
SECTION 2.09. Temporary Securities . . . . . . . . . . . 29
SECTION 2.10. Cancellation . . . . . . . . . . . . . . . 29
SECTION 2.11. Defaulted Interest . . . . . . . . . . . . 29
ARTICLE 3. Redemption. . . . . . . . . . . . . . . . . . . 30
SECTION 3.01. Notices to Trustee . . . . . . . . . . . . 30
SECTION 3.02. Selection of Securities To Be Redeemed . . 30
SECTION 3.03. Notice of Redemption . . . . . . . . . . . 30
SECTION 3.04. Effect of Notice of Redemption . . . . . . 31
SECTION 3.05. Deposit of Redemption Price. . . . . . . . 31
SECTION 3.06. Securities Redeemed in Part. . . . . . . . 32
ARTICLE 4. Covenants . . . . . . . . . . . . . . . . . . . 32
SECTION 4.01. Payment of Securities. . . . . . . . . . . 32
SECTION 4.02. SEC Reports. . . . . . . . . . . . . . . . 32
SECTION 4.03. Limitation on Indebtedness . . . . . . . . 32
SECTION 4.04. Limitation on Indebtedness and Preferred
Stock of Subsidiaries. . . . . . . . . . . 34
SECTION 4.05. Limitation on Restricted Payments. . . . . 35
SECTION 4.06. Limitation on Restrictions on
Distributions from Subsidiaries. . . . . . 37
SECTION 4.07. Limitation on Transactions with
Affiliates . . . . . . . . . . . . . . . . 39
SECTION 4.08. Limitation on Sales of Assets and
Subsidiary Stock . . . . . . . . . . . . . 40
SECTION 4.09. Change of Control. . . . . . . . . . . . . 43
SECTION 4.10. Limitation on Liens Securing Subordinated or
Pari Passu Indebtedness. . . . . . . . . . 44
SECTION 4.11. Business Activities. . . . . . . . . . . . 45<PAGE>
<PAGE> 3
SECTION 4.12. Limitation on Issuance of Guarantees by
Subsidiaries . . . . . . . . . . . . . . . 45
SECTION 4.13. Compliance Certificate . . . . . . . . . . 46
SECTION 4.14. Further Instruments and Acts . . . . . . . 46
ARTICLE 5. Successor Company . . . . . . . . . . . . . . . 46
SECTION 5.01. When Company May Merge or Transfer
Assets . . . . . . . . . . . . . . . . . . 46
SECTION 5.02. Successor Substituted. . . . . . . . . . . 48
ARTICLE 6. Defaults and Remedies . . . . . . . . . . . . . 48
SECTION 6.01. Events of Default. . . . . . . . . . . . . 48
SECTION 6.02. Acceleration . . . . . . . . . . . . . . . 50
SECTION 6.03. Other Remedies . . . . . . . . . . . . . . 51
SECTION 6.04. Waiver of Past Defaults. . . . . . . . . . 51
SECTION 6.05. Control by Majority. . . . . . . . . . . . 51
SECTION 6.06. Limitation on Suits. . . . . . . . . . . . 52
SECTION 6.07. Rights of Holders to Receive Payment . . . 52
SECTION 6.08. Collection Suit by Trustee . . . . . . . . 53
SECTION 6.09. Trustee May File Proofs of Claim . . . . . 53
SECTION 6.10. Priorities . . . . . . . . . . . . . . . . 53
SECTION 6.11. Undertaking for Costs. . . . . . . . . . . 53
SECTION 6.12. Waiver of Stay or Extension Laws . . . . . 54
ARTICLE 7. Trustee . . . . . . . . . . . . . . . . . . . . 54
SECTION 7.01. Duties of Trustee. . . . . . . . . . . . . 54
SECTION 7.02. Rights of Trustee. . . . . . . . . . . . . 55
SECTION 7.03. Individual Rights of Trustee . . . . . . . 56
SECTION 7.04. Trustee's Disclaimer . . . . . . . . . . . 56
SECTION 7.05. Notice of Defaults . . . . . . . . . . . . 56
SECTION 7.06. Reports by Trustee to Holders. . . . . . . 57
SECTION 7.07. Compensation and Indemnity . . . . . . . . 57
SECTION 7.08. Replacement of Trustee . . . . . . . . . . 58
SECTION 7.09. Successor Trustee by Merger. . . . . . . . 59
SECTION 7.10. Eligibility; Disqualification. . . . . . . 59
SECTION 7.11. Preferential Collection of Claims
Against Company. . . . . . . . . . . . . . 59
ARTICLE 8. Discharge of Indenture; Defeasance. . . . . . . 59
SECTION 8.01. Discharge of Liability on
Securities; Defeasance . . . . . . . . . . 59
SECTION 8.02. Conditions to Defeasance . . . . . . . . . 60
SECTION 8.03. Application of Trust Money . . . . . . . . 62
SECTION 8.04. Repayment to Company . . . . . . . . . . . 62
SECTION 8.05. Indemnity for Government Obligations . . . 62
SECTION 8.06. Reinstatement. . . . . . . . . . . . . . . 62
ARTICLE 9. Amendments. . . . . . . . . . . . . . . . . . . 63
SECTION 9.01. Without Consent of Holders . . . . . . . . 63
SECTION 9.02. With Consent of Holders. . . . . . . . . . 64
<PAGE>
<PAGE> 4
SECTION 9.03. Compliance with Trust Indenture Act. . . . 65
SECTION 9.04. Revocation and Effect of Consents and
Waivers. . . . . . . . . . . . . . . . . . 65
SECTION 9.05. Notation on or Exchange of Securities. . . 65
SECTION 9.06. Trustee to Sign Amendments . . . . . . . . 65
SECTION 9.07. Payment for Consent. . . . . . . . . . . . 66
ARTICLE 10. Subordination . . . . . . . . . . . . . . . . . 66
SECTION 10.01. Agreement To Subordinate . . . . . . . . . 66
SECTION 10.02. Liquidation, Dissolution, Bankruptcy . . . 66
SECTION 10.03. Default on Senior Indebtedness . . . . . . 67
SECTION 10.04. When Distribution Must Be Paid Over. . . . 68
SECTION 10.05. Subrogation. . . . . . . . . . . . . . . . 68
SECTION 10.06. Relative Rights. . . . . . . . . . . . . . 68
SECTION 10.07. Subordination May Not Be Impaired by
Company. . . . . . . . . . . . . . . . . . 69
SECTION 10.08. Rights of Trustee and Paying Agent . . . . 69
SECTION 10.09. Distribution or Notice to
Representative . . . . . . . . . . . . . . 69
SECTION 10.10. Article 10 Not To Prevent Events of
Default or Limit Right To Accelerate . . . 69
SECTION 10.11. Trust Moneys Not Subordinated. . . . . . . 69
SECTION 10.12. Trustee Entitled To Rely . . . . . . . . . 70
SECTION 10.13. Trustee To Effectuate Subordination. . . . 70
SECTION 10.14. Trustee Not Fiduciary for Holders of
Senior Indebtedness. . . . . . . . . . . . 70
SECTION 10.15. Reliance by Holders of Senior
Indebtedness on Subordination Provisions . 71
SECTION 10.16. Proof of Claims. . . . . . . . . . . . . . 71
ARTICLE 11. Miscellaneous . . . . . . . . . . . . . . . . . 71
SECTION 11.01. Trust Indenture Act Controls . . . . . . . 71
SECTION 11.02. Notices. . . . . . . . . . . . . . . . . . 71
SECTION 11.03. Communication by Holders with Other
Holders. . . . . . . . . . . . . . . . . . 72
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent . . . . . . . . . . . 72
SECTION 11.05. Statements Required in Certificate or
Opinion. . . . . . . . . . . . . . . . . . 73
SECTION 11.06. When Securities Disregarded. . . . . . . . 73
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar. . . . . . . . . . . . . . . . . 73
SECTION 11.08. Legal Holidays . . . . . . . . . . . . . . 73
SECTION 11.09. Governing Law. . . . . . . . . . . . . . . 74
SECTION 11.10. No Recourse Against Others . . . . . . . . 74
SECTION 11.11. Successors . . . . . . . . . . . . . . . . 74
SECTION 11.12. Multiple Originals . . . . . . . . . . . . 74
SECTION 11.13. Table of Contents; Headings. . . . . . . . 74
SECTION 11.14. Waiver Regarding Redemption Fund . . . . . 74
</TABLE>
<PAGE>
<PAGE> 5
<TABLE>
<CAPTION>
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
- - -------- -------
<S> <C>
310(a)(1) .............................. 7.10
(a)(2) .............................. 7.10
(a)(3) .............................. N.A.
(a)(4) .............................. N.A.
(b) .............................. 7.08; 7.10
(c) .............................. N.A.
311(a) .............................. 7.11
(b) .............................. 7.11
(c) .............................. N.A.
312(a) .............................. 2.05
(b) .............................. 11.03
(c) .............................. 11.03
313(a) .............................. 7.06
(b)(1) .............................. N.A.
(b)(2) .............................. 7.06
(c) .............................. 11.02
(d) .............................. 7.06
314(a) .............................. 4.02;
4.13; 11.02
(b) .............................. N.A.
(c)(1) .............................. 11.04
(c)(2) .............................. 11.04
(c)(3) .............................. N.A.
(d) .............................. N.A.
(e) .............................. 11.05
(f) .............................. 4.13
315(a) .............................. 7.01
(b) .............................. 7.05;
11.02
(c) .............................. 7.01
(d) .............................. 7.01
(e) .............................. 6.11
316(a)(last sentence) ....................... 11.06
(a)(1)(A) .............................. 6.05
(a)(1)(B) .............................. 6.04
(a)(2) .............................. N.A.
(b) .............................. 6.07
317(a)(1) .............................. 6.08
(a)(2) .............................. 6.09
(b) .............................. 2.04
318(a) .............................. 11.01
N.A. means Not Applicable.
<FN>
Note: This Cross-Reference Table shall not, for any
purpose, be deemed to be part of the Indenture.
</TABLE>
<PAGE>
<PAGE> 6
INDENTURE dated as of September 29, 1994, between ALHC
MERGER CORPORATION, a Delaware corporation (the "Company"), and
LTCB TRUST COMPANY, a New York corporation (the "Trustee").
Each party agrees as follows for the benefit of the
other party and for the equal and ratable benefit of the Holders
of the Company's 11-1/4% Senior Subordinated Notes Due 2004 (the
"Securities"):
ARTICLE 1.
Definitions and Incorporation by Reference
SECTION 1.01. Definitions.
"Acquisition" means the acquisition by the Partnership
of Statesman as contemplated by the Agreement and Plan of Merger
dated as of May 1, 1994 by and among the Partnership, CCP II
Acquisition Company and Statesman.
"Affiliate" of any Person (hereinafter "first Person")
means (i) any other Person which, directly or indirectly, is in
control of, is controlled by or is under common control with such
first Person; or (ii) any Person who is a director or executive
officer (as defined in Rule 3b-7 of the Exchange Act) of either:
(1) such first Person or (2) any Person described in clause
(i) above. For purposes of this definition, "control" of a
Person means the power, direct or indirect, to direct or cause
the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract
or otherwise, and the terms "controlling" and "controlled" have
meanings correlative to the foregoing.
"AMCO" means American Life and Casualty Marketing
Division Co.
"American Life" means American Life and Casualty
Insurance Company.
"Asset Sale" means any direct or indirect sale, lease,
transfer or other disposition (or series of related sales,
leases, transfers or dispositions) of shares of Capital Stock of
a Subsidiary (other than directors' qualifying shares or
Investments by foreign nationals mandated by applicable law) or
any property or other assets of the Company or a Subsidiary (each
referred to for the purposes of this definition as a "sale") by
the Company or by any of its Subsidiaries other than (i) a sale
by a Subsidiary to the Company or by a Subsidiary to a Wholly
Owned Subsidiary, (ii) a disposition of property or assets in the
ordinary course of business, including, without limitation, (1) a
sale by the Company or a Subsidiary of any of its Investments
<PAGE>
<PAGE> 7
constituting a portion of its investment portfolio in the
ordinary course of business or (2) a disposition of obsolete
assets in the ordinary course of business, (iii) a disposition of
assets or property pursuant to any reinsurance arrangements in
the ordinary course of business (other than any bulk reinsurance
or retrocession arrangements) or (iv) a disposition of any
capital assets if the net proceeds thereof are used to replace
such capital assets within 30 days after receipt of such net
proceeds.
"Average Life" means, as of the date of determination,
with respect to any Indebtedness or Preferred Stock, the quotient
obtained by dividing (i) the sum of the products of the numbers
of years from the date of determination to the dates of each
successive scheduled principal payment of such Indebtedness or
redemption or similar payment with respect to such Preferred
Stock multiplied by the amount of such payment by (ii) the sum of
all such payments.
"Bank Agent" means the Representative for the Credit
Agreement.
"Board of Directors" means the Board of Directors of
the Company or, except for purposes of the definition of "Change
of Control" and Section 4.07, any committee thereof duly
authorized to act on behalf of such Board.
"Business Day" means each day which is not a Legal
Holiday.
"Capital Lease Obligation" of a Person means any
obligation that is required to be classified and accounted for as
a capital lease on the face of a balance sheet of such person
prepared in accordance with generally accepted accounting
principles; the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with
generally accepted accounting principles, and the Stated Maturity
thereof shall be the date of the last payment of rent or any
other amount due under such lease prior to the first date upon
which such lease may be terminated by the lessee without payment
of a penalty.
"Capital Stock" means any and all shares, interests,
rights to purchase, warrants, options, participations or other
equivalents of or interests in (however designated) corporate
stock, including any Preferred Stock.
"Change of Control" means an event whereby (i) any
"person" (as such term is used in Sections 13(d) and 14(d) of the
Exchange Act) other than one or more Permitted Holders, is or
becomes the "beneficial owner" (as defined in Rules 13d-3 and
13d-5 under the Exchange Act, except that a person shall be
deemed to have "beneficial ownership" of all shares that any such
<PAGE>
<PAGE> 8
person has the right to acquire, whether such right is
exercisable immediately or after the passage of time, excluding,
however, any right to acquire which is subject to any Federal,
state or other similar regulatory approval or any applicable
waiting period pursuant thereto until such time as such approval
is obtained or such waiting period has expired), directly or
indirectly, of more than 50% of the Voting Shares (as defined in
the last sentence of this definition) then outstanding of the
Company or more than 50% of the "Common Stock" (as defined in the
last sentence of this definition) of the Company, provided that
the Permitted Holders "beneficially own" (as so defined) a lesser
percentage of the Voting Shares than such other person and do not
have the right or ability by voting power, contract or otherwise
to elect or designate for election a majority of the Board of
Directors (for purposes of this clause (i), such other person
(the "owner") shall be deemed to beneficially own any Voting
Shares or Common Stock of a person held by any other person (the
"parent"), if such owner beneficially owns (as defined in this
clause (i)), directly or indirectly, more than 50% of the Voting
Shares of such parent or more than 50% of the Common Stock of
such parent); (ii) the Company consolidates with or merges into
another corporation, or any corporation consolidates with or
merges into the Company, in either event pursuant to a
transaction in which the outstanding Voting Shares are changed
into or exchanged for cash, securities or other property, other
than any such transaction where (A) the outstanding Voting Shares
are changed into or exchanged for (x) voting shares of the
surviving corporation which are not Redeemable Stock and/or
(y) cash, securities and other property in an amount which could
be paid by the Company as a Restricted Payment as described in
Section 4.05 (and such amount shall be treated as a Restricted
Payment subject to the provisions of Section 4.05), and (B) the
holders of the Voting Shares immediately prior to such
transaction own, directly or indirectly, more than 50% of the
Voting Shares and more than 50% of the Common Stock of the
surviving corporation immediately after such transaction;
(iii) the Company conveys (including, without limitation, by
means of one or more reinsurance arrangements), transfers or
leases all or substantially all of its assets to any Person
(other than a Wholly Owned Subsidiary); or (iv) during any period
of two consecutive years, individuals who at the beginning of
such period constituted the Board of Directors (together with any
new directors whose election by such Board or whose nomination
for election by the stockholders of the Company was approved by a
vote of a majority of the directors then still in office who were
either directors at the beginning of such period or whose
election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of
Directors then in office. The acquisition by any Person engaged
in business as an underwriter of securities of any securities
acquired through such Person's participation in good faith in a
firm commitment underwriting until the expiration of 45 days
after the date of such acquisition shall not be deemed to result
<PAGE>
<PAGE> 9
in a Change of Control. For purposes of this definition, "Voting
Shares" shall mean all classes of Capital Stock of a corporation
then outstanding and normally entitled to vote in elections of
directors, and "Common Stock" shall mean shares of Capital Stock
of any entity other than Preferred Stock of such entity.
"Closing Date" means the date of the closing of the
issue and sale of the Securities by the Company.
"Company" means the party named as such in this
Indenture until a successor replaces it and, thereafter, means
the successor and, for purposes of any provision contained herein
and required by the TIA, each other obligor on the indenture
securities.
"Company Request" and "Company Order" mean,
respectively, a written request or order signed in the name of
the Company by its Chairman of the Board, President or a Vice
President, and by its Treasurer, an Assistant Treasurer,
Controller, an Assistant Controller, Secretary or an Assistant
Secretary, and delivered to the Trustee.
"Consolidated Fixed Charge Coverage Ratio" with respect
to any period means the ratio of (i) the aggregate amount of
Consolidated Net Income plus, to the extent deducted in
calculating such Consolidated Net Income and without duplication,
Consolidated Interest Expense, income tax expense, depreciation
expense, amortization expense and any other non-cash charges
(excluding (a) any such non-cash charge which requires an accrual
of or reserve for cash charges for any future period, (b) any
non-cash charge constituting an extraordinary item of loss and
(c) amortization of the present value of future profits and of
deferred policy acquisition costs) to (ii) the aggregate amount
of Consolidated Interest Expense for such period, in each case
for the Company and its consolidated Subsidiaries, computed in
accordance with generally accepted accounting principles;
provided, however, that: (A) in making such computation, the
Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness, computed on a pro forma basis and
bearing a floating interest rate, shall be computed as if the
rate in effect on the date of computation had been the applicable
rate for the entire period; (B) in making such computation, the
Consolidated Interest Expense of such Person attributable to
interest on any Indebtedness under a revolving credit facility,
computed on a pro forma basis, shall be computed based upon the
average daily balance of such Indebtedness during the applicable
period; and (C) in making any calculation of the Consolidated
Fixed Charge Coverage Ratio for any period prior to the date of
closing of the Acquisition, the Acquisition shall be deemed to
have taken place on the first day of such period (with the same
purchase accounting adjustments made by the Company as of the
Closing Date being deemed to have been made in the same amounts
on the deemed Acquisition date).
<PAGE>
<PAGE> 10
"Consolidated Interest Expense" means, for any period,
without duplication, the total interest expense of the Company
and its consolidated Subsidiaries, including (i) interest expense
attributable to Capital Lease Obligations, (ii) amortization of
debt discount and debt issuance cost (including any original
issue discount), (iii) capitalized interest, (iv) non-cash
interest payments, (v) commissions, discounts and other fees and
charges owed with respect to letters of credit and bankers'
acceptance financing, (vi) accrued interest, (vii) the net costs
associated with any interest rate or currency swap, floor, cap or
collar, (viii) the interest portion of any deferred obligation,
(ix) interest actually paid by the Company or any such Subsidiary
under any Guarantee of Indebtedness or other obligation of any
other person and (x) cash dividends paid or cash distributions
made on any Preferred Stock of the Company or any Subsidiary held
by any person other than the Company or a Wholly Owned
Subsidiary; provided, however, that there shall be excluded from
the computation of Consolidated Interest Expense (1) interest and
similar amounts payable with respect to forward or reverse
repurchase obligations, collateralized mortgage or bond
obligations, or other collateralized investment obligations, or
interest rate swaps, floors, caps or collars, in all cases
relating to the assets in the investment portfolio of an
Insurance Subsidiary; and (2) interest and similar amounts
credited to the accounts of holders of insurance policies,
annuities, guaranteed investment contracts and similar products
underwritten by any Insurance Subsidiary.
"Consolidated Net Income" means, for any period, the
net income of the Company and its consolidated Subsidiaries
determined on a consolidated basis in accordance with generally
accepted accounting principles (and if not otherwise deducted,
after deduction of amounts applicable to minority interests);
provided, however, that there shall not be included in
Consolidated Net Income (i) any net income of any Person if such
Person is not a Subsidiary, except that (a) the Company's equity
in the net income of any such Person for such period shall be
included in such Consolidated Net Income up to the aggregate
amount of cash actually distributed by such Person during such
period to the Company or a Subsidiary (subject to the limitations
contained in clause (v) below) as a dividend or other
distribution and (b) the Company's equity in a net loss of any
such Person for such period shall be included in determining such
Consolidated Net Income, (ii) any net income of any Person
acquired by the Company or a Subsidiary in a pooling of interests
transaction for any period prior to the date of such acquisition,
(iii) any gain (but not loss), net of related taxes or other
directly related accelerated or deferred amortization or expense
(including, without limitation, amortization of the present value
of future profits), realized upon the sale or other disposition
<PAGE>
<PAGE> 11
of any property, plant or equipment of the Company or its
consolidated Subsidiaries which is not sold or otherwise disposed
of in the ordinary course of business and any gain (but not loss)
realized upon the sale or other disposition of any Capital Stock
of any Person, (iv) any gain or loss, net of related taxes or
other directly related accelerated or deferred amortization or
expense (including, without limitation, amortization of the
present value of future profits), realized upon the sale or other
disposition by the Company or any Subsidiary of any Investment
constituting a portion of its investment portfolio or any other
security, (v) any net income of any Subsidiary to the extent that
such net income exceeds the maximum aggregate amount of cash that
such Subsidiary is permitted to pay as a dividend or other
distribution to the Company or another Subsidiary at the date of
determination without any prior governmental approval (which has
not been obtained) and which is not prohibited, directly or
indirectly, by the terms of such Subsidiary's charter or any
agreement, instrument, judgment, decree, order, writ, injunction,
certificate, statute, rule, law, code, ordinance or governmental
regulation applicable to such Subsidiary or its shareholders,
subject, in the case of dividends, distributions or payments to
another Subsidiary, to the limitations in this clause (v);
provided, however, that the Company's equity in a net loss of any
such Subsidiary for such period shall be included in determining
such Consolidated Net Income, (vi) any extraordinary gain (but
not loss), as well as the tax effects thereof and all reasonable
expenses incurred in connection therewith, (vii) any restoration
to income of any contingency reserve (not including insurance and
reinsurance reserves and reserves for reinsurance recoverables),
except to the extent that provision for such reserve reduced
Consolidated Net Income for any period following the Closing
Date, (viii) any unrealized gains and losses on investment
securities to the extent such gains and losses affect such net
income (loss) and (ix) the amount of investment income earned on
any securities escrowed for the repayment or redemption of any
securities issued by the Company or any Subsidiary.
"Consolidated Net Worth" means, with respect to any
Person, the total of the amounts shown on the balance sheet of
such Person and its consolidated Subsidiaries, determined on a
consolidated basis in accordance with generally accepted
accounting principles, as of any date selected by the Company not
more than 30 days prior to the taking of any action for the
purpose of which the determination is being made, as (i) the par
or stated value of all outstanding Capital Stock of such Person
plus (ii) paid-in capital or capital surplus relating to such
Capital Stock plus (iii) any retained earnings or earned surplus
less (A) any accumulated deficit and (B) any amounts attributable
to Redeemable Stock (to the extent included in (i) through
(iii)).
"Credit Agreement" means the Senior Term Loan together
with the related documents thereto (including, without
<PAGE>
<PAGE> 12
limitation, any Guarantees and security documents), in each case,
as such agreements may be amended (including any amendment and
restatement thereof), supplemented, replaced or otherwise
modified from time to time, including any agreement extending the
maturity of, refinancing or otherwise restructuring (including,
but not limited to, the inclusion of additional borrowers or
Guarantors thereunder that are Subsidiaries of the Company and
whose obligations are Guaranteed by the Company thereunder) all
or any portion of the Indebtedness under such agreements or any
successor agreements; provided that there shall be at any one
time only one instrument, together with any related documents
(including, without limitation, any Guarantees or security
documents), that is the Credit Agreement under this Indenture.
"Default" means any event which is, or after notice or
passage of time or both would be, an Event of Default.
"Designated Senior Indebtedness" is defined to mean
(i) the Credit Agreement and (ii) any other Indebtedness
constituting Senior Indebtedness that, at any date of
determination, has an aggregate principal amount of at least
$25 million and is specifically designated by the Company in the
instrument creating or evidencing such Senior Indebtedness as
"Designated Senior Indebtedness."
"Dollar Equivalent" means, with respect to any monetary
amount in a currency other than U.S. dollars, at any time for the
determination thereof, the amount of U.S. dollars obtained by
converting such foreign currency involved in such computation
into U.S. dollars at the spot rate for the purchase of U.S.
dollars with the applicable foreign currency as quoted by Bankers
Trust Company in New York City at approximately 11:00 a.m.
(New York time) on the date two applicable Business Days prior to
such determination.
"Exchange Act" means the Securities Exchange Act of
1934, as amended, and the rules and regulations of the Commission
thereunder.
"generally accepted accounting principles" or "GAAP"
means generally accepted accounting principles as in effect from
time to time and as implemented by the Company.
"Guarantee" means any obligation, contingent or
otherwise, of any Person directly or indirectly guaranteeing any
Indebtedness or other obligation of any other Person and any
obligation, direct or indirect, contingent or otherwise, of such
Person (i) to purchase or pay (or advance or supply funds for the
purchase or payment of) such Indebtedness or other obligation of
such other Person (whether arising by virtue of partnership
arrangements, or by agreement to keep-well, to purchase assets,
goods, securities or services, to take-or-pay, or to maintain
financial statement conditions or otherwise) or (ii) entered into
for purposes of assuring in any other manner the obligee of such
Indebtedness or other obligation of the payment thereof or to
protect such obligee against loss in respect thereof (in whole or
in part); provided, however, that the term "Guarantee" will not
include endorsements for collection or deposit in the ordinary
course of business.
<PAGE>
<PAGE> 13
"Holder" or "Securityholder" means the person in whose
name a Security is registered on the Registrar's books.
"Indebtedness" means, with respect to any Person on any
date of determination (without duplication), (i) the principal of
and premium (if any) in respect of Indebtedness of such Person
for borrowed money; provided, however, that any such premium
shall only be Indebtedness to the extent such premium is
reflected on such Person's balance sheet determined in accordance
with GAAP; (ii) the principal of and premium (if any) in respect
of obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments (including surplus notes or
debentures); provided, however, that any such premium shall only
be Indebtedness to the extent such premium is reflected on such
Person's balance sheet determined in accordance with GAAP;
(iii) all Capital Lease Obligations of such Person; (iv) all
obligations of such Person to pay the deferred and unpaid
purchase price of property or services (except Trade Payables),
which purchase price is due more than six months after the date
of placing such property in service or taking delivery and title
thereto or the completion of such services; (v) all obligations
of such Person in respect of letters of credit, banker's
acceptances or other similar instruments or credit transactions
(including reimbursement obligations with respect thereto), other
than obligations with respect to letters of credit securing
obligations (other than obligations described in clauses
(i) through (iv)) entered into in the ordinary course of business
of such Person to the extent such letters of credit are not drawn
upon or, if and to the extent drawn upon, such drawing is
reimbursed no later than the third business day following receipt
by such Person of a demand for reimbursement following payment on
any such letter of credit; (vi) the amount of all obligations of
such Person with respect to the redemption, repayment or other
repurchase of any Redeemable Stock or, with respect to any
Subsidiary of the Company, any Preferred Stock (but excluding, in
each case, any accrued dividends); (vii) all Indebtedness of
other Persons secured by a Lien on any asset of such Person,
whether or not such Indebtedness is assumed by such Person;
provided, however, that the amount of such Indebtedness shall be
the lesser of (A) the fair market value of such asset at such
date of determination and (B) the amount of such Indebtedness of
such other Person; (viii) all Indebtedness of other Persons to
the extent Guaranteed by such Person; and (ix) to the extent not
otherwise included in this definition, obligations in respect of
interest rate and currency swaps, floors, caps, collars or
similar transactions. The amount of Indebtedness of any Person
<PAGE>
<PAGE> 14
at any date will be the outstanding balance at such date of all
unconditional obligations as described above and the maximum
liability, upon the occurrence of the contingency giving rise to
the obligation, of any contingent obligations at such date.
Indebtedness of the Company or any of its Subsidiaries will not
include obligations under insurance (including annuity),
reinsurance or retrocession contracts entered into by the Company
or any such Subsidiary, in the capacity of insurer, reinsurer or
ceding company, as the case may be, in the ordinary course of
business of the Company or any such Subsidiary to the extent that
the obligations thereunder are not overdue for more than one year
after notice or are being contested in good faith by appropriate
proceedings.
"Indenture" means this Indenture as amended or
supplemented from time to time pursuant to the terms of this
Indenture.
"Insurance Business" means any business consisting
principally of the ownership or issuance of insurance policies or
annuity contracts that have not expired or the ownership or
operation of any other similar assets of an insurer, or any
interest therein, located in the United States, that would be
reflected on the balance sheet of the Company prepared in
accordance with generally accepted accounting principles.
Without limiting the foregoing, the term "Insurance Business"
shall include a direct or indirect ownership interest in a Person
which issues insurance policies, annuity contracts or similar
products or performs investment, management, administrative or
similar services related or adaptable to the business of the
Company or one or more of its Subsidiaries, so long as such
ownership interest would be reflected on the balance sheet of the
Company prepared in accordance with generally accepted accounting
principles.
"Insurance Subsidiary" means any Subsidiary that is
subject to regulation as an insurance company by the insurance
regulatory authorities of its jurisdiction of domicile.
"Invested Assets" means (i) with respect to any Person
which is an insurance company that files statutory financial
statements with a governmental agency or authority, the amount
shown as the line item "Cash and Invested Assets" (or any
equivalent line item(s) setting forth the type of assets which
would be reflected in the line item "Cash and Invested Assets" on
the Closing Date) in such insurance company's balance sheet
included in its most recent statutory financial statements filed
with such governmental agency or authority; and (ii) with respect
to any other Person, the amount on a consolidated basis of its
Investments as reflected on such Person's most recent balance
sheet.
<PAGE>
<PAGE> 15
"Investment" means any direct or indirect loan or
advance to any other Person, any purchase or acquisition of any
Capital Stock, bonds, notes, debentures or other similar
instruments issued by any other Person, any capital contribution
(by means of any transfer of cash or other property to others or
any payment for property or services for the account or use of
others) or other extension of credit (including by way of
Guarantee) to any other Person or any other item that would be
classified as an investment on a balance sheet prepared in
accordance with GAAP, other than the following: (i) loans or
advances to employees or insurance agents in the ordinary course
of business; (ii) negotiable instruments endorsed for collection
in the ordinary course of business; and (iii) policy loans made
to holders of insurance policies issued by the Company or any
Insurance Subsidiary.
"Investment Grade Securities" means (i) cash or cash
equivalents, (ii) debt securities or debt instruments with a BBB-
or higher rating by Standard and Poor's Corporation (or its
successors) ("S&P"), Baa-3 or higher rating by Moody's Investors
Service, Inc. (or its successors) ("Moody's"), or Class (2) or
higher rating by the National Association of Insurance
Commissioners (or its successors) ("NAIC"), or (iii) commercial
paper with an A-2 or higher rating by S&P or a P-2 or higher
rating by Moody's, or the equivalent of such ratings by S&P,
Moody's or the NAIC, or, if neither S&P, Moody's nor the NAIC
makes a rating publicly available, the equivalent of such ratings
by a nationally recognized securities rating agency or agencies,
as the case may be, selected by the Company which shall be
substituted for S&P, Moody's or the NAIC.
"Lien" means any lien, mortgage, pledge, security
interest, charge or encumbrance of any kind (including any
conditional sale or other title retention agreement and any lease
in the nature thereof).
"Mandatory Scheduled Principal Payments" at any time
shall mean the mandatory principal payments actually made on or
prior to such time under the instruments governing the Credit
Agreement as in effect from time to time.
"Material Subsidiary" means any Subsidiary which at the
time of determination (i) was the owner of assets which, as of
the date of the Company's most recent quarterly consolidated
balance sheet, constituted at least 10% of the Company's total
assets computed in accordance with generally accepted accounting
principles on a consolidated basis as of such date, or (ii) had
revenues for the 12-month period ending on the date of the
Company's most recent quarterly consolidated statement of income
that constituted at least 10% of the Company's total revenues
computed in accordance with generally accepted accounting
principles on a consolidated basis for such period.
<PAGE>
<PAGE> 16
"Net Available Cash" means cash and cash equivalent
payments received by the Company or any Subsidiary from any Asset
Sale (including cash payments received by way of fees, expense
reimbursements, refunds, rebates, and deferred payment of
principal pursuant to a note or installment receivable or
otherwise, but only as and when received), in each case net of
(i) all accounting, appraisal, legal, title and recording tax
expenses, (ii) the amount of any Indebtedness secured by the
property or assets subject to such Asset Sale and/or required to
be repaid by any Subsidiary on the occasion of such Asset Sale,
(iii) the amount of accrued employee benefits required to be paid
on the occasion of such Asset Sale, (iv) commissions and other
reasonable fees and expenses incurred and any taxes payable and
reasonably estimated income or other taxes payable as a
consequence of such Asset Sale or as a consequence of any
repatriation of such cash payments and (v) all distributions and
other payments made to holders of minority interests in
Subsidiaries as a result of such Asset Sale.
"Net Proceeds", with respect to any issuance or sale of
Capital Stock, means the cash proceeds of such issuance or sale,
and the fair market value (as determined in good faith by the
Board of Directors and evidenced by an Officers' Certificate
delivered to the Trustee) of any publicly-traded debt or equity
securities of any issuer which is not an Affiliate of the Company
received by the Company in consideration for such issuance or
sale (which debt or equity securities must otherwise be permitted
to be acquired pursuant to Section 4.05), in each case net of
attorneys' fees, accountants' fees, underwriters' or placement
agents' fees, discounts or commissions and brokerage, consultant
and other fees actually incurred in connection with such issuance
or sale and net of taxes paid or payable as a result thereof.
"Non-Investment Grade Investments" means any (i) equity
securities or debt securities or debt instruments other than
Investment Grade Securities, except for any such Investment
issued by any Subsidiary, (ii) real estate mortgage loan or
(iii) owned real estate, whether acquired as an investment or
through foreclosure.
"Note Obligations" is defined to mean any principal of,
premium, if any, and interest on the Securities payable pursuant
to the terms of the Securities or upon acceleration, including
any amounts received upon the exercise of rights of rescission or
other rights of action (including claims for damages) or
otherwise, to the extent relating to the purchase price of the
Securities or amounts corresponding to such principal, premium if
any, or interest on the Securities.
"Officer" means the Chairman of the Board, the
President, any Vice President, the Treasurer or the Secretary of
the Company.
<PAGE>
<PAGE> 17
"Officers' Certificate" means a certificate signed by
two Officers.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee. The counsel
may be an employee of or counsel to the Company or the Trustee.
"Pari Passu", as applied to the ranking of any
Indebtedness of a Person in relation to other Indebtedness of
such Person, means that each such Indebtedness either (i) is not
subordinated in right of payment to any Indebtedness or (ii) is
subordinate in right of payment to the same Indebtedness as is
the other, and is so subordinate to the same extent, and is not
subordinate in right of payment to each other or to any
Indebtedness as to which the other is not so subordinate.
"Partnership" means Conseco Capital Partners II, L.P.
"Permitted Holders" means Conseco, the Partnership,
Statesman, any entities controlled by any of them and each of
their respective Subsidiaries.
"Permitted Indebtedness" means (i) Indebtedness
actually outstanding under the Senior Term Loan not to exceed
$200 million in principal amount at any time; (ii) additional
Indebtedness incurred after the Closing Date which together with
Indebtedness outstanding pursuant to clause (i) above shall not
exceed $200 million in aggregate principal amount less the amount
of Mandatory Scheduled Principal Payments at such time,
(iii) Indebtedness outstanding on the Closing Date (other than
that described in clauses (i), (iv) and (v)) or Indebtedness
incurred in exchange for, or the proceeds of which are used to
refinance, such Indebtedness so long as (1) the principal amount
of the Indebtedness so incurred on exchange or refinancing does
not exceed the principal amount of the Indebtedness so exchanged
or refinanced, plus the amount of any premium required to be paid
in connection with such exchange or refinancing or the amount of
any premium necessary to accomplish such exchange or refinancing
by means of a tender offer or privately negotiated repurchase,
plus the amount of expenses of the Company incurred in connection
with such exchange or refinancing, (2) the Indebtedness so
incurred on exchange or refinancing will not mature prior to the
Stated Maturity of the Indebtedness so exchanged or refinanced,
and (3) the Indebtedness so incurred on exchange or refinancing
has an Average Life equal to or greater than the remaining
Average Life of the Indebtedness so exchanged or refinanced;
(iv) the Securities and any Indebtedness incurred in exchange
for, or the proceeds of which are used to refinance, the
Securities or any other Indebtedness permitted by this clause
(iv), so long as (1) the principal amount of the Indebtedness so
incurred does not exceed the principal amount of the Indebtedness
so exchanged or refinanced (or 101% of the principal amount of
the Securities in the case of Indebtedness incurred to refinance
<PAGE>
<PAGE> 18
Securities to be repurchased pursuant to a Change of Control),
(2) the Indebtedness so incurred will not mature prior to the
Stated Maturity of the Indebtedness so exchanged or refinanced,
and (3) the Indebtedness so incurred has an Average Life equal to
or greater than the remaining Average Life of the Indebtedness so
exchanged or refinanced; (v) Indebtedness owed to and held by a
Wholly Owned Subsidiary; provided, however, that any subsequent
issuance or transfer of any Capital Stock which results in any
such Wholly Owned Subsidiary ceasing to be a Wholly Owned
Subsidiary, or any transfer of such Indebtedness (other than to
the Company or a Wholly Owned Subsidiary), will be deemed to
constitute the incurrence of such Indebtedness; (vi) guarantees
by the Company of Indebtedness incurred by a Subsidiary which is
permitted to be incurred under this Indenture; provided, however,
that any subsequent issuance or transfer of any Capital Stock
that results in such Subsidiary's ceasing to be a Subsidiary, or
any assumption of such Indebtedness (other than by the Company or
a Wholly Owned Subsidiary), will be deemed to constitute the
incurrence of Indebtedness by the Company; (vii) Indebtedness (or
Indebtedness incurred to refinance such Indebtedness) consisting
of deferred payment obligations resulting from the adjudication
or settlement of any claim or litigation; (viii) Indebtedness (or
Indebtedness incurred to refinance such Indebtedness) pursuant to
any interest rate or currency swaps, floors, caps or collars to
protect against fluctuations in interest or currency exchange
rates, provided that such Indebtedness (1) relates to
Indebtedness permitted to be incurred hereunder and provided that
the notional amount thereof is not greater than the principal
amount of such Indebtedness or (2) relates to a Permitted
Investment and provided that the notional amount thereof is not
greater than the principal amount of such Permitted Investment;
(ix) Indebtedness incurred in exchange for, or the proceeds of
which are used to refinance, any Indebtedness (other than
Permitted Indebtedness) incurred pursuant to Section 4.03(a), so
long as such Indebtedness so incurred will (1) not exceed in
principal amount the principal amount of the Indebtedness so
exchanged or refinanced, plus the amount of any premium required
to be paid in connection with such refinancing or the amount of
any premium necessary to accomplish such refinancing by means of
a tender offer or privately negotiated repurchase, plus the
amount of expenses of the Company incurred in connection with
such refinancing, (2) not mature prior to the Stated Maturity of
the Indebtedness so exchanged or refinanced, and (3) have an
Average Life greater than or equal to the remaining Average Life
of the Indebtedness so exchanged or refinanced; and
(x) Indebtedness, which Indebtedness may be Senior Indebtedness,
Senior Subordinated Indebtedness or Subordinated Indebtedness
(other than Indebtedness permitted by the foregoing clauses
(i) through (ix)) in an aggregate principal amount at any one
time outstanding not to exceed $25 million less the aggregate
principal amount of such Indebtedness then outstanding pursuant
to clause (viii) of Section 4.04. For purposes of this
definition and Section 4.04, any Indebtedness incurred to fund a
defeasance or covenant defeasance shall be considered
Indebtedness incurred in exchange for or the proceeds of which
are used to refinance outstanding Indebtedness.
<PAGE>
<PAGE> 19
"Permitted Investment" means any Investment made by the
Company or any Subsidiary; provided, however, that
notwithstanding the foregoing, no investment may be made in any
Non-Investment Grade Investment if, as determined at the date
such Investment is made and after giving effect thereto:
(1) such Investment, together with all other Investments by the
Company and its Subsidiaries in any Non-Investment Grade
Investment, would exceed in the aggregate 15% of the total
Invested Assets of the Company and its Subsidiaries determined as
of the end of the most recent calendar quarter ending at least 45
days prior to the date of determination; and (2) in the case of
any Investment in any Non-Investment Grade Investment of any
Affiliate of the Company or any of its Subsidiaries (which
Investment will also be included in the calculation under clause
(1)), such Investment, together with all other Investments by the
Company and its Subsidiaries in Non-Investment Grade Investments
of any Affiliate of the Company or any of its Subsidiaries, would
exceed in the aggregate 10% of the total Invested Assets of the
Company and its Subsidiaries determined as of the end of the most
recent calendar quarter ending at least 45 days prior to the date
of determination; provided further, however, that any Investment
by any Insurance Subsidiary in any Investment of any single
issuer, together with all other Investments by the Company and
its Subsidiaries in the same issuer, as determined as of the date
such Investment is made and after giving effect thereto, will not
exceed, in the aggregate, those percentages of the total Invested
Assets of the Company and of its Subsidiaries permitted by
operation of the terms of the charter of such Insurance
Subsidiary or any agreement, instrument, judgment, decree, order,
statute, rule or governmental regulation applicable to such
Insurance Subsidiary, determined as of the end of the most recent
calendar quarter ending at least 45 days prior to the date of
determination.
"Person" means any individual, corporation,
partnership, joint venture, association, joint-stock company,
limited liability company, trust, unincorporated organization or
government or any agency or political subdivision thereof or any
other entity.
"Preferred Stock" as applied to the Capital Stock of
any corporation, means Capital Stock of any class or classes
(however designated) which is preferred as to the payment of
dividends, or as to the distribution of assets upon any voluntary
or involuntary liquidation or dissolution of such corporation,
over shares of Capital Stock of any other class of such
corporation.
<PAGE>
<PAGE> 20
"principal" of a Security means the principal of the
Security plus the premium, if any, payable on the Security which
is due or overdue or is to become due at the relevant time.
"Principal Insurance Subsidiary" means (i) all
Insurance Subsidiaries of the Company existing as of the Closing
Date, in each case until such Person ceases to be a Subsidiary;
(ii) any other Subsidiary that may succeed, by merger,
consolidation or otherwise, to all or substantially all of the
business of one or more of such Persons as specified in clause
(i), as determined in good faith by the Board of Directors, such
determination to be evidenced by a resolution of the Board of
Directors; and (iii) any other Subsidiary which shall at the
applicable time of determination be a Material Subsidiary
principally engaged in the Insurance Business.
"Prospectus" means the Company's Prospectus dated
September 23, 1994, relating to the offering of the Securities.
"Redeemable Cumulative Preferred Stock" means the
Company's $2.16 Redeemable Cumulative Preferred Stock and $2.32
Redeemable Cumulative Preferred Stock.
"Redeemable Stock" of a corporation means any Capital
Stock of such corporation that by its terms (or by the terms of
any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is
mandatorily redeemable pursuant to a sinking fund obligation or
otherwise, is convertible or exchangeable for Indebtedness (other
than Preferred Stock) or Redeemable Stock, or is or may be
redeemable at the option of the holder thereof, in whole or in
part, on or prior to the first anniversary of the Stated Maturity
of the Securities.
"Redemption Fund" means the Zero Coupon Securities and
any proceeds therefrom.
"Representative" means the trustee, agent or other
authorized representative (if any) for an issue of Senior
Indebtedness.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Securities issued under this
Indenture.
"Senior Indebtedness" means (i) the principal of,
premium, if any, and accrued interest (including, except as
provided in clause (1) below, interest accruing at the rate
provided for in the documents evidencing such Senior Indebtedness
after the commencement of any voluntary or involuntary bankruptcy
or insolvency proceedings or any receivership, liquidation,
<PAGE>
<PAGE> 21
reorganization, dissolution or other winding-up of the Company,
to the extent such interest is allowed in such proceeding) owing
with respect to (1) Indebtedness of the Company for money
borrowed, whether outstanding on the date of execution of this
Indenture or thereafter created, assumed or otherwise incurred,
including Indebtedness incurred under the Credit Agreement
(including interest accruing at the rate provided for in the
documents evidencing the Credit Agreement after the commencement
of any voluntary or involuntary bankruptcy or insolvency
proceedings or any receivership, liquidation, reorganization,
dissolution or other winding-up of the Company, whether or not an
allowed claim in such proceeding and the obligation of the
Company to repay any amount previously paid by the Company
pursuant to the document evidencing the Credit Agreement which
amounts have been returned to the Company or to a trustee or to
any other Person pursuant to 11 U.S.C. Section 547), and all expenses,
penalties, fees, claims, indemnifications, reimbursements,
liabilities and other amounts owing with respect to the Credit
Agreement, (2) express written guarantees by the Company of
Indebtedness for money borrowed by any other person, whether
outstanding on the date of execution of this Indenture or
thereafter created, assumed or otherwise incurred, (3)
Indebtedness evidenced by notes, debentures, bonds or other
instruments of Indebtedness for the payment of which the Company
is responsible or liable, by Guarantee or otherwise, whether
outstanding on the date of execution of this Indenture or
thereafter created, assumed or otherwise incurred, (4) Capital
Lease Obligations of the Company whether outstanding on the date
of execution of this Indenture or thereafter created, assumed or
otherwise incurred, (5) obligations of the Company under interest
rate or currency swaps, floors, caps or collars, and similar
arrangements and foreign currency hedges entered into in respect
of any such Indebtedness or obligation and (ii) amendments,
supplements, modifications, renewals, extensions, refinancings,
replacements and refundings of any such Indebtedness (whether or
not coincident therewith) in clauses (1) through (5) above,
unless, in the instrument creating or evidencing the same or
pursuant to which the same is outstanding, it is provided that
such Indebtedness, or such amendments, modifications, renewals,
extensions, refinancings, replacements or refundings thereof, are
not superior in right of payment to the Securities; provided,
however, that Senior Indebtedness shall not be deemed to include
(a) any obligations of the Company to any of its Subsidiaries,
(b) any Indebtedness of the Company of any type described above
under clause (i) or (ii) which is subordinate or junior in
ranking to, or which ranks Pari Passu with, the Securities,
(c) any Indebtedness of the Company incurred in violation of the
provisions of this Indenture or the Credit Agreement, (d)
Indebtedness represented by the Securities, (e) any repurchase,
redemption or other obligation in respect of Redeemable Stock,
(f) any Indebtedness of the Company to any employee, officer or
director of the Company or any of its Subsidiaries, (g) any
liability for federal, state, local or other taxes owed or owing
by the Company or (h) any Trade Payables.
<PAGE>
<PAGE> 22
"Senior Subordinated Indebtedness" means the Securities
and any other Indebtedness of the Company that specifically
provides that such Indebtedness ranks Pari Passu with other
Senior Subordinated Indebtedness of the Company and is not
subordinated to any Indebtedness of the Company which is not
Senior Indebtedness.
"Senior Term Loan" means the Credit Agreement dated as
of September 14, 1994, among the Company, the lenders and co-
agents named therein and Bank of America Illinois, as
administrative agent.
"Stated Maturity" when used with respect to any
security or any installment of interest on any security, means
the date specified in such security as the fixed date on which
the principal of such security or such installment of interest,
respectively, is finally due and payable, except as otherwise
provided in the case of Capital Lease Obligations.
"Statesman" means The Statesman Group, Inc.
"Statutory Accounting Practices" means applicable
statutory accounting practices prescribed or permitted by the
state of domicile of the Company or its Subsidiaries.
"Subordinated Indebtedness" means any Indebtedness of
the Company (whether outstanding on the date hereof or hereafter
incurred), which is subordinate in right of payment to the
Securities, including any obligations (other than Securities) of
the Company to a Subsidiary.
"Subsidiary" of any Person will mean any corporation,
association, partnership or other business entity of which more
than 50% of the total voting power of shares of Capital Stock or
other interests (including partnership interests) entitled
(without regard to the occurrence of any contingency) to vote in
the election of directors, managers or trustees thereof is at the
time owned or controlled, directly or indirectly, by (i) such
Person, (ii) such Person and one or more Subsidiaries of such
Person or (iii) one or more Subsidiaries of such Person.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C.
Sections 77aaa-77bbbb) as in effect on the date of this Indenture.
"Trade Payables" is defined to mean any accounts
payable or any other indebtedness or monetary obligation to trade
creditors created, assumed or Guaranteed by the Company or any of
its Subsidiaries arising in the ordinary course of business in
connection with the acquisition of goods or services.
<PAGE>
<PAGE> 23
"Trust Officer" means any officer or assistant officer
of the Trustee assigned by the Trustee to administer its
corporate trust matters.
"Trustee" means the party named as such in this
Indenture until a successor replaces it in accordance with the
provisions of this Indenture and, thereafter, means the
successor.
"Uniform Commercial Code" means the New York Uniform
Commercial Code as in effect from time to time.
"U.S. Government Obligations" means direct obligations
(or certificates representing an ownership interest in such
obligations) of the United States of America (including any
agency or instrumentality thereof) for the payment of which the
full faith and credit of the United States of America is pledged
and which are not callable at the issuer's option.
"Vulcan" means Vulcan Life Insurance Company.
"Wholly Owned" is defined to mean, with respect to any
Subsidiary of any Person, such Subsidiary if all of the
outstanding common stock or other similar equity ownership
interests (but not including Preferred Stock) in such Subsidiary
(other than any director's qualifying shares or Investments by
foreign nationals mandated by applicable law) is owned directly
or indirectly by such Person; provided, however, that Vulcan will
be deemed to be a Wholly Owned Subsidiary of the Company as long
as not less than 97% of its outstanding common stock is owned,
directly or indirectly, by the Company.
"Zero Coupon Securities" means the zero coupon
securities which have been placed in escrow prior to the date of
this Indenture to be used, to the extent legally available, to
redeem the Redeemable Cumulative Preferred Stock.
<PAGE>
<PAGE> 24
SECTION 1.02. Other Definitions.
<TABLE>
<CAPTION>
Defined in
Term Section
- - ---- -------
<S> <C>
"Asset Sale Purchase Price". . . . . . . . . . . . . . . . . 4.08
"Bankruptcy Law" . . . . . . . . . . . . . . . . . . . . . . 6.01
"covenant defeasance option" . . . . . . . . . . . . . . .8.01(b)
"Custodian". . . . . . . . . . . . . . . . . . . . . . . . . 6.01
"Event of Default" . . . . . . . . . . . . . . . . . . . . . 6.01
"incur". . . . . . . . . . . . . . . . . . . . . . . . . . . 4.03
"legal defeasance option". . . . . . . . . . . . . . . . .8.01(b)
"Legal Holiday". . . . . . . . . . . . . . . . . . . . . . .11.08
"Offer". . . . . . . . . . . . . . . . . . . . . . . . . . . 4.08
"Offer Amount" . . . . . . . . . . . . . . . . . . . . . . . 4.08
"Offer Period" . . . . . . . . . . . . . . . . . . . . . . . 4.08
"Paying Agent" . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Payment Blockage Period". . . . . . . . . . . . . . . . . .10.03
"Purchase Date". . . . . . . . . . . . . . . . . . . . . . . 4.08
"Registrar". . . . . . . . . . . . . . . . . . . . . . . . . 2.03
"Repurchase Amount". . . . . . . . . . . . . . . . . . . . . 4.09
"Repurchase Date". . . . . . . . . . . . . . . . . . . . . . 4.09
"Repurchase Offer" . . . . . . . . . . . . . . . . . . . . . 4.09
"Repurchase Period". . . . . . . . . . . . . . . . . . . . . 4.09
"Repurchase Price" . . . . . . . . . . . . . . . . . . . . . 4.09
"Restricted Payment" . . . . . . . . . . . . . . . . . . . . 4.05
</TABLE>
SECTION 1.03. Incorporation by Reference of Trust
Indenture Act. Whenever this Indenture refers to a provision of
the TIA, that provision is incorporated by reference in and made
a part of this Indenture. This Indenture shall also include
those provisions of the TIA required to be included herein by the
Trust Indenture Reform Act of 1990. The following TIA terms used
in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
"indenture security holder" means a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means
the Trustee.
"obligor" on the indenture securities means the Company
or any other obligor on the indenture securities.
All other TIA terms used in this Indenture that are
defined by the TIA, defined by TIA reference to another statute
or defined by SEC rule have the meanings assigned to them by such
definitions.
<PAGE>
<PAGE> 25
SECTION 1.04. Rules of Construction. Unless the
context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has
the meaning assigned to it in accordance with generally
accepted accounting principles as in effect from time
to time;
(3) "or" is not exclusive;
(4) "including" means including, without
limitation;
(5) words in the singular include the plural and
words in the plural include the singular;
(6) unsecured debt shall not be deemed to be
subordinate or junior to secured debt merely by virtue
of its nature as unsecured debt;
(7) the principal amount of any noninterest
bearing or other discount security at any date shall be
the principal amount thereof that would be shown on a
balance sheet of the issuer dated such date prepared in
accordance with generally accepted accounting
principles and accretion of principal on such security
shall be deemed to be the incurrence of Indebtedness;
and
(8) the principal amount of any Redeemable Stock
shall be (i) the maximum liquidation value of such
Redeemable Stock or (ii) the maximum mandatory
redemption or mandatory repurchase price with respect
to such Redeemable Stock, whichever is greater.
ARTICLE 2.
The Securities
SECTION 2.01. Form and Dating. The Securities and the
Trustee's certificate of authentication shall be substantially in
the form of Exhibit A, which is hereby incorporated in and
expressly made a part of this Indenture. The Securities may have
notations, legends or endorsements required by law, stock
exchange rule, agreements to which the Company is subject, if
any, or usage (provided that any such notation, legend or
endorsement is in a form acceptable to the Company). Each
Security shall be dated the date of its authentication. The
terms of the Securities set forth in Exhibit A are part of the
terms of this Indenture.
<PAGE>
<PAGE> 26
SECTION 2.02. Execution and Authentication. Two
Officers shall sign the Securities for the Company by manual or
facsimile signature. The Company's seal shall be impressed,
affixed, imprinted or reproduced on the Securities and may be in
facsimile form.
If an Officer whose signature is on a Security no
longer holds that office at the time the Trustee authenticates
the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized
signatory of the Trustee manually signs the certificate of
authentication on the Security. The signature shall be
conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate and deliver Securities
for original issue in an aggregate principal amount of
$150,000,000, upon a written order of the Company signed by two
Officers or by an Officer and either an Assistant Treasurer or an
Assistant Secretary of the Company. Such order shall specify the
amount of the Securities to be authenticated and the date on
which the original issue of Securities is to be authenticated.
The aggregate principal amount of Securities outstanding at any
time may not exceed that amount except as provided in
Section 2.07.
The Trustee may appoint an authenticating agent
reasonably acceptable to the Company to authenticate the
Securities. Unless limited by the terms of such appointment, an
authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such
agent. An authenticating agent has the same rights as any
Registrar, Paying Agent or agent for service of notices and
demands.
SECTION 2.03. Registrar and Paying Agent. The Company
shall maintain an office or agency where Securities may be
presented for registration of transfer or for exchange (the
"Registrar") and an office or agency where Securities may be
presented for payment (the "Paying Agent"). The Registrar shall
keep a register of the Securities and of their transfer and
exchange. The Company may have one or more co-registrars and one
or more additional paying agents. The term "Paying Agent"
includes any additional paying agent.
The Company shall enter into an appropriate agency
agreement with any Registrar, Paying Agent or co-registrar not a
<PAGE>
<PAGE> 27
party to this Indenture, which shall incorporate the applicable
terms of the TIA and shall implement the provisions of this
Indenture that relate to such agent. The Company shall notify
the Trustee of the name and address of any such agent. If the
Company fails to maintain a Registrar or Paying Agent, the
Trustee shall act as such and shall be entitled to appropriate
compensation therefor pursuant to Section 7.07. The Company or
any Subsidiary or Affiliate may act as Paying Agent, Registrar or
co-registrar.
The Company initially appoints the Trustee as Registrar
and Paying Agent in connection with the Securities.
SECTION 2.04. Paying Agent To Hold Money in Trust.
Not later than the close of business one Business Day prior to
each due date of the principal and interest on any Security, the
Company shall deposit with the Paying Agent a sum sufficient to
pay such principal and interest when so becoming due. The
Company shall require each Paying Agent (other than the Trustee)
to agree in writing that the Paying Agent shall hold in trust for
the benefit of Securityholders or the Trustee all money held by
the Paying Agent for the payment of principal of or interest on
the Securities and shall notify the Trustee of any default by the
Company in making any such payment. If the Company or a
Subsidiary acts as Paying Agent, it shall segregate the money
held by it as Paying Agent and hold it as a separate trust fund.
The Company at any time may require a Paying Agent to pay all
money held by it to the Trustee and to account for any funds
disbursed by the Paying Agent. Upon complying with this Section,
the Paying Agent shall have no further liability for the money
delivered to the Trustee.
SECTION 2.05. Securityholder Lists. The Trustee shall
preserve in as current a form as is reasonably practicable the
most recent list available to it of the names and addresses of
Securityholders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee, in writing at least five
Business Days before each interest payment date and at such other
times as the Trustee may request in writing, a list in such form
and as of such date as the Trustee may reasonably require of the
names and addresses of Securityholders.
SECTION 2.06. Transfer and Exchange. The Securities
shall be issued in registered form and shall be transferable only
upon the surrender of a Security for registration of transfer.
When a Security is presented to the Registrar or a co-registrar
with a request to register a transfer, the Registrar shall
register the transfer as requested if the requirements of Section
8-401(1) of the Uniform Commercial Code are met. When Securities
are presented to the Registrar or a co-registrar with a request
to exchange them for an equal principal amount of Securities of
other denominations, the Registrar shall make the exchange as
requested if the same requirements are met. To permit
<PAGE>
<PAGE> 28
registration of transfers and exchanges, the Company shall
execute and the Trustee shall authenticate Securities at the
Registrar's or co-registrar's request. The Company may require
payment of a sum sufficient to pay all taxes, assessments or
other governmental charges in connection with any transfer or
exchange pursuant to this Section. The Company shall not be
required to make and the Registrar need not register transfers or
exchanges of Securities selected for redemption (except, in the
case of Securities to be redeemed in part, the portion thereof
not to be redeemed) or any Securities for a period of 15 days
before a selection of Securities to be redeemed or 15 days before
an interest payment date.
Prior to the due presentation for registration of
transfer of any Security, the Company, the Trustee, the Paying
Agent, the Registrar or any co-registrar may deem and treat the
person in whose name a Security is registered as the absolute
owner of such Security for the purpose of receiving payment of
principal of and interest on such Security and for all other
purposes whatsoever, whether or not such Security is overdue, and
none of the Company, the Trustee, the Paying Agent, the Registrar
or any co-registrar shall be affected by notice to the contrary.
All Securities issued upon any transfer or exchange
pursuant to the terms of this Indenture will evidence the same
debt and will be entitled to the same benefits under this
Indenture as the Securities surrendered upon such transfer or
exchange.
SECTION 2.07. Replacement Securities. If a mutilated
Security is surrendered to the Registrar or if the Holder of a
Security claims that the Security has been lost, destroyed or
wrongfully taken, the Company shall issue and the Trustee shall
authenticate a replacement Security if the requirements of
Section 8-405 of the Uniform Commercial Code are met and the
Holder satisfies any other reasonable requirements of the
Trustee. If required by the Trustee or the Company, such Holder
shall furnish an indemnity bond sufficient in the judgment of the
Company and the Trustee to protect the Company, the Trustee, the
Paying Agent, the Registrar and any co-registrar from any loss
which any of them may suffer if a Security is replaced. The
Company and the Trustee may charge the Holder for their expenses
in replacing a Security.
Every replacement Security is an additional obligation
of the Company.
SECTION 2.08. Outstanding Securities. Securities
outstanding at any time are all Securities authenticated by the
Trustee except for those canceled by it, those delivered to it
for cancellation and those described in this Section as not
outstanding. A Security does not cease to be outstanding because
the Company or an Affiliate of the Company holds the Security.
<PAGE>
<PAGE> 29
If a Security is replaced pursuant to Section 2.07, it
ceases to be outstanding unless the Trustee and the Company
receive proof satisfactory to them that the replaced Security is
held by a bona fide purchaser.
If the Paying Agent segregates and holds in trust, in
accordance with this Indenture, on a redemption date or maturity
date money sufficient to pay all principal and interest payable
on that date with respect to the Securities to be redeemed or
maturing, as the case may be, and the Paying Agent is not
prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture, then on and after
that date such Securities cease to be outstanding and interest on
them ceases to accrue.
SECTION 2.09. Temporary Securities. Until definitive
Securities are ready for delivery, the Company may prepare and
the Trustee shall authenticate temporary Securities. Temporary
Securities shall be substantially in the form of definitive
Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable
delay, the Company shall prepare and the Trustee shall
authenticate definitive Securities and deliver them in exchange
for temporary Securities.
SECTION 2.10. Cancellation. The Company at any time
may deliver Securities to the Trustee for cancellation. The
Registrar and the Paying Agent shall forward to the Trustee any
Securities surrendered to them for registration of transfer,
exchange or payment. The Trustee and no one else shall cancel
and destroy (subject to the record retention requirements of the
Exchange Act) all Securities surrendered for registration of
transfer, exchange, payment or cancellation and deliver a
certificate of such destruction to the Company unless the Company
directs the Trustee to deliver canceled Securities to the
Company. The Company may not issue new Securities to replace
Securities it has redeemed, paid or delivered to the Trustee for
cancellation.
SECTION 2.11. Defaulted Interest. If the Company
defaults in a payment of interest on the Securities, the Company
shall pay defaulted interest (plus interest on such defaulted
interest to the extent lawful) in any lawful manner. The Company
may pay the defaulted interest to the persons who are
Securityholders on a subsequent special record date, which date
shall be at least five Business Days prior to the payment date.
The Company shall fix or cause to be fixed any such special
record date and payment date, and, at least 15 days before any
such special record date, the Company shall mail to each
Securityholder a notice that states the special record date, the
payment date and the amount of defaulted interest to be paid.
<PAGE>
<PAGE> 30
ARTICLE 3.
Redemption
SECTION 3.01. Notices to Trustee. If the Company
elects to redeem Securities pursuant to paragraph 5 of the
Securities, it shall notify the Trustee in writing of the
redemption date and the principal amount of Securities to be
redeemed.
The Company shall give each notice to the Trustee
provided for in this Section at least 60 days before the
redemption date unless the Trustee consents to a shorter period.
Such notice shall be accompanied by an Officers' Certificate and
an Opinion of Counsel from the Company to the effect that such
redemption will comply with the conditions herein. If fewer than
all the Securities are to be redeemed, the record date relating
to such redemption shall be selected by the Company and given to
the Trustee, which record date shall be not less than 15 days
after the date of notice to the Trustee.
SECTION 3.02. Selection of Securities To Be Redeemed.
If fewer than all the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed pro rata or by lot or
by a method that complies with applicable legal and securities
exchange requirements, if any, and that the Trustee in its sole
discretion considers fair and appropriate and in accordance with
methods generally used at the time of selection by fiduciaries in
similar circumstances. The Trustee shall make the selection from
outstanding Securities not previously called for redemption. The
Trustee may select for redemption portions of the principal of
Securities that have denominations larger than $1,000.
Securities and portions of them the Trustee selects shall be in
amounts of $1,000 or a whole multiple of $1,000. Provisions of
this Indenture that apply to Securities called for redemption
also apply to portions of Securities called for redemption. The
Trustee shall notify the Company promptly of the Securities or
portions of Securities to be redeemed.
SECTION 3.03. Notice of Redemption. At least 30 days
but not more than 60 days before a date for redemption of
Securities, the Company shall mail or cause to be mailed a notice
of redemption by first-class mail to each Holder of Securities to
be redeemed at such Holder's address as it appears in the records
of the Registrar.
The notice shall identify the Securities to be redeemed
and shall state:
(1) the redemption date;
(2) the redemption price;
<PAGE>
<PAGE> 31
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be
surrendered to the Paying Agent to collect the
redemption price;
(5) if fewer than all the outstanding Securities
are to be redeemed, the identification and principal
amounts of the particular Securities to be redeemed;
(6) that, unless the Company defaults in making
such redemption payment, interest on Securities (or
portion thereof) called for redemption ceases to accrue
on and after the redemption date and the only remaining
right of the Holder shall be to receive payment of the
redemption price upon presentation and surrender to the
Paying Agent of the Securities;
(7) if any Security is being redeemed in part,
the portion of the principal amount of such Security to
be redeemed and that, after the redemption date, upon
presentation and surrender of such Security, a new
Security or Securities in principal amount equal to the
unredeemed portion thereof will be issued; and
(8) that no representation is made as to the
correctness or accuracy of the CUSIP number, if any,
listed in such notice or printed on the Securities.
At the Company's request, the Trustee shall give the
notice of redemption in the Company's name and at the Company's
expense. In such event, the Company shall provide the Trustee
with the information required by this Section.
SECTION 3.04. Effect of Notice of Redemption. Once
notice of redemption is mailed, Securities called for redemption
become due and payable on the redemption date and at the
redemption price stated in the notice. Upon presentation and
surrender to the Paying Agent, such Securities shall be paid at
the redemption price stated in the notice, plus accrued interest
to the redemption date. Failure to give notice or any defect in
the notice to any Holder shall not affect the validity of the
notice to any other Holder.
SECTION 3.05. Deposit of Redemption Price. Not later
than the close of business one Business Day prior to the
redemption date, the Company shall deposit with the Paying Agent
(or, if the Company or a Subsidiary acts as the Paying Agent,
shall segregate and hold in trust) money sufficient to pay the
redemption price of and accrued interest on all Securities to be
redeemed on that date other than Securities or portions thereof
called for redemption which have been delivered by the Company to
the Trustee for cancellation.
<PAGE>
<PAGE> 32
SECTION 3.06. Securities Redeemed in Part. Upon
surrender of a Security that is redeemed in part, the Company
shall execute and the Trustee shall authenticate for and deliver
to the Holder (at the Company's expense) a new Security equal in
principal amount to the unredeemed portion of the Security
surrendered.
ARTICLE 4.
Covenants
SECTION 4.01. Payment of Securities. The Company
shall promptly pay the principal of and interest on the
Securities on the dates and in the manner provided in the
Securities and in this Indenture. Principal and interest shall
be considered paid on the date due if on such date the Trustee or
the Paying Agent holds in accordance with this Indenture money
sufficient to pay all principal and interest then due and the
Trustee or the Paying Agent, as the case may be, is not
prohibited from paying such money to the Securityholders on that
date pursuant to the terms of this Indenture.
The Company shall pay interest on overdue principal at
the rate specified therefor in the Securities, and it shall pay
interest on overdue installments of interest at the same rate to
the extent lawful.
SECTION 4.02. SEC Reports. The Company shall file
with the Trustee and provide Securityholders, within 15 days
after it files them with the SEC, copies of its annual report and
of the information, documents and other reports (or copies of
such portions of any of the foregoing as the SEC may by rules and
regulations prescribe) which the Company is required to file with
the SEC pursuant to Section 13 or 15(d) of the Exchange Act.
Notwithstanding that the Company may not be required to remain
subject to the reporting requirements of Section 13 or 15(d) of
the Exchange Act, the Company shall continue to file with the SEC
and provide the Trustee and Securityholders with such annual
reports and such information, documents and other reports (or
copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which are specified in
Sections 13 and 15(d) of the Exchange Act. The Company also
shall comply with the other provisions of TIA Section 314(a).
SECTION 4.03. Limitation on Indebtedness. (a) The
Company shall not issue, incur, create, assume, guarantee or in
any manner become directly or indirectly responsible for the
payment of (collectively, "incur") any Indebtedness other than
Permitted Indebtedness unless the Consolidated Fixed Charge
Coverage Ratio for the four consecutive fiscal quarters (treated
as one accounting period) immediately preceding the incurrence of
such Indebtedness for which the consolidated financial statements
of the Company and its Subsidiaries are available (provided that
45 days after the end of the Company's first, second and third
fiscal quarters and 90 days after the end of the Company's fiscal
year, the foregoing period shall be the four most recent
consecutive fiscal quarters (treated as one accounting period)
even if for any reason such financial statements are not then
available) (as shown by a pro forma consolidated income statement
<PAGE>
<PAGE> 33
of the Company and its consolidated Subsidiaries) after giving
pro forma effect to: (1) the incurrence of such Indebtedness and
(if applicable) the application of the net proceeds therefrom to
retire or repay other Indebtedness as if such Indebtedness was
incurred and the application of such proceeds occurred at the
beginning of such four-quarter period; (2) the incurrence,
repayment or retirement of any other Indebtedness by the Company
or any Subsidiary since the first day of the first fiscal quarter
covered by such income statement as if such Indebtedness was
incurred, repaid or retired at the beginning of such four-quarter
period; and (3) the acquisition or disposition of any company or
business acquired or disposed of by the Company or any Subsidiary
since the first day of such four-quarter period, including any
acquisition which will be consummated contemporaneously with the
incurrence of such Indebtedness, as if such acquisition or
disposition occurred at the beginning of the period, exceeds the
following ratios (each, an "Indebtedness Ratio") for Indebtedness
incurred during the calendar years indicated below:
<TABLE>
<CAPTION>
Indebtedness
Year Ratio
---- -----
<S> <C>
1994-1996 2.0:1.0
1997-1998 2.25:1.0
1999 and thereafter 2.5:1.0
</TABLE>
(b) Notwithstanding the foregoing Section 4.03(a), the
Company may not incur any Indebtedness: (i) which is subordinated
or junior in ranking or right of payment in respect to any Senior
Indebtedness unless such Indebtedness is Senior Subordinated
Indebtedness or is expressly subordinated in right of payment to
Senior Subordinated Indebtedness; (ii) which is Subordinated
Indebtedness unless such Subordinated Indebtedness has a Stated
Maturity no earlier than the Stated Maturity of the Securities,
and has an Average Life greater than or equal to the Average Life
of the Securities; or (iii) if the proceeds thereof are used,
directly or indirectly, to repay, prepay, redeem, defease, retire
or refinance any (1) Securities or other Senior Subordinated
Indebtedness unless such Indebtedness is made pari passu with or
subordinate to the Securities or (2) Subordinated Indebtedness
unless such Indebtedness is made subordinate to the Securities to
at least the same extent as such Subordinated Indebtedness, and
in each case such Indebtedness (x) has a Stated Maturity no
earlier than the Stated Maturity of the Indebtedness so
<PAGE>
<PAGE> 34
refinanced and (y) has an Average Life greater than or equal to
the Average Life of the Indebtedness so refinanced. A given
instrument or agreement of the Company or a Subsidiary
(including, without limitation, the Credit Agreement) may provide
for or relate to more than one type or category of Permitted
Indebtedness or other Indebtedness of the Company or its
Subsidiaries permitted to be incurred or outstanding under this
Section or Section 4.04; provided, however, that Indebtedness
incurred under the Senior Term Loan on or prior to the Closing
Date shall be treated as incurred pursuant to clause (i) of the
definition of "Permitted Indebtedness."
For purposes of this Indenture, the amount of any
Indebtedness denominated in a currency other than U.S. dollars
shall be the Dollar Equivalent of such currency at the date of
the issuance thereof by the Company.
SECTION 4.04. Limitation on Indebtedness and Preferred
Stock of Subsidiaries. The Company shall not permit any of its
Subsidiaries to incur or issue, directly or indirectly, any
Indebtedness or Preferred Stock except (i) Indebtedness or
Preferred Stock of a Subsidiary issued and outstanding on the
Closing Date, (ii) Indebtedness incurred or Preferred Stock
issued to and held by the Company or a Wholly Owned Subsidiary;
provided, however, that any subsequent issuance or transfer of
any Capital Stock which results in any such Wholly Owned
Subsidiary ceasing to be a Wholly Owned Subsidiary or any
subsequent transfer of any such Indebtedness or Preferred Stock
(except to the Company or any Wholly Owned Subsidiary) will be
deemed, in each case, to constitute the incurrence of such
Indebtedness or the issuance of such Preferred Stock,
(iii) Indebtedness or Preferred Stock of a Subsidiary existing
and outstanding on the date on which such Subsidiary became a
Subsidiary (other than Indebtedness incurred or Preferred Stock
issued in connection with or in anticipation of such Subsidiary
becoming a Subsidiary); provided, however, that after giving
effect to the incurrence or issuance thereof, the Company could
incur $1.00 of Indebtedness (other than Permitted Indebtedness)
pursuant to Section 4.03(a), (iv) Indebtedness incurred or
Preferred Stock issued in exchange for, or the proceeds of which
are used to refinance, Indebtedness or Preferred Stock referred
to in clauses (i) and (iii) above, so long as (1) the principal
amount of such Indebtedness incurred or the liquidation value of
such Preferred Stock issued does not exceed the sum of the
principal amount or liquidation value of the Indebtedness or
Preferred Stock so exchanged or refinanced, plus the amount of
any premium required to be paid in connection with such exchange
or refinancing or the amount of any premium necessary to
accomplish such exchange or refinancing by means of a tender
offer or privately negotiated repurchase, plus the amount of
expenses of the Company incurred in connection with such exchange
or refinancing, (2) the Indebtedness incurred or Preferred Stock
issued has a Stated Maturity or final mandatory redemption date
<PAGE>
<PAGE> 35
(if any) no earlier than the Stated Maturity of the Indebtedness
or final mandatory redemption date (if any) of the Preferred
Stock being exchanged or refinanced, and (3) the Indebtedness
incurred or Preferred Stock issued has an Average Life greater
than or equal to the Average Life of the Indebtedness or
Preferred Stock so exchanged or refinanced, (v) Indebtedness (or
Indebtedness incurred to refinance such Indebtedness) consisting
of deferred payment obligations resulting from the adjudication
or settlement of any claim or litigation, (vi) Indebtedness (or
Indebtedness incurred to refinance such Indebtedness) pursuant to
any interest rate or currency swaps, floors, caps or collars to
protect against fluctuations in interest or currency exchange
rates, provided that such Indebtedness (1) relates to
Indebtedness permitted to be incurred hereunder and provided that
the notional amount thereof is not greater than the principal
amount of such Indebtedness or (2) relates to a Permitted
Investment and provided that the notional amount thereof is not
greater than the principal amount of such Permitted Investment,
(vii) Indebtedness (or Indebtedness incurred to refinance such
Indebtedness) of an Insurance Subsidiary evidenced by forward or
reverse repurchase agreements, mortgage-backed security
transactions, dollar rolls, collateralized mortgage or bond
obligations, or other collateralized investment obligations, in
all cases relating to the assets in the investment portfolio of
such Insurance Subsidiary, and (viii) Indebtedness in an
aggregate principal amount or Preferred Stock having an aggregate
liquidation value which, together with all other Indebtedness and
Preferred Stock of all Subsidiaries then outstanding (other than
Indebtedness or Preferred Stock described in clauses (i) through
(vii) of this Section), does not exceed $25 million less the
aggregate principal amount of Indebtedness then outstanding
pursuant to clause (x) of the definition of Permitted
Indebtedness.
SECTION 4.05. Limitation on Restricted Payments. (a)
The Company shall not, and shall not permit any Subsidiary,
directly or indirectly, to: (i) declare or pay any dividend or
make any distribution on its Capital Stock (except dividends or
distributions payable solely in its Capital Stock (other than
Redeemable Stock) or in options, warrants or other rights to
purchase its Capital Stock (other than Redeemable Stock) and
except dividends or distributions (other than dividends or
distributions of Redeemable Stock) payable to the Company or a
Subsidiary (and, if a Subsidiary has minority stockholders, pro
rata to such stockholders)); (ii) purchase, redeem or otherwise
acquire or retire for value (including, without limitation, the
exchange of Indebtedness for Preferred Stock or any other
exchange) any Capital Stock of the Company or any Subsidiary or
any direct or indirect parent of the Company; (iii) make any
principal payment on, or purchase, repurchase, redeem, defease or
otherwise acquire or retire for value, prior to scheduled
maturity, scheduled repayment or scheduled sinking fund payment,
any Subordinated Indebtedness other than Subordinated
<PAGE>
<PAGE> 36
Indebtedness purchased in anticipation of a sinking fund
obligation, principal installment or final maturity, in each case
due no more than one year after the date of acquisition; or
(iv) make any Investment in any Person other than a Permitted
Investment (any such dividend, distribution, payment, purchase,
redemption, repurchase, defeasance, other acquisition, retirement
or Investment (but in the case of any Investment, only for so
long as such Investment is outstanding) being hereinafter
referred to as a "Restricted Payment"), if at the time the
Company or such Subsidiary makes such Restricted Payment or after
giving effect to such Restricted Payment: (1) a Default shall
have occurred and be continuing (or would result therefrom);
(2) the Company could not incur an additional $1.00 of
Indebtedness (other than Permitted Indebtedness) pursuant to
Section 4.03(a); or (3) the aggregate amount of such Restricted
Payment and all other Restricted Payments made since the Closing
Date would exceed the sum of: (a) 50% of the cumulative
Consolidated Net Income accrued during the period (treated as one
accounting period) subsequent to the Closing Date (or, in case
such cumulative Consolidated Net Income is a deficit, minus 100%
of such deficit); (b) the aggregate Net Proceeds received by the
Company subsequent to the Closing Date from (i) the issue or sale
of its Capital Stock or options, warrants or other rights to
purchase its Capital Stock (in each case, other than Redeemable
Stock and other than to a Subsidiary), including cash received
upon conversion of Indebtedness for Capital Stock or (ii) the
making of any capital contribution by any shareholder of the
Company; and (c) $5 million.
(b) Notwithstanding the foregoing, Section 4.05(a)
will not prohibit: (i) any purchase, redemption or other
acquisition of Capital Stock or Subordinated Indebtedness of the
Company made by exchange for, or out of the Net Proceeds received
by the Company from, the substantially concurrent sale of Capital
Stock of the Company (other than Redeemable Stock and other than
to a Subsidiary) or substantially concurrent capital contribution
made by any shareholder of the Company; (ii) any purchase,
repurchase, redemption, defeasance or other acquisition or
retirement for value of Subordinated Indebtedness of the Company
made by exchange for, or out of the proceeds of the substantially
concurrent sale of, Indebtedness of the Company permitted to be
incurred under Section 4.03; (iii) the repayment of Indebtedness
of the Company to Statesman, purchase of surplus notes and
preferred stock of American Life held by Statesman, redemption of
preferred stock of the Company held by Statesman, repayment of
Indebtedness of AMCO and payment by the Company of a dividend to
Statesman, all on the Closing Date in connection with financing
the Acquisition and related transactions, as described in the
Prospectus under "The Acquisition"; (iv) any purchase,
repurchase, redemption, defeasance or other acquisition or
retirement for value of Indebtedness from the net proceeds of an
Asset Sale to the extent permitted pursuant to Section 4.08;
(v) dividends or distributions which are paid within 60 days
<PAGE>
<PAGE> 37
after the date of declaration thereof if at such date of
declaration such dividends or distributions would have complied
with the provisions hereof; (vi) the repurchase of any
Subordinated Indebtedness at a price not in excess of the
Repurchase Price pursuant to a provision substantially similar to
Section 4.09, if and only if the Company shall have first fully
complied, or be simultaneously complying, in all respects with
its obligations pursuant to such Section 4.09, including without
limitation paying the full Repurchase Price for all Securities
tendered pursuant thereto; (vii) the payment by the Company to
Statesman (whether by dividend, loan or the repayment of
outstanding liability, provided that if made by dividend, any
related liability must be concurrently extinguished) of an amount
of up to $30,100,000 in order to fund payments under the
Contingent Payment Rights or of the Per Share Cash Consideration
in respect of the Government Preferred Stock, each as described
in the Prospectus under "The Acquisition," provided that such
payment may not be made by the Company until payment is required
to be made under the Contingent Payment Rights or to the holder
of the Government Preferred Stock; (viii) the payment to
Statesman of any amounts recovered by the Company or any
Subsidiary in the Statesman Litigation (as defined in the
Prospectus), less any portion of such amounts not required to be
paid to the holders of the Contingent Payment Rights; (ix) the
payment of aggregate dividends of up to $8,750,000 per year on
the shares of the Redeemable Cumulative Preferred Stock
outstanding on the Closing Date, provided that no Default has
occurred and is then continuing; (x) the payment of any or all of
the proceeds of the Zero Coupon Securities to repurchase or
redeem shares of the Redeemable Cumulative Preferred Stock; and
(xi) the payment of dividends by the Company on the Company's
common stock following an initial public offering of the
Company's or Statesman's common stock not to exceed 4% per annum
of the net proceeds received by the Company in such public
offering or received by Statesman and contributed to the Company
as equity. The Restricted Payments permitted to be made as
described in clauses (ii), (iii), (iv), (vii), (viii) and (x)
will not be included in such calculation of the amount of
Restricted Payments which may be made thereafter pursuant to the
preceding paragraph but the Restricted Payments permitted to be
made as described in clauses (i), (v), (vi), (ix) and (xi) will
be included in such calculation of the amount of Restricted
Payments which may be made thereafter.
Amounts paid to the Company pursuant to any agreement
or arrangement relating to tax sharing or tax allocation payments
will not be considered capital contributions by a stockholder for
any purpose under this Indenture.
SECTION 4.06. Limitation on Restrictions on
Distributions from Subsidiaries. (a) The Company shall not, and
shall not permit any Subsidiary to, create or otherwise cause or
permit to exist or become effective any voluntary or consensual
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<PAGE> 38
encumbrance or voluntary or consensual restriction on the ability
of any Subsidiary to: (i) pay dividends or make any other
distributions on its Capital Stock or pay any Indebtedness or
other obligation owed to the Company or its other Subsidiaries,
(ii) make any loans or advances to the Company or (iii) transfer
any of its property or assets to the Company or any Subsidiary
except: (1) any encumbrance or restriction pursuant to an
agreement or stipulation in effect at or entered into on the date
of this Indenture; (2) any encumbrance or restriction with
respect to a Subsidiary imposed by any applicable insurance or
other laws or regulations now or hereafter in effect or imposed
by order of or agreement with any governmental authority now or
hereafter in effect (provided the Company and such Subsidiary
have used reasonable efforts to have any such order or agreement
diminished or removed by any governmental authority authorized to
do so and to obtain any exemptive orders from the relevant
governmental authority with respect to any such encumbrance or
restriction to the extent such exemptive orders are reasonably
available under applicable laws and regulations); (3) any
encumbrance or restriction with respect to a Subsidiary in effect
on or prior to the date on which such Subsidiary was acquired by
the Company or any Subsidiary (other than any such encumbrance or
restriction established in connection with Indebtedness incurred
in connection with or in anticipation of the acquisition of such
Subsidiary) and outstanding on such date; (4) any encumbrance or
restriction pursuant to an agreement effecting a refinancing of
Indebtedness issued pursuant to an agreement referred to in the
foregoing clause (1) or (3), so long as the encumbrances and
restrictions contained in any such refinancing agreement are no
more restrictive (taken in the aggregate) than encumbrances and
restrictions contained in such agreements; (5) in the case of
clause (iii) above, encumbrances or restrictions contained in
loan agreements or security or similar agreements permitted by
this Indenture securing Indebtedness permitted by this Indenture
to the extent such restrictions restrict the transfer of property
subject to such security agreements or consist of customary
negative pledge covenants; and (6) any encumbrance or restriction
consisting of customary nonassignment provisions in leases,
installment purchase contracts, requirement contracts, or other
similar agreements to the extent such provisions restrict the
transfer of the lease, contract or agreement or any right
thereunder.
(b) The Company will not, and will not permit any of
its Subsidiaries to, enter into any amendment or modification, or
agree to or accept any waiver, of the provisions of (a) any of
its surplus notes or debentures outstanding on the Closing Date
or (b) any intercompany tax sharing or tax allocation agreement
in effect on the Closing Date the result of which amendment,
modification or waiver would have a material adverse effect on
the Company's ability to repay the Securities (such determination
to be made by the chief financial officer of the Company pursuant
to an Officers' Certificate delivered to the Trustee) unless such
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<PAGE> 39
amendment, modification or waiver is required by any applicable
insurance or other laws and regulations now or hereafter in
effect or required by order of or agreement with any governmental
authority now or hereafter in effect, provided that the Company
or the Subsidiary required to make such amendment, modification
or waiver has used its reasonable efforts to have such order or
agreement imposed after the Closing Date diminished by any
governmental authority authorized to do so and to obtain any
exemptive order from the relevant governmental authority with
respect to such amendment, modification or waiver to the extent
such exemptive order is reasonably available under applicable
laws and regulations.
SECTION 4.07. Limitation on Transactions with
Affiliates. (a) The Company shall not, and shall not permit any
of its Subsidiaries to, directly or indirectly, conduct any
business or enter into any transaction or series of transactions
(including the purchase, sale, lease or exchange of any property
or the rendering of any service or the making of any Investment
by the Company or any Subsidiary in any securities of the
Partnership, any subsidiary of the Partnership or any Affiliate
of the Partnership) with any Affiliate of the Company (other than
a Wholly Owned Subsidiary) or with any beneficial owner (or any
Affiliate of such an owner) of 10% or more of any class of
Capital Stock of the Company unless (i) the terms of such
business or transaction are (A) set forth in writing and (B) at
least as favorable to the Company or such Subsidiary as terms
that could be obtained at the time for a comparable transaction
in arm's length dealings with an unrelated third Person, and
(ii) if such transaction or series of transactions has a value
greater than $5 million, the Company shall have delivered to the
Trustee (A) an Officer's Certificate to the effect that the Board
of Directors and a majority of the disinterested directors, if
any, have approved the business or transaction or series of
transactions in good faith or (B) an opinion from an independent
national investment banking firm or, if no such investment
banking firm is in a position to render such an opinion, an
independent firm of national reputation chosen by the Company
having expertise in the specific area which is the subject of
such opinion, certifying that such transaction or series of
transactions is fair to the Company or such Subsidiary, as the
case may be, from a financial point of view.
(b) The foregoing provisions of Section 4.07(a) will
in no event restrict or prohibit: (i) the entering into or
performance by the Company or its Subsidiaries of the separate
advisory agreements in effect on the Closing Date between Conseco
Capital Management, Inc., and each of American Life Holding
Company, American Life and Vulcan, in accordance with the terms
of such agreements as set forth therein, it being understood that
the terms of any renewal, amendment or modification thereof shall
be subject, in all respects, to the immediately preceding
paragraph, (ii) any Restricted Payment permitted to be paid
pursuant to Section 4.05, (iii) any issuance of securities, or
other payments, awards or grants in cash, securities or otherwise
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<PAGE> 40
pursuant to, or the funding of, employment arrangements, stock
options and stock ownership plans approved by the Board of
Directors, (iv) loans or advances to officers, directors and
employees in the ordinary course of business consistent with past
practice, (v) the payment of reasonable fees to directors of the
Company and of its Subsidiaries who are not employees of the
Company or any Subsidiary, (vi) reasonable and customary
indemnification arrangements between the Company or any
Subsidiary and their respective directors and officers pursuant
to which the Company or any such Subsidiary agrees to indemnify
such persons against losses and expenses incurred by such persons
in connection with their service to the Company or such
Subsidiary, as the case may be (to the extent such
indemnification arrangements are permitted under applicable law),
(vii) any transaction or series of transactions in an amount not
in excess of $250,000 or (viii) any transaction between the
Company and a Wholly Owned Subsidiary or between Wholly Owned
Subsidiaries.
SECTION 4.08. Limitation on Sales of Assets and
Subsidiary Stock. (a) The Company shall not, and shall not
permit any Subsidiary to, make any Asset Sale unless (i) the
Company or such Subsidiary receives consideration at the time of
such Asset Sale at least equal to the fair market value of the
shares and assets subject to such Asset Sale (which, in the case
of any Asset Sale involving shares or assets having a fair market
value of more than $10 million, will be determined in good faith
by the Board of Directors (including as to the value of all
noncash consideration)), and at least 75% of such consideration
is cash and cash equivalents, and/or the assumption of
liabilities (other than Subordinated Indebtedness) of the Company
or its Subsidiaries by the acquiror, and (ii) the Company shall
within one year from the later of the date of such Asset Sale or
the receipt of Net Available Cash therefrom, use such Net
Available Cash (1) to permanently repay or redeem Senior
Indebtedness or Indebtedness of a Principal Insurance Subsidiary,
(2) to acquire one or more Insurance Businesses or invest in one
or more Principal Insurance Subsidiaries or (3) to the extent the
aggregate Net Available Cash from all such Asset Sales not
applied pursuant to clauses (1) and (2) exceeds $5 million, to
make an Offer (as defined in paragraph (b) below) to purchase
Securities pursuant to and subject to the conditions of
paragraph (b) below. Notwithstanding the foregoing, the Company
will not be required to apply any such Net Available Cash in
accordance with clause (ii) of the preceding sentence except to
the extent that the aggregate Net Available Cash from all Asset
Sales not so applied exceeds $10 million.
(b) In the event of an Asset Sale that requires the
purchase of Securities pursuant to paragraph (a) above, the
Company will be required to purchase Securities tendered pursuant
to a tender offer by the Company for the Securities (an "Offer")
at a purchase price (an "Asset Sale Purchase Price") of 100% of
their principal amount, plus accrued and unpaid interest to the
Purchase Date (as defined in paragraph (c) below) in accordance
with the procedures (including prorating in the event of
oversubscription) set forth in paragraph (c) of this Section.
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<PAGE> 41
(c) (1) Promptly, and in any event within 30 days
following the one year anniversary from the later of the date of
any Asset Sale, or the receipt of the Net Available Cash from
such Asset Sale, as to which the Company must make an Offer for
Securities, the Company shall deliver to the Trustee and send, by
first-class mail, to each Holder, a written notice stating that
the Holder may elect to have such Holder's Securities purchased
by the Company either in whole or in part (subject to prorating
as hereinafter described in the event the Offer is
oversubscribed) in integral multiples of $1,000 of principal
amount, at the applicable Asset Sale Purchase Price. The notice
shall specify a purchase date not less than 30 days nor more than
60 days after the date such notice is mailed unless otherwise
required by applicable law (the "Purchase Date") and shall
contain information concerning the circumstances and relevant
facts regarding such Asset Sale which the Company in good faith
believes will enable such Holders to make an informed decision
regarding the Offer, including but not limited to information
with respect to historical income, cash flow and capitalization
after giving pro forma effect to such Asset Sale to the extent
practicable. The notice shall specify that unless the Company
shall default in the payment of the Asset Sale Purchase Price,
after the Purchase Date interest thereon will cease to accrue
with respect to any Securities accepted for purchase by the
Company, and shall contain all instructions and materials
necessary to tender Securities pursuant to the Offer, together
with the information contained in clause (3) below.
(2) Not later than the date upon which written notice
of an Offer is delivered to the Trustee as provided above, the
Company shall deliver to the Trustee an Officers' Certificate as
to (i) the amount of the Offer (the "Offer Amount"), (ii) the
allocation of the Net Available Cash from the Asset Sale pursuant
to which the Offer is being made and (iii) the compliance of such
allocation with the provisions of paragraph (a) of this Section.
On or before such date, the Company shall also irrevocably
deposit with the Paying Agent (or, if the Company is acting as
its own paying agent, segregate and hold in trust) in immediately
available funds an amount equal to the Offer Amount to be held
for payment in accordance with the provisions of this Section.
Upon the expiration of the period for which the Offer remains
open (the "Offer Period"), the Company shall deliver to the
Trustee the Securities or portions thereof which have been
properly tendered to and are to be accepted by the Company. The
Paying Agent shall, on or promptly after the Purchase Date, mail
or deliver payment to each tendering Holder in the amount of the
Asset Sale Purchase Price with respect to the Securities tendered
by such Holder and accepted by the Company from the funds
provided by the Company for such payment. In the event that the
aggregate Asset Sale Purchase Price of all Securities delivered
by the Company to the Trustee is less than the Offer Amount, the
Paying Agent shall deliver the excess to the Company immediately
after the expiration of the Offer Period.
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<PAGE> 42
(3) Holders electing to have Securities purchased will
be required to surrender the Securities to the Company at the
address specified in the notice at least three Business Days
prior to the Purchase Date. A Holder will be entitled to
withdraw its election if the Trustee or the Company receives not
later than three Business Days prior to the Purchase Date, a
telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Securities
which were delivered for purchase by the Holder and a statement
that such Holder is withdrawing its election to have such
Securities purchased. If at the expiration of the Offer Period
the aggregate principal amount of Securities surrendered by
Holders exceeds the Offer Amount, the Company shall select the
Securities to be purchased on a pro rata basis (with such
adjustments as may be deemed appropriate by the Company so that
only Securities in denominations of $1,000 or integral multiples
thereof shall be purchased first). Holders whose Securities are
purchased only in part will be issued new Securities of the same
series equal in principal amount to the unpurchased portion of
the Securities surrendered.
(4) At the time the Company delivers Securities to the
Trustee which are to be accepted for purchase, the Company will
also deliver an Officers' Certificate stating that such
Securities are to be accepted by the Company pursuant to and in
accordance with the terms of this Section and an Opinion of
Counsel stating that the terms of this Indenture have been
complied with. Securities shall be deemed to have been accepted
for purchase at the time the Paying Agent mails or delivers
payment therefor to the surrendering Holder.
(5) The Company shall comply with any tender offer
rules under the Exchange Act which may then be applicable,
including Rule 14e-1, or other applicable laws or regulations in
connection with any Offer required to be made by the Company to
repurchase the Securities pursuant to this Section. In the event
of any conflict between such tender offer rules or other
applicable laws or regulations and the provisions of this
Section, such rules or other laws or regulations shall control.
The Company may assign its obligation to repurchase the
Securities as a result of an Asset Sale to a third party (which
may or may not be an Affiliate), so long as the Company remains
an obligor of the Securities not repurchased and agrees to
repurchase the Securities on the Purchase Date to the extent such
third party fails to do so. Any such offer by a third party must
comply with any applicable tender offer rules or other applicable
laws or regulations.
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<PAGE> 43
SECTION 4.09. Change of Control. (a) In the event of
a Change of Control, the Company will be required to repurchase
all or any part of each Holder's Securities tendered pursuant to
a tender offer by the Company for the Securities (a "Repurchase
Offer") at a purchase price in cash (the "Repurchase Price")
equal to 101% of the principal amount thereof, plus accrued and
unpaid interest to the date of such purchase in accordance with
the procedures set forth in paragraph (b) of this Section.
(b) (1) Within 30 days following any Change of
Control, the Company shall deliver to the Trustee and send, by
first-class mail, to each Holder, a written notice stating that a
Change of Control has occurred and that the Holder may elect to
have such Holder's Securities repurchased by the Company either
in whole or in part in integral multiples of $1,000 of principal
amount, at the Repurchase Price. The notice shall specify a
purchase date (the "Repurchase Date") not less than 30 days nor
more than 60 days after the date of such notice (or such longer
period as may be reasonably necessary for the Company to comply
with any applicable laws and regulations), and shall contain
information concerning the circumstances and relevant facts
regarding such Change of Control which the Company in good faith
believes will enable such Holders to make an informed decision
regarding the Repurchase Offer, including but not limited to
information with respect to historical income, cash flow and
capitalization after giving pro forma effect to the Change of
Control to the extent practicable. The notice shall specify that
unless the Company shall default in the payment of the Repurchase
Price, after the Repurchase Date interest thereon will cease to
accrue with respect to any Securities timely tendered, and shall
contain all instructions and materials necessary to tender
Securities pursuant to the Repurchase Offer, together with the
information contained in clause (3) below.
(2) Not later than the Repurchase Date, the Company
shall irrevocably deposit with the Paying Agent (or, if the
Company is acting as its own paying agent, segregate and hold in
trust) in immediately available funds an amount equal to the
total amount necessary to repurchase all the Securities (the
"Repurchase Amount") to be held for payment in accordance with
the provisions of this Section. Upon the expiration of the
period for which the Repurchase Offer remains open (the
"Repurchase Period"), the Company shall deliver to the Trustee
the Securities or portions thereof which have been properly
tendered to and are to be accepted by the Company. The Paying
Agent shall, on or promptly after the Repurchase Date, mail or
deliver payment to each tendering Holder in the amount of the
Repurchase Price with respect to the Securities tendered by such
Holder and accepted by the Company from the funds provided by the
Company for such payment. In the event that the aggregate
Repurchase Price of all Securities delivered by the Company to
the Trustee is less than the Repurchase Amount, the Paying Agent
shall deliver the excess to the Company immediately after the
expiration of the Repurchase Period.
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<PAGE> 44
(3) Holders electing to have Securities repurchased
will be required to surrender the Securities to the Company at
the address specified in the notice at least three Business Days
prior to the Repurchase Date. A Holder will be entitled to
withdraw its election if the Trustee or the Company receives not
later than three Business Days prior to the Repurchase Date, a
telegram, telex, facsimile transmission or letter setting forth
the name of the Holder, the principal amount of the Securities
which were delivered for repurchase by the Holder and a statement
that such Holder is withdrawing its election to have such
Securities repurchased. Holders whose Securities are repurchased
only in part will be issued new Securities of the same series
equal in principal amount to the non-repurchased portion of the
Securities surrendered.
(4) At the time the Company delivers Securities to the
Trustee which are to be accepted for repurchase, the Company will
also deliver an Officers' Certificate stating that such
Securities are to be accepted by the Company pursuant to and in
accordance with the terms of this Section and an Opinion of
Counsel stating that the terms of the Indenture have been
complied with. Securities shall be deemed to have been accepted
for repurchase at the time the Trustee receives such delivery and
Officers' Certificate and Opinion of Counsel from the Company.
(5) The Company shall comply with any tender offer
rules under the Exchange Act which may then be applicable,
including Rule 14e-1, or other applicable laws or regulations in
connection with any offer required to be made by the Company to
repurchase the Securities pursuant to this Section. In the event
of any conflict between such tender offer rules or other
applicable laws or regulations and the provisions of this
Section, such rules or other laws or regulations shall control.
The Company may assign its obligation to repurchase the
Securities as a result of a Change of Control to a third party
(which may or may not be an Affiliate), so long as the Company
remains an obligor of the Securities not repurchased and agrees
to repurchase the Securities on the Repurchase Date to the extent
such third party fails to do so. Any such offer by a third party
also must comply with any applicable tender offer rules or other
applicable laws or regulations.
SECTION 4.10. Limitation on Liens Securing
Subordinated or Pari Passu Indebtedness. If the Company or any
Subsidiary creates, incurs, assumes or suffers to exist any Lien
of any kind (i) securing any Subordinated Indebtedness of the
Company or Indebtedness of the Company which ranks Pari Passu
with the Securities, then the Company will or will cause its
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<PAGE> 45
Subsidiaries, as the case may be, concurrently or immediately
thereafter, to provide that the Securities are equally and
ratably secured; provided, however, that in the case of
Subordinated Indebtedness, the Lien securing such Subordinated
Indebtedness shall be subordinate and junior to the Lien securing
the Securities with the same relative priority as such
Subordinated Indebtedness shall have with respect to the
Securities; provided further, however, that this Section 4.10
shall not apply to the Lien encumbering the Redemption Fund; or
(ii) securing any assumption, guarantee or other liability of any
Subsidiary in respect of any Subordinated Indebtedness of the
Company or Indebtedness of the Company which ranks Pari Passu
with the Securities, then a substantially similar assumption,
guarantee or other liability of such Subsidiary in respect of the
Securities, concurrently or immediately thereafter, shall be
equally and ratably secured; provided, however, that in the case
of Subordinated Indebtedness, the Lien securing the assumption,
guarantee or other liability of any Subsidiary in respect of such
Subordinated Indebtedness shall be subordinate and junior to the
Lien securing the assumption, guarantee or other liability of
such Subsidiary in respect of the Securities with the same
relative priority as such Subordinated Indebtedness shall have
with respect to the Securities.
SECTION 4.11. Business Activities. The Company will
not, and will not permit any Subsidiary to, engage in any
business other than (i) the insurance and reinsurance business
and such business activities incidental or related thereto,
(ii) such other businesses as the Company or its Subsidiaries are
engaged in on the date of this Indenture and (iii) businesses
which are conducted through Subsidiaries other than those
referred to in (i) or (ii) above as long as the aggregate
Investments of the Company and its Subsidiaries in such
Subsidiaries do not exceed 5% of the total Invested Assets of the
Company and its Subsidiaries.
SECTION 4.12. Limitation on Issuance of Guarantees by
Subsidiaries. (a) The Company will not permit any Subsidiary,
directly or indirectly, to Guarantee any Indebtedness of the
Company which is Pari Passu with or subordinate in right of
payment to the Securities ("Guaranteed Indebtedness"), unless
(i) such Subsidiary simultaneously executes and delivers a
supplemental indenture to this Indenture providing for a
Guarantee (a "Subsidiary Guarantee") of payment of the Securities
by such Subsidiary and (ii) such Subsidiary waives, and will not
in any manner whatsoever claim or take the benefit or advantage
of, any rights of reimbursement, indemnity or subrogation or any
other rights against the Company or any other Subsidiary as a
result of any payment by such Subsidiary under its Subsidiary
Guarantee. If the Guaranteed Indebtedness is (A) Pari Passu with
the Securities, then the Guarantee of such Guaranteed
Indebtedness shall be Pari Passu with, or subordinated to, the
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<PAGE> 46
Subsidiary Guarantee or (B) subordinated to the Securities, then
the Guarantee of such Guaranteed Indebtedness shall be
subordinated to the Subsidiary Guarantee at least to the extent
that the Guaranteed Indebtedness is subordinated to the
Securities.
(b) Notwithstanding the foregoing Section 4.12(a), any
Subsidiary Guarantee by a Subsidiary shall provide by its terms
that it shall be automatically and unconditionally released and
discharged upon (i) any sale, exchange or transfer, to any Person
not an Affiliate of the Company, of all of the Company's and each
Subsidiary's Capital Stock in, or all or substantially all the
assets of, such Subsidiary (which sale, exchange or transfer is
not prohibited by this Indenture) or (ii) the release or
discharge of the Guarantee which resulted in the creation of such
Subsidiary Guarantee, except a discharge or release by or as a
result of payment under such Guarantee.
SECTION 4.13. Compliance Certificate. The Company
shall deliver to the Trustee, within 120 days after the end of
each fiscal year, an Officers' Certificate stating that a review
of the activities of the Company and its Subsidiaries during the
preceding fiscal year has been made under the supervision of the
signing officers with a view to determining whether each has
kept, observed, performed and fulfilled its obligations under
this Indenture, and further stating as to each such officer
signing such Officers' Certificate, that to the best of his or
her knowledge each has kept, observed, performed and fulfilled
each and every covenant contained in this Indenture and is not in
default in the performance or observance of any terms, provisions
and conditions hereof (or, if a Default or Event of Default shall
have occurred, describing all such Defaults or Events of Default
of which he or she may have knowledge and what action each is
taking or proposes to take with respect thereto). The Company
also shall comply with TIA Section 314(a)(4) in the event that it
imposes any requirement which is not satisfied by compliance by
the Company with the requirements of the preceding sentence.
SECTION 4.14. Further Instruments and Acts. Upon
request of the Trustee, the Company will execute and deliver such
further instruments and do such further acts as may be reasonably
necessary or proper to carry out more effectively the purpose of
this Indenture.
ARTICLE 5.
Successor Company
SECTION 5.01. When Company May Merge or Transfer
Assets. The Company shall not consolidate with or merge with or
into any other Person or sell, convey, assign, transfer, lease or
otherwise dispose of all or substantially all of its assets as an
entirety to any Person unless:
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<PAGE> 47
(i) either (1) the Company shall be the
continuing corporation or (2) the Person (if other than
the Company) formed by such consolidation or into which
the Company is merged or the Person that acquires by
sale, assignment, conveyance, transfer, lease or other
disposition of all or substantially all of the
properties and assets of the Company as an entirety
(A) shall be a corporation organized and validly
existing under the laws of the United States or any
State thereof or the District of Columbia and (B) shall
expressly assume, by an indenture supplemental hereto,
executed and delivered to the Trustee, in form
satisfactory to the Trustee, the due and punctual
payment of the principal of (and premium, if any) and
interest on all the Securities and the performance and
observance of all other obligations under this
Indenture on the part of the Company to be performed or
observed;
(ii) immediately before and immediately after
giving pro forma effect to such transaction (and
treating any Indebtedness not previously an obligation
of the Company or a Subsidiary which becomes the
obligation of the Company or any of its Subsidiaries in
connection with or as a result of such transaction as
having been incurred at the time of such transaction),
no Default shall have occurred and be continuing;
(iii) immediately after giving pro forma effect
to such transaction, the resulting, surviving or
transferee Person has Consolidated Net Worth in an
amount which is not less than the Consolidated Net
Worth of the Company immediately prior to such
transaction;
(iv) immediately after giving pro forma effect
to such transaction, the resulting, surviving or
transferee Person would be able to incur an additional
$1.00 of Indebtedness pursuant to Section 4.03(a),
other than Permitted Indebtedness; and
(v) the Company or such Person shall have
delivered to the Trustee an Officers' Certificate and
an Opinion of Counsel, each stating that the conditions
specified in clauses (i) through (iv) above have been
satisfied.
Notwithstanding anything in this Section 5.01 to the
contrary, the Company shall merge with American Life Holding
Company concurrently with the issuance of the Securities, and
American Life Holding Company shall expressly assume by an
indenture supplemental hereto, executed and delivered to the
Trustee in the form of Annex B hereto (the "First Supplemental
Indenture"), the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the
performance and observance of all other obligations under this
Indenture and the Securities on the part of the Company to be
performed or observed.
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<PAGE> 48
SECTION 5.02. Successor Substituted. Upon any
consolidation or merger, or any sale, assignment, conveyance,
transfer, lease or other disposition of all or substantially all
of the properties and assets of the Company as an entirety in
accordance with Section 5.01, the successor Person formed by such
consolidation or into which the Company is merged or the
successor Person to which such sale, assignment, conveyance,
transfer, lease or disposition is made shall succeed to, and be
substituted for, and may exercise every right and power of, the
Company under this Indenture with the same effect as if such
successor had been named as the Company herein; and thereafter,
the Company shall be discharged from all obligations and
covenants under this Indenture and the Securities; provided,
however, that in the case of a lease, the Company shall not be
released from the obligation to pay the principal of and interest
on the Securities.
ARTICLE 6.
Defaults and Remedies
SECTION 6.01. Events of Default.
"Event of Default", wherever used herein, means any one
of the following events (whatever the reason for such Event of
Default and whether it shall be occasioned by the provisions of
Article 10 or be voluntary or involuntary or be effected by
operation of law or pursuant to any judgment, decree or order of
any court or any order, rule or regulation of any administrative
or governmental body):
(1) (i) default in the payment when due of the
principal of (or premium, if any, on) any Security when
the same becomes due and payable at its Stated
Maturity, upon redemption, upon declaration or
otherwise, or (ii) a failure to redeem or purchase
Securities when required pursuant to this Indenture or
the Securities;
(2) default in the payment of any interest on any
Security when it becomes due and payable, and
continuance of such default for a period of 30 days;
(3) default in the performance, or breach, of any
other term, covenant or warranty of the Company
contained in the Securities or this Indenture, and
continuance of such default or breach for a period of
60 days after there has been given, by registered or
certified mail, to the Company by the Trustee or to the
Company and the Trustee by the Holders of at least 25%
in aggregate principal amount of the Securities a
written notice specifying such default or breach and
requiring it to be remedied and stating that such
notice is a "Notice of Default" hereunder;
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<PAGE> 49
(4) default with respect to any obligation of the
Company or any Subsidiary, whether as principal,
guarantor, surety or other obligor, under any
Indebtedness having an aggregate principal amount in
excess of $10 million and (i) either (1) such default
is upon the Stated Maturity of such Indebtedness or
(2) as a result of such default the maturity of such
Indebtedness has been accelerated prior to its Stated
Maturity and (ii) such Indebtedness has not been paid
in full or such acceleration has not been rescinded,
annulled or waived prior to the entry of a final
judgment in favor of the holders thereof;
(5) any holder or holders holding $10 million of
secured Indebtedness individually or in the aggregate
shall commence foreclosure proceedings against any
assets or properties of the Company having a fair
market value in excess of $10 million;
(6) one or more final and nonappealable
judgments, orders or decrees which require the payment
in money, either individually or in an aggregate
amount, of more than $10 million shall be entered
against the Company or any Subsidiary or any of their
respective properties which is not covered by insurance
(treating any deductibles as not so covered) and shall
not be discharged and either (i) an enforcement
proceeding is commenced upon such judgment, order or
decree or (ii) there shall have been a period of
60 days during which a stay of enforcement of such
judgment, order or decree, by reason or any appeal or
otherwise, shall not be in effect;
(7) the entry by a court having jurisdiction in
the premises of a decree or order for relief in respect
of the Company or any Material Subsidiary in an
involuntary case or proceeding under any applicable
Federal or State bankruptcy, insolvency,
rehabilitation, liquidation, conservation or
supervision or other similar law now or hereafter in
effect (each, a "Bankruptcy Law") or appointing a
custodian, rehabilitator, conservator, supervisor,
trustee, sequestrator or other similar official (any of
the foregoing, a "Custodian") of the Company or any
Material Subsidiary for any substantial part of its or
their property, or ordering the winding up or
liquidation of its or their affairs, and the
continuance of any such decree or order unstayed and in
effect for a period of 60 consecutive days; or
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(8) the commencement by the Company or any
Material Subsidiary of a voluntary case or proceeding
under any applicable Bankruptcy Law, or the consent by
the Company or any Material Subsidiary to the entry of
a decree or order for relief in respect of the Company
or such Material Subsidiary in an involuntary case or
proceeding under any applicable Bankruptcy Law, or to
the commencement of any bankruptcy, insolvency or
similar case or proceeding against it, or the consent
by the Company or any Material Subsidiary to the filing
of such petition or the appointment of or taking
possession by a Custodian of the Company or any such
Material Subsidiary or of any substantial part of its
property, or the making by it of an assignment for the
benefit of creditors, or the admission by the Company
or any Material Subsidiary in writing of its inability
to pay its debts generally as they become due, or the
taking of corporate action by the Company or any
Material Subsidiary in furtherance of any such action.
The Company shall deliver to the Trustee, within 30
days after the occurrence thereof, written notice in the form of
an Officers' Certificate of any event which is or with the giving
of notice or the lapse of time would become an Event of Default,
its status and what action the Company is taking or proposes to
take with respect thereto.
SECTION 6.02. Acceleration. If an Event of Default
(other than an Event of Default specified in Section 6.01(7) or
(8)) occurs and is continuing, the Trustee by notice to the
Company, or the Holders of at least 25% in principal amount of
the Securities by notice to the Company and the Trustee, may
declare the principal of and accrued interest on all the
Securities to be due and payable. Upon such a declaration, such
principal and interest shall be due and payable immediately. If
an Event of Default specified in Section 6.01(7) or (8) occurs,
the principal of and interest on all the Securities shall ipso
facto become and be immediately due and payable without any
declaration or other act on the part of the Trustee or any
Securityholders.
At any time after such declaration of acceleration has
been made and before a judgment or decree for payment of money
due has been obtained by the Trustee as hereinafter provided, the
Holders of a majority in principal amount of the Securities, by
written notice to the Company and the Trustee, may rescind and
annul such declaration and its consequences if:
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(a) the Company has paid or deposited with the Trustee
a sum sufficient to pay
(1) all sums paid or advanced by the Trustee
hereunder and the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents
and counsel,
(2) all overdue interest on all Securities,
(3) the principal of (and premium, if any, on)
any Securities which have become due otherwise than by
such declaration of acceleration and interest thereon
at the rate borne by the Securities, and
(4) to the extent that payment of such interest
is lawful, interest upon overdue interest at the rate
borne by the Securities; and
(b) all Events of Default, other than the nonpayment
of principal of the Securities which has become due solely by
such declaration of acceleration, shall have been cured or
waived. No such rescission shall affect any subsequent Default
or impair any right consequent thereon.
SECTION 6.03. Other Remedies. If an Event of Default
occurs and is continuing, the Trustee may pursue any available
remedy to collect the payment of principal of or interest on the
Securities or to enforce the performance of any provision of the
Securities or this Indenture.
The Trustee may maintain a proceeding even if it does
not possess any of the Securities or does not produce any of them
in the proceeding. A delay or omission by the Trustee or any
Securityholder in exercising any right or remedy accruing upon an
Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default.
No remedy is exclusive of any other remedy. All available
remedies are cumulative.
SECTION 6.04. Waiver of Past Defaults. The Holders of
a majority in principal amount of the Securities by notice to the
Trustee may waive an existing Default and its consequences except
(i) a Default in the payment of the principal of or interest on a
Security or (ii) a Default in respect of a provision that under
Section 9.02 cannot be amended without the consent of each
Securityholder affected. When a Default is waived, it is deemed
cured, but no such waiver shall extend to any subsequent or other
Default or impair any consequent right.
SECTION 6.05. Control by Majority. The Holders of a
majority in principal amount of the Securities may direct the
time, method and place of conducting any proceeding for any
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<PAGE> 52
remedy available to the Trustee or of exercising any trust or
power conferred on the Trustee. However, the Trustee may refuse
to follow any direction that conflicts with law or this Indenture
or, subject to Section 7.01, that the Trustee determines is
unduly prejudicial to the rights of other Securityholders or
would involve the Trustee in personal liability; provided,
however, that the Trustee may take any other action deemed proper
by the Trustee that is not inconsistent with such direction.
Prior to taking any action hereunder, the Trustee shall be
entitled to indemnification satisfactory to it in its sole
discretion against all losses and expenses caused by taking or
not taking such action. This Section 6.05 shall be in lieu of
Section 316(a)(I)(A) of the TIA and such Section 316(a)(I)(A) is
hereby expressly excluded from this Indenture, as permitted by
the TIA.
SECTION 6.06. Limitation on Suits. A Securityholder
may not pursue any remedy with respect to this Indenture or the
Securities unless:
(1) the Holder gives to the Trustee written
notice stating that an Event of Default is continuing;
(2) the Holders of at least 25% in principal
amount of the Securities make a written request to the
Trustee to pursue the remedy;
(3) such Holder or Holders offer to the Trustee
reasonable security or indemnity against any loss, liability
or expense;
(4) the Trustee does not comply with the request
within 60 days after receipt of the request and the offer of
security or indemnity; and
(5) the Holders of a majority in principal amount
of the Securities do not give the Trustee a direction
inconsistent with the request during such 60-day period.
A Securityholder may not use this Indenture to
prejudice the rights of another Securityholder or to obtain a
preference or priority over another Securityholder.
SECTION 6.07. Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Indenture, the right
of any Holder to receive payment of principal of and interest on
the Securities held by such Holder, on or after the respective
due dates expressed in the Securities, or to bring suit for the
enforcement of any such payment on or after such respective
dates, shall not be impaired or affected without the consent of
such Holder.
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<PAGE> 53
SECTION 6.08. Collection Suit by Trustee. If an Event
of Default in payment of interest or principal specified in
Section 6.01(1) or (2) occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express
trust against the Company for the whole amount of principal and
interest remaining unpaid (together with interest on such unpaid
interest to the extent lawful) and the amounts provided for in
Section 7.07.
SECTION 6.09. Trustee May File Proofs of Claim. The
Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the
claims of the Trustee and the Securityholders allowed in any
judicial proceedings relative to the Company, its creditors or
its property and, unless prohibited by law or applicable
regulations, may vote on behalf of the Holders in any election of
a trustee in bankruptcy or other person performing similar
functions, and any Custodian in any such judicial proceeding is
hereby authorized by each Holder to make payments to the Trustee
and, in the event that the Trustee shall consent to the making of
such payments directly to the Holders, to pay to the Trustee any
amount due it for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and its
counsel, and any other amounts due the Trustee under
Section 7.07.
SECTION 6.10. Priorities. If the Trustee collects any
money or property pursuant to this Article 6, it shall pay out
the money or property in the following order:
FIRST: to the Trustee for amounts due under
Section 7.07;
SECOND: to holders of Senior Indebtedness to the
extent required by Article 10;
THIRD: to Securityholders for amounts due and unpaid
on the Securities for principal and interest, ratably, without
preference or priority of any kind, according to the amounts due
and payable on the Securities for principal and interest,
respectively; and
FOURTH: to the Company.
The Trustee may fix a record date and payment date for
any payment to Securityholders pursuant to this Section. At
least 15 days before such record date, the Company shall mail to
each Securityholder and the Trustee a notice that states the
record date, the payment date and amount to be paid.
SECTION 6.11. Undertaking for Costs. In any suit for
the enforcement of any right or remedy under this Indenture or in
any suit against the Trustee for any action taken or omitted by
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<PAGE> 54
it as Trustee, a court in its discretion may require the filing
by any party litigant in the suit of an undertaking to pay the
costs of the suit, and the court in its discretion may assess
reasonable costs, including reasonable attorneys' fees, against
any party litigant in the suit, having due regard to the merits
and good faith of the claims or defenses made by the party
litigant. This Section does not apply to a suit by the Trustee,
a suit by a Holder pursuant to Section 6.07 or a suit by Holders
of more than 10% in principal amount of the Securities.
SECTION 6.12. Waiver of Stay or Extension Laws. The
Company (to the extent it may lawfully do so) shall not at any
time insist upon, or plead, or in any manner whatsoever claim or
take the benefit or advantage of, any stay or extension law
wherever enacted, now or at any time hereafter in force, which
may affect the covenants or the performance of this Indenture;
and the Company (to the extent that it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and
shall not hinder, delay or impede the execution of any power
herein granted to the Trustee, but shall suffer and permit the
execution of every such power as though no such law had been
enacted.
ARTICLE 7.
Trustee
SECTION 7.01. Duties of Trustee. (a) If an Event of
Default has occurred and is continuing, the Trustee shall
exercise the rights and powers vested in it by this Indenture and
use the same degree of care and skill in their exercise as a
prudent person would exercise or use under the circumstances in
the conduct of such person's own affairs.
(b) Except during the continuance of an Event of
Default:
(1) the Trustee undertakes to perform such duties
and only such duties as are specifically set forth in this
Indenture and no implied covenants or obligations shall be
read into this Indenture against the Trustee; and
(2) in the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the
statements and the correctness of the opinions expressed
therein, upon certificates or opinions furnished to the
Trustee and conforming to the requirements of this
Indenture. However, the Trustee shall examine the
certificates and opinions to determine whether or not they
conform to the requirements of this Indenture.
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<PAGE> 55
(c) The Trustee may not be relieved from liability for
its own negligent action, its own negligent failure to act or its
own wilful misconduct, except that:
(1) this paragraph does not limit the effect of
paragraph (b) of this Section;
(2) the Trustee shall not be liable for any error
of judgment made in good faith by a Trust Officer unless it
is proved that the Trustee was negligent in ascertaining the
pertinent facts; and
(3) the Trustee shall not be liable with respect
to any action it takes or omits to take in good faith in
accordance with a direction received by it pursuant to
Section 6.05.
(d) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b) and (c)
of this Section.
(e) The Trustee shall not be liable for interest on
any money received by it except as the Trustee may agree in
writing with the Company.
(f) Money held in trust by the Trustee need not be
segregated from other funds except to the extent required by law.
(g) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur
financial liability in the performance of any of its duties
hereunder or in the exercise of any of its rights or powers, if
it shall have reasonable grounds to believe that repayment of
such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(h) Every provision of this Indenture relating to the
conduct or affecting the liability of or affording protection to
the Trustee shall be subject to the provisions of this Section
and to the provisions of the TIA.
SECTION 7.02. Rights of Trustee. (a) The Trustee may
rely and shall be protected in acting or refraining from acting
on any document believed by it to be genuine and to have been
signed or presented by the proper person. The Trustee need not
investigate any fact or matter stated in the document.
(b) Any request or direction of the Company referred
to herein shall be sufficiently evidenced by a Company Request or
Company Order. Before the Trustee acts or refrains from acting,
it may require an Officers' Certificate or an Opinion of Counsel.
The Trustee shall not be liable for any action it takes or omits
to take in good faith in reliance on the Officers' Certificate or
Opinion of Counsel.
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<PAGE> 56
(c) The Trustee may act through agents and shall not
be responsible for the misconduct or negligence of any agent
appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be
authorized or within its rights or powers; provided, however,
that the Trustee's conduct does not constitute wilful misconduct,
negligence or bad faith.
(e) The Trustee may consult with counsel, and the
advice or opinion of counsel with respect to legal matters
relating to this Indenture and the Securities shall be full and
complete authorization and protection from liability in respect
to any action taken, omitted or suffered by it hereunder in good
faith and in accordance with the advice or opinion of such
counsel.
(f) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this
Indenture at the request, order or direction of any of the
Holders, pursuant to the provisions of this Indenture, unless
such Holders shall have offered to the Trustee reasonable
security or indemnity against the costs, expenses and liabilities
which may be incurred therein or thereby.
SECTION 7.03. Individual Rights of Trustee. The
Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the
Company or its affiliates with the same rights it would have if
it were not Trustee. Any Paying Agent, Registrar, co-registrar
or co-paying agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
SECTION 7.04. Trustee's Disclaimer. The Trustee shall
not be responsible for and makes no representation as to the
validity or adequacy of this Indenture or the Securities, it
shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any
statement of the Company in the Indenture or in any document
issued in connection with the sale of the Securities or in the
Securities other than the Trustee's certificate of
authentication.
SECTION 7.05. Notice of Defaults. If a Default occurs
and is continuing and if it is known to the Trustee, the Trustee
shall mail to each Securityholder notice of the Default within 90
days after it occurs. Except in the case of a Default in payment
of principal of or interest on any Security (including payments
pursuant to the mandatory redemption provisions of such
Security), the Trustee may withhold the notice if and so long as
a committee of its Trust Officers in good faith determines that
withholding the notice is in the interests of Securityholders.
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SECTION 7.06. Reports by Trustee to Holders. As
promptly as practicable after each May 15 beginning with the
May 15 following the date of this Indenture, and in any event
prior to July 15 in each year, the Trustee shall mail to each
Securityholder a brief report dated as of May 15 that complies
with TIA Section 313(a), if an event has occurred requiring a report
under such section. The Trustee also shall comply with TIA
Section 313(b).
A copy of each report at the time of its mailing to
Securityholders shall be filed with the SEC and each stock
exchange (if any) on which the Securities are listed. The
Company agrees to notify promptly the Trustee whenever the
Securities become listed on any stock exchange and of any
delisting thereof.
SECTION 7.07. Compensation and Indemnity. The Company
shall pay to the Trustee from time to time reasonable
compensation for its services. The Trustee's compensation shall
not be limited by any law on compensation of a trustee of an
express trust. The Company shall reimburse the Trustee upon
request for all reasonable out-of-pocket expenses incurred or
made by it, including costs of collection, in addition to the
compensation for its services. Such expenses shall include the
reasonable compensation and expenses, disbursements and advances
of the Trustee's agents, counsel, accountants and experts. The
Company shall indemnify the Trustee against any and all loss,
liability or expense (including attorneys' fees) incurred by it
in connection with the administration of this trust and the
performance of its duties hereunder, including the costs and
expenses of defending itself against any claim or liability in
connection therewith. The Trustee shall notify the Company
promptly of any claim for which it may seek indemnity. Failure
by the Trustee to so notify the Company shall not relieve the
Company of its obligations hereunder. The Company shall defend
the claim and the Trustee may have separate counsel and the
Company shall pay the fees and expenses of such counsel. The
Company need not reimburse any expense or indemnify against any
loss, liability or expense incurred by the Trustee through the
Trustee's own wilful misconduct, negligence or bad faith.
To secure the Company's payment obligations in this
Section, the Trustee shall have a lien prior to the Securities on
all money or property held or collected by the Trustee other than
money or property held in trust to pay principal of and interest
on particular Securities.
The Company's payment obligations pursuant to this
Section shall survive the discharge of this Indenture.
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When the Trustee incurs expenses after the occurrence
of a Default specified in Section 6.01(7) or (8) with respect to
the Company, the expenses are intended to constitute expenses of
administration under the Bankruptcy Law.
SECTION 7.08. Replacement of Trustee. The Trustee may
resign at any time by so notifying the Company. The Holders of a
majority in principal amount of the Securities may remove the
Trustee by so notifying the Trustee and may appoint a successor
Trustee. The Company shall remove the Trustee if:
(1) the Trustee fails to comply with
Section 7.10;
(2) the Trustee is adjudged bankrupt or
insolvent;
(3) a receiver or other public officer takes
charge of the Trustee or its property; or
(4) the Trustee otherwise becomes incapable of
acting.
If the Trustee resigns or is removed or if a vacancy
exists in the office of Trustee for any reason (the Trustee in
such event being referred to herein as the retiring Trustee), the
Company shall promptly appoint a successor Trustee.
A successor Trustee shall deliver a written acceptance
of its appointment to the retiring Trustee and to the Company.
Thereupon the resignation or removal of the retiring Trustee
shall become effective, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this
Indenture. The successor Trustee shall mail a notice of its
succession to Securityholders. The retiring Trustee shall
promptly transfer all property held by it as Trustee to the
successor Trustee, subject to the lien provided for in
Section 7.07.
If a successor Trustee does not take office within 60
days after the retiring Trustee resigns or is removed, the
retiring Trustee, the Company or the Holders of a majority in
principal amount of the Securities may petition any court of
competent jurisdiction for the appointment of a successor
Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction
for the removal of the Trustee and the appointment of a successor
Trustee.
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<PAGE> 59
Notwithstanding the replacement of the Trustee pursuant
to this Section, the Company's obligations under Section 7.07
shall continue for the benefit of the retiring Trustee.
SECTION 7.09. Successor Trustee by Merger. If the
Trustee consolidates with, merges or converts into, or transfers
all or substantially all its corporate trust business or assets
to, another corporation or banking association, the resulting,
surviving or transferee corporation without any further act shall
be the successor Trustee; provided, that such successor Trustee
shall qualify and be eligible under Section 7.10 hereof.
In case at the time such successor or successors by
merger, conversion or consolidation to the Trustee shall succeed
to the trusts created by this Indenture any of the Securities
shall have been authenticated but not delivered, any such
successor to the Trustee may adopt the certificate of
authentication of any predecessor trustee, and deliver such
Securities so authenticated; and in case at that time any of the
Securities shall not have been authenticated, any successor to
the Trustee may authenticate such Securities either in the name
of any predecessor hereunder or in the name of the successor to
the Trustee; and in all such cases such certificates shall have
the full force which it is anywhere in the Securities or in this
Indenture provided that the certificate of the Trustee shall
have.
SECTION 7.10. Eligibility; Disqualification. The
Trustee shall at all times satisfy the requirements of TIA
Section 310(a). The Trustee shall have a combined capital and surplus
of at least $50,000,000 as set forth in its most recent published
annual report of condition. The Trustee shall comply with TIA
Section 310(b); provided, however, that there shall be excluded from
the operation of TIA Section 310(b)(1) any indenture or indentures
under which other securities or certificates of interest or
participation in other securities of the Company are outstanding
if the requirements for such exclusion set forth in
TIA Seciton 310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims
Against Company. The Trustee shall comply with TIA Section 311(a),
excluding from the operation thereof any creditor relationship
listed in TIA Section 311(b). A Trustee who has resigned or been
removed shall be subject to TIA Section 311(a) to the extent indicated.
ARTICLE 8.
Discharge of Indenture; Defeasance
SECTION 8.01. Discharge of Liability on
Securities; Defeasance. (a) When (i) the Company delivers to
the Trustee all outstanding Securities (other than Securities
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<PAGE> 60
replaced pursuant to Section 2.07) for cancellation or (ii) all
outstanding Securities have become due and payable and the
Company irrevocably deposits with the Trustee funds sufficient to
pay at maturity all outstanding Securities, including interest
thereon (other than Securities replaced pursuant to Section
2.07), and if in either case the Company pays all other sums
payable hereunder by the Company, then this Indenture shall,
subject to Sections 8.01(c) and 8.06, cease to be of further
effect. The Trustee shall acknowledge satisfaction and discharge
of this Indenture on demand of the Company accompanied by an
Officers' Certificate and an Opinion of Counsel and at the cost
and expense of the Company.
(b) Subject to Sections 8.01(c), 8.02 and 8.06, the
Company at any time may terminate (i) all its obligations under
the Securities and this Indenture ("legal defeasance option") or
(ii) its obligations under Sections 4.03 through 4.12,
5.01(iii) and 5.01(iv) and the operation of Sections 6.01(3)
(with respect to Sections 4.03 through 4.12, 5.01(iii) and
5.01(iv)), 6.01(4), 6.01(5), 6.01(6), 6.01(7) (with respect to
any Material Subsidiary) and 6.01(8) (with respect to any
Material Subsidiary) ("covenant defeasance option"). The Company
may exercise its legal defeasance option notwithstanding its
prior exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option,
payment of the Securities may not be accelerated because of an
Event of Default. If the Company exercises its covenant
defeasance option, payment of the Securities may not be
accelerated because of an Event of Default specified in
Section 6.01(3) (with respect to Sections 4.03 through 4.12,
5.01(iii) and 5.01(iv)), 6.01(4), 6.01(5), 6.01(6), 6.01(7) (with
respect to any Material Subsidiary) or 6.01(8) (with respect to
any Material Subsidiary).
Upon satisfaction of the conditions set forth herein
and upon request of the Company, the Trustee shall acknowledge in
writing the discharge of those obligations that the Company
terminates.
(c) Notwithstanding clauses (a) and (b) above, the
Company's obligations in Sections 2.03, 2.04, 2.05, 2.06, 2.07,
7.07, 7.08, 8.04, 8.05 and 8.06 shall survive until the
Securities have been paid in full. Thereafter, the Company's
obligations in Sections 7.07, 8.04 and 8.05 shall survive.
SECTION 8.02. Conditions to Defeasance. The Company
may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust
with the Trustee money or U.S. Government Obligations for
the payment of principal and interest on the Securities to
maturity or redemption, as the case may be;
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<PAGE> 61
(2) the Company delivers to the Trustee a
certificate from a nationally recognized firm of independent
accountants expressing their opinion that the payments of
principal and interest when due and without reinvestment on
the deposited U.S. Government Obligations plus any deposited
money without investment will provide cash at such times and
in such amounts (but, in the case of the legal defeasance
option only, not more than such amounts) as will be
sufficient to pay principal and interest when due on all the
Securities to maturity or redemption, as the case may be;
(3) 123 days pass after the deposit is made and
during the 123-day period no Default specified in
Section 6.01(7) or (8) with respect to the Company occurs
which is continuing at the end of the period;
(4) no Default has occurred and is continuing on
the date of such deposit and after giving effect thereto;
(5) the deposit does not constitute a default
under any other agreement binding on the Company and is not
prohibited by Article 10;
(6) the Company delivers to the Trustee an
Opinion of Counsel to the effect that the trust resulting
from the deposit does not constitute, or is qualified as, a
regulated investment company under the Investment Company
Act of 1940;
(7) in the case of the legal defeasance option,
the Company shall have delivered to the Trustee an Opinion
of Counsel stating that (i) the Company has received from,
or there has been published by, the Internal Revenue Service
a ruling, or (ii) since the date of this Indenture there has
been a change in the applicable Federal income tax law, in
either case to the effect that, and based thereon such
Opinion of Counsel shall confirm that, the Securityholders
will not recognize income, gain or loss for Federal income
tax purposes as a result of such defeasance and will be
subject to Federal income tax on the same amounts, in the
same manner and at the same times as would have been the
case if such defeasance had not occurred;
(8) in the case of the covenant defeasance
option, the Company shall have delivered to the Trustee an
Opinion of Counsel to the effect that the Securityholders
will not recognize income, gain or loss for Federal income
tax purposes as a result of such covenant defeasance and
will be subject to Federal income tax on the same amounts,
in the same manner and at the same times as would have been
the case if such covenant defeasance had not occurred; and
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(9) the Company delivers to the Trustee an
Officers' Certificate and an Opinion of Counsel, each
stating that all conditions precedent to the defeasance and
discharge of the Securities as contemplated by this
Article 8 have been complied with.
Before or after a deposit, the Company may make
arrangements satisfactory to the Trustee for the redemption of
Securities at a future date in accordance with Article 3.
SECTION 8.03. Application of Trust Money. The Trustee
shall hold in trust money or U.S. Government Obligations
deposited with it pursuant to this Article 8. It shall apply the
deposited money and the money from U.S. Government Obligations
through the Paying Agent and in accordance with this Indenture to
the payment of principal of and interest on the Securities.
Money and securities so held in trust are not subject to
Article 10.
SECTION 8.04. Repayment to Company. The Trustee and
the Paying Agent shall promptly turn over to the Company upon
request any excess money or securities held by them at any time.
Subject to any applicable abandoned property law, the
Trustee and the Paying Agent shall pay to the Company upon
request any money held by them for the payment of principal or
interest that remains unclaimed for two years, and, thereafter,
Securityholders entitled to the money must look to the Company
for payment as general creditors.
SECTION 8.05. Indemnity for Government Obligations.
The Company shall pay and shall indemnify the Trustee against any
tax, fee or other charge imposed on or assessed against
deposited U.S. Government Obligations or the principal and
interest received on such U.S. Government Obligations.
SECTION 8.06. Reinstatement. If the Trustee or Paying
Agent is unable to apply any money or U.S. Government Obligations
in accordance with this Article 8 by reason of any legal
proceeding or by reason of any order or judgment of any court or
governmental authority enjoining, restraining or otherwise
prohibiting such application, the Company's obligations under
this Indenture and the Securities shall be revived and reinstated
as though no deposit had occurred pursuant to this Article 8
until such time as the Trustee or Paying Agent is permitted to
apply all such money or U.S. Government Obligations in accordance
with this Article 8; provided, however, that, if the Company has
made any payment of interest on or principal of any Securities
because of the reinstatement of its obligations, the Company
shall be subrogated to the rights of the Holders of such
Securities to receive such payment from the money or U.S.
Government Obligations held by the Trustee or Paying Agent.
<PAGE>
<PAGE> 63
ARTICLE 9.
Amendments
SECTION 9.01. Without Consent of Holders. The Company
and the Trustee may amend this Indenture or the Securities
without notice to or consent of any Securityholder:
(1) to cure any ambiguity, omission, defect or
inconsistency;
(2) to comply with Article 5;
(3) to provide for uncertificated Securities in
addition to or in place of certificated Securities;
provided, however, that the uncertificated Securities are
issued in registered form for purposes of Section 163(f) of
the Internal Revenue Code of 1986, as amended, or in a
manner such that the uncertificated Securities are described
in Section 163(f)(2)(B) of the Internal Revenue Code of
1986, as amended;
(4) to make any change in Article 10 that would
limit or terminate the benefits available to any holder of
Senior Indebtedness (or any trustee or other representative
therefor) under Article 10;
(5) to add guarantees with respect to the
Securities;
(6) to add to the covenants of the Company for
the benefit of the Holders or to surrender any right or
power herein conferred upon the Company;
(7) to comply with any requirements of the SEC in
connection with qualifying this Indenture under the TIA;
(8) to make any change that does not adversely
affect the rights of any Securityholder; or
(9) to provide for the assumption pursuant to the
First Supplemental Indenture, as contemplated by Section
5.01, by American Life Holding Company of the due and
punctual payment of the principal of, premium, if any, and
interest on all the Securities and the performance and
observance of all other obligations under this Indenture and
the Securities on the part of the Company to be performed or
observed.
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<PAGE> 64
An amendment under this Section may not make any change
that adversely affects the rights under Article 10 of any holder
of Senior Indebtedness then outstanding unless the holders of
such Senior Indebtedness (required pursuant to the terms of such
Senior Indebtedness to give such consent) consent to such change.
After an amendment under this Section (other than the
amendment contemplated by Section 9.01(9)) becomes effective, the
Company shall mail to Securityholders a notice briefly describing
such amendment. The failure to give such notice to all
Securityholders, or any defect therein, shall not impair or
affect the validity of an amendment under this Section.
SECTION 9.02. With Consent of Holders. The Company
and the Trustee may amend this Indenture or the Securities
without notice to any Securityholder but with the written consent
of the Holders of at least a majority in principal amount of the
Securities. However, without the consent of each Securityholder
affected, an amendment may not:
(1) reduce the amount of Securities whose Holders
must consent to an amendment;
(2) reduce the rate of or extend the time for
payment of interest on any Security;
(3) reduce the principal of or extend the fixed
maturity of any Security;
(4) reduce the premium payable upon the
redemption of any Security or change the time at which any
Security may or shall be redeemed;
(5) make any Security payable in money other than
that stated in the Security;
(6) make any change in Article 10 that adversely
affects the rights of any Securityholder under Article 10;
or
(7) make any change in Section 6.04 or 6.07 or
the second sentence of this Section.
It shall not be necessary for the consent of the
Holders under this Section to approve the particular form of any
proposed amendment, but it shall be sufficient if such consent
approves the substance thereof.
An amendment under this Section may not make any change
that adversely affects the rights under Article 10 of any holder
of Senior Indebtedness then outstanding unless the holders of
such Senior Indebtedness (required pursuant to the terms of such
Senior Indebtedness to give such consent) consent to such change.
<PAGE>
<PAGE> 65
After an amendment under this Section becomes
effective, the Company shall mail to Securityholders a notice
briefly describing such amendment. The failure to give such
notice to all Securityholders, or any defect therein, shall not
impair or affect the validity of an amendment under this Section.
SECTION 9.03. Compliance with Trust Indenture Act.
Every amendment to or supplement of this Indenture or the
Securities shall comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents and
Waivers. A consent to an amendment or a waiver by a Holder of a
Security shall bind the Holder and every subsequent Holder of
that Security or portion of the Security that evidences the same
debt as the consenting Holder's Security, even if notation of the
consent or waiver is not made on the Security. However, any such
Holder or subsequent Holder may revoke the consent or waiver as
to such Holder's Security or portion of the Security if the
Trustee receives the notice of revocation before the date the
amendment or waiver becomes effective. After an amendment or
waiver becomes effective, it shall bind every Securityholder.
The Company may, but shall not be obligated to, fix a
record date for the purpose of determining the Securityholders
entitled to give their consent or take any other action described
above or required or permitted to be taken pursuant to this
Indenture. If a record date is fixed, then notwithstanding the
immediately preceding paragraph, those persons who were
Securityholders at such record date (or their duly designated
proxies), and only those persons, shall be entitled to give such
consent or to revoke any consent previously given or to take any
such action, whether or not such persons continue to be Holders
after such record date. No such consent shall be valid or
effective for more than 120 days after such record date.
SECTION 9.05. Notation on or Exchange of Securities.
If an amendment changes the terms of a Security, the Trustee may
require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security
regarding the changed terms and return it to the Holder.
Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Security shall issue and the Trustee
shall authenticate a new Security that reflects the changed
terms. Failure to make the appropriate notation or to issue a
new Security shall not affect the validity of such amendment.
SECTION 9.06. Trustee to Sign Amendments. The Trustee
shall sign any amendment authorized pursuant to this Article 9 if
the amendment does not adversely affect the rights, duties,
liabilities or immunities of the Trustee. If it does, the
Trustee may but need not sign it. In signing such amendment the
Trustee shall be entitled to receive indemnity reasonably
satisfactory to it and to receive, and (subject to Section 7.01)
shall be fully protected in relying upon, an Officers'
Certificate and an Opinion of Counsel stating that such amendment
is authorized or permitted by this Indenture. Each amendment
pursuant to this Article 9 shall be in the form of a supplemental
indenture.
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<PAGE> 66
SECTION 9.07. Payment for Consent. Neither the
Company, any Affiliate of the Company nor any Subsidiary shall,
directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee or otherwise, to
any Holder for or as an inducement to any consent, waiver or
amendment of any of the terms or provisions of this Indenture or
the Securities unless such consideration is offered to be paid or
agreed to be paid to all Holders which so consent, waive or agree
to amend in the time frame set forth in solicitation documents
relating to such consent, waiver or agreement.
ARTICLE 10.
Subordination
SECTION 10.01. Agreement To Subordinate. The Company
agrees, and each Securityholder by accepting a Security agrees,
that the indebtedness evidenced by the Securities is subordinated
in right of payment, to the extent and in the manner provided in
this Article 10, to the prior payment of all Senior Indebtedness
and that the subordination is for the benefit of and enforceable
by the holders of Senior Indebtedness. The Securities shall in
all respects rank pari passu with all other Senior Subordinated
Indebtedness of the Company and only indebtedness of the Company
which is Senior Indebtedness shall rank senior to the Securities
in accordance with the provisions set forth herein. All
provisions of this Article 10 shall be subject to Section 10.11.
SECTION 10.02. Liquidation, Dissolution, Bankruptcy.
Upon any payment or distribution of assets or securities of the
Company, of any kind or character, whether in cash, property or
securities, in connection with any dissolution or winding up or
total or partial liquidation or reorganization of the Company,
whether voluntary or involuntary, or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become
due upon all Senior Indebtedness shall first be paid in full, in
cash or cash equivalents, before the Holders, or the Trustee on
their behalf, shall be entitled to receive any payment by the
Company on account of Note Obligations, or any payment to acquire
any of the Securities for cash, property or securities, or any
distribution with respect to the Securities of any cash, property
or securities (in each case, other than a payment or distribution
consisting solely of equity securities or debt or other
securities which are subordinated to Senior Indebtedness to the
same extent as the Securities or which rank junior to the
Securities). Before any payment or distribution may be made by,
<PAGE>
<PAGE> 67
or on behalf of, the Company on any Note Obligations in
connection with any such dissolution, winding up, liquidation or
reorganization, any payment or distribution of assets or
securities of the Company of any kind or character, whether in
cash, property or securities (other than a payment or
distribution consisting solely of equity securities or debt or
other securities which are subordinated to Senior Indebtedness to
the same extent as the Securities or which rank junior to the
Securities), to which the Holders, or the Trustee on their
behalf, would be entitled, but for this Article 10, shall be made
by the Company or by any receiver, trustee in bankruptcy,
liquidating trustee, agent or other similar Person making such
payment or distribution or by the Holders or the Trustee if
received by them or it, directly to the holders of the Senior
Indebtedness (pro rata to such holders on the basis of the
respective amounts of Senior Indebtedness held by such holders)
or their Representatives, as their respective interests appear,
to the extent necessary to pay all such Senior Indebtedness in
full, in cash or cash equivalents, after giving effect to any
concurrent payment, distribution or provision therefor to or for
the holders of such Senior Indebtedness.
SECTION 10.03. Default on Senior Indebtedness. No
direct or indirect payment by or on behalf of the Company of Note
Obligations, whether pursuant to the terms of the Securities or
upon acceleration or otherwise, shall be made if, at the time of
such payment, there exists a default in the payment of all or any
portion of any Senior Indebtedness or any other default on Senior
Indebtedness occurs and the maturity of such Senior Indebtedness
is accelerated in accordance with its terms, unless, in either
case, such default shall have been cured or waived or the
benefits of this sentence waived by or on behalf of the holders
of such Senior Indebtedness or such Senior Indebtedness shall
have been repaid in full in cash or cash equivalents. In
addition, during the continuance of any other event of default
with respect to (i) the Credit Agreement pursuant to which the
maturity thereof may be accelerated, upon receipt by the Trustee
of written notice from the Bank Agent, no payment of Note
Obligations may be made by or on behalf of the Company for a
period (a "Payment Blockage Period") commencing on the date of
receipt of such notice and ending 179 days thereafter (unless (x)
such Payment Blockage Period shall be terminated by written
notice to the Trustee from the Bank Agent, (y) such event of
default has been cured or waived or (z) such Senior Indebtedness
shall have been repaid in full in cash or cash equivalents) or
(ii) any other Designated Senior Indebtedness pursuant to which
the maturity thereof may be accelerated, upon receipt by the
Trustee of written notice from the Representative for the holders
of such other Designated Senior Indebtedness (or the holders of
at least a majority in principal amount of such other Designated
Senior Indebtedness then outstanding), no payment of Note
Obligations may be made by or on behalf of the Company for a
Payment Blockage Period commencing on the date of receipt of such
<PAGE>
<PAGE> 68
notice and ending 179 days thereafter (unless (x) such Payment
Blockage Period shall be terminated by written notice to the
Trustee from such Representative, or such holders, (y) such event
of default has been cured or waived or (z) such Designated Senior
Indebtedness shall have been repaid in full in cash or cash
equivalents). Not more than one Payment Blockage Period may be
commenced with respect to the Securities during any period of 360
consecutive days; provided that, subject to the limitations set
forth in the next sentence, the commencement of a Payment
Blockage Period by the Representative for, or the holders of,
Designated Senior Indebtedness, other than under the Credit
Agreement, shall not bar the commencement of another Payment
Blockage Period by the Bank Agent within such period of 360
consecutive days. Notwithstanding anything in this Indenture to
the contrary, there must be 181 consecutive days in any 360-day
period in which no Payment Blockage Period is in effect. No
event of default that was, or that reasonably should have been,
known to exist or be continuing on the date of commencement of
any Payment Blockage Period with respect to the Designated Senior
Indebtedness initiating such Payment Blockage Period shall be, or
shall be made, the basis for the commencement of a second Payment
Blockage Period by the Representative for, or the holders of,
such Designated Senior Indebtedness, whether or not within a
period of 360 consecutive days, unless such event of default
shall have been cured or waived for a period of not less than 90
consecutive days.
SECTION 10.04. When Distribution Must Be Paid Over.
If a distribution is made to Securityholders that because of this
Article 10 should not have been made to them, the Securityholders
who receive the distribution shall hold it in trust for holders
of Senior Indebtedness and pay it over to them as their interests
may appear.
SECTION 10.05. Subrogation. After all Senior
Indebtedness is paid in full and until the Securities are paid in
full, Securityholders shall be subrogated to the rights of
holders of Senior Indebtedness to receive distributions
applicable to Senior Indebtedness. A distribution made under
this Article 10 to holders of Senior Indebtedness which otherwise
would have been made to Securityholders is not, as between the
Company and Securityholders, a payment by the Company on Senior
Indebtedness.
SECTION 10.06. Relative Rights. This Article 10
defines the relative rights of Securityholders and holders of
Senior Indebtedness. Nothing in this Indenture shall:
(1) impair, as between the Company and
Securityholders, the obligation of the Company, which is
absolute and unconditional, to pay principal of, premium, if
any, and interest on the Securities in accordance with their
terms; or
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<PAGE> 69
(2) prevent the Trustee or any Securityholder
from exercising its available remedies upon a Default,
subject to the rights of holders of Senior Indebtedness to
receive distributions otherwise payable to Securityholders.
SECTION 10.07. Subordination May Not Be Impaired by
Company. No right of any holder of Senior Indebtedness to
enforce the subordination of the indebtedness evidenced by the
Securities shall be impaired by any act or failure to act by the
Company or by its failure to comply with this Indenture.
SECTION 10.08. Rights of Trustee and Paying Agent.
Notwithstanding Section 10.03, the Trustee or Paying Agent may
continue to make payments on the Securities and shall not be
charged with knowledge of the existence of facts that would
prohibit the making of any such payments unless, not less than
two Business Days prior to the date of such payment, a Trust
Officer of the Trustee receives notice satisfactory to it that
payments may not be made under this Article 10. The Company, the
Registrar or co-registrar, the Paying Agent, a Representative for
the holders of Senior Indebtedness or a holder of Senior
Indebtedness may give the notice; provided, however, that, if an
issue of Senior Indebtedness has a Representative, only such
Representative may give the notice.
The Trustee in its individual or any other capacity may
hold Senior Indebtedness with the same rights it would have if it
were not Trustee. The Registrar and co-registrar and the Paying
Agent may do the same with like rights. The Trustee shall be
entitled to all the rights set forth in this Article 10 with
respect to any Senior Indebtedness which may at any time be held
by it, to the same extent as any other holder of Senior
Indebtedness; and nothing in Article 7 shall deprive the Trustee
of any of its rights as such holder. Nothing in this Article 10
shall apply to claims of, or payments to, the Trustee under or
pursuant to Section 7.07.
SECTION 10.09. Distribution or Notice to
Representative. Whenever a distribution is to be made or a
notice given to holders of Senior Indebtedness, the distribution
may be made and the notice given to their Representative (if
any).
SECTION 10.10. Article 10 Not To Prevent Events of
Default or Limit Right To Accelerate. The failure to make a
payment pursuant to the Securities by reason of any provision in
this Article 10 shall not be construed as preventing the
occurrence of a Default. Nothing in this Article 10 shall have
any effect on the right of the Securityholders or the Trustee to
accelerate the maturity of the Securities.
SECTION 10.11. Trust Moneys Not Subordinated.
Notwithstanding anything contained herein to the contrary,
payments from money or the proceeds of U.S. Government
Obligations held in trust under Article 8 by the Trustee for the
payment of principal of and interest on the Securities shall not
be subordinated to the prior payment of any Senior Indebtedness
or subject to the restrictions set forth in this Article 10, and
none of the Securityholders shall be obligated to pay over any
such amount to the Company or any holder of Senior Indebtedness
of the Company or any other creditor of the Company.
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<PAGE> 70
SECTION 10.12. Trustee Entitled To Rely. Upon any
payment or distribution pursuant to this Article 10, the Trustee
and the Securityholders shall be entitled to rely (i) upon any
order or decree of a court of competent jurisdiction in which any
proceedings of the nature referred to in Section 10.02 are
pending, (ii) upon a certificate of the liquidating trustee or
agent or other person making such payment or distribution to the
Trustee or to the Securityholders or (iii) upon the
Representatives for the holders of Senior Indebtedness for the
purpose of ascertaining the persons entitled to participate in
such payment or distribution, the holders of the Senior
Indebtedness and other indebtedness of the Company, the amount
thereof or payable thereon, the amount or amounts paid or
distributed thereon and all other facts pertinent thereto or to
this Article 10. In the event that the Trustee determines, in
good faith, that evidence is required with respect to the right
of any person as a holder of Senior Indebtedness to participate
in any payment or distribution pursuant to this Article 10, the
Trustee may request such person to furnish evidence to the
reasonable satisfaction of the Trustee as to the amount of Senior
Indebtedness held by such person, the extent to which such person
is entitled to participate in such payment or distribution and
other facts pertinent to the rights of such person under this
Article 10, and, if such evidence is not furnished, the Trustee
may defer any payment to such person pending judicial
determination as to the right of such person to receive such
payment. The provisions of Sections 7.01 and 7.02 shall be
applicable to all actions or omissions of actions by the Trustee
pursuant to this Article 10.
SECTION 10.13. Trustee To Effectuate Subordination.
Each Securityholder by accepting a Security authorizes and
directs the Trustee on his behalf to take such action as may be
necessary or appropriate to acknowledge or effectuate the
subordination between the Securityholders and the holders of
Senior Indebtedness as provided in this Article 10 and appoints
the Trustee as attorney-in-fact for any and all such purposes.
SECTION 10.14. Trustee Not Fiduciary for Holders of
Senior Indebtedness. The Trustee shall not be deemed to owe any
fiduciary duty to the holders of Senior Indebtedness and shall
not be liable to any such holders if it shall mistakenly pay over
or distribute to Securityholders or the Company or any other
person, money or assets to which any holders of Senior
Indebtedness shall be entitled by virtue of this Article 10 or
otherwise.
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<PAGE> 71
SECTION 10.15. Reliance by Holders of Senior
Indebtedness on Subordination Provisions. Each Securityholder by
accepting a Security acknowledges and agrees that the foregoing
subordination provisions are, and are intended to be, an
inducement and a consideration to each holder of any Senior
Indebtedness, whether such Senior Indebtedness was created or
acquired before or after the issuance of the Securities, to
acquire and continue to hold, or to continue to hold, such Senior
Indebtedness and such holder of Senior Indebtedness shall be
deemed conclusively to have relied on such subordination
provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
SECTION 10.16. Proof of Claims. In the event that the
Company is subject to any proceeding under any Bankruptcy Law and
the Securityholders and the Trustee fail to file any proof of
claim permitted to be filed in such proceeding with respect to
the Securities, then any Representative of any Senior
Indebtedness may file such proof of claim no earlier than the
later of (i) the expiration of 15 days after such Representative
notifies the Trustee of its intention to do so and (ii) 30 days
preceding the last day permitted to file such claim.
ARTICLE 11.
Miscellaneous
SECTION 11.01. Trust Indenture Act Controls. If any
provision of this Indenture limits, qualifies or conflicts with
another provision which is required to be included in this
Indenture by the TIA, the required provision shall control.
SECTION 11.02. Notices. Any notice or communication
shall be in writing and delivered in person or mailed by first-
class mail addressed as follows:
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<PAGE> 72
if to the Company:
ALHC Merger Corporation
c/o Conseco, Inc.
11815 N. Pennsylvania Street
Carmel, Indiana
Attention: General Counsel
if to the Trustee:
LTCB Trust Company
One Liberty Plaza, 47th Floor
New York, New York 10006
Attention: Corporate Trust Administration
The Company or the Trustee by notice to the other may
designate additional or different addresses for subsequent
notices or communications.
Any notice or communication mailed to a Securityholder
shall be mailed to the Securityholder at the Securityholder's
address as it appears on the registration books of the Registrar
and shall be sufficiently given if so mailed within the time
prescribed.
Failure to mail a notice or communication to a
Securityholder or any defect in it shall not affect its
sufficiency with respect to other Securityholders. If a notice
or communication is mailed in the manner provided above, it is
duly given, whether or not the addressee receives it.
SECTION 11.03. Communication by Holders with Other
Holders. Securityholders may communicate pursuant to TIA
Section 312(b) with other Securityholders with respect to their rights
under this Indenture or the Securities. The Company, the
Trustee, the Registrar and anyone else shall have the protection
of TIA Section 312(c).
SECTION 11.04. Certificate and Opinion as to
Conditions Precedent. Upon any request or application by the
Company to the Trustee to take or refrain from taking any action
under this Indenture, the Company shall furnish to the Trustee:
(1) an Officers' Certificate in form and
substance reasonably satisfactory to the Trustee stating
that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating
to the proposed action have been complied with; and
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<PAGE> 73
(2) an Opinion of Counsel in form and substance
reasonably satisfactory to the Trustee stating that, in the
opinion of such counsel, all such conditions precedent have
been complied with.
SECTION 11.05. Statements Required in Certificate or
Opinion. Each certificate or opinion with respect to compliance
with a covenant or condition provided for in this Indenture shall
include:
(1) a statement that the person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the
statements or opinions contained in such certificate or
opinion are based;
(3) a statement that, in the opinion of such
person, he has made such examination or investigation as is
necessary to enable him to express an informed opinion as to
whether or not such covenant or condition has been complied
with; and
(4) a statement as to whether or not, in the
opinion of such person, such covenant or condition has been
complied with.
SECTION 11.06: When Securities Disregarded. In
determining whether the Holders of the required principal amount
of Securities have concurred in any direction, waiver or consent,
Securities owned by the Company or by any person directly or
indirectly controlling or controlled by or under direct or
indirect common control with the Company shall be disregarded and
deemed not to be outstanding, except that, for the purpose of
determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities which the
Trustee knows are so owned shall be so disregarded. Also,
subject to the foregoing, only Securities outstanding at the time
shall be considered in any such determination.
SECTION 11.07. Rules by Trustee, Paying Agent and
Registrar. The Trustee may make reasonable rules for action by
or a meeting of Securityholders. The Registrar and the Paying
Agent may make reasonable rules for their functions.
SECTION 11.08. Legal Holidays. A "Legal Holiday" is a
Saturday, a Sunday or a day on which banking institutions are not
required to be open in the State of New York. If a payment date
is a Legal Holiday, payment shall be made on the next succeeding
day that is not a Legal Holiday, and no interest shall accrue for
the intervening period. If a regular record date is a Legal
Holiday, the record date shall not be affected.
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<PAGE> 74
SECTION 11.09. Governing Law. This Indenture and the
Securities shall be governed by, and construed in accordance
with, the laws of the State of New York but without giving effect
to applicable principles of conflicts of law to the extent that
the application of the laws of another jurisdiction would be
required thereby.
SECTION 11.10. No Recourse Against Others. A
director, officer, employee or stockholder, as such, of the
Company shall not have any liability for any obligations of the
Company under the Securities or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their
creation. By accepting a Security, each Securityholder shall
waive and release all such liability. The waiver and release
shall be part of the consideration for the issue of the
Securities.
SECTION 11.11. Successors. All agreements of the
Company in this Indenture and the Securities shall bind its
successors. All agreements of the Trustee in this Indenture
shall bind its successors.
SECTION 11.12. Multiple Originals. The parties may
sign any number of copies of this Indenture. Each signed copy
shall be an original, but all of them together represent the same
agreement. One signed copy is enough to prove this Indenture.
SECTION 11.13. Table of Contents; Headings. The table
of contents, cross-reference sheet and headings of the Articles
and Sections of this Indenture have been inserted for convenience
of reference only, are not intended to be considered a part
hereof and shall not modify or restrict any of the terms or
provisions hereof.
SECTION 11.14. Waiver Regarding Redemption Fund.
Notwithstanding any provision to the contrary contained herein,
by accepting a Security each Securityholder hereby waives and
releases any and all rights, powers and interests and all manner
of claims, whether now existing or arising in the future, which
it may have as a creditor of the Company or any other entity with
respect to the Redemption Fund. In the event of (a) any
insolvency or bankruptcy case or proceeding, or any receivership,
liquidation, arrangement, reorganization or other similar case or
proceeding in connection therewith under Title 11 of the United
States Code, as hereafter amended, or under any other applicable
bankruptcy, insolvency or other similar law, now or hereafter in
effect, whether voluntary or involuntary and whether or not
involving insolvency or bankruptcy, relative to the Company, or
to its assets, (b) any liquidation, dissolution or other winding
up of the Company, whether voluntary or involuntary and whether
or not involving insolvency or bankruptcy, or (c) any assignment
for the benefit of creditors or any other marshalling of assets
and liabilities of Company, then each Securityholder agrees that
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<PAGE> 75
it shall not be entitled to any payment or distribution of any
kind or character of assets of the Redemption Fund, whether in
cash, property or securities, by set-off or otherwise. The
waiver and release and other agreements set forth in this
Section 11.14 shall be part of the consideration for the issue of
the Securities.
IN WITNESS WHEREOF, the parties have caused this
Indenture to be duly executed as of the date first written above.
ALHC MERGER CORPORATION
Attest
by
/s/ Rollin M. Dick
------------------------
/s/ Lawrence W. Inlow Title Executive Vice President
---------------------
Title Secretary
LTCB TRUST COMPANY
Attest
by
/s/ Helmut Langefeld
-----------------------
/s/ Barbara Bevelaqua Title Executive Vice President
---------------------
Title Vice President<PAGE>
<PAGE> 76
EXHIBIT A
[FORM OF FACE OF SECURITY]
No. $
11-1/4% Senior Subordinated Note Due 2004
[Issuer], a Delaware corporation, promises to pay to
, or registered assigns, the principal sum of dollars
on September 15, 2004.
Interest Payment Dates: March 15 and September 15.
Record Dates: March 1 and September 1.
Additional provisions of this Security are set forth on
the other side of this Security.
Dated:
[ISSUER],
by
____________________________
President
____________________________
Secretary
TRUSTEE'S CERTIFICATE OF AUTHENTICATION
LTCB TRUST COMPANY [SEAL]
as trustee, certifies that this is one of the Securities referred
to in the Indenture.
by
______________________________
Authorized Signatory<PAGE>
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[FORM OF REVERSE SIDE OF SECURITY]
11-1/4% Senior Subordinated Note Due 2004
1. Interest
[Issuer], a Delaware corporation (such corporation, and
its successors and assigns under the Indenture hereinafter
referred to, being herein called the "Company"), promises to pay
interest on the principal amount of this Security at the rate per
annum shown above. The Company will pay interest semiannually on
March 15 and September 15 of each year. Interest on the
Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from
September 29, 1994. Interest will be computed on the basis of a
360-day year of twelve 30-day months. The Company shall pay
interest on overdue principal at the rate borne by the Securities
plus 1% per annum, and it shall pay interest on overdue
installments of interest at the same rate to the extent lawful.
2. Method of Payment
The Company will pay interest on the Securities (except
defaulted interest) to the persons who are registered holders of
Securities at the close of business on the March 1 or September 1
next preceding the interest payment date even if Securities are
canceled after the record date and on or before the interest
payment date. Holders must surrender Securities to a Paying
Agent to collect principal payments. The Company will pay
principal and interest in money of the United States that at the
time of payment is legal tender for payment of public and private
debts. However, the Company may pay principal and interest by
check payable in such money. It may mail an interest check to a
Holder's registered address.
3. Paying Agent and Registrar
Initially, LTCB Trust Company, a New York corporation
("Trustee"), will act as Paying Agent and Registrar. The Company
may appoint and change any Paying Agent, Registrar or co-
registrar without notice. The Company or any of its domestically
incorporated Wholly Owned Subsidiaries may act as Paying Agent,
Registrar or co-registrar.
4. Indenture
The Company issued the Securities under an Indenture
dated as of September 29, 1994 ("Indenture"), between the Company
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and the Trustee. The terms of the Securities include those
stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S.C. Section 77aaa-
77bbbb) as in effect on the date of the Indenture (the "Act").
Capitalized terms used herein and not defined herein have the
meanings ascribed thereto in the Indenture. The Securities are
subject to all such terms, and Securityholders are referred to
the Indenture and the Act for a statement of those terms.
The Securities are general unsecured obligations of the
Company limited to $150,000,000 aggregate principal amount
(subject to Section 2.07 of the Indenture). The Indenture
imposes certain limitations on the issuance of debt by the
Company, the issuance of debt and preferred stock by the
Subsidiaries, the payment of dividends and other distributions
and acquisitions or retirements of the Company's Capital Stock
and Subordinated Indebtedness, the sale or transfer of assets and
Subsidiary stock and transactions with Affiliates. In addition,
the Indenture limits the ability of the Company and the
Subsidiaries to restrict distributions and dividends from
Subsidiaries. Each of the foregoing limitations is subject to a
number of important qualifications and exceptions.
5. Optional Redemption
The Securities may not be redeemed prior to September
15, 1999. On and after that date, the Company may redeem the
Securities in whole at any time or in part from time to time at
the following redemption prices (expressed in percentages of
principal amount), plus accrued interest to the redemption date:
<TABLE>
<CAPTION>
Period Percentage
------ ----------
<S> <C>
From September 15, 1999 through September 14, 2000 105.625%
From September 15, 2000 through September 14, 2001 102.813%
From September 15, 2001 and thereafter 100.000%
</TABLE>
6. Notice of Redemption
Notice of redemption will be mailed at least 30 days
but not more than 60 days before the redemption date to each
Holder of Securities to be redeemed at his registered address.
Securities in denominations larger than $1,000 may be redeemed in
part but only in whole multiples of $1,000. If money sufficient
to pay the redemption price of and accrued interest on all
Securities (or portions thereof) to be redeemed on the redemption
date is deposited with the Paying Agent on or before the
redemption date and certain other conditions are satisfied, on
and after such date interest ceases to accrue on such Securities
(or such portions thereof) called for redemption.
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7. Put Provisions
Upon a Change of Control, any Holder of Securities will
have the right to cause the Company to repurchase all or any part
of the Securities of such Holder at a repurchase price equal to
101% of the principal amount of the Securities to be repurchased
plus accrued interest to the date of repurchase as provided in,
and subject to the terms of, the Indenture.
8. Subordination
The Securities are subordinated to Senior Indebtedness,
as defined in the Indenture. To the extent provided in the
Indenture, Senior Indebtedness must be paid before the Securities
may be paid. The Company agrees, and each Securityholder by
accepting a Security agrees, to the subordination provisions
contained in the Indenture and authorizes the Trustee to give it
effect and appoints the Trustee as attorney-in-fact for such
purpose.
9. Denominations; Transfer; Exchange
The Securities are in registered form without coupons
in denominations of $1,000 and whole multiples of $1,000. A
Holder may transfer or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other
things, to furnish appropriate endorsements or transfer documents
and to pay any taxes and fees required by law or permitted by the
Indenture. The Registrar need not register the transfer of or
exchange any Securities selected for redemption (except, in the
case of a Security to be redeemed in part, the portion of the
Security not to be redeemed) or any Securities for a period of
15 days before a selection of Securities to be redeemed or
15 days before an interest payment date.
10. Persons Deemed Owners
The registered holder of this Security may be treated
as the owner of it for all purposes.
11. Unclaimed Money
If money for the payment of principal or interest
remains unclaimed for two years, the Trustee or Paying Agent
shall pay the money back to the Company at its request unless an
abandoned property law designates another person. After any such
payment, Holders entitled to the money must look only to the
Company and not to the Trustee for payment.
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12. Defeasance
Subject to certain conditions, the Company at any time
may terminate some or all of its obligations under the Securities
and the Indenture if the Company deposits with the Trustee money
or U.S. Government Obligations for the payment of principal and
interest on the Securities to redemption or maturity, as the case
may be.
13. Amendment, Waiver
Subject to certain exceptions set forth in the
Indenture, (i) the Indenture or the Securities may be amended
with the written consent of the Holders of at least a majority in
principal amount outstanding of the Securities and (ii) any
default or noncompliance with any provision may be waived with
the written consent of the Holders of a majority in principal
amount outstanding of the Securities. Subject to certain
exceptions set forth in the Indenture, without the consent of any
Securityholder, the Company and the Trustee may amend the
Indenture or the Securities to cure any ambiguity, omission,
defect or inconsistency, or to comply with Article 5 of the
Indenture, or to provide for uncertificated Securities in
addition to or in place of certificated Securities, or to comply
with the Act or to add additional covenants or surrender Company
rights, or to make certain changes in the subordination
provisions, or to make any change that does not adversely affect
the rights of any Securityholder.
14. Defaults and Remedies
Under the Indenture, Events of Default include
(i) default in payment of principal on the Securities at
maturity, upon redemption pursuant to paragraph 5 of the
Securities, upon declaration or otherwise, or failure by the
Company to redeem or purchase Securities when required;
(ii) default for 30 days in payment of interest on the
Securities; (iii) failure by the Company to comply with other
agreements in the Indenture or the Securities, subject to notice
and lapse of time; (iv) certain accelerations (including failure
to pay within any grace period after final maturity) of other
Indebtedness of the Company or any Subsidiary if the amount
accelerated (or so unpaid) exceeds $10 million, and the
commencement of foreclosure proceedings by certain holders of
secured Indebtedness; (v) certain events of bankruptcy or
insolvency with respect to the Company or any Material
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Subsidiary; and (vi) certain judgments or decrees for the payment
of money in excess of $10 million. If an Event of Default occurs
and is continuing, the Trustee or the Holders of at least 25% in
principal amount of the Securities may declare all the Securities
to be due and payable immediately. Certain events of bankruptcy
or insolvency are Events of Default which will result in the
Securities being due and payable immediately upon the occurrence
of such Events of Default. Securityholders may not enforce the
Indenture or the Securities except as provided in the Indenture.
The Trustee may refuse to enforce the Indenture or the Securities
unless it receives reasonable indemnity or security. Subject to
certain limitations, Holders of a majority in principal amount of
the Securities may direct the Trustee in its exercise of any
trust or power. The Trustee may withhold from Securityholders
notice of any continuing Default (except a Default in payment of
principal or interest) if it determines that withholding notice
is in their interest.
15. Trustee Dealings with the Company
Subject to certain limitations imposed by the Act, the
Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may
otherwise deal with and collect obligations owed to it by the
Company or its affiliates and may otherwise deal with the Company
or its affiliates with the same rights it would have if it were
not Trustee.
16. No Recourse Against Others
A director, officer, employee or stockholder, as such,
of the Company or the Trustee shall not have any liability for
any obligations of the Company under the Securities or the
Indenture or for any claim based on, in respect of or by reason
of such obligations or their creation. By accepting a Security,
each Securityholder waives and releases all such liability. The
waiver and release are part of the consideration for the issue of
the Securities.
17. Waiver Regarding Redemption Fund
By accepting a Security, each Securityholder waives and
releases any and all rights and claims it may have as a creditor
of the Company with respect to the Redemption Fund established
for the benefit of the holders of certain preferred stock of the
Company, and agrees that it shall not be entitled, upon any
bankruptcy or similar proceeding with respect to the Company, to
any distribution of assets from the Redemption Fund, all as more
fully set forth in the Indenture. These provisions are part of
the consideration for the issue of the Securities.
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18. Authentication
This Security shall not be valid until an authorized
signatory of the Trustee (or an authenticating agent) manually
signs the certificate of authentication on the other side of this
Security.
19. Abbreviations
Customary abbreviations may be used in the name of a
Securityholder or an assignee, such as TEN COM (=tenants in
common), TEN ENT (=tenants by the entireties), JT TEN (=joint
tenants with rights of survivorship and not as tenants in
common), CUST (=custodian), and U/G/M/A (=Uniform Gift to Minors
Act).
20. CUSIP Numbers
Pursuant to a recommendation promulgated by the
Committee on Uniform Security Identification Procedures the
Company has caused CUSIP numbers to be printed on the Securities
and has directed the Trustee to use CUSIP numbers in notices of
redemption as a convenience to Securityholders. No
representation is made as to the accuracy of such numbers either
as printed on the Securities or as contained in any notice of
redemption and reliance may be placed only on the other
identification numbers placed thereon.
The Company will furnish to any Securityholder upon
written request and without charge to the Securityholder a copy
of the Indenture which has in it the text of this Security in
larger type. Requests may be made to:
Attention of
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ASSIGNMENT FORM
To assign this Security, fill in the form below:
I or we assign and transfer this Security to
(Print or type assignee's name, address and zip code)
(Insert assignee's soc. sec. or tax I.D. No.)
and irrevocably appoint agent to
transfer this Security on the books of the Company. The agent
may substitute another to act for him.
____________________________________________________________
Date: ________________
Your Signature:_____________________
____________________________________________________________
Sign exactly as your name appears on the other side of this
Security.
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OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by
the Company pursuant to Section 4.08 of the Indenture, check the
box:
___
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.08 of the
Indenture, state the amount:
$
If you want to elect to have this Security purchased by
the Company pursuant to Section 4.09 of the Indenture, check the
box:
___
/ /
If you want to elect to have only part of this Security
purchased by the Company pursuant to Section 4.09 of the
Indenture, state the amount:
$
Date: __________________
Your Signature: _________________________
(Sign exactly as your name appears on the other side of the
Security)
Signature Guarantee:_____________________________________________
(Signature must be guaranteed by a member firm of the New York
Stock Exchange or a commercial bank or trust company)
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FIRST SUPPLEMENTAL INDENTURE
BETWEEN
AMERICAN LIFE HOLDING COMPANY, as Issuer
and LTCB TRUST COMPANY, as Trustee
Dated as of September 29, 1994<PAGE>
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FIRST SUPPLEMENTAL INDENTURE, dated as of September 29,
1994 (this "Supplemental Indenture"), between AMERICAN LIFE
HOLDING COMPANY, a Delaware corporation (the "Company"), and LTCB
TRUST COMPANY (the "Trustee").
WHEREAS, ALHC Merger Corporation, a Delaware
corporation ("Acquisition"), and the Trustee have entered into an
indenture (the "Indenture") dated as of September 29, 1994, to
provide for the issuance of $150 million principal amount of
Acquisition's 11-1/4% Senior Subordinated Notes Due 2004 (the
"Securities"); and
WHEREAS, on September 29, 1994, Acquisition merged with
and into the Company (the "Merger"), with the Company succeeding
to the business of Acquisition and assuming all of the
obligations of Acquisition under the Securities and the
Indenture; and
WHEREAS, the Company has made a request to the Trustee
that the Trustee join with it, in accordance with Section 9.01 of
the Indenture, in the execution of this Supplemental Indenture to
permit the Company to assume all the obligations of Acquisition
under the Indenture pursuant to Section 5.01 of the Indenture;
NOW, THEREFORE, for and in consideration of the
premises and the mutual covenants contained herein and in the
Indenture and for other good and valuable consideration, the
receipt and sufficiency of which are herein acknowledged, the
Company and the Trustee hereby agree for the equal and ratable
benefit of all holders of the Securities as follows:
ARTICLE 1.
Definitions
Section 1.01. Definitions. For purposes of this
Supplemental Indenture, the terms defined in the recitals shall
have the meanings therein specified; any terms defined in the
Indenture and not defined herein shall have the meanings therein
specified.
ARTICLE 2.
Assumption and Substitution
Section 2.01. Assumption of Obligations. The Company
as the surviving corporation of the Merger expressly acknowledges
and assumes the due and punctual payment of the principal of,
premium, if any, and interest on all the Securities and the
performance and observance of all other obligations under the
Indenture or the Securities to be performed or observed by
Acquisition.
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Section 2.02. Substitution. On the date hereof, the
Company (as the surviving corporation of the Merger) shall, by
virtue of the assumption described in Section 2.01 and the
execution and delivery of this Supplemental Indenture, succeed to
and be substituted for Acquisition.
ARTICLE 3.
Miscellaneous
Section 3.01. Effect of the Supplemental Indenture.
This Supplemental Indenture supplements the Indenture and shall
be a part and subject to all the terms thereof. Except as
supplemented hereby, the Indenture and the Securities issued
thereunder shall continue in full force and effect.
Section 3.02. Counterparts. This Supplemental
Indenture may be executed in counterparts, each of which shall be
deemed an original, but all of which shall together constitute
one and the same instrument.
Section 3.03. GOVERNING LAW. THIS SUPPLEMENTAL
INDENTURE SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH,
THE LAWS OF THE STATE OF NEW YORK (WITHOUT GIVING EFFECT TO THE
CONFLICT OF LAWS PRINCIPLES THEREOF).
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date
first written above.
AMERICAN LIFE HOLDING COMPANY
By: /s/ ROLLIN M. DICK
________________________________
Name: Rollin M. Dick
Title: Executive Vice President
LTCB TRUST COMPANY, as Trustee
By: /s/ HELMUT LANGEFELD
_________________________________
Name: Helmut Langefeld
Title: Executive Vice President
