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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
[ X ] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1993 or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the transition period from to
Commission file number: 0-11164
CONSECO, INC.
Indiana No. 35-1468632
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State of Incorporation IRS Employer Identification No.
11825 N. Pennsylvania Street
Carmel, Indiana 46032 (317) 573-6100
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Address of principal executive offices Telephone
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, No Par Value New York Stock Exchange, Inc.
8-1/8% Senior Notes due 2003 New York Stock Exchange, Inc.
$3.25 Series D Cumulative Convertible New York Stock Exchange, Inc.
Preferred Stock
Securities registered pursuant to Section 12(g) of the Act: Common Stock,
No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days: Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ X ]
Aggregate market value of common stock held by nonaffiliates (computed as of
March 7, 1994): $1,320,947,980
Shares of common stock outstanding as of March 7, 1994: 26,171,939
DOCUMENTS INCORPORATED BY REFERENCE: The Registrant's definitive proxy
statement for the annual meeting of shareholders to be held June 7, 1994 is
incorporated by reference into Part III of this Report.
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<PAGE> 2 PART I
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ITEM 1. BUSINESS OF CONSECO.
Background
Conseco, Inc. ("Conseco" or the "Company") is a specialized financial
services holding company which primarily makes controlling strategic
investments in insurance companies and related businesses, manages the
operations of those businesses to increase their value, provides services to
acquired companies and other businesses, and seeks to realize the increase in
value that its management brings to such companies through sale or
restructuring. The insurance companies in which Conseco has made investments
develop, market, issue and administer primarily annuity, individual health
insurance and life insurance products. Conseco provides administrative, data
processing and investment management services to affiliated and nonaffiliated
companies. The Company's operating strategy is to consolidate and streamline
the administrative functions of the acquired companies, to improve their
investment yields through active asset management by a centralized investment
operation and to eliminate their unprofitable products and distribution
channels.
Conseco was organized in 1979 as an Indiana corporation and commenced
operations in 1982. Its executive offices are located at 11825 N. Pennsylvania
Street, Carmel, Indiana 46032, and its telephone number is (317) 573-6100.
Conseco's earnings result from three different activities: (i) the operations
of life insurance companies; (ii) services provided to affiliates and
nonaffiliates for fees; and (iii) the acquisition and restructuring of life
insurance companies, currently through Conseco Capital Partners II, L.P ("CCP
II"). Major ownership interests of insurance companies include: (i) Bankers
Life Holding Corporation ("BLH") and its subsidiaries; (ii) Western National
Corporation ("WNC") and its subsidiary, Western National Life Insurance Company
("Western National"), both of which were wholly owned until WNC's initial
public offering ("IPO") completed February 15, 1994; (iii) CCP Insurance, Inc.
and its subsidiaries ("CCP"), in which Conseco has a 40 percent ownership
interest and which is accounted for under the equity method and (iv) wholly
owned life insurance subsidiaries, Bankers National Life Insurance Company
("Bankers National"), National Fidelity Life Insurance Company ("National
Fidelity") and Lincoln American Life Insurance Company ("Lincoln American").
During 1990, Conseco formed Conseco Capital Partners, L.P. (the
"Partnership"), which raised and invested $99.5 million of capital. Of this
amount approximately half was provided by the Company and the balance by other
investors. A wholly owned subsidiary of Conseco was the sole general partner
of the Partnership. The Partnership was the Company's vehicle for effecting
acquisitions of the following insurance companies: Great American Reserve
Insurance Company ("Great American Reserve") in June 1990, Jefferson National
Life Insurance Company ("Jefferson National") in November 1990, Beneficial
Standard Life Insurance Company ("Beneficial Standard") in March 1991 and
Bankers Life and Casualty Company ("Bankers Life") in November 1992. In July
1992, CCP, a holding company organized for the Partnership's first three
acquisitions, completed an IPO of 8.0 million common shares, generating net
proceeds to CCP of $111.2 million. Great American Reserve, Jefferson National
and Beneficial Standard are collectively referred to herein as the "CCP
Companies." On March 25, 1993, BLH, a holding company organized for Bankers
Life, completed an IPO of 19.6 million common shares at $22 per share. BLH
and Bankers Life are collectively referred to herein as "Bankers."
On February 15, 1994, WNC completed an IPO of 37,202,500 shares, which
included 2,300,000 shares sold by WNC and 34,902,500 shares sold by Conseco.
After this IPO, Conseco continues to own 40 percent of the outstanding common
stock of WNC. In addition, Conseco sold 150,000 shares to the President of WNC
at the initial public offering price, less underwriting discounts and
commissions. Net pretax proceeds to Conseco from the sale of WNC shares and
related transactions totaled $537.9 million. WNC and Western National are
collectively referred to herein as "Western." Effective January 1, 1994,
Western is included in Conseco's financial statements on the equity method.
The IPO and related transactions are further described in Note 16 to the
consolidated financial statements.
On February 2, 1994, Conseco announced the closing of the formation of CCP
II, a partnership which will invest in acquisitions of specialized annuity,
life and accident and health insurance companies and related businesses. As
of January 31, 1994, 36 investors had committed a total of $624 million of
capital to the new partnership in a private placement (see "Acquisitions and
Restructuring").
As used herein the terms "Conseco" or the "Company" refer to Conseco, Inc.
and its consolidated subsidiaries, unless the context otherwise requires.
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INVESTMENTS IN LIFE INSURANCE COMPANIES
The following describes Conseco's major ownership interests in life
insurance companies and the business of these companies.
BANKERS
Bankers, which had total assets of approximately $4 billion at December 31,
1993, markets health and life insurance and annuity products primarily to
senior citizens through over 200 branch offices and approximately 3,300 career
agents. Most of Bankers' agents sell only Bankers' policies. Approximately
56 percent of the $1,464.7 million of direct premiums collected by Bankers in
1993 were from the sale of individual health insurance, principally Medicare
supplement and long-term care policies. Bankers believes that its success in
the individual health insurance market is attributable in large part to its
career agency force, which permits one-on-one contacts with potential
policyholders and builds loyalty to Bankers among existing policyholders. Its
efficient and highly automated claims processing system is designed to
complement its personalized marketing strategy by stressing prompt payment of
claims and rapid responses to policyholder inquiries.
Conseco owns 30.4 million common shares of BLH, or 56 percent of its
outstanding common shares. At December 31, 1993, the BLH shares owned by
Conseco had a net carrying value of $518.8 million, a fair value of
approximately $652.8 million and a cost of $313.1 million.
WESTERN
Western, which had total assets of $8.4 billion at December 31, 1993,
develops, markets and issues annuity products through niche distribution
channels. Approximately 98 percent of the $563.0 million of direct premiums
collected in 1993 were from the sale of annuity products. Western National
markets single premium deferred annuities ("SPDAs") to the savings and
retirement markets through financial institutions (principally banks and
thrifts), flexible premium deferred annuities ("FPDAs") to the tax-qualified
retirement market and single premium immediate annuities ("SPIAs") primarily
to the structured settlement market.
Western National was a wholly owned subsidiary of Conseco from its
acquisition in 1987 to the completion of the initial public offering of WNC,
Western National's parent, on February 15, 1994. After the offering Conseco
continues to own 40 percent of the common stock of WNC. The sale of common
stock of WNC and related transactions generated net pretax proceeds to Conseco
of $537.9 million, which were used to repay a $200 million senior unsecured
loan and for other general corporate purposes. Conseco will record, in the
first quarter of 1994, a one-time, after-tax gain of approximately
$43 million as a result of the IPO and related transactions.
CCP
CCP, which had $5.3 billion of assets at December 31, 1993, is a
specialized insurance holding company whose subsidiaries market, issue and
administer annuity, life and employee benefit-related insurance products
through diversified cost-effective distribution channels. These channels
consist of educator market specialists who sell tax-qualified annuities
and certain employee benefit-related insurance products primarily to school
teachers and administrators, professional independent producers who sell
various annuity and life insurance products aimed primarily at the retirement
market and financial institutions that sell SPDAs to their depositors through
employee agents. Approximately 74 percent of the $451.0 million of total
premiums collected in 1993 were from the sale of annuity products.
Conseco owns 11.6 million shares of CCP, or 40 percent of CCP's common
shares outstanding. At December 31, 1993, the CCP shares owned by Conseco had
a net carrying value of approximately $244.3 million, a fair value of
approximately $322.1 million and a cost of $102.8 million.
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CONSECO'S WHOLLY OWNED INSURANCE SUBSIDIARIES
Conseco's wholly owned insurance subsidiaries (excluding Western) had total
assets of approximately $1.0 billion at December 31, 1993. They have
profitable in-force blocks of many different annuity and life products, but do
not currently actively market their products.
Total premiums collected by these companies during 1993 were $148.2
million, including $61.8 million of premium from guaranteed investment
contracts and deposit funds maintained by subsidiaries of the Company.
SERVICES PROVIDED TO AFFILIATES AND NONAFFILIATES FOR FEES
Various combinations of services, including investment management, mortgage
origination and servicing, policy administration, data processing, product
marketing and executive management services, are provided to all affiliates and
to unaffiliated clients. In addition, subsidiaries of Conseco earn fees by:
(i) providing marketing services to financial institutions related to the
distribution of insurance and investment products and (ii) distributing
property and casualty insurance products through independent agencies. Total
fees from affiliates and nonaffiliates were $49.0 million, $30.2 million and
$22.4 million in 1993, 1992 and 1991, respectively. To the extent these
services are provided to entities that are included in the
financial statements on a consolidated basis, the intercompany fees are
eliminated in consolidation. Growth in this activity results from new clients
(both affiliated and others) and from increases in the fee-producing activities
conducted for such clients.
ACQUISITIONS AND RESTRUCTURING
Conseco believes that the consolidation of the U.S. life insurance industry
will continue, and Conseco intends to participate in this process. Conseco
believes that, under appropriate circumstances, it is more advantageous to
acquire companies with large books of in-force life and health insurance and
annuities than to produce new business because initial underwriting costs have
already been incurred and mature business is generally less likely to
terminate, making more predictable profit analysis possible.
Since Conseco commenced operations in 1982, it has acquired 11 life
insurance companies, the first seven as wholly owned subsidiaries and the last
four through the first partnership. Recent acquisition activity is described
in Notes 1 and 2 to the consolidated financial statements. All acquisitions
have been accounted for as purchases. Therefore, activities of acquired
companies have been included in the results of operations commencing with the
date of purchase. Of the first seven companies acquired by Conseco, three were
subsequently sold and four remained as wholly owned subsidiaries at December
31, 1993. One of the four (Western National) was partially disposed of in
February 1994 when Conseco sold 60 percent of its interest in a public offering
as described in Note 16 to the consolidated financial statements. The first
three companies acquired in the first partnership are now wholly owned
subsidiaries of CCP, in which Conseco holds a 40 percent interest. The final
acquisition of the first partnership is now a wholly owned subsidiary of BLH,
in which Conseco holds a 56 percent interest.
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Following is a summary of the major acquisitions by Conseco and the
Partnership since 1982:
<TABLE>
<CAPTION>
Purchase Price
Including Fees
Year Company Acquired and Costs Acquired By
---- ---------------- --------- -----------
(Dollars in millions)
<S> <C> <C> <C>
1982 Security National Life Insurance Company $ 1.3 Conseco
1983 Consolidated National Life Insurance Company 4.2 Conseco
1985 Lincoln American 25.0 Conseco
1986 Lincoln Income Life Insurance Company 32.3 Conseco
1986 Bankers National 117.6 Conseco
1987 Western National 261.7 Conseco
1989 National Fidelity 68.4 Conseco
1990 Great American Reserve 135.0 Partnership
1990 Jefferson National 171.0 Partnership
1991 Beneficial Standard 141.1 Partnership
1992 Bankers Life 600.0 Partnership
</TABLE>
On February 2, 1994, Conseco announced the closing of the formation of CCP
II, a partnership which will invest in acquisitions of specialized annuity,
life and accident and health insurance companies and related businesses. As
of January 31, 1994, 36 investors had committed a total of $624 million of
capital to the new partnership in a private placement. Commitments to the new
partnership include $100 million from Conseco, $25 million from Bankers, $25
million from CCP, $50 million from Western and $36 million from the executive
officers and directors of Conseco and its affiliates. A subsidiary of Conseco
is the sole managing general partner of CCP II.
OPERATIONS
Conseco reduces operating expenses by centralizing, standardizing and more
efficiently performing many functions common to most life insurance companies,
such as underwriting and policy administration, accounting and financial
reporting, marketing, regulatory compliance, actuarial services and asset
management.
Conseco's centralized management techniques resulted in significant
employee reductions and expense savings in the nine insurance companies
acquired between 1985 and 1992. The ratio of aggregate operating expenses
(excluding commissions) to premiums collected for these nine companies was
reduced from 11 percent for the last year prior to acquisition to 7.4 percent
for the second full year (or in Bankers' case, the first full year) following
acquisition. The ratio of such expenses to total assets of these companies
decreased from 3.4 percent to 1.9 percent in the same periods.
The administration of Bankers' individual health insurance, unlike that
of life insurance or annuities, involves a high volume of claims processing,
multiple contacts with policyholders and generally higher operational costs.
In 1993, Bankers processed more than four million policyholder claims. Bankers
has developed an efficient and highly automated policyholder administration
operation to minimize the costs of such large volume processing and deliver a
high level of service to its policyholders. Bankers' state-of-the-art
processing techniques stress prompt payment of claims. In most cases, Bankers
mails its policyholders' checks within a week of receiving a claim. Bankers
believes that its efficiency and promptness in processing policyholder claims
have been a major reason for its strong reputation for service and the above
average persistency of its Medicare supplement products. Conseco (through
certain of its wholly owned subsidiaries) provides Bankers certain investment
advisory, executive consulting, data processing, accounting, legal, mortgage
loan servicing and origination, and other services.
During 1993, Bankers implemented several measures to enhance efficiency
and reduce operating costs, including relocating its office space, which
previously was scattered in 27 separate buildings totaling approximately
750,000 square feet in three separate locations in the Chicago area. The
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scattering of Bankers' employees resulted in logistical complexities,
difficult communications and control and additional operating costs. In the
fourth quarter of 1993, Bankers relocated to approximately 300,000 square feet
of office space on two floors of a single facility in downtown Chicago pursuant
to a 15-year lease agreement. Bankers entered into a 10-year lease for
approximately 100,000 square feet of warehouse space in a facility also located
in Chicago.
Prior to WNC's IPO, Western had no full-time employees, and all of
Western's daily operations were handled by Conseco pursuant to agreements
between Western and Conseco. After the completion of the IPO, Western employs
approximately 150 people, including certain former Conseco employees who work
at the Western Annuity Center in Amarillo, Texas. To maintain operational
efficiencies, Western will continue to contract with Conseco and its
subsidiaries for investment advisory, data processing, mortgage loan servicing
and origination and other services.
INVESTMENTS
Conseco Capital Management, Inc. ("CCM"), a registered investment adviser
wholly owned by Conseco, manages the investment portfolios of Conseco's wholly
owned subsidiaries, Western, CCP, Bankers and other nonaffiliated clients.
CCM had approximately $19 billion of assets at fair value under management at
December 31, 1993, of which $15.9 billion were assets of affiliated companies
and $3.1 billion were assets of nonaffiliated companies. CCM's investment
philosophy is to maintain a largely investment grade fixed-income portfolio,
provide adequate liquidity for expected liability durations and other
requirements and maximize total return through active investment management.
Investment activities are an integral part of the Company's business;
investment income is a significant component of the Company's total revenues.
Profitability is significantly affected by spreads between interest yields on
investments and rates credited on insurance liabilities. Substantially all
credited rates on single premium deferred annuities and flexible premium
deferred annuities may be changed annually. As of December 31, 1993, the
average yield on the Company's investment portfolio was 8.2 percent and the
average interest rate credited on the Company's total liability portfolio was
6.5 percent.
The Company balances the duration of its invested assets with the expected
duration of benefit payments arising from insurance liabilities. At December
31, 1993, the adjusted modified duration of fixed maturities, trading
securities and short-term investments was 5.7 years.
For information regarding the composition and diversification of the
investment portfolio of Conseco's subsidiaries, see Management's Discussion and
Analysis - "Investments" and Note 3 to the consolidated financial statements.
COMPETITION
The life insurance industry is highly competitive and consists of a large
number of insurance companies, some of which have substantially greater
financial resources, broader and more diversified product lines and larger
staffs than those of Conseco and its investees. Competition also is
encountered from the expanding number of banks, securities brokerage firms
and other financial intermediaries which market insurance products and offer
competing products, such as savings accounts and securities. Additionally,
when Conseco's acquisition partnerships bid on companies they wish to acquire,
they typically are in competition with other entities.
A significant portion of Western National's annuity sales currently is made
through banks and thrifts, which are presently precluded by state and federal
regulation from issuing insurance directly. Some federal regulatory agencies,
members of Congress and representatives of the banking industry have advocated
legislative and regulatory changes to broaden the ability of banks to
participate in the direct sale and underwriting of insurance products. If such
changes were to occur, Western National could be faced with increased
competition in its markets or the loss of certain marketing relationships.
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Financial institutions, school districts, marketing companies, agents who
market insurance products and policyholders use the ratings of an insurer as
one factor in determining which insurer's annuity to market or purchase.
Bankers Life, Western National and the principal insurance subsidiaries of CCP
are rated "A (Excellent)" by A.M. Best. Ratings for the industry currently
range from "A++ (Superior)" to "C- (Fair)". Publications of A.M. Best indicate
that the "A" rating is assigned to those companies that, in A.M. Best's
opinion, have achieved excellent overall performance when compared to the norms
of the insurance industry and that generally have demonstrated a strong ability
to meet their respective policyholder and other contractual obligations. In
evaluating a company's financial and operating performance, A.M. Best reviews
the company's profitability, leverage and liquidity as well as the company's
book of business, the adequacy and soundness of its reinsurance, the quality
and estimated market value of its assets, the adequacy of its reserves and the
experience and competency of its management. A.M. Best's ratings are based
upon factors relevant to policyholders, agents, insurance brokers and
intermediaries. In addition, Western National and Bankers Life have claims
paying ability ratings of AA- from Duff & Phelps Credit Rating Company ("Duff
& Phelps") and the three CCP Companies have claims paying ability ratings
of A+ from Duff & Phelps. Duff & Phelps' claims paying ability ratings range
from "AAA (Highest claims paying ability)" to "DD (Company is under an order
of liquidation)." The AA- rating represents "Very high claims paying ability"
and the A+ rating represents "High claims paying ability." At present, Western
National also has a claims paying rating of A+ from Standard & Poor's
Corporation and a financial strength rating of Baa2 from Moody's Investor
Service, Inc. Generally, rating agencies base their ratings on information
furnished to them by the issuer and on investigations, studies and
assumptions by the rating agencies. There is no assurance that any particular
rating will continue for any given period of time or that it will not be
changed or withdrawn entirely if, in the judgement of the rating agency,
circumstances so warrant.
In the individual health insurance business, insurance companies compete
primarily on the basis of marketing, service and price. The standardized
policy features for Medicare supplement products mandated by the Omnibus Budget
Reconciliation Act of 1984 and the National Association of Insurance
Commissioners increase the comparability of such policies and may intensify
competition based on factors other than product features. See "Investments in
Life Insurance Companies - Bankers" and "Regulation."
The Company believes that the insurance companies it invests in are able
to compete effectively because they: (i) emphasize specialized distribution
channels where the ability to respond rapidly to changing customer needs yields
a competitive edge; (ii) are experienced in establishing and cultivating
relationships with the unique distribution networks and the independent
marketing companies operating in these specialized markets; (iii) can offer
competitive premium rates as a result of their lower-than-average operating
costs and increased investment yields achieved by applying active investment
portfolio management techniques; and (iv) have reliable policyholder
administrative services supported by customized data processing systems.
UNDERWRITING
Under current regulations, insurance companies are prohibited from
underwriting Medicare supplement policies for certain first time purchasers.
Under these rules, if a person applies for insurance within six months of
becoming eligible for Medicare by reason of age, the person may not be rejected
due to medical conditions. For other prospective policyholders, such as senior
citizens who are transferring to Bankers' products, the underwriting procedures
are relatively limited.
Long-term care and comprehensive major medical products generally require
detailed underwriting procedures designed to assess and quantify the insurance
risks before such policies are issued to individuals and groups. Certain
health and life insurance products require medical examinations of applicants
(including blood and urine tests, where permitted). These requirements are
graduated according to the applicant's age and may vary by policy type. The
Company also relies on medical records and each potential policyholder's
written application for insurance products, which is generally prepared
under the supervision of a trained agent. The Company uses information from
the application and, in some cases, inspection reports, physician statements
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or medical examinations to determine whether a policy should be issued as
applied for, issued with reduced coverage under a health rider or rejected.
Group accident and health policies are underwritten based on the
characteristics of the group and its past claim experience.
Underwriting with respect to SPDAs and FPDAs is minimal. The Company
carefully examines specific information on structured settlement annuitants to
develop specific schedules of payments to injured persons, frequently pursuant
to legal judgements or insurance settlements. Agents obtain detailed medical
information about an annuitant, including test results and medical history.
Such information is evaluated by the medical director who provides a life
expectancy which is equated to an age higher than the current age of the
annuitant. The price of the annuity is developed using the "higher" age and
a mortality table, taking into consideration the Company's expectations about
current and future investment performance.
Substantially all the life insurance policies issued by the Company's
subsidiaries are underwritten individually, although standardized underwriting
procedures have been adopted for certain coverages. After initial processing,
each file is reviewed and the information needed to make an underwriting
decision (such as medical examinations, doctors' statements and special
medical tests) is obtained. After the information is collected and reviewed,
the Company either issues the policy as applied for, issues the policy with an
extra premium charge because of unfavorable factors, or rejects the
application.
REINSURANCE
Consistent with the general practice of the life insurance industry, the
Company's subsidiaries reinsure portions of the coverage provided by their
insurance products with other insurance companies under agreements of indemnity
reinsurance. The Company's subsidiaries also assume reinsurance from other
insurers. Reinsurance assumed is accounted for in the same manner as direct
business.
Indemnity reinsurance agreements are intended to limit a life insurer's
maximum loss on a large or unusually hazardous risk or to obtain a greater
diversification of risk. Indemnity reinsurance does not discharge the original
insurer's primary liability to the insured, but it is the practice of insurers
(subject to certain limitations of state insurance statutes) to account
for risks which have been reinsured with other approved companies, to the
extent of the reinsurance, as though they are not risks for which the original
insurer is liable. The Company's reinsured business is ceded to numerous
reinsurers; the amount of business ceded to any one reinsurer is not material.
The policy risk retention limit of Conseco's subsidiaries on the life of
one individual does not exceed $.8 million as of December 31, 1993.
Reinsurance ceded by Conseco's subsidiaries represented 8 percent of gross
combined life insurance in force at December 31, 1993. Reinsurance assumed by
Conseco's subsidiaries represented .5 percent of net combined life insurance
in force at December 31, 1993.
The Company also has ceded policy liabilities under assumption reinsurance
agreements where all obligations under the insurance contracts have been ceded
to another company. Accordingly, the insurance liabilities related to such
policies are not reported in the balance sheet. The Company believes the
assuming companies are able to honor all contractual commitments under the
assumption reinsurance agreements, based on the Company's periodic reviews of
their financial statements, insurance industry reports and reports filed with
state insurance departments.
At December 31, 1993 and 1992, reinsurance receivables with carrying values
of $398.5 million and $420.0 million, respectively, were associated with
annuity business ceded to an unaffiliated company and retroceded on
substantially identical terms to an ICH affiliate. Bankers provides
administrative, data processing and general management services related to the
reinsured business in exchange for annual fees based on a percentage of
reinsured reserves. Additionally, Bankers is entitled to experience refunds
based on the investment performance of assets supporting the annuity reserves.
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During the first quarter of 1993, Bankers recaptured certain participating
life insurance policies (having assets approximately equal to insurance
liabilities of $182.0 million) that had previously been ceded to an affiliate
of ICH, from whom Bankers was acquired in 1992. Recapture fees of $15.5
million were capitalized as a component of cost of policies purchased.
In a few instances, Bankers has reinsured blocks of insurance to an
unrelated insurer to provide funds for enhancing surplus and for other
purposes. Under these surplus relief arrangements, statutorily determined
profits on the reinsured business are accelerated through the reinsurer's
payment of ceding commissions representing the present value of profits on
the business over the reinsurance period. At December 31, 1993, Bankers Life's
statutory capital and surplus included approximately $2.9 million of benefits
from this financial reinsurance. No benefit was recognized under generally
accepted accounting principles ("GAAP").
EMPLOYEES
As of March 7, 1994, Conseco had approximately 3,140 employees, including
approximately 1,600 home office employees and 450 branch office employees of
Bankers. None of the Company's employees are covered by a collective
bargaining agreement. Conseco believes that it has excellent relations with
its employees. Approximately 150 employees formerly employed by Conseco became
employees of WNC after the initial public offering of WNC's common stock on
February 15, 1994.
GOVERNMENTAL REGULATION
General
Life insurance companies are subject to regulation and supervision by the
states in which they transact business. The laws of the various states
establish supervisory agencies with broad administrative and supervisory powers
related to granting and revoking licenses to transact business, regulating
trade practices, establishing guaranty associations, licensing agents,
approving policy forms, filing premium rates on certain business, setting
reserve requirements, determining the form and content of required financial
statements, determining the reasonableness and adequacy of capital and surplus
and prescribing the maximum concentrations of certain classes of investments.
Most states also have enacted legislation which regulates insurance holding
company systems, including acquisitions, extraordinary dividends, the terms of
surplus debentures, the terms of affiliated transactions, and other related
matters. Currently, the Company and its insurance subsidiaries are registered
as a holding company system pursuant to such legislation in Texas, Missouri,
Tennessee, California and Illinois and routinely report to other jurisdictions.
Although the federal government does not directly regulate the business of
insurance, federal legislation and administrative policies in several areas,
including pension regulation, age and sex discrimination, financial services
regulation and federal taxation, can significantly affect the insurance
business. Recently, increased scrutiny has been placed upon the insurance
regulatory framework and a number of state legislatures have considered or
enacted legislative proposals that alter, and in many cases increase, state
authority to regulate insurance companies and holding company systems. In
addition, legislation has been introduced in Congress which could result in the
federal government assuming some role in the regulation of the insurance
industry.
The National Association of Insurance Commissioners ("NAIC"), an
association of state regulators and their staffs, attempts to coordinate the
state regulatory process and continually re-examines existing laws and
regulations and their application to insurance companies. Recently, this
re-examination has focused on insurance company investment and solvency issues
and has resulted in new interpretations of certain existing laws, the
development of certain new laws and the implementation of certain non-statutory
guidelines. The NAIC has formed committees and appointed advisory groups to
study and formulate regulatory proposals on such diverse issues as the use of
surplus debentures, accounting for reinsurance transactions and the adoption
of risk-based capital ("RBC") rules. In addition, in connection with its
accreditation of states to conduct periodic company examinations, the NAIC has
encouraged states to adopt model NAIC laws on specific topics, such as holding
company regulations and the definition of extraordinary dividends. It is not
possible to predict the future impact of changing state and federal regulation
on the operations of the Company.
The NAIC adopted RBC requirements, effective December 31, 1993, to evaluate
the adequacy of statutory capital and surplus in relation to investment and
insurance risks associated with: (i) asset quality; (ii) mortality and
morbidity; (iii) asset and liability matching; and (iv) other business factors.
The RBC formula is designed as an early warning tool to help state regulators
identify possible weakly capitalized companies for the purpose of initiating
regulatory action. In addition, the formula defines a new minimum capital
standard which supplements the prevailing system of low, fixed minimum capital
and surplus requirements on a state-by-state basis.
<PAGE>
<PAGE> 10
The new RBC requirements provide for four different levels of regulatory
attention depending on the ratio of the company's total adjusted capital
(defined as the total of its statutory capital, surplus and asset valuation
reserve and 50 percent of apportioned dividends) to its RBC. The "Company
Action Level" is triggered if a company's total adjusted capital is less
than 100 percent but greater than or equal to 75 percent of its RBC, or if
total adjusted capital is less than 125 percent of RBC and a negative trend has
occurred. The trend test calculates the greater of any decrease in the margin
(i.e., the amount in dollars by which a company's total adjusted capital
exceeds its RBC) between the current year and the prior year and
between the current year and the average of the past three years, and assumes
that the decrease could occur again in the coming year. If a similar decrease
in the margin in the coming year would result in an RBC of less than 95
percent, then the Company Action Level would be triggered. At the Company
Action Level, a company must submit a comprehensive plan to the regulatory
authority which discusses proposed corrective actions to improve its capital
position. The "Regulatory Action Level" is triggered if a company's total
adjusted capital is less than 75 percent but greater than or equal to 50
percent of its RBC. At the Regulatory Action Level, the regulatory authority
will perform a special examination of the company and issue an order specifying
corrective actions that must be followed. The "Authorized Control Level" is
triggered if a company's total adjusted capital is less than 50 percent but
greater than or equal to 35 percent of its RBC, and the regulatory authority
may take any action it deems necessary, including placing the company under
regulatory control. The "Mandatory Control Level" is triggered if a company's
total adjusted capital is less than 35 percent of its RBC, and the regulatory
authority is mandated to place the company under its control. Calculations
using the NAIC formula at December 31, 1993, indicated that the ratios of the
total adjusted capital to RBC for all of Conseco's primary subsidiaries and
investees were greater than twice the Company Action Level.
Texas recently adopted its own RBC requirements, the stated purpose of
which is to require a minimum level of capital and surplus to absorb the
financial, underwriting, and investment risks assumed by an insurer. Under
Texas' RBC regulations, Western National and Bankers National, as
Texas-domiciled companies, must maintain a minimum level of capital and surplus
determined by a calculation formula contained in the Texas Regulations.
Additionally, two insurance subsidiaries of CCP are domiciled in Texas. Texas'
RBC requirements differ from those adopted by the NAIC in two principal
respects: (i) the elements used to determine minimum RBC levels in the
respective calculation formulas differ and (ii) the Texas Regulations do not
contain "Action Levels" (like those adopted by the NAIC) prescribing certain
corrective actions if RBC threshold levels are not met. However, the
Commissioner of the Texas Insurance Department does have the power to take
similar corrective actions if a company does not maintain the required minimum
level of capital and surplus. Under the Texas Regulations, an insurer has met
RBC requirements if its admitted assets exceed its liabilities by at least 3
percent. At December 31, 1993, the admitted assets of each of the Conseco
subsidiaries and CCP subsidiaries domiciled in Texas exceeded liabilities by
more than twice the required 3 percent level.
Most states have enacted legislation or adopted administrative regulations
affecting the acquisition of control of insurance companies as well as
transactions between insurance companies and persons controlling them. The
nature and extent of such legislation and regulations vary from state to state.
Most states, however, require administrative approval of the acquisition of 10
percent or more of the outstanding shares of an insurance company incorporated
in the state or the acquisition of 10 percent or more of the outstanding stock
of an insurance holding company whose insurance subsidiary is incorporated in
the state. The acquisition of 10 percent of such shares is generally deemed
to be the acquisition of "control" for the purpose of the holding company
statutes and requires not only the filing of detailed information concerning
the acquiring parties and the plan of acquisition, but also administrative
approval prior to the acquisition. In many states, an insurance authority may
find that "control" in fact does not exist in circumstances in which a person
owns or controls either a lesser or a greater amount of securities.
As part of their routine regulatory oversight process, insurance
departments approximately once every three years conduct periodic detailed
examinations ("Triennial Examinations") of the books, records and accounts of
insurance companies-domiciled in their states. Such Triennial Examinations are
<PAGE>
<PAGE> 11
generally conducted in cooperation with the departments of two or three other
states under guidelines promulgated by the NAIC. The Company expects Western
National and Bankers to each receive a Triennial Examination in 1994.
Health Care
Federal and state regulations have had, and are expected to continue to
have, the effect of increasing the regulation of Medicare supplement plans in
all states. Recent NAIC rules: (i) require minimum loss ratios of at least 75
percent for group policies and 65 percent for individual policies; (ii) create
10 standardized benefit plans to promote comparability; (iii) guarantee
renewability of policies; (iv) prohibit insurers from underwriting for health
conditions or claims experience policy applications from persons who first
become eligible for Medicare by reason of age; and (v) impose restrictions on
commissions payable to agents. The NAIC rules also require insurance companies
to file annual requests for premium increases, rather than relying on automatic
escalation provisions. As of November 1, 1993, all states have adopted the
NAIC rules.
Numerous proposals have been introduced in Congress and the state
legislatures aimed at reforming the current health care system. Proposals have
included, among other things: (i) modifications to the existing employer-based
insurance system; (ii) a quasi-regulated system of "managed competition" among
health plans; and (iii) a single payer, public program. Changes in health care
policy could significantly affect Bankers' business. For example, federal
comprehensive major medical or long-term care programs, if proposed and
implemented, could partially or fully replace some of Bankers' current
products. However, the institution of such programs also could create new
marketplace opportunities for supplemental insurance similar to Bankers'
Medicare supplement policies. Some reform proposals also could: (i)
standardize major medical or long-term care coverages; (ii) impose mandated or
targeted loss ratios or rate regulation; (iii) require the use of community
rating or other means that limit the ability of insurers to differentiate among
risks; or (iv) mandate utilization review or other managed care concepts to
determine what benefits would be paid by insurers. If adopted, these or other
proposals could increase the level of competition among health insurers. In
addition, changes could be made in Medicare that could necessitate revisions
in Bankers' Medicare supplement products. Other potential initiatives,
designed to tax insurance premiums or shift medical care costs from government
to private insurers, could have an adverse effect on Bankers' business,
although such taxes and costs might be offset in whole or in part by increasing
premiums. Depending on their form, proposals designed to reduce health care
costs could reduce benefits payable by Bankers. Bankers is unable to predict
what changes to the country's health care system will be enacted, and if
enacted, their scope and effect on Bankers' business. However, Bankers
continues to believe that the opportunity for its products will grow under any
realistic and affordable health care reform scenario.
FEDERAL INCOME TAXATION
The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted on
August 10, 1993. The most significant provision of the Act affecting the
Company was the increase in the corporate income tax rate to 35 percent from
34 percent, effective for taxable income reported for the year 1993. As a
result of the increase in the tax rate, the Company recognized additional tax
expense of $8.9 million, consisting of: (i) $5.6 million related to income in
1993; (ii) $1.9 million related to a one-time adjustment to accumulated
deferred taxes relating to prior years' income; and (iii) $1.4 million related
to unrealized appreciation of securities at the date the new law was enacted.
In addition, the equity in earnings of CCP was reduced by approximately $1.6
million as a result of the Company's share of the additional tax expense
recorded by CCP related to the increase in the tax rate. The impact of other
provisions of the Act was not material.
The annuity and life insurance products marketed and issued by Conseco's
subsidiaries generally provide the policyholder with an income tax advantage,
as compared to other saving investments such as certificates of deposit and
bonds, in that income taxation on the increase in value of the product is
deferred until receipt by the policyholder. With other savings investments,
the increase in value is taxed as earned. Life insurance benefits which accrue
<PAGE>
<PAGE> 12
prior to the death of the policyholder and annuity benefits are generally not
taxable until paid, and life insurance death benefits are generally
exempt from income tax. Also, benefits received on immediate annuities (other
than structured settlements) are recognized as taxable income ratably as
opposed to the economic accrual methods, which tend to accelerate taxable
income into earlier years and which are required for other investments. The
tax advantage for annuities and life insurance is provided in the Internal
Revenue Code ("IRC"), and is generally followed in all states and other United
States taxing jurisdictions. Accordingly, it is subject to change by Congress
and the legislatures of the respective taxing jurisdictions.
Conseco's insurance company subsidiaries are taxed as life insurance
companies under the IRC. During 1990, the taxation of life insurance companies
was changed to require a portion of the expenses incurred in selling insurance
products to be deducted over a period of years, as opposed to immediate
deduction in the year incurred. This change, although not affecting tax
expense on the Company's financial statements because it affects only the
timing of the deductions, does have the effect of increasing the Company's tax
for statutory accounting purposes. This, in turn, reduces statutory surplus
and, accordingly, decreases the amount of cash dividends that may be paid by
the life insurance subsidiaries. For 1993, the increase in the Company's
current tax due to this change was $25.5 million.
The Company had regular tax loss carryforwards at December 31, 1993, of
approximately $94.9 million, portions of which begin expiring in 1999.
ITEM 2. PROPERTIES.
The Company's principal operations are located on a 150-acre corporate
campus in Carmel, Indiana, immediately north of Indianapolis. These facilities
contain approximately 416,000 square feet of space in seven buildings which
contain Conseco's executive offices and certain administrative operations of
its subsidiaries. These facilities include significant capacity for future
growth.
Bankers currently leases 300,000 square feet of executive office and
administration space in a single facility in downtown Chicago under a 15-year
lease agreement. Bankers also leases approximately 100,000 square feet of
warehouse space in a second Chicago facility under a 10-year lease agreement.
Bankers leases approximately 208 sales offices totaling approximately 340,000
square feet. All of the sales office leases are short-term in length, with
remaining lease terms ranging from one to five years.
ITEM 3. LEGAL PROCEEDINGS.
From time to time, Conseco and its subsidiaries are involved in lawsuits
which are primarily related to their operations. Most of these lawsuits
involve claims under insurance policies or other contracts of the Company.
Even though Conseco may be contesting the validity or extent of its liability
in response to such lawsuits, the Company has established reserves in its
consolidated financial statements which approximate its estimated potential
liability or cost of defense. Accordingly, none of the lawsuits currently
pending, either individually or in the aggregate, is expected to have a
material adverse effect on the Company's consolidated financial condition or
results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
<PAGE> 13
OPTIONAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
<TABLE>
<CAPTION>
Officer Positions with Conseco, Principal
Name and Age(a) Since Occupation and Business Experience (b)
- - ---------------- ----- --------------------------------------
<S> <C> <C>
Stephen C. Hilbert, 48 1979 Since 1979, Chairman of the Board and Chief Executive Officer, since 1988,
President, and from 1979 to 1986, Secretary of Conseco.
Ngaire E. Cuneo, 43 1992 Since 1992, Executive Vice President of Corporate Development; from 1986
to 1992, Senior Vice President and Corporate Officer of General Electric
Capital Corporation.
Rollin M. Dick, 62 1986 Since 1986, Executive Vice President, Chief Financial Officer and Director,
and from 1988 to 1989, Treasurer, of Conseco.
Donald F. Gongaware, 58 1985 Since 1985, Executive Vice President and Director and, since 1989, Chief
Operations Officer of Conseco.
Lawrence W. Inlow, 43 1986 Since 1986, Executive or Senior Vice President, Secretary and General
Counsel of Conseco.
Walter T. Kirkbride, 47 1987 Since 1987, Executive Vice President and Chief Investment Officer of
Conseco.
___________________
<FN>
(a) The executive officers serve as such at the discretion of the Board of Directors and are elected at the annual meeting of the
Board.
(b) Business experience is given for at least the last five years.
</TABLE>
<PAGE>
<PAGE> 14
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The common stock of Conseco (trading symbol "CNC") has been listed for
trading on the New York Stock Exchange (the "NYSE") since 1986. The following
table sets forth the quarterly dividends paid per share and the ranges of high
and low sales prices per share on the NYSE for the last two fiscal years, based
upon information supplied by the NYSE. All applicable share and per share data
in this Form 10-K have been adjusted for the two-for-one stock splits
distributed on July 1, 1991 and April 1, 1992.
<TABLE>
<CAPTION>
Period Market Price Dividend
------ ------------
High Low Paid
---- --- ----
<S> <C> <C> <C>
1992:
First Quarter $41-1/2 $30-5/8 $0.020
Second Quarter 36-1/4 20-5/8 0.020
Third Quarter 32-1/2 24-1/4 0.020
Fourth Quarter 47-3/8 29-1/4 0.020
1993:
First Quarter 73-5/8 45-3/8 0.025
Second Quarter 67-3/8 44-5/8 0.025
Third Quarter 75-1/4 57-3/4 0.025
Fourth Quarter 75-3/4 53-1/2 0.125
</TABLE>
As of March 7, 1994, there were approximately 14,700 holders of record of
the outstanding shares of common stock, including individual participants in
securities position listings.
DIVIDENDS
In October 1988, the Company's Board of Directors adopted a policy of
paying regular quarterly cash dividends on its common stock. The first such
dividend was $.0125 per share. Subsequent dividends, which were increased to
$.015 per share effective with the dividend paid October 1, 1990, to $.02 per
share effective with the dividend paid October 1, 1991, to $.025 per share
effective with the dividend paid January 4, 1993, and to $.125 per share
effective with the dividend paid October 1, 1993, have been paid on the first
business day of each calendar quarter, after review by the Board of
Directors of the Company's interim operating results. The Company's general
policy continues to be to retain most of its earnings. Retained earnings have
been used to finance the growth and development of the Company's business
through acquisitions or otherwise and to finance the repurchase of its common
stock on those occasions when the Company has believed that the use of funds
for stock repurchases would not interfere with other cash needs and that its
shares were undervalued in the market.
In February 1993 the Company issued $287.5 million liquidation value Series
D Cumulative Convertible Preferred Stock ("Preferred Stock"), on which
dividends ($3.25 per share) are cumulative from the date of original issue and
are payable quarterly, commencing April 15, 1993. The terms of the Preferred
Stock prohibit the payment of cash dividends on capital stock ranking junior
to the Preferred Stock if the Company is not current in its dividend payments
on the Preferred Stock. During 1993, the Company paid dividends of $13.5
million on the Preferred Stock and is current on its payments.
The principal operating subsidiaries of Conseco are life insurance
companies organized under state laws and subject to regulation by state
insurance departments. These laws and regulations limit the ability of
insurance subsidiaries to make cash dividends, loans or advances to a holding
company such as Conseco. However, these laws generally permit the payment,
without prior approval, of annual dividends which in the aggregate do not
exceed the greater of (or in some states the lesser of): (i) the subsidiary's
prior year net gain from operations; or (ii) 10 percent of surplus at the prior
year-end, both computed on the statutory basis of accounting prescribed for
insurance companies.
<PAGE>
<PAGE> 15
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA (a).
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
(Amounts in millions, except per share amounts)
<S> <C> <C> <C> <C> <C>
OPERATING DATA
Premiums collected $2,140.1 $1,464.9 $1,648.7 $1,361.4 $937.9
Insurance policy income 1,293.8 378.7 280.8 152.8 198.9
Investment activity:
Net investment income 896.2 888.6 921.4 581.7 417.7
Net trading income 93.1 35.9 50.7 6.0 14.3
Net realized gains 149.5 124.3 123.3 4.5 22.9
Total revenues 2,636.0 1,523.9 1,391.8 753.3 662.7
Income before income taxes,
minority interest and
extraordinary charge 610.2 330.0 223.2 65.3 70.2
Earnings excluding realized
investment gains
and extraordinary charge(b) 301.9 162.7 84.0 39.0 32.1
Extraordinary charge on
extinguishment
of debt, net of tax 11.9 5.3 5.0 - -
Net income 297.0 169.5 116.0 41.7 47.2
Preferred dividends 20.6 5.5 6.8 5.6 8.3
Earnings applicable to
common stock 276.4 164.0 109.2 36.1 38.9
PER SHARE DATA
Net income, primary $ 9.45 $ 5.43 $ 4.10 $1.37 $1.75
Net income, fully diluted 8.77 5.40 4.02 1.36 1.26
Earnings excluding realized
investment gains
and extraordinary charge(b) 8.92 5.18 2.89 1.25 .81
Dividends declared per common
share .30 .085 .070 .055 .05
Book value per common
share outstanding 33.78 21.86 15.44 5.83 4.30
Shares outstanding at year-end 25.3 24.9 24.7 20.6 25.2
Average fully diluted
shares outstanding 33.5 29.6 25.4 25.4 33.1
BALANCE SHEET DATA
Total assets $13,749.3 $11,772.7 $11,832.4 $8,371.1 $5,267.1
Long-term debt for which
Conseco is
directly liable 413.0 163.2 177.6 268.9 300.3
Notes payable of BLH, not direct
obligations of Conseco(c) 290.3 392.0 - - -
Notes payable related to
CCP Companies,
not direct obligations
of Conseco - - 319.3 258.1 -
Shareholders' equity 1,142.6 594.3 431.6 180.2 158.3
<FN>
(a) For periods beginning with their acquisitions and ending June 30, 1992,
the financial statements of the CCP Companies were consolidated with the
financial statements of Conseco. With the completion of the initial public
offering by CCP, the Company no longer had unilateral control to direct all of
CCP's activities and therefore, no longer consolidates the financial statements
of the CCP Companies with the financial statements of Conseco. As of November
1, 1992, the Company began to include in its financial statements the newly
acquired Partnership subsidiary, Bankers. Comparison of consolidated financial
information in the above table is significantly affected by the various
Partnership acquisitions and the deconsolidation of the CCP Companies effective
July 1, 1992. Refer to the notes to consolidated financial statements included
elsewhere herein for a description of business combinations.
(b) Represents net income excluding net realized gains and extraordinary
charge, less applicable expenses, amortization, changes in future policy
benefits, taxes and minority interest.
(c) Represents notes issued by BLH in connection with the acquisition of
Bankers Life.
</TABLE>
<PAGE>
<PAGE> 16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF CONSOLIDATED FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
The following discussion highlights the material factors affecting the
results of operations and the significant changes in balance sheet items. This
discussion should be read in conjunction with the accompanying consolidated
financial statements, the notes thereto and the financial statistics appearing
elsewhere herein.
The comparison of 1993, 1992 and 1991 balances in the consolidated
financial statements is largely affected by the transactions described in Note
1 "Significant Accounting Policies - Basis of Presentation" and Note 2
"Acquisitions" to the consolidated financial statements.
RESULTS OF OPERATIONS
Conseco's earnings result from three different activities:
- The operations of life insurance companies;
- Services provided to affiliates and nonaffiliates for fees; and
- The acquisition and restructuring of life insurance companies, currently
conducted through CCP II.
Operations of Life Insurance Companies
Life insurance companies are included in Conseco's financial statements on
a consolidated basis if they are unilaterally controlled by Conseco (i.e.,
companies that are wholly owned by Conseco, companies that are over 50 percent
but less than 100 percent owned by Conseco, and companies that are over 50
percent owned by a partnership in which Conseco is the sole general partner).
Life insurance companies are included in Conseco's financial statements on an
equity basis if not so controlled (i.e., companies in which Conseco has a
significant interest but does not have unilateral control). Refer to Notes 1
and 2 of the consolidated financial statements for a description of changes
during the last three years in the composition of the companies included in
Conseco's consolidated financial statements.
Growth in this activity results from: (i) the acquisition of new companies;
(ii) changes in Conseco's ownership interest in the companies; and (iii)
changes in the profitability of such companies related to premiums received,
investment results, product profitability, expense levels and other factors.
Services Provided for Fees
Various combinations of services, including investment management, mortgage
origination and servicing, policy administration, data processing, product
marketing and executive management services, are provided to all affiliates and
other unaffiliated clients. In addition, subsidiaries of Conseco earn fees by:
(i) providing marketing services to financial institutions related to the
distribution of insurance and investment products and (ii) distributing
property and casualty insurance products through independent agencies.
Growth in this activity results from new clients (both affiliated and
others) and from increases in the fee-producing activities conducted for such
clients.
Acquisition and Restructuring of Life Insurance Companies
Since Conseco commenced operations in 1982, it has acquired 11 life
insurance companies, the first seven as wholly owned subsidiaries and the last
four through the first partnership. Recent acquisition activity is described
in Notes 1 and 2 to the consolidated financial statements. All acquisitions
have been accounted for as purchases. Therefore, activities of acquired
companies have been included in the results of operations commencing with the
date of purchase.
<PAGE>
<PAGE> 17
Of the first seven companies acquired as wholly owned subsidiaries by
Conseco, three were subsequently sold and four remained as wholly owned
subsidiaries at December 31, 1993. One of the four (Western National) was
partially disposed of in February 1994 when Conseco sold 60 percent of its
interest in a public offering as described in Note 16 to the consolidated
financial statements. The first three companies acquired in the first
partnership are now wholly owned subsidiaries of CCP, in which Conseco holds
a 40 percent interest. The final acquisition of the first partnership is now
a wholly owned subsidiary of BLH, in which Conseco holds a 56 percent interest.
Future acquisitions will be accomplished through CCP II, in which a
subsidiary of Conseco is the sole managing general partner. CCP II was formed
in early 1994 with commitments from 36 partners for $624 million of capital for
the purpose of completing acquisitions of insurance companies, building value
within such acquired companies and realizing such increased value for the
investing partners. Commitments to the new partnership include $100 million
from Conseco, $25 million from Bankers, $25 million from CCP, $50 million from
Western and $36 million from executive officers and directors of Conseco and
its affiliates.
Activities of companies acquired through the first partnership are recorded
in the segment related to operations of life insurance companies. Conseco also
provides services to those companies resulting in increased income in the fee
for service segment. Earnings are reflected in the acquisition and
restructuring segment when Conseco, as general partner, earns incentive
compensation related to the level of total returns to the partners in excess
of prescribed targets, and when restructuring gains are realized from the sale
of portions of the acquired entities.
<PAGE>
<PAGE> 18
Analysis of Net Income and Fully Diluted Earnings Per Share
The following table shows the sources of Conseco's net income (after tax
and minority interest) for the three years ended December 31, 1993,
disaggregated into the three earnings activities described in the preceding
section:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Operations of life insurance companies:
Bankers:
Operating earnings before
trading income $ 36.9 $ 4.8 $ -
Net trading income 6.9 .7 -
Net realized gains (losses) 2.9 (.1) -
Extraordinary charge (3.1) - -
------ ------ ------
Net income 43.6 5.4 -
------ ------ ------
Western:
Operating earnings before
trading income 93.4 80.6 56.8
Net trading income 32.1 16.5 15.7
Net realized gains 4.5 5.1 25.0
------ ------ ------
Net income 130.0 102.2 97.5
------ ------ ------
CCP:
Operating earnings before
trading income 34.6 23.2 10.9
Net trading income - 1.6 5.3
Net realized gains - 3.0 8.6
Extraordinary charge - (3.9) -
------ ------ ------
Net income 34.6 23.9 24.8
------ ------ ------
Wholly owned life companies excluding Western:
Operating earnings before
trading income 27.5 18.6 14.0
Net trading income 8.6 1.6 1.5
Net realized gains (losses) (1.3) 4.1 3.4
------ ------ ------
Net income 34.8 24.3 18.9
------ ------ ------
Life Re net income - 10.6 8.6
------ ------ ------
Total from operations of life insurance companies:
Operating earnings before
trading income 192.4 137.8 90.3
Net trading income 47.6 20.4 22.5
Net realized gains 6.1 12.1 37.0
Extraordinary charge (3.1) (3.9) -
------ ------ ------
Net income 243.0 166.4 149.8
------ ------ ------
Services provided for fees - net income 14.3 14.5 11.2
------ ------ ------
Acquisition and restructuring of life insurance
companies:
Incentive earnings allocation 22.3 3.6 -
Sale of stock 61.0 19.7 -
------ ------ ------
Net income 83.3 23.3 -
------ ------ ------
(continued on next page)
</TABLE>
<PAGE>
<PAGE> 19
(continued from previous page)
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Corporate and other:
Operating expenses, net of revenues (15.1) (11.1) (7.3)
Interest expense (19.9) (22.2) (32.7)
Net trading loss (.7) - -
Net realized gains .9 - -
Extraordinary charge (8.8) (1.4) (5.0)
------ ------ ------
Net loss (43.6) (34.7) (45.0)
------ ------ ------
Consolidated earnings:
Operating earnings before
trading income 255.0 142.3 61.5
Net trading income 46.9 20.4 22.5
Net realized gains 7.0 12.1 37.0
Extraordinary charge (11.9) (5.3) (5.0)
------ ------ ------
Net income $297.0 $169.5 $116.0
====== ====== ======
</TABLE>
<PAGE>
<PAGE> 20
The disaggregated earnings summarized in the preceding schedule resulted
in fully diluted earnings per share as follows:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Operations of life insurance companies:
Bankers:
Operating earnings before
trading income $1.10 $ .16 $ -
Net trading income .21 .02 -
Net realized gains .08 - -
Extraordinary charge (.09) - -
------ ------ ------
Net income 1.30 .18 -
------ ------ ------
Western:
Operating earnings before
trading income 2.74 2.59 2.07
Net trading income .93 .53 .56
Net realized gains .13 .16 .91
------ ------ ------
Net income 3.80 3.28 3.54
------ ------ ------
CCP:
Operating earnings before
trading income 1.03 .75 .36
Net trading income - .05 .18
Net realized gains - .09 .29
Extraordinary charge - (.11) -
------ ------ ------
Net income 1.03 .78 .83
------ ------ ------
Wholly owned life companies
excluding Western:
Operating earnings before
trading income .81 .59 .50
Net trading income .25 .06 .06
Net realized gains (.04) .13 .13
------ ------ ------
Net income 1.02 .78 .69
------ ------ ------
Life Re net income - .26 .21
------ ------ ------
Total from operations of life
insurance companies:
Operating earnings before
trading income 5.68 4.35 3.14
Net trading income 1.39 .66 .80
Net realized gains .17 .38 1.33
Extraordinary charge (.09) (.11) -
------ ------ ------
Net income 7.15 5.28 5.27
------ ------ ------
Services provided for fees - net income .42 .47 .41
------ ------ ------
Acquisition and restructuring of
life insurance companies:
Incentive earnings allocation .66 .12 -
Sale of stock 1.83 .66 -
------ ------ ------
Net income 2.49 .78 -
------ ------ ------
</TABLE>
(continued on next page)
<PAGE>
<PAGE> 21
(continued from previous page)
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Corporate and other:
Operating expenses (.45) (.33) (.17)
Interest expense (.59) (.75) (1.29)
Net trading loss (.02) - -
Net realized gains .03 - -
Extraordinary charge (.26) (.05) (.20)
----- ----- -----
Net loss (1.29) (1.13) (1.66)
----- ----- -----
Consolidated earnings:
Operating earnings before trading income 7.55 4.52 2.09
Net trading income 1.37 .66 .80
Net realized gains .20 .38 1.33
Extraordinary charge (.35) (.16) (.20)
----- ----- -----
Net income $8.77 $5.40 $4.02
===== ===== =====
</TABLE>
<PAGE>
<PAGE> 22
The following table further analyzes the changes in fully diluted earnings
per share in 1993 compared to 1992 and in 1992 compared to 1991 to identify the
increases (decreases) related to changes in income and the decreases related
to changes in the number of shares outstanding.
<TABLE>
<CAPTION>
1993 1992
Compared to Compared to
1992 1991
---- ----
<S> <C> <C>
Fully diluted earnings per share:
Current year $8.77 $5.40
Prior year 5.40 4.02
----- -----
Net increase $3.37 $1.38
----- -----
----- -----
Increase (decrease) related to changes in income:
Operations of life insurance companies
Bankers $1.32 $ .21
Western 1.09 .28
CCP .41 .08
Wholly owned life insurance companies,
excluding Western .44 .22
Life Re (.26) .09
----- -----
Increase from operations of life
insurance companies 3.00 .88
Services provided for fees .02 .14
Acquisition and restructuring of life
insurance companies 2.07 .91
Corporate and other (.34) .34
Less effect of increase in federal income
tax rate (.23) -
----- -----
Total related to changes in income 4.52 2.27
Decrease related to issuances and repurchases
of common or common equivalent shares (1.15) (.89)
----- -----
Net increase $3.37 $1.38
===== =====
</TABLE>
<PAGE>
<PAGE> 23
Additional Discussion of Consolidated Statement of Operations for the Three
Years Ended December 31, 1993:
The following tables and narratives summarize amounts reported in the
consolidated statement of operations for the three years ended December 31,
1993, disaggregated as previously described for Conseco's three earnings
activities. Many of the changes which occurred in the consolidated statement
of operations resulted from: (i) acquisitions of new affiliates; (ii)
restructurings that changed Conseco's percentage ownership in the affiliate;
and (iii) changes in control of the affiliates that affected the determination
of whether the affiliate was to be included in Conseco's statement of
operations under the consolidation or the equity method of accounting.
Operations of life insurance companies:
Bankers:
<TABLE>
<CAPTION> As Included in Prior to
Conseco's Consolidated Conseco's
Financial Statements Acquisition
-------------------- -----------
For the period
For the from acquisition Ten months
year ended through ended
December 31, December 31, October 31,
1993 1992 1992
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Revenues:
Insurance policy income $1,200.7 $191.5 $ 944.1
Investment activity:
Net investment income 174.7 21.1 105.2
Net trading income 31.5 2.4 -
Net realized gains (losses) 43.6 7.0 (33.6)
Total revenues 1,450.5 222.5 1,013.8
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 864.3 120.1 720.3
Interest expense on annuities and
financial products 36.5 5.3 23.8
Interest expense on long-term debt 36.0 7.4 -
Amortization related to operations 116.9 25.6 79.4
Amortization related to realized gains 30.5 - -
Other operating costs and expenses 154.3 26.9 138.5
Income from continuing operations before
taxes, minority interest and
extraordinary charge 208.1 37.2 51.8
Income tax expense 80.2 14.9 5.9
Income from continuing operations
before minority interest 127.9 22.3 45.9
Minority interest 78.2 14.4 -
Extraordinary charge (net of minority
interest of $4.8 million) (3.1) - -
Income from continuing operations 46.6 7.9 45.9
Earnings from discontinued operations - - 16.6
Net income 46.6 7.9 62.5
Less preferred stock dividends 3.0 2.5 -
Earnings applicable to common stock 43.6 5.4 62.5
Summarized by component, all net of
applicable expenses, taxes and minority interest:
Operating earnings, excluding trading
income 36.9 4.8 73.7
Net trading income 6.9 .7 -
Net realized gain (loss) 2.9 (.1) (22.2)
Extraordinary charge on extinguishment
of debt (3.1) - -
Earnings from discontinued operations - - 11.0
Net income 43.6 5.4 62.5
</TABLE>
<PAGE>
<PAGE> 24
General. Conseco's 1992 earnings reflected a 44 percent ownership interest
in BLH from November 1, 1992, the date Bankers was acquired by the Partnership.
In March 1993, BLH completed an IPO of its common stock, thus reducing
Conseco's ownership to 31 percent. On September 30, 1993, Conseco acquired
13.3 million additional common shares of BLH, increasing its ownership interest
to 56 percent. While all activities of Bankers are included in Conseco's
financial statements on a consolidated basis for all periods after November 1,
1992, the minority interest adjustment removes from Conseco's net income the
portion applicable to other owners so that net income reflects only Conseco's
applicable ownership interest (i.e., 44 percent during 1992 and the first
quarter of 1993, 31 percent during the second and third quarters of 1993
and 56 percent during the fourth quarter of 1993). To enhance comparability,
the amounts for the ten months ended October 31, 1992, (which was prior to the
Partnership's acquisition of Bankers) are separately presented.
At December 31, 1993, the BLH shares owned by Conseco had a net carrying
value of approximately $518.8 million, a market value of approximately $652.8
million and a cost of $313.1 million.
Insurance policy income. Insurance policy income increased $65.1 million,
or 5.7 percent, in 1993 over total insurance policy income in 1992. Bankers'
insurance policy income was comprised primarily of individual health premiums,
which increased as a result of new business, improved persistency and rate
increases.
Net investment income. Net investment income increased $48.4 million, or
38 percent, in 1993 over total net investment income in 1992. The increase was
due to the growth of invested assets as a result of (i) the recurring
operations, (ii) the recapture in 1993 of a reinsurance treaty with related
assets totaling $182 million and (iii) the capital transactions in connection
with BLH's IPO, as discussed in the accompanying notes to the consolidated
financial statements, partially offset by lower yields on the investment
portfolio. In addition, during 1993 fixed maturity investments were redeemed
prior to their scheduled maturity dates, resulting in additional investment
income of approximately $.8 million.
Net trading income. Net trading income (after applicable expenses,
minority interest and taxes) increased $6.2 million in 1993 compared to total
1992. Bankers' trading activities commenced in November 1992, after its
acquisition by the Partnership.
Net realized gains. Bankers sold approximately $2.2 billion of fixed
maturity investments in 1993, realizing gains (after applicable expenses,
amortization, minority interest and taxes) of $2.9 million. For the ten month
period ended October 31, 1992, realized investment losses included writedowns
primarily related to Bankers' mortgage-backed security portfolio of derivative
collateralized mortgage obligations, which portfolio was transferred to a trust
later acquired by ICH or sold to ICH prior to the acquisition of Bankers by the
Partnership.
Net realized gains relate to securities sold in response to changes in the
investment environment which created opportunities to enhance the risk profile
of the investment portfolio by replacing existing securities with alternative
securities without adversely affecting the quality of the portfolio or the
matching of expected maturities of assets and liabilities. The sales of these
securities at a gain followed by reinvestment of the proceeds at lower yields
may, absent other management action, tend to decrease future investment yields.
The Company believes, however, that the decreases in future investment yields
that may result from these sales will not have a significant effect on future
net income because: (i) additional amortization of the cost of policies
purchased and the cost of policies produced was recognized to reflect reduced
future yields (see the following paragraph); (ii) interest rates credited to
some products were reduced, diminishing the effect of the yield decrease on the
investment earnings spread; and (iii) the investment portfolio increased as a
result of reinvesting the realized gains.
The realization of investment gains affects the timing of the amortization
of cost of policies purchased and cost of policies produced. As a result of
net realized gains from the sales of fixed maturity investments in 1993,
amortization of cost of policies purchased and cost of policies produced was
increased by $21.0 million and $9.5 million, respectively.
<PAGE>
<PAGE> 25
Insurance policy benefits. Total insurance policy benefits (including
change in future policy benefits) increased $23.9 million, or 2.8 percent, in
1993 over the total amount in 1992. The increase related primarily to an
increase in premiums with mortality and morbidity features written by Bankers.
Purchase accounting adjustments were made to insurance liabilities
in conjunction with the acquisitions of Bankers made by the Partnership in
November 1992 and Conseco in September 1993 (as described in Note 2 to the
consolidated financial statements). The impact of these adjustments was that
insurance policy benefits (and change in future policy benefits) in 1993 were
lower than the amounts which would have been recorded had the accounting basis
of insurance liabilities been the same as in 1992. Such decline somewhat
offsets the increases described above. Loss ratios did not change
significantly.
Interest expense on long-term debt. Interest expense on long-term debt
increased $28.6 million in 1993 compared to the total amount in 1992. This
interest relates to debt incurred to finance the acquisition of Bankers by the
Partnership effective October 31, 1992. Therefore, interest expense was
incurred for a full year in 1993 compared to two months in 1992.
Other operating costs and expenses. Other operating costs and expenses
decreased $11.1 million, or 6.7 percent, in 1993 compared to the total amount
in 1992 as a result of cost reductions realized subsequent to the acquisition
of Bankers.
Extraordinary charge. In 1993 Bankers retired all of its junior notes,
prepaid a portion of its senior term loan and repurchased $20 million of its
Series B Senior Subordinated Notes, resulting in a net extraordinary charge of
$7.9 million, of which Conseco's share was $3.1 million.
Western:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Revenues:
Insurance policy income $ 21.8 $ 48.0 $ 43.9
Investment activity:
Net investment income 610.1 507.8 450.7
Net trading income 49.6 25.0 23.8
Net realized gains 92.7 72.4 62.2
Total revenues 774.2 653.2 580.6
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 121.2 130.2 125.9
Interest expense on annuities and
financial products 333.1 267.1 249.5
Amortization related to operations 16.5 16.3 11.3
Amortization and change in future policy
benefits related to realized gains 84.3 64.6 24.3
Other operating costs and expenses 8.4 12.1 14.2
Income before taxes 204.5 156.8 149.0
Income tax expense 74.5 54.6 51.5
Net income 130.0 102.2 97.5
Summarized by component, all net of
applicable expenses and taxes:
Operating earnings, excluding
trading income 93.4 80.6 56.8
Net trading income 32.1 16.5 15.7
Net realized gains 4.5 5.1 25.0
Net income 130.0 102.2 97.5
</TABLE>
<PAGE>
<PAGE> 26
General. Western's increased operating earnings principally reflected the
slightly widened spread between investment yields and policy crediting rates
on an increasing base of invested assets during the periods presented. The
increase in invested assets in 1993 was affected by: (i) the recapture of
reinsurance from subsidiaries of Conseco on March 31, 1993, resulting in an
increase of $1.3 billion in insurance liabilities and invested assets; and (ii)
the recapture of reinsurance from a nonaffiliated company on June 30, 1993,
resulting in an increase of $156.5 million in insurance liabilities and
invested assets.
Insurance policy income. Insurance policy income related primarily to
premiums from products with mortality and morbidity features. Declines from
1992 to 1993 have resulted from decreased emphasis on generating new premiums
from such products.
Net investment income. Net investment income has increased over the last
three years because of the overall growth of invested assets resulting from
operations and the reinsurance recaptures described above, partially offset by
lower yields on the investment portfolio. In addition, during 1993, 1992 and
1991, fixed maturity investments were redeemed prior to their scheduled
maturity dates, resulting in additional investment income of approximately
$18.0 million, $12.8 million and $3.5 million, respectively.
Net trading income. The increases in net trading income (after applicable
expenses and taxes) in 1993 over the prior two years were primarily due to more
favorable market conditions for trading activities.
Net realized gains. Net realized gains (after applicable expenses,
amortization, change in future policy benefits and taxes) often fluctuate from
year to year. Western sold fixed maturity investments of $3.6 billion, $2.4
billion and $2.9 billion in 1993, 1992 and 1991, respectively.
The effect of sales of fixed maturities on the amortization of cost of
policies purchased and cost of policies produced is discussed above under
"Bankers." As a result of the net realized gains from the sales of fixed
maturity investments in 1993, 1992, and 1991, amortization of the cost of
polices purchased was increased by $14.0 million, $42.1 million and $13.1
million, respectively and amortization of the cost of policies produced was
increased by $33.2 million, $22.5 million and $11.2 million, respectively. In
addition, the realization of investment gains affected the timing of additions
to insurance liabilities, resulting in an increase of $37.1 million in 1993.
Insurance policy benefits. Total insurance policy benefits (including
change in future policy benefits), which relate solely to policies with
mortality and morbidity features, fluctuated very little over the last three
years, due to decreased emphasis on generating new premiums from such products.
Interest expense on annuities and financial products. Interest expense on
annuities and financial products has increased over the last three years as a
result of increased annuity deposits, offset by reduced interest rates credited
on these products. The average rate credited on all insurance liabilities was
6.4 percent, 7.6 percent and 8.1 percent at December 31, 1993, 1992 and 1991,
respectively. The decline in credited rates over this period resulted from the
lower interest rate environment. The 1993 increase in this expense was largely
affected by the reinsurance recapture by Western as discussed under "General"
above.
Other operating costs and expenses. The decreases in other operating costs
and expenses in 1993 from 1992 and in 1992 from 1991 were primarily due to
reduced guaranty fund assessments. The decrease in 1993 also reflected
decreased commissions on renewal premiums.
<PAGE>
<PAGE> 27
CCP:
Prior to July 1, 1992, Conseco exercised unilateral control over CCP;
therefore, the accounts of CCP were included in the consolidated financial
statements of Conseco. After CCP's IPO, Conseco no longer had unilateral
control over CCP and included CCP's results in its financial statements on the
equity, rather than the consolidation, method. The financial information below
summarizes the amounts included in Conseco's consolidated financial statements
and the total accounts of CCP for the three-year period.
<TABLE>
<CAPTION>
For the years ended December 31,
---------------------------------------------------------------------
1993 1992 1991
---------------------------------------------------------------------
(Dollars in millions)
Included in Included in Included in
Total Conseco's Total Conseco's Total Conseco's
CCP Accounts CCP Accounts CCP Accounts
--- --------- --- -------- --- --------
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Insurance policy income $127.8 $ - $139.5 $ 67.1 $161.9 $161.9
Investment activity:
Net investment income 412.9 - 380.4 187.0 318.1 318.1
Net trading income 24.3 - 15.6 5.0 17.4 17.4
Net realized gains 55.8 - 63.5 22.7 41.7 41.7
Equity in earnings of CCP - 37.4 - 15.8 - -
Equity in earnings of Bankers 1.2 - .7 - - -
Gain on sale of stock by Bankers 10.5 - - - - -
Total revenues 632.5 37.4 599.7 297.6 539.1 539.1
Benefits and expenses:
Insurance policy benefits and
change in future policy benefits 77.0 - 77.1 34.6 94.7 94.7
Interest expense on annuities
and financial products 243.5 - 251.1 124.5 217.1 217.1
Interest expense on long-term debt 16.1 - 26.1 17.9 39.0 39.0
Interest expense on short-term
investment borrowings 4.4 - 2.3 1.6 5.9 5.9
Amortization related to operations 29.4 - 23.2 13.4 24.5 24.5
Amortization and change in future
policy benefits related to
realized gains 36.4 - 45.9 13.7 18.0 18.0
Other operating costs and expenses 52.2 - 55.1 27.2 54.0 54.0
Income before taxes, minority
interest and extraordinary charge 173.5 37.4 118.9 64.7 85.9 85.9
Income tax expense 65.9 2.8 42.0 18.6 30.1 33.5
Income before minority interest
and extraordinary charge 107.6 34.6 76.9 46.1 55.8 52.4
Minority interest - - - 16.2 - 24.0
Extraordinary charge - - (8.8) (3.9) - -
Net income 107.6 34.6 68.1 26.0 55.8 28.4
Less preferred stock dividends - - 3.8 2.1 5.0 3.6
Earnings applicable to common stock 107.6 34.6 64.3 23.9 50.8 24.8
Summarized by component, all net
of applicable expenses, taxes and minority interest:
Operating earnings, excluding
trading income 81.1 34.6 55.4 23.2 28.6 10.9
Net trading income 15.8 - 10.1 1.6 11.5 5.3
Net realized gains 10.7 - 11.4 3.0 15.7 8.6
Extraordinary charge - - (8.8) (3.9) - -
Net income 107.6 34.6 68.1 23.9 55.8 24.8
</TABLE>
CCP's earnings during the three years ended December 31, 1993, were
affected by: (i) a widened spread between investment yields and policy
crediting rates on an increasing base of invested assets; (ii) the reduced
interest expense resulting from the reduction in CCP's long-term debt through
scheduled and unscheduled principal payments and lower interest rates;
(iii) the purchase of Beneficial Standard in March 1991; and (iv) the
investment of the net proceeds (after prepayment of certain debt) from CCP's
IPO in July 1992 and its second public offering in September 1993. Conseco's
equity in the earnings of CCP during the three years ended December 31, 1993,
was affected by these factors and changes in Conseco's ownership interest in
CCP resulting from CCP's IPO and other transactions described in Note 4 to the
consolidated financial statements. In addition, in 1992, Conseco's equity in
the earnings of CCP included a $3.9 million extraordinary charge related to
CCP's prepayment of debt. At December 31, 1993, Conseco owned 40 percent of
the common stock of CCP. Such shares owned by Conseco had a net carrying value
of $244.3 million, a fair value of approximately $322.1 million and a total
cost to Conseco of $102.8 million.<PAGE>
<PAGE> 28
CCP was a partner in the Partnership's investment in Bankers. In
conjunction with BLH's IPO, CCP's investment in the Partnership was exchanged
for approximately 2.8 percent of the common stock of BLH. Through the date of
the IPO, CCP had recognized equity in earnings of Bankers of $1.2 million and
$.7 million in 1993 and 1992, respectively. A gain on the sale of stock by BLH
of $10.5 million was recognized at the time of the exchange. After the IPO,
CCP's investment in BLH is carried at fair value, with any unrealized gain or
loss, net of income tax, included directly in shareholders' equity.
Conseco's direct ownership in BLH and its indirect ownership through CCP
represent a controlling interest. Accordingly, Conseco's investment in BLH is
accounted for using the consolidation method. Conseco's ownership interest
in Bankers through CCP is included in the "Bankers" segment. Conseco's
ownership interest in the gain recognized by CCP in conjunction with the IPO
is included in the "Acquisitions and Restructuring" segment.
Wholly owned insurance subsidiaries of Conseco, excluding Western:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Revenues:
Insurance policy income $ 72.3 $ 81.4 $ 79.6
Investment activity:
Net investment income 110.2 181.3 162.5
Net trading income 13.4 3.2 12.7
Net realized gains 11.5 22.2 21.4
Total revenues 207.4 288.1 276.2
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits 82.3 90.0 92.9
Interest expense on annuities and
financial products 38.9 109.9 110.1
Amortization related to operations 7.6 16.2 15.4
Amortization related to realized gains 11.5 15.1 8.1
Other operating costs and expenses 12.0 18.2 15.9
Income before taxes 55.0 38.1 29.5
Income tax expense 20.2 13.8 10.6
Net income 34.8 24.3 18.9
Summarized by component, all net
of applicable expenses and taxes:
Operating earnings, excluding
trading income 27.5 18.6 14.0
Net trading income 8.6 1.6 1.5
Net realized gains (losses) (1.3) 4.1 3.4
Net income 34.8 24.3 18.9
</TABLE>
Insurance policy income. Insurance policy income related primarily to
premiums from products with mortality and morbidity features and the recent
declines have resulted from decreased emphasis on generating new premiums from
such products.
<PAGE>
<PAGE> 29
Net investment income. Net investment income decreased from 1992 to 1993
because of the recapture of reinsurance by Western from Conseco's other wholly
owned life insurance subsidiaries on March 31, 1993, which resulted in a
decrease of $1.3 billion in insurance liabilities and invested assets. Net
investment income increased from 1991 to 1992 as a result of the overall growth
of invested assets resulting from operations. In addition, during 1993, 1992
and 1991 fixed maturity investments were redeemed prior to their scheduled
maturity dates, resulting in additional investment income of approximately $3.7
million, $7.5 million and $.4 million, respectively.
Net trading income. The increase in net trading income (after applicable
expenses and taxes) in 1993 over the prior two years was primarily due to more
favorable market conditions for trading activities.
Net realized gains. Net realized gains (after applicable expense,
amortization and taxes) often fluctuate from year to year. Fixed maturity
investments of $.6 billion, $.9 billion and $.6 billion were sold in 1993, 1992
and 1991, respectively.
The effect of sales of fixed maturities on the amortization of cost of
policies purchased and cost of policies produced is discussed above under
"Bankers." As a result of the net realized gains from the sales of fixed
maturity investments by Conseco's other wholly owned life insurance
subsidiaries in 1993, 1992 and 1991, amortization of the cost of policies
purchased was increased by $11.0 million, $7.9 million and $2.4 millon,
respectively, and amortization of the cost of policies produced was increased
by $.5 million and $7.2 million and $5.7 million, respectively.
Insurance policy benefits. Total insurance policy benefits (including
change in future policy benefits) which relate solely to policies with
mortality and morbidity features have fluctuated over the last three years due
to the decreased emphasis on generating new premiums from such products.
Interest expense on annuities and financial products. Interest expense on
annuities and financial products decreased from 1992 to 1993 as a result of the
reinsurance recapture by Western National. Such expense increased from 1991
to 1992 as a result of increased annuity deposits, offset by reduced rates
credited on these products. The average rate credited on all insurance
liabilities was approximately 7.0 percent at December 31, 1993 and 1992, and
approximately 7.9 percent at December 31, 1991.
Amortization related to operations. Amortization related to operations
decreased in 1993 from 1992 as a result of the recapture of reinsurance, which
was previously discussed.
Other operating costs and expenses. The decrease in other operating costs
and expenses in 1993 from 1992 was primarily due to the reinsurance recapture
by Western National, which was previously discussed. The increase in other
operating costs and expenses in 1992 from 1991 was due to several factors
including increased guaranty fund assessments and compensation costs.
Life Re:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Equity in earnings of Life Re $ - $11.3 $9.3
Income tax expense - .7 .7
Net income attributable to
investment in Life Re - 10.6 8.6
</TABLE>
Conseco's ownership interest in Life Re was sold in November 1992, thereby
terminating this source of income.
<PAGE>
<PAGE> 30
Services Provided for Fees:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Revenue:
Investment management $34.1 $25.0 $19.1
Commissions 9.4 1.7 1.4
Administrative services, net of
directly related expenses 5.5 3.5 1.9
Total revenue 49.0 30.2 22.4
Less intercompany eliminations (22.5) (17.3) (17.0)
Revenues reported 26.5 12.9 5.4
Net income attributable to:
Investment management 14.7 12.3 10.2
Commissions (4.0) (.1) (.3)
Administrative services 3.6 2.3 1.3
Net income 14.3 14.5 11.2
</TABLE>
Conseco's fee revenues include: (i) fees for investment management and
mortgage origination and servicing; (ii) commissions earned for insurance and
investment product marketing and distribution; and (iii) administrative fees
for policy administration, data processing, product marketing and executive
management services. To the extent these services are provided to entities
that are included in the financial statements on a consolidated basis, the
intercompany fees are eliminated in consolidation.
In March 1993, Conseco acquired Marketing Distribution Systems Consulting
Group, Inc. and Subsidiaries ("Bankmark"), an insurance marketing company which
develops relationships with financial institutions to provide insurance
and investment products to their customers. Through Bankmark, financial
institutions can offer products from several insurance companies, including
Western National. After its acquisition by Conseco, Bankmark began a formal
program to actively expand its business by developing relationships with a few
large money-center banks to assist them in distributing retail insurance
products to their customers. As a result of the costs incurred in conjunction
with Bankmark's expansion efforts, Bankmark incurred a net loss of
approximately $3.7 million during the period from its acquisition through
December 31, 1993.
Growth in total fees during the last three years was the result of new
clients (both affiliated and others) and from growth in fee-producing
activities provided to such clients. Commission revenues of Bankmark,
subsequent to its acquisition in March 1993, totaled $7.4 million.
Acquisitions and Restructuring of Life Insurance Companies:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Incentive earnings allocation $ 36.6 $ 9.3
Gain on sale of stock 101.5 45.6
Total revenues 138.1 54.9
Income tax expense 54.8 31.6
Net income 83.3 23.3
</TABLE>
<PAGE>
<PAGE> 31
The incentive earnings allocations were earned when total returns realized
by the other partners in the first partnership exceeded prescribed targets.
Such amounts were recorded: (i) in 1992 based on the returns resulting from the
value of the CCP shares distributed to the partners; and (ii) in 1993, based
on the value of BLH shares so distributed. Income from the sale of stock in
1992 resulted from Conseco's sale of its ownership in Life Re and from
Conseco's share of the gain realized from the public sale of shares by CCP.
The 1993 gain related to the public sale of shares by BLH.
Corporate and other:
<TABLE>
<CAPTION>
For the years ended December 31,
--------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Net investment income $12.4 $ 8.4 $10.0
Total revenues 14.1 9.3 10.9
Interest expense on long-term debt 30.6 33.7 49.5
Other operating costs and expenses 35.9 26.2 22.5
Income tax benefit 17.6 17.3 21.1
Expenses before extraordinary charge 34.8 33.3 40.0
Extraordinary charge on extinguishment
of debt 8.8 1.4 5.0
Net loss 43.6 34.7 45.0
</TABLE>
These operations include financing costs for debt on which Conseco is
directly liable and the costs associated with the holding company operations.
The 32 percent decline in interest expense on long term debt from 1991 to
1992 was attributable to declines in long-term debt through scheduled and
unscheduled principal payments. Interest expense for 1993 reflected: (i) the
decline in long-term debt through scheduled and unscheduled principal payments;
(ii) the refinancing of 12.75 percent senior subordinated notes through the
issuance of 8.125 percent senior notes; and (iii) the $200 million senior
secured loan used to acquire additional shares of Bankers in September 1993
(such debt was repaid in February 1994 with a portion of the proceeds from the
IPO of WNC).
Other operating costs and expenses increased over the last three years
principally as the result of compensation expense based on the Company's
increased earnings.
SALES
Insurance policy income shown in the Company's consolidated statement of
operations in accordance with generally accepted accounting principles consists
of premiums received for policies which have life contingencies or morbidity
features. For annuity and universal life contracts without such features,
premiums collected are not reported as revenues, but rather are reported as
deposits to insurance liabilities. Revenues for products recognized as
deposits to insurance liabilities are recognized over time in the form of
investment income and surrender or other charges.
<PAGE>
<PAGE> 32
Premiums collected by Bankers. Total premiums collected in 1993 were
$1,464.7 million, of which $264.0 million were recorded as deposits to policy
liability accounts. This compares to $1,368.9 million collected and $233.3
million recorded as deposits to policy liability accounts in 1992. Bankers
amounts in 1992, which are used as a basis of comparison in this discussion,
include periods prior to Conseco's acquisition of Bankers in November 1992.
Collected premiums by type are provided in the following table for 1993 and
1992:
<TABLE>
<CAPTION>
For the years ended
December 31,
--------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Individual health:
Medicare supplement $ 565.5 $ 524.9
Long-term care 114.9 103.5
Other 142.4 160.5
-------- --------
Total individual health 822.8 788.9
Annuities 239.1 187.0
Individual life and other 93.1 93.0
Group 309.7 300.0
-------- --------
Total $1,464.7 $1,368.9
======== ========
</TABLE>
Total collected premiums of Medicare supplement policies accounted for 39
percent of total collected premiums in 1993 and 38 percent in 1992. During the
fourth quarter of 1992, Bankers assumed a block of Medicare supplement policies
from an unrelated insurer. Collected premiums in 1993 and 1992 included $16.9
million and $19.4 million, respectively, related to the assumed policies.
Bankers' new strategy of pricing Medicare supplement policies on an attained
age basis (which produces lower first year premiums which then increase
annually) and an increase in the proportion of policies sold with lesser
benefits caused annualized new business premiums from such new sales to
decrease to $79.6 million in 1993 compared to $83.0 million in 1992. However,
even with the new pricing strategy, Bankers' 1993 annualized new business
premiums were up 7.1 percent over 1992 sales of $74.3 million.
Long-term care plans accounted for 7.8 percent of total collected premiums
in 1993 and 7.6 percent in 1992. The increase was due to growth in new
business and a larger base of renewal premiums. Annualized new business
premiums were $21.5 million in 1993 and $18.1 million 1992.
Annuity premiums collected increased 28 percent in 1993 over 1992.
Virtually all of this increase related to sales of single premium deferred
annuities. The increase occurred because of an increased marketing emphasis
placed on annuity sales.
Collected premiums for other individual health products decreased 11
percent in 1993 compared to 1992, as anticipated, due to steps taken previously
to improve the profitability of the comprehensive major medical product
included in this category.
Premiums collected by Western. Total premiums collected were $563.0
million, $840.7 million and $1,267.5 million in 1993, 1992 and 1991,
respectively. The decline in total premiums collected was principally due to
decreased annuities sold through financial institutions reflecting: (i)
increased competition from other carriers (including those with higher
ratings); (ii) consumer purchases of alternative investments, such as variable
annuities and mutual funds, during these periods of low interest rates; and
(iii) Western's focus on maintaining profitability levels on single premium
deferred annuities. Western's principal emphasis is to generate profits
through adequate pricing of its insurance products and maintaining
appropriate investment spreads throughout the life of the policies sold. The
operating income of Western is primarily a function of its investment spread,
total invested assets and operating expenses. Accordingly, a change in
premiums collected in a single period does not directly cause income to change,
although continued increases or decreases in premiums may affect the rate of
growth of total assets on which investment spread is earned.
<PAGE>
<PAGE> 33
During 1993, Western entered into marketing agreements with several large
financial institutions who are expected to issue Western annuities in 1994.
Premiums collected by Conseco's wholly owned subsidiaries excluding
Western. Total premiums collected were $148.2 million, $82.6 million and $86.6
million in 1993, 1992 and 1991, respectively. During 1993, the Company
collected $61.8 million of premiums from guaranteed investment contracts and
deposit funds for qualified retirement plans maintained by a subsidiary of the
Company.
INVESTMENTS
The Company's investment strategy is to maintain a predominately
investment-grade fixed-income portfolio, provide adequate liquidity for
expected liability durations and other requirements and maximize total return
through active investment management. At December 31, 1993, the Company had
invested assets of approximately $11.7 billion. These assets were primarily
actively managed fixed maturities, credit-tenant loans, policy loans, trading
account securities, investment in CCP and short-term investments.
The following table shows Conseco's investment performance during the last
three years, including subsidiaries and Partnership companies from the date
each was acquired and including the CCP Companies until the date of
deconsolidation.
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Weighted average invested assets
(excluding investment in CCP) $10,977.5 $9,524.5 $9,654.7
Net investment income 896.2 888.6 921.4
Percent earned 8.2% 9.3% 9.5%
</TABLE>
A general decline in interest rates has reduced investment yields over the
past three years. Investment income is a significant component of the
Company's total revenues, but profitability is determined by spreads between
interest rates earned and rates credited on annuity contracts. At December 31,
1993, the average yield on the Company's investment portfolio was 8.2 percent
and the average interest rate credited on the Company's total liability
portfolio was 6.5 percent.
Actively Managed Fixed Maturities
Conseco's actively managed fixed maturity portfolio at December 31, 1993,
was comprised primarily of debt securities of the U.S. government, public
utilities and other corporations and mortgage-backed securities. Investments
in mortgage-backed securities included collateralized mortgage obligations
("CMO's") and mortgage-backed pass-through securities.
At December 31, 1993, the Company's fixed maturity portfolio (including
securities actively managed and held to maturity) had net unrealized gains of
$295.7 million (equal to approximately 3.0 percent of the portfolio's carrying
value), consisting of $384.3 million of unrealized gains and $88.6 million of
unrealized losses. Estimated fair values for fixed maturity investments were
determined based on estimates from nationally recognized pricing services,
broker-dealer market makers and internally developed methods.
As discussed in the notes to the consolidated financial statements, when
the carrying values of actively managed fixed maturity investments are adjusted
for changes in fair value, cost of polices purchased, cost of policies produced
and insurance liabilities are also adjusted to reflect the change in
amortization that would be needed had those fixed maturity investments actually
been sold at their fair values and the proceeds reinvested at current interest
rates.
Investments in fixed maturities that were rated below investment-grade as
determined by nationally recognized statistical rating organizations (or, if
not rated by such firms, with ratings below Class 2 assigned by the National
Association of Insurance Commissioners) were 5.1 percent of total invested
assets and 6.1 percent of total fixed maturity investments at December 31,
1993. The Company currently plans to maintain approximately the present
percentage of its portfolio in fixed maturities that are rated below <PAGE>
<PAGE> 34
investment-grade. Investments in below investment-grade corporate debt
securities generally have greater risks than other corporate debt investments.
Risk of loss upon default by the borrower is greater with below
investment-grade corporate debt securities because these securities generally
are unsecured and often are subordinated to other creditors of the issuers, and
because the issuers usually have high levels of indebtedness and are more
sensitive to adverse economic conditions, such as recession or increasing
interest rates, than are investment-grade issuers. The Company is aware
of this risk exposure and monitors its below investment-grade securities
closely.
The creditworthiness of each issuer whose securities are held in the
portfolio is evaluated periodically, with special attention to those securities
whose market values have declined materially for reasons other than changes in
interest rates or other general market conditions. Available evidence is
considered to evaluate the realizable value of the investment, including
specific conditions of the issuer and its ability to comply with the material
terms of the security. Evidence reviewed may include the recent operational
results and financial position of the issuer, information about its industry,
recent press releases and other information. A staff of experienced securities
analysts is employed in a variety of specialty areas. Among other
responsibilities, this staff compiles and reviews such evidence. If evidence
does not exist to support a realizable value equal to or greater than the
carrying value of the investment and such decline in market value is determined
to be other than temporary, the carrying amount is reduced to its net
realizable value, which becomes the new cost basis. The amount of the
reduction is reported as a realized loss. Any recovery of such reductions in
the cost basis of an investment will be recognized as a realized gain only upon
the sale, repayment or other disposition of the investment. The Company
recorded writedowns of investments of $7.9 million as a result of conditions
which arose in 1993 which caused the Company to conclude the issuer may be
unable to comply with the material terms of the security.
The carrying value and estimated fair value of fixed maturity investments
which were in substantive default (i.e., in default due to nonpayment of
interest or principal) as of December 31, 1993, were both $25.3 million, net
of recorded writedowns totaling $16.8 million. The Company had no fixed
maturity investment in technical (but not substantive) default, (i.e., in
default, but not as to the payment of interest or principal). There were no
other fixed maturity investments about which management has serious doubts as
to the ability of the issuer to comply on a timely basis with the material
terms of the instruments.
All mortgage-backed securities are subject to risks associated with
variable prepayments. This may result in these securities having a different
actual maturity than planned at the time of purchase. Securities that have a
carrying value greater than par which are backed by mortgages that prepay
faster than expected will result in an adjustment charged to investment income.
Those securities that have a carrying value less than par that prepay faster
than expected will result in an adjustment credited to investment income. The
degree to which a security is susceptible to either gains or losses is
influenced by the difference between its carrying value and par, the relative
sensitivity of the underlying mortgages backing the assets to prepayment in a
changing interest environment and the repayment priority of the securities in
the overall securitization structure.
The Company limits the extent of these risks by (i) purchasing securities
which are backed by collateral with lower prepayment sensitivity (such as
mortgages priced at a discount to par value and mortgages that are extremely
seasoned), (ii) avoiding securities whose values are heavily influenced by
changes in prepayments (such as interest-only and principal-only securities)
and (iii) concentrating on securities with prepayment protected structures
(such as planned amortization class ("PAC") CMOs. PAC instruments represented
approximately 44 percent of the Company's mortgage-backed securities at
December 31, 1993. The call-adjusted modified duration of the Company's
mortgage-backed securities at December 31, 1993, was 4.7 years.
If the Company determines that actively managed fixed maturity investments
will be disposed of, the security will be either (i) sold and the gain or loss
recognized or (ii) transferred to the trading account at its fair value. There
<PAGE>
<PAGE> 35
were no such transfers in 1993. During 1993, the Company sold actively managed
fixed maturity securities with a $6.4 billion book value, resulting in $168.3
million of investment gains (before related expenses, amortization and taxes).
The sales of fixed maturity securities that result in investment gains may,
absent any other management action, tend to decrease future interest yield on
the portfolio. The Company believes that the decreases in future interest
yields that may result because of these sales will not have a significant
effect on future net income because, as explained in Note 11 to the
consolidated financial statements, the Company reduced the balances of the cost
of policies purchased and cost of policies produced by a total of $89.2
million and increased insurance liabilities $37.1 million to reflect reduced
future yields, and because the Company has reduced interest rates credited to
products thereby widening the total spread earned on deposits and reserves.
During 1993, fixed maturity investments with par values totaling $1.2
billion were redeemed prior to the scheduled maturity date. Such redemptions
resulted in the recognition of additional investment income of approximately
$22.5 million.
Other investments
Credit-tenant loans are commercial loans which require the principal
tenant, or any guarantor of such tenant's obligations, to have a credit rating
at the time of origination of the loan of at least BBB or its equivalent. The
underwriting guidelines consider such factors as the lease term of the
property; the mortgagee's management ability, including business experience,
property management capabilities and financial soundness; and such economic,
demographic or other factors that may affect the income generated by the
property or its value. The underwriting guidelines also require a loan to
value ratio of 75 percent or less. Credit-tenant loans are carried at
amortized cost and were $326.9 million at December 31, 1993, or 2.8 percent of
total invested assets. The total estimated fair value of credit-tenant loans
was $325 million at December 31, 1993.
At December 31, 1993, the Company held mortgage loan investments with a
carrying value of $158.4 million (or 1.4 percent of total invested assets) and
a fair value of $175 million. Approximately 78 percent of the mortgage loan
investments were commercial loans.
Approximately 22 percent of the Company's mortgage loan balance consisted
of investments in junior and residual interests of CMOs. Investments in junior
and residual interests of CMOs are instruments that entitle the Company to the
projected excess cash flows arising from the difference between (i) the cash
flows required to make principal and interest payments on the related CMOs and
(ii) the actual cash flows received on the mortgage loan assets included in the
CMO portfolios. If prepayments vary from projections on the mortgage loan
assets included in such CMO portfolios, the total cash flows to the Company
from such residual interests could change from projected cash flows, resulting
in a gain or loss.
Non-current mortgage loans were not significant at December 31, 1993. The
Company realized losses of approximately $6.1 million on mortgage loans for the
year ended December 31, 1993, including $5.8 million from permanent write-downs
of residual interests in collateralized mortgage obligation investments. At
December 31, 1993, the Company had a loan loss reserve of $3.9 million.
Approximately 22 percent, 15 percent, 10 percent and 8 percent of the mortgage
loans were on properties located in Texas, New York, Virginia and Missouri,
respectively. No other state comprised greater than 7 percent of the mortgage
loan balance.
At December 31, 1993, the Company held trading account securities with a
carrying value of $105.8 million. Trading account securities are investments
that are purchased with the intent to be traded prior to their maturity or are
believed likely to be disposed of in the foreseeable future as a result of
market or issuer developments. Effective December 31, 1993, with
the Company's adoption of Statement of Financial Accounting Standards No. 115
("SFAS 115"), trading account securities are carried at estimated fair value,
with the changes in fair value reflected in the statement of operations. Prior
to the adoption of SFAS 115, unrealized gains or losses on trading account
securities were reflected as a component of shareholders' equity and not in the
statement of operations. The net unrealized gain on trading account securities
at December 31, 1993, recorded in trading income as a result of adopting SFAS
115, was immaterial.
Short-term investments totaled $666.4 million, or 5.7 percent of invested
assets at December 31, 1993, and consisted primarily of commercial paper and
repurchase agreements relating to government securities.
<PAGE>
<PAGE> 36
CONSOLIDATED FINANCIAL CONDITION
Changes in the Consolidated Balance Sheet of 1993 Compared to 1992
Changes in the Company's consolidated balance sheet of 1993 compared to
1992 reflected the operations of the Company and the capital and financing
transactions discussed below.
The increase in total investments resulted principally from: (i) the net
cash flow from operations; (ii) the net proceeds from the public offering of
5.75 million shares of Series D cumulative convertible preferred stock; (iii)
the net proceeds received by Bankers from its IPO; (iv) investments received
by Bankers related to the recapture of insurance polices ceded in prior years;
and (v) an increase in the net unrealized gains on actively managed fixed
maturities.
Additionally, as part of its investment strategy, the Company enters into
reverse repurchase agreements and dollar roll transactions to increase its
return on investments and improve liquidity. These transactions are accounted
for as short-term collateralized borrowings and are collateralized by pledged
securities with fair values approximately equal to the loan value.
The average amount of investment borrowings during 1993 was approximately $410
million compared to $215 million during 1992. The increase in investment
borrowings at December 31, 1993, contributed to the increase in the Company's
investments.
The investment in CCP increased during 1993 as a result of the Company's
equity in CCP's earnings and the purchase of additional shares of common stock
of CCP in September 1993, as described in Note 2 to the consolidated financial
statements.
Reinsurance receivables, which primarily represent liabilities ceded under
reinsurance agreements, decreased as a result of the recapture of insurance
policies that had previously been ceded to nonaffiliated companies as described
in Note 6 to the consolidated financial statements.
During 1993, goodwill increased as a result of: (i) the purchase of
additional shares of common stock of Bankers in September 1993; (ii) the
initial public offering of BLH and related transactions completed in March
1993; and (iii) the purchase of Bankmark in the first quarter of 1993. These
transactions are further described in Note 2 to the consolidated financial
statements.
Insurance liabilities increased primarily as a result of additional annuity
deposits and interest credited on annuity deposits, net of withdrawals.
As described in Note 1 to the consolidated financial statements, Bankers
competed an IPO in March 1993. The net proceeds from the offering of $405.3
million were used, in part, to redeem all of the $52.2 million par value
Bankers' preferred stock held by minority interests. The change in minority
interest during 1993 was attributable to the minority interests' share of: (i)
the net increase in Bankers' shareholders' equity attributable to the IPO and
related transactions; and (ii) the results of Bankers' operations for the year,
offset by Conseco's purchase of additional common stock of Bankers in September
1993 and the redemption of Bankers' preferred stock.
Preferred stock increased in 1993 due to the public offering of 5.75
million shares of Senior D cumulative convertible preferred stock, net of the
retirement of all previously outstanding preferred stock.
The $12.6 million decline in common stock and additional paid-in-capital
was a result of the repurchase of 450,700 shares of common stock for $25.3
million as part of a stock repurchase program, $9.0 million of costs associated
with the public offering of preferred stock (as discussed above) and a $3.8
million increase in the nonvested portion of stock under employee stock and
deferred compensation plans. Offsetting these declines, 851,110 shares of
common stock were issued pursuant to the Company's stock option and deferred
compensation programs for net proceeds and tax benefits of $25.5
million and 274 Series D preferred shares were converted to 215 shares of
common stock. As a result of changes in common stock accounts, the number of
common shares outstanding increased 400,625 shares.
<PAGE>
<PAGE> 37
Financial Ratios
The following table sets forth selected debt ratios for each of the five
years ended December 31, 1993.
<TABLE>
<CAPTION>
Years Ended December 31,
----------------------------------
1993 1992 1991 1990 1989
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Ratio of earnings to fixed
charges 1.90X 1.50X 1.32X 1.16X 1.26X
Ratio of earnings to fixed
charges, excluding interest
on annuities and financial
products 6.96X 5.89X 3.41X 1.95X 2.49X
Ratio of earnings to fixed
charges on debt for which
Conseco is directly liable,
excluding interest on annuities
and financial products 8.34X 7.21X 3.67X 2.08X 2.49X
Ratio of earnings to fixed
charges and preferred
dividends 1.78X 1.47X 1.29X 1.14X 1.20X
Ratio of earnings to fixed
charges and preferred dividends,
excluding interest on
annuities and financial
products 4.72X 4.80X 2.95X 1.72X 1.94X
Ratio of earnings to fixed
charges and preferred dividends
for which Conseco is directly
liable, excluding interest
on annuities and financial
products 4.25X 5.66X 3.04X 1.79X 1.94X
Ratio of total debt (including
debt of CCP guaranteed by
Conseco until its retirement
in 1993) to equity and minority
interest .51X .94X .97X 2.67X 1.90X
Ratio of debt for which Conseco
is directly liable to equity .36X .27X .43X 1.53X 1.90X
</TABLE>
Liquidity for Insurance Operations
Conseco's insurance operating companies generally provide adequate cash
flow from premium collections and investment income to meet their obligations.
The liabilities related to insurance policies are primarily long term and
generally are paid from future cash flows. Most of the assets, other than
policy loans and the investment in CCP, are invested in bonds and other
securities, substantially all of which are readily marketable. Although there
is no present need or intent to dispose of such investments, the life companies
could liquidate portions of the investments if such a need arose. To increase
their return on investments and improve liquidity, the life companies from time
to time will lend United States Treasury securities in reverse repurchase
agreements. The life companies may also lend mortgage-backed securities to
increase yield and income through the better financing rate typically found in
such dollar roll transactions, which are specialized forms of collateralized
lending involving mortgage-backed securities.
<PAGE>
<PAGE> 38
Of the companies' total insurance liabilities at December 31, 1993,
approximately 74 percent may be surrendered by the policyholder, of which 71
percent were subject to penalty if surrendered. Payment characteristics of the
insurance liabilities at December 31, 1993, were as follows (dollars in
millions):
<TABLE>
<CAPTION>
Payments under contracts containing
fixed payment dates:
<S> <C>
Due in one year or less $ 210.1
Due after one year through five years 784.3
Due after five years through ten years 874.7
Due after ten years 4,363.8
---------
Total gross payments whose payment
dates are fixed by contract 6,232.9
Less amounts representing future
interest on such contracts 4,205.8
---------
Insurance liabilities whose payment
dates are fixed by contract 2,027.1
Insurance liabilities whose payment
dates are not fixed by contract 8,771.2
---------
Total insurance liabilities $10,798.3
=========
</TABLE>
Of the above insurance liabilities under contracts containing fixed payment
dates, approximately 35 percent related to payments that will be made on such
date only if the contract holder is living. Expected mortality is considered
in determining the amount of this liability. The remainder of the insurance
liabilities with fixed payment dates were payable regardless of the contract
holder's survival.
Approximately 29 percent of the insurance liabilities were subject to
interest rates, ranging from 3 percent to 12 percent, fixed for the life of the
contract. The remaining liabilities generally were subject to interest rates
that may be reset at least annually.
The Company believes that it has adequate short-term investments and
readily marketable investment grade securities to cover the payments under
contracts containing fixed payment dates plus any likely cash needs for all
other contracts. The Company's investment portfolio at December 31, 1993,
included $.2 billion of short-term investments (net of investment
borrowings), $.1 billion of trading account securities, $3.2 billion of U.S.
government/agency and mortgage-backed securities and $5.8 billion of
publicly-traded investment grade bonds. The Company believes that such
investments could be readily sold at or near carrying value or used to
facilitate borrowings under reverse repurchase agreements. At December 31,
1993, the Company's portfolio of bonds, notes and redeemable preferred stocks
had an aggregate unrealized gain of $295.7 million.
Liquidity of BLH
As a holding company whose principal assets are the securities of its
insurance subsidiaries, BLH's ability to meet debt service obligations and pay
operating expenses and dividends is dependent primarily on the receipt of
sufficient funds from its subsidiaries. Bankers Life Insurance Company of
Illinois ("BLI", the parent of Bankers Life) provides liquidity to BLH by
paying principal and interest on a surplus debenture and by paying dividends.
<PAGE>
<PAGE> 39
In connection with the acquisition of Bankers Life, BLH received a $500
million surplus debenture from BLI in exchange for funds provided to acquire
Bankers Life. The surplus debenture was approved by the Illinois Department
of Insurance ("DOI"). During 1993, BLI repaid principal of $15 million plus
accrued interest on the surplus debenture. Payments by BLI of principal and
interest on the surplus debenture may be made only when the DOI is satisfied
that the financial condition of BLI warrants that action, but such approval
may not be withheld if BLI submits satisfactory evidence of surplus of at least
the amount stipulated in the surplus debenture.
A summary of maturity dates and amounts (dollars in millions) of the
surplus debenture is shown below. Interest is payable quarterly generally at
prime plus two percent (8.0 percent at December 31, 1993).
<TABLE>
<S> <C>
1994 $ 25.0
1995 30.0
1996 30.0
1997 30.0
1998 30.0
Thereafter 340.0
------
Total $485.0
======
</TABLE>
BLI's ability to service its obligation under the surplus debenture is
dependent upon its ability to receive dividends and tax sharing payments from
Bankers Life. Bankers Life may pay dividends up to $82.5 million without
regulatory approval during 1994.
Under an inter-company tax sharing agreement, Bankers Life remits tax
payments to BLI based upon its tax liabilities calculated on a separate company
basis.
At December 31, 1993, BLH's debt service obligations included a $110
million principal amount senior term loan payable in annual installments and
$180 million principal amount of senior subordinated notes due in 2002. Future
annual debt service requirements are discussed in Note 8 to the consolidated
financial statements.
At December 31, 1993, BLH had short-term investments of $21.4 million.
Conseco believes that BLH could generate additional liquidity, if needed in the
future, through equity offerings, debt issuance or by the conversion of
existing assets to cash, including the sale or transfer of existing blocks of
insurance through reinsurance arrangements.
BLH contributed $114 million of the proceeds from its IPO to the capital
of its subsidiaries. BLH believes its life subsidiaries are adequately
capitalized and will not require additional investment to maintain their
current operations.
BLH makes cash distributions for fees for administrative services provided
by Conseco's wholly owned subsidiaries and for dividend payments on common
stock to all its shareholders.
Liquidity of the Parent Company
The parent company (Conseco, Inc.) needs liquidity primarily to service its
debt, pay dividends on preferred and common stock and meet administrative
expenses. The wholly owned insurance subsidiaries (excluding Western),
Bankers, Western and CCP provide liquidity to the parent company by paying
dividends and fees for services provided. These operations generate adequate
cash flow to meet the needs of the parent company's normal operations.
The parent company also may issue debt or equity securities periodically
to fund internal expansion, acquisitions, investment opportunities and for the
retirement of debt and equity. Such transactions during 1993 included the
following:
- In January 1993, the Company completed a public offering of 5.75 million
shares of Series D Cumulative Convertible Preferred Stock at $50 per
share. Proceeds from the offering of approximately $278.5 million
(after underwriting and associated costs) were added to the Company's
general funds. <PAGE>
<PAGE> 40
- In July 1993, the Company redeemed its $50.0 million stated value Series
B Preferred Stock.
- In February 1993, the Company completed a public offering of $200
million of 8.125 percent senior notes due in 2003. Proceeds from the
offering of $195.6 million (after original issue discount and
underwriting and other associated costs) were used to redeem all of the
Company's outstanding 12.75 percent senior subordinated notes and for
other general corporate purposes.
- In connection with Conseco's acquisition of additional shares of Bankers
common stock on September 30, 1993, a new $200 million senior term loan
was executed, with net proceeds to Conseco of $197.8 million (after fees
and other associated costs). This senior term loan was repaid with
proceeds from the IPO of WNC on February 15, 1994.
The following table shows the cash flow activity of the parent company and
its non-life subsidiaries from 1991 through 1993.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Amounts received:
Interest on surplus debentures $ - $ 36.9 $ 38.8
Dividends from subsidiaries 3.8 72.0 60.0
Tax sharing payments from
subsidiaries 101.9 - -
Fees for shared costs from wholly
owned subsidiaries 15.4 12.5 10.4
Principal on surplus debentures - 41.4 12.4
Fees from CCP Companies and
Bankers 18.3 8.6 6.0
Fees from unaffiliated companies 20.4 13.3 9.0
Proceeds from the sale of stock of
Life Re - 64.0 -
Proceeds from the issuance of
equity securities 281.7 6.3 133.1
Proceeds from the issuance of
debt 393.4 - -
Repayment of debt and redemption
of preferred stock
by BLH and CCP 118.3 12.1 -
Amounts paid:
Parent company costs (62.9) (27.7) (23.7)
Interest on debt of Conseco (23.7) (21.5) (35.4)
Interest on amounts due from
Conseco to life subsidiaries (8.6) (10.3) (11.1)
Common and preferred dividends (23.0) (7.6) (8.3)
Investments in equity investments (59.5) - -
Investment in consolidated
subsidiaries (391.4) (129.7) (69.5)
Payments on debt, including
prepayments (180.0) (24.8) (101.2)
Repurchases of common stock (25.3) (49.4) (9.5)
Payments to retire preferred
stock (50.0) - (10.0)
Income taxes (91.1) - -
Other (12.8) (4.0) (3.6)
------- ------- ------
Change in short-term investments
of parent and its
non-life subsidiaries 24.9 (7.9) (2.6)
<PAGE>
Short-term investments,
beginning of year 17.4 25.3 27.9
------- ------- ------
Short-term investments,
end of year $ 42.3 $ 17.4 $ 25.3
====== ====== ======
</TABLE>
<PAGE>
<PAGE> 41
At December 31, 1993, the parent company and its non-life subsidiaries had
short-term investments of $42.3 million, of which $8.7 million was expended in
January 1994 for accrued interest and dividends. In addition, the life
subsidiaries are permitted to distribute $18.7 million to the parent company
in 1994. The parent company and its non-life subsidiaries had additional
investments in nonaffiliates of $52.2 million at December 31, 1993, which, if
needed, could be liquidated or contributed to the insurance subsidiaries.
Conseco believes that it could generate additional liquidity, if needed in the
future, through equity offerings, debt issuance or by the conversion of
existing assets to cash, including the sale of a partial interest
in its minority owned affiliates. As described in the notes to the
consolidated financial statements, on February 15, 1994, Conseco sold a 60
percent interest in WNC. Net pretax proceeds from the sale and related
transactions totaling $537.9 million were used to repay a $200 million senior
unsecured loan and for other general corporate purposes.
Statutory Limitations on Payments by Life Insurance Subsidiaries to their
Parent
As described in the preceding section, Conseco receives funds from its
wholly owned insurance subsidiaries from dividends and fees for shared
expenses. In connection with its acquisition of certain life insurance
subsidiaries, Conseco received surplus debentures from the subsidiaries and the
repayment terms were established and approved by the applicable regulatory
authorities at the time of each acquisition. All such surplus debentures with
Conseco's wholly owned insurance subsidiaries were eliminated by a contribution
to the statutory capital of such subsidiaries at December 31, 1992. Annual
dividends in excess of maximum amounts prescribed by state statutes (so-called
"extraordinary dividends") may not be paid without the approval of the
insurance commissioner of each state in which a life subsidiary is domiciled.
Statutory operating results and statutory surplus are governed by statutes
adopted by each state in which the subsidiaries do business; therefore,
statutory surplus bears no direct relationship to equity as determined under
generally accepted accounting principles ("GAAP"). With respect to new
business, statutory accounting practices require that (i) acquisition
costs and (ii) reserves for future guaranteed principal payments and interest
in excess of statutory rates be expensed in the year the new business is
written. These items cause a statutory loss ("surplus strain") on many
insurance products in the year they are issued. The Company designs its
products to minimize such first-year losses but certain products continue to
cause a statutory loss in the year written. The Company controls the amount
of new premiums written in order to manage the effect of such statutory surplus
strain.
Note 13 to the consolidated financial statements shows the difference
between pretax income reported using statutory accounting practices (before
deduction of expenses paid to affiliates and transfers to and from IMR and the
amortization of IMR) and GAAP as follows:
<TABLE>
<CAPTION>
Statutory Income
Greater Than
Year GAAP Income
---- -----------
(Dollars in millions)
<S> <C>
1993 $48.1
1992 72.0
1991 76.1
</TABLE>
<PAGE>
<PAGE> 42
Insurance departments in the states where the Company's life insurance
subsidiaries are domiciled or do business require insurance companies to make
annual and quarterly filings. Prior to the 1992 annual statements, these
statutory filings required the establishment of the mandatory securities
valuation reserve ("MSVR"), an account designed to stabilize a
company's statutory surplus against fluctuations in the market value of stocks
and bonds, according to regulations prescribed by the NAIC. Effective for the
1992 annual statements, the NAIC replaced MSVR with two reserves, the interest
maintenance reserve ("IMR") and the asset valuation reserve ("AVR"). The new
regulations expanded reserve requirements to include all invested assets and
to distinguish between investment gains and losses resulting from changes in
interest rates and gains and losses resulting from changes in creditworthiness.
The IMR captures all investment gains and losses resulting from changes in
interest rates and provides for subsequent amortization of such amounts into
statutory net income on a basis reflecting the remaining lives of the assets
sold. The AVR captures investment gains and losses related to changes in
creditworthiness and is also adjusted each year based on a formula related to
the quality and loss experience of the Company's investment portfolio. Because
the AVR requires expanded reserves for mortgage loans, other invested assets
and short-term investments that were not previously considered in the MSVR, the
reserve amount required under these regulations increased. Such changes affect
the ability of the Company's insurance subsidiaries to reflect future
investment gains and losses in statutory earnings and surplus.
INFLATION
Inflation does not have a significant effect on Conseco's balance sheet due
to the minimal dollars invested in property and equipment and the absence of
inventories.
Medical cost inflation has had a significant impact on Bankers' operations.
These costs have continued to increase in recent years in excess of the
Consumer Price Index and similar increases will likely continue although
recently the rate of increase has declined. The impact on Bankers' operations
is dependent upon its ability to charge higher premium rates, which are subject
to approval by the insurance departments of each state in which Bankers sells
its products. Prior to the standardization of Medicare supplement plans,
approximately two-thirds of the states permitted rate plans with automatic
escalation clauses. This permitted Bankers, in periods following initial
approval, to adjust premium rates for changes in Medicare deductibles and
increases in medical cost inflation without refiling with the regulators.
Currently, all rate changes for the standardized plans must now be individually
approved by each state. Bankers' pricing of its new standardized supplement
plans reflects the impact of these filings and the lengthening of time required
to implement rate increases.
CHANGES IN ACCOUNTING PRINCIPLES
The Company adopted several new accounting standards during 1993.
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"), requires that an impaired loan be
revalued at the present value of expected future cash flows discounted at the
loan's effective interest rate when it is probable that a creditor will be
unable to collect all amounts due according to the contractual terms of the
loan agreement. The adoption of SFAS 114 had an immaterial impact on the
Company's financial position and results of operations.
Statement of Financial Accounting Standards No. 115, "Accounting for
Certain Investments in Debt and Equity Securities" ("SFAS 115"), requires the
Company to carry certain investments at current estimated fair value when there
is not a positive intent to hold such investments to maturity. The Company's
former policy was similar to that mandated by SFAS 115, with the most
significant exception being that unrealized gains and losses on trading account
securities, which had been included as an adjustment to shareholders' equity,
are recognized in income under the provisions of SFAS 115. The early adoption
of SFAS 115 as of December 31, 1993, resulted in an immaterial increase in
income from the unrealized gain on trading account securities.
In November 1992, the Financial Accounting Standards Board's Emerging
Issues Task Force concluded that for acquisitions after November 19, 1992, the
amortization method for cost of policies purchased should use an interest rate
comparable to the rates credited to the underlying products. Such method was
employed by the Company for the acquisition of 13.3 million common shares of
Bankers (as described in Note 2 to the consolidated financial statements) and
will be employed by the Company in future acquisitions.
<PAGE>
<PAGE> 43
OUTLOOK
As indicated throughout this report, Conseco intends to continue its
strategy of growth through its three principal sources of earnings: operations
of life insurance companies, provision of services for fees to the affiliated
companies and others, and acquisition and restructuring of life insurance
companies.
Growth Through Operations of Life Insurance Companies
Conseco's life insurance operations include: (i) Bankers, in which Conseco
has a 56 percent ownership interest; (ii) Western, in which Conseco has a 40
percent interest (wholly owned by Conseco until Western's IPO was completed on
February 15, 1994); (iii) CCP, in which Conseco has a 40 percent ownership
interest; and (iv) the wholly owned life insurance subsidiaries (excluding
Western), principally Bankers National and National Fidelity.
Conseco owns 30.4 million common shares of Bankers, or 56 percent of
Bankers' outstanding common shares. At December 31, 1993, the Bankers shares
owned by Conseco had a net carrying value of approximately $518.8 million, a
fair value of approximately $652.8 million (based on the closing price of
$21.50 per share) and a cost of $313.1 million. On March 8, 1994, Bankers
announced an increase in its quarterly cash dividend to 15 cents per share from
2 cents. During 1993, Bankers implemented several measures to enhance
efficiency and reduce operating costs, including the relocation of
its office space, which was previously scattered in 27 separate buildings.
Also during 1993, Bankers' agent force grew 7 percent and Bankers sold 3
percent more Medicare supplement policies than the prior year. The increased
sales of Medicare supplement policies provide Bankers with opportunities for
cross-selling in its niche market, senior citizens. As a result of
cross-selling, 1993 annualized new business premiums increased 19 percent for
long-term products and 27 percent for annuities. It is too early to analyze
what changes, if any, will occur in the business activity of Bankers as a
result of the current legislative debate on health care.
At December 31, 1993, Conseco owned 100 percent of Western. On February
15, 1994, Conseco sold a majority interest in Western through an IPO of 60
percent of the common stock of WNC. The offering of WNC generated net pretax
proceeds to Conseco of $537.9 million, which were used to repay a $200 million
senior unsecured loan and for other general corporate purposes. Conseco will
record, in the first quarter of 1994, a one-time, after-tax gain of
approximately $43 million as a result of the IPO. At February 15, 1994, the
WNC shares owned by Conseco had a fair value of approximately $330.6
million (based on the closing price of $13.25 per share) and a net carrying
value of approximately $270.0 million.
Premiums on SPDAs collected by Western decreased $262.8 million in 1993,
or 39 percent. The decline in premiums collected reflected primarily: (i)
increased competition from other carriers (including those with higher
ratings); (ii) increased competition from other investments and retirement
funding alternatives, such as variable annuities and mutual funds, during
these periods of low interest rates; and (iii) Western's focus on maintaining
profitability levels on SPDAs. Management believes that with the recent
marketing initiatives intended to address the decrease in SPDA premiums
collected, the trend of decreasing premiums will be reversed in 1994. In late
1993, Western entered into a significant sales agreement with
Oregon-based U.S. Bancorp to market Western's products through the bank's 400
branches in Northern California and the Pacific Northwest.
Conseco also owns 11.6 million shares, or 40 percent, of CCP's common
shares outstanding. At December 31, 1993, the CCP shares owned by Conseco had
a net carrying value of approximately $244.3 million, a fair value of
approximately $322.1 million (based on the closing price of $27.875 per share)
and a cost of $102.8 million. CCP has (i) a sizable and profitable block of
in-force business and (ii) a distribution system that has the potential to
generate growth in the 403(b) tax sheltered annuity market. Further, CCP
believes it has the financial strength to pursue an acquisition to complement
its internal growth.
Statutory surplus of the Company's insurance subsidiaries and investees is
believed to be adequate. Conseco expects that statutory earnings in 1994 will
exceed amounts needed by the holding companies for debt service and other
requirements. Such excesses will be available to increase statutory capital
of the life insurance subsidiaries and investees in order that their
internal growth can continue.
<PAGE>
<PAGE> 44
Services Provided for Fees
Conseco continues to provide various combinations of services to Bankers,
Western, CCP and the wholly owned subsidiaries (excluding Western) including
investment management, mortgage origination and servicing, policy
administration, data processing, product marketing and executive management
services. Additionally, Conseco provides such services to unaffiliated
insurance companies. It is the Company's intent to provide investment
management services to all companies acquired by CCP II, and to provide
administrative, data processing and other services to such companies when
appropriate. It is also the Company's intent to expand its service fee revenue
by seeking similar arrangements with other unaffiliated insurers in order to
profit from the Company's ability to administer products and investments
without the need to provide additional capital needed to support those
products. In March 1993, Conseco acquired Bankmark, an insurance marketing
company which develops relationships with financial institutions to provide
insurance and investment products to their customers. After its acquisition
by Conseco, Bankmark began a formal program to actively expand its business by
developing relationships with a few large money-center banks.
Acquisitions and Restructuring of Life Insurance Companies
On February 2, 1994, Conseco announced the closing of CCP II, a partnership
which will invest in acquisitions of specialized annuity, life and accident and
health insurance companies and related businesses, in which 36 investors
committed a total of $624 million of capital to the new partnership.
Commitments to the new partnership include $100 million from Conseco, $25
million from Bankers, $25 million from CCP, $50 million from Western and $36
million from executive officers and directors of Conseco and its affiliates.
A subsidiary of Conseco is the sole general partner.
The Company believes that a number of life insurance companies will be
available to be acquired in the next 10 years as a result of strategic
posturing and consolidation within the life industry. The Company expects to
participate in such acquisitions through CCP II using the capital provided by
the partnership, mezzanine capital that may be provided by the individual
partners of CCP II and others, and debt capital from various sources.
The Company believes there will be a period in the future when it will be
more difficult to obtain financing for acquisitions because of conditions in
the capital markets, causing a greater dependence on equity capital financing,
such as that obtained through CCP II. Conseco will actively seek alternative
capital sources, if needed, to finance acquisitions. Continuation of those
conditions in the capital markets may also affect the availability of
appropriate acquisition targets if sellers of insurance companies decide to
wait for more favorable conditions. In addition, Conseco's increased size and
evolving strategies will eliminate a number of potential acquisition candidates
who are either too small or inappropriate strategic targets. However, Conseco
believes it has the resources and capabilities to continue its strategy of
acquiring and restructuring life insurance companies. It also believes that
its past record of successfully acquiring, financing and operating
life insurance companies will be an advantage compared to others who may
attempt to acquire available candidates.
As part of its program of exploring opportunities to improve its capital
structure, Conseco continually reviews the need and desirability of
restructuring the existing debt and equity of the Company and its affiliates.
______________________________
<PAGE>
<PAGE> 45
ITEM 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA.
Index to Consolidated Financial Statements
PAGE
Report of Management. . . . . . . . . . . . . . . . . . . . . . . . 46
Report of Independent Accountants . . . . . . . . . . . . . . . . . 47
Consolidated Balance Sheet at December 31, 1993 and 1992. . . . . . 48
Consolidated Statement of Operations for the years ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . 50
Consolidated Statement of Shareholders' Equity
for the years ended December 31, 1993, 1992 and 1991. . . . . . . 52
Consolidated Statement of Cash Flows for the years ended
December 31, 1993, 1992 and 1991. . . . . . . . . . . . . . . . . 53
Notes to Consolidated Financial Statements. . . . . . . . . . . . . 55
<PAGE>
<PAGE> 46
REPORT OF MANAGEMENT
To Our Shareholders
Management of Conseco, Inc. is responsible for the reliability of the
financial information in this annual report. The financial statements are
prepared in accordance with generally accepted accounting principles and the
other financial information in this annual report is consistent with that of
the financial statements.
The integrity of the financial information relies in large part on
maintaining a system of internal control that is established by management to
provide reasonable assurance that assets are safeguarded and transactions are
properly authorized, recorded and reported. Reasonable assurance is based upon
the premise that the cost of controls should not exceed the benefits derived
from them.
Certain financial information presented depends upon management's estimates
and judgments regarding the ultimate outcome of transactions which are not yet
complete. Management believes these estimates and judgments are fair and
reasonable in view of present conditions and available information.
The Company engages independent accountants to audit its financial
statements and express their opinion thereon. They have full access to each
member of management in conducting their audits. Such audits are conducted in
accordance with generally accepted auditing standards and include a review of
internal controls, tests of the accounting records, and such other auditing
procedures as they consider necessary to express an opinion on the Company's
financial statements.
The Audit Committee of the Board of Directors, composed solely of
nonmanagement directors, meets periodically with management, internal auditors
and the independent accountants to review internal accounting control, audit
activities and financial reporting matters. The internal auditors and the
independent accountants have full and free access to the Audit
Committee.
/s/ STEPHEN C. HILBERT /s/ ROLLIN M. DICK
Stephen C. Hilbert Rollin M. Dick
Chairman of the Board, Executive Vice President and
President and Chief Financial Officer
Chief Executive Officer
<PAGE>
<PAGE> 47
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Shareholders
Conseco, Inc.
We have audited the accompanying consolidated balance sheet of Conseco,
Inc. and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of operations, shareholders' 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 audits to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Conseco, Inc.
and Subsidiaries as of December 31, 1993 and 1992, and the consolidated results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1993, in conformity with generally accepted
accounting principles.
/s/COOPERS & LYBRAND
Indianapolis, Indiana
March 24, 1994
<PAGE>
<PAGE> 48
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED BALANCE SHEET
December 31, 1993 and 1992
(Dollars in millions)
ASSETS
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Investments:
Fixed maturities:
Actively managed at fair value (amortized
cost: 1993 - $9,525.4; 1992 - $7,348.8) $ 9,820.6 $ 7,495.2
Held to maturity at amortized cost (fair
value: 1993 - $1.6; 1992 - $19.4) 1.1 18.6
Equity securities at fair value
(cost: 1993 - $30.2; 1992 - $65.0) 30.3 71.6
Mortgage loans 158.4 178.0
Credit-tenant loans 326.9 150.6
Policy loans 190.0 184.3
Investment in CCP Insurance, Inc. 244.3 130.5
Other invested assets 64.2 53.0
Trading account securities 105.8 468.6
Short-term investments 666.4 666.6
Assets held in separate accounts 81.1 33.0
--------- ---------
Total investments 11,689.1 9,450.0
Accrued investment income 168.3 156.9
Reinsurance receivables 511.1 891.5
Cost of policies purchased 603.7 623.5
Cost of policies produced 258.6 310.8
Goodwill (net of accumulated amortization:
1993 - $14.3; 1992 - $8.8) 320.6 149.8
Property and equipment at cost
(net of accumulated depreciation: 1993 - $21.1
1992 - $15.4) 71.7 62.5
Other assets 126.2 127.7
--------- ---------
Total assets $13,749.3 $11,772.7
--------- ---------
--------- ---------
(continued on next page)
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 49
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (Continued)
December 31, 1993 and 1992
(Dollars in millions)
<TABLE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<CAPTION>
1993 1992
---- ----
<S> <C> <C>
Liabilities:
Insurance liabilities $10,798.3 $10,039.0
Income tax liabilities 118.2 81.4
Investment borrowings 427.7 207.3
Other liabilities 256.4 240.5
Liabilities related to separate accounts 79.0 31.0
Notes payable of Conseco 413.0 163.2
Notes payable of Bankers Life Holding Corporation,
not direct obligations of Conseco 290.3 392.0
--------- ---------
Total liabilities 12,382.9 11,154.4
--------- ---------
Minority interest 223.8 24.0
--------- ---------
Shareholders' equity:
Preferred stock 287.5 50.0
Common stock and additional paid-in capital
(no par value, 500,000,000 shares authorized,
shares issued and outstanding: 1993 - 25,311,773;
1992 - 24,911,148) 102.8 115.4
Unrealized appreciation of securities
(net of applicable deferred income taxes:
1993 - $41.8; 1992 - $17.3) 97.5 42.9
Retained earnings 654.8 386.0
--------- ---------
Total shareholders' equity 1,142.6 594.3
--------- ---------
Total liabilities and shareholders' equity $13,749.3 $11,772.7
--------- ---------
--------- ---------
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 50
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions, except per share data)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues:
Insurance policy income $1,293.8 $ 378.7 $ 280.8
Investment activity:
Net investment income 896.2 888.6 921.4
Net trading income 93.1 35.9 50.7
Net realized gains 149.5 124.3 123.3
Fee revenue 26.5 12.9 5.4
Other income 1.4 1.5 .9
Equity in earnings of Life Re - 11.3 9.3
Equity in earnings of CCP Insurance, Inc. 37.4 15.8 -
Incentive earnings allocation from the Partnership 36.6 9.3 -
Gain on sale of stock by subsidiaries 101.5 9.2 -
Gain on sale of stock of Life Re - 36.4 -
------- ------- -------
Total revenues 2,636.0 1,523.9 1,391.8
------- ------- -------
Benefits and expenses:
Insurance policy benefits 1,007.8 334.7 276.2
Change in future policy benefits 60.0 40.2 37.2
Interest expense on annuities and
financial products 408.5 506.8 576.7
Interest expense on long-term debt 58.0 46.2 69.9
Interest expense on short-term
investment borrowings 10.6 8.8 17.1
Amortization related to operations 140.2 62.2 46.8
Amortization and change in future policy
benefits related to realized gains 126.3 93.4 50.4
Other operating costs and expenses 214.4 101.6 94.3
------- ------- -------
Total benefits and expenses 2,025.8 1,193.9 1,168.6
------- ------- -------
Income before income taxes, minority interest
and extraordinary charge 610.2 330.0 223.2
Income tax expense 223.1 124.6 78.2
------- ------- -------
Income before minority interest and
extraordinary charge 387.1 205.4 145.0
Less minority interest 78.2 30.6 24.0
------- ------- -------
(Continued on next page)
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 51
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF OPERATIONS (Continued)
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions, except per share data)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Income before extraordinary charge 308.9 174.8 121.0
Extraordinary charge on extinguishment of
debt, net of taxes and minority interest 11.9 5.3 5.0
------- ------ ------
Net income 297.0 169.5 116.0
Less preferred stock dividends 20.6 5.5 6.8
------- ------ ------
Earnings applicable to common stock $276.4 $164.0 $109.2
------- ------ ------
------- ------ ------
Earnings per common share and common equivalent share:
Primary:
Weighted average shares 29,245,000 29,479,000 24,918,000
Earnings before extraordinary charge $9.86 $5.59 $4.30
Extraordinary charge .41 .16 .20
----- ----- -----
Net income $9.45 $5.43 $4.10
----- ----- -----
----- ----- -----
Fully diluted:
Weighted average shares 33,495,000 29,603,000 25,416,000
Earnings before extraordinary charge $9.12 $5.56 $4.22
Extraordinary charge .35 .16 .20
----- ----- -----
Net income $8.77 $5.40 $4.02
----- ----- -----
----- ----- -----
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 52
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Preferred stock:
Balance, beginning of year $ 50.0 $ 50.0 $ 60.0
Series D preferred shares issued 287.5 - -
Preferred shares redeemed (50.0) - (10.0)
-------- ------ ------
Balance, end of year $ 287.5 $ 50.0 $ 50.0
-------- ------ ------
-------- ------ ------
Common stock and additional paid-in capital:
Balance, beginning of year $ 115.4 $139.5 $ 14.5
Issuance of common stock, net - - 132.2
Amounts related to stock options and
employee benefit plans 6.4 7.4 2.3
Tax benefit related to issuance of shares
under employee benefit plans 15.3 17.9 -
Cost of shares acquired (25.3) (49.4) (9.5)
Cost of issuance of Series D preferred shares (9.0) - -
-------- ------ ------
Balance, end of year $ 102.8 $115.4 $139.5
-------- ------ ------
-------- ------ ------
Unrealized appreciation (depreciation) of securities:
Balance, beginning of year $ 42.9 $ 18.0 $(10.7)
Change in unrealized appreciation 54.6 24.9 28.7
-------- ------ ------
Balance, end of year $ 97.5 $ 42.9 $ 18.0
-------- ------ ------
-------- ------ ------
Retained earnings:
Balance, beginning of year $ 386.0 $224.1 $116.4
Net income 297.0 169.5 116.0
Dividends on common stock (7.6) (2.1) (1.5)
Dividends on preferred stock (20.6) (5.5) (6.8)
-------- ------ ------
Balance, end of year $ 654.8 $386.0 $224.1
-------- ------ ------
-------- ------ ------
Total shareholders' equity $1,142.6 $594.3 $431.6
-------- ------ ------
-------- ------ ------
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 53
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 297.0 $ 169.5 $ 116.0
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization and depreciation 235.4 161.5 107.2
Income taxes 5.6 1.2 19.6
Insurance liabilities 89.5 128.4 14.9
Interest credited to insurance liabilities 408.5 506.8 576.7
Fees charged to insurance liabilities (38.8) (55.3) (82.6)
Accrual and amortization of investment income (34.0) (56.8) (28.2)
Deferral of cost of policies produced (159.7) (83.2) (80.6)
Gain on sale of stock by subsidiaries (101.5) (9.2) -
Incentive earnings allocation from the Partnership (36.6) (9.3) -
Equity in earnings of Life Re - (11.3) (9.3)
Equity in earnings of CCP Insurance, Inc. (36.6) (15.6) -
Trading account securities 287.0 750.1 (375.5)
Minority interest 77.2 28.9 23.1
Extraordinary charge on extinguishment of debt 11.9 5.3 5.0
Other 21.7 (8.6) (18.4)
-------- -------- ------
Net cash provided by operating activities 1,026.6 1,502.4 267.9
-------- -------- ------
Cash flows from investing activities:
Sales of investments 6,386.2 4,155.3 4,648.0
Maturities and redemptions 1,428.9 1,044.8 619.4
Purchases of investments (9,703.4) (6,925.6) (6,173.6)
Purchase of additional shares of Bankers Life Holding Corporation (237.6) - -
Purchase of additional shares of CCP Insurance, Inc. (59.5) - -
Purchase of Bankmark (3.8) - -
Acquisition of Partnership companies - (203.0) (71.7)
Cash held by CCP Subsidiaries before public offering - (350.6) -
Other (25.7) (16.0) 3.8
-------- -------- ------
Net cash used by investing activities (2,214.9) (2,295.1) (974.1)
-------- -------- ------
(continued on next page)
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 54
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from financing activities:
Issuance of capital stock, net $ 281.7 $ 6.3 $ 133.1
Issuance of capital stock by subsidiaries, net 405.3 96.4 35.4
Issuance of debt of Conseco, net 393.4 - -
Issuance of debt of subsidiaries - not direct
obligations of Conseco, net - 584.4 76.5
Payments to retire equity securities (75.3) (49.4) (19.5)
Payments to retire equity securities of subsidiaries (52.2) (21.7) -
Payments on debt of Conseco (157.2) (23.8) (100.2)
Payments on debt of subsidiaries - not direct
obligations of Conseco (127.3) (291.2) (9.0)
Deposits to insurance liabilities 886.2 1,141.0 1,449.1
Investment borrowings 220.4 280.8 -
Withdrawals from insurance liabilities (563.9) (716.0) (830.2)
Dividends paid (23.0) (7.6) (8.3)
-------- -------- --------
Net cash provided by financing activities 1,188.1 999.2 726.9
-------- -------- --------
Net increase (decrease) in short-term investments (.2) 206.5 20.7
Short-term investments, beginning of year 666.6 460.1 439.4
-------- -------- --------
Short-term investments, end of year $ 666.4 $ 666.6 $ 460.1
-------- -------- --------
-------- -------- --------
<FN>
The accompanying notes are an integral part
of the consolidated financial statements.
</TABLE>
<PAGE>
<PAGE> 55
CONSECO, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
1. SIGNIFICANT ACCOUNTING POLICIES:
Basis of Presentation
Conseco, Inc. ("Conseco" or the "Company") is a specialized financial
services holding company which primarily makes controlling strategic
investments in insurance companies and related businesses, manages the
operations of those businesses to increase their value, provides services to
acquired companies and other businesses, and seeks to realize the increase in
value that its management brings to such companies through sale or
restructuring. The insurance companies in which Conseco has made investments
develop, market, issue and administer primarily annuity, individual health
insurance and life insurance products. Conseco provides administrative, data
processing and investment management services to affiliated and nonaffiliated
companies. The Company's principal wholly owned life insurance subsidiaries
are Western National Life Insurance Company ("Western National"), Bankers
National Life Insurance Company ("Bankers National") and National Fidelity Life
Insurance Company ("National Fidelity"). A majority interest of Western
National was sold on February 15, 1994 (see Note 16).
During 1990, Conseco formed the Partnership, which raised and invested
$99.5 million of capital, of which approximately half was provided by the
Company and the balance by other investors. A wholly owned subsidiary of
Conseco was the sole general partner of the Partnership. The Partnership was
the Company's vehicle for effecting the following acquisitions of insurance
companies: Great American Reserve Insurance Company ("Great American Reserve")
in June 1990, Jefferson National Life Insurance Company ("Jefferson National")
in November 1990, Beneficial Standard Life Insurance Company ("Beneficial
Standard") in March 1991 and Bankers Life and Casualty Company and its
subsidiary, Certified Life Insurance Company (collectively, "Bankers Life") in
November 1992. All acquisitions were accounted for as purchases and were
reflected in operations as of their effective dates. As sole general partner,
Conseco exercised unilateral control over the Partnership; therefore, the
accounts of the Partnership and its majority-owned subsidiaries were included
in the consolidated financial statements of Conseco and its wholly owned
subsidiaries in the periods prior to the Partnership's liquidation as of March
31, 1993. Intercompany accounts and transactions were eliminated.
See Note 2 for a description of the activities of the Partnership and
its acquired companies. As a result of the public offering in July 1992 by CCP
Insurance, Inc. ("CCP"), a newly organized holding company for the
Partnership's first three acquisitions, Conseco no longer had unilateral
control over those entities and ceased including the accounts of those
companies in its consolidated financial statements. CCP and its subsidiaries
are included in Conseco's financial statements on the equity basis since July
1, 1992.
As a result of the public offering in March 1993 by Bankers Life Holding
Corporation ("BLH"), a company formed by the Partnership to acquire Bankers
Life (collectively referred to herein as "Bankers"), Conseco no longer had
unilateral control of Bankers. However, after the acquisition by Conseco of
additional shares of BLH in September 1993, Conseco's ownership position in
Bankers increased to 56 percent. Accordingly, the accounts of Bankers have
been consolidated with Conseco's accounts in the accompanying consolidated
financial statements throughout 1993.
Because its former owner continued to own 40 percent of BLH following
the Partnership's acquisition of Bankers Life in 1992, it was necessary for the
Partnership and Conseco to account for that acquisition as a "step acquisition
transaction" in accordance with the guidance provided in Issue Number 88-16 of
the Emerging Issues Task Force of the Financial Accounting Standards Board
entitled "Basis in Leveraged Buyout Transactions." The step acquisition
accounting was also used by Conseco to account for its increased ownership in
Bankers acquired in September 1993. As a result, the assets and liabilities
of Bankers included in Conseco's 1993 consolidated balance sheet represent the
following combination of values: (i) the portion of Bankers' net assets
acquired by Conseco in the November 1992 acquisition made by the Partnership
is valued as of that acquisition date, (ii) the portion of Bankers' net assets
acquired in September 1993 is valued as of that date, and (iii) the portion of
Bankers' net assets owned by minority interests is valued based on Bankers'
consolidated financial statements.
<PAGE> 56
The cost of Conseco's September 1993 purchase of BLH shares was
allocated to the assets and liabilities acquired based on a preliminary
determination of their fair values; accordingly, this allocation may be
adjusted upon final determination of such values. In management's opinion,
however, any adjustments to fair values are not expected to be material.
Certain amounts from prior periods were reclassified to conform to the
1993 presentation.
Investments
Fixed maturity investments are securities that mature more than one year
after they are issued and include bonds, notes receivable and preferred stocks
with mandatory redemption features. Equity securities include investments in
common stocks and non-redeemable preferred stock. Effective December 31, 1993,
the Company adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities" ("SFAS
115"), and, accordingly, classifies its fixed maturity and equity securities
into the following three categories:
- Actively managed fixed maturity and equity securities are securities
that may be sold prior to maturity due to changes that might occur
in market interest rate risks, changes in the security's prepayment
risk, the management of income tax position, general liquidity needs,
and increase in loan demand, the need to increase regulatory capital,
changes in foreign currency risk or similar factors. Actively
managed securities are carried at fair value and the unrealized gain
or loss is recorded to shareholders' equity, net of tax and the
related adjustments described in the second following paragraph.
- Trading account securities are fixed maturity and equity securities
that are bought and held principally for the purpose of selling them
in the near term. Trading account securities are carried at
estimated fair value and the unrealized gain or loss is included as
a component of net trading income.
- All other fixed maturity securities are those securities which the
Company has the ability and positive intent to hold to maturity, and
are carried at amortized cost. The Company may dispose of such
securities under certain unforeseen circumstances, such as issuer
credit deterioration or regulatory requirements.
The above categories for classifying fixed maturity and equity
securities are consistent with the Company's policy prior to the adoption of
SFAS 115, with one exception that net unrealized gains and losses on trading
account securities, which had previously been recorded as an adjustment to
shareholders' equity, are now recognized as trading income under the provisions
of SFAS 115. The net unrealized gain on trading account securities at December
31, 1993, recorded in trading income as a result of adopting SFAS 115 was
immaterial.
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 and the cost of policies
produced. When actively managed fixed maturity and equity securities are
stated at fair value, an adjustment is made to the cost of policies purchased
and the cost of policies produced equal to the change in amortization that
would have been recorded if such securities had been sold at their fair value
and the proceeds reinvested at current yields. Furthermore, if future yields
expected to be earned on such securities decline, it may be necessary to
increase certain insurance liabilities. Adjustments to such liabilities are
required when their balances, in addition to future net cash flows including
investment income, are insufficient to cover future benefits and expenses.
<PAGE>
<PAGE> 57
Unrealized gains and losses and the related adjustments described in the
preceding paragraph have no effect on earnings, but are recorded, net of tax,
to shareholders' equity. The following table summarizes the effect of these
adjustments as of December 31, 1993:
<TABLE>
<CAPTION>
Effect of Fair Value
Adjustment to
Balance Actively Managed Reported
before Adjustment Fixed Maturities Amount
----------------- ---------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities $ 9,525.4 $295.2 $ 9,820.6
Cost of policies purchased 635.8 (32.1) 603.7
Cost of policies produced 379.9 (121.3) 258.6
Insurance liabilities 10,759.2 39.1 10,798.3
Income tax liabilities 82.3 35.9 118.2
Minority interest 221.3 2.5 223.8
Unrealized appreciation of securities 33.2 64.3 97.5
</TABLE>
Effective December 31, 1993, when the Company recognizes changes in
conditions that cause a fixed maturity investment to be transferred to a
different category (e.g., actively managed, held to maturity or trading), the
security is transferred to the new category at its fair value at the date of
the transfer. At the date of transfer, the security's unrealized gain or loss
is accounted for as follows:
- For transfers to the trading category, the unrealized gain or loss
is recognized in earnings;
- For transfers from the trading category, the unrealized gain or loss
already recognized in earnings is not reversed;
- For transfers to actively managed from held to maturity, the
unrealized gain or loss is recognized in shareholders' equity; and
- For transfers to held to maturity from actively managed, the
unrealized gain or loss at the date of transfer continues to be
reported in shareholders' equity, but is amortized over the remaining
life of the security as an adjustment of yield.
Prior to adopting SFAS 115, the above investments were transferred to
the new category at the lower of cost or fair value at the date of transfer.
Unrealized losses were recognized upon such transfers; and unrealized gains
were deferred until the final disposition of the securities. Transfers between
categories in 1993 and 1992 and the resulting gains were immaterial.
Credit-tenant loans are loans for commercial properties which require
(i) the lease of the principal tenant to be assigned to the Company and to
produce adequate cash flow to fund substantially all the requirements of the
loan and (ii) the principal tenant or the guarantor of such tenant's
obligations to have an investment-grade credit rating at the time of
origination of the loan. These loans are also secured by the value of the
related property. The underwriting guidelines take into account such factors
as the lease term of the property; the borrower's management ability, including
business experience, property management capabilities and financial soundness;
and such economic, demographic or other factors that may affect the
income generated by the property or its value. The underwriting guidelines
also require a loan-to-value ratio of 75 percent or less.
Other invested assets (principally investments in unconsolidated limited
partnerships) are generally accounted for using the equity method. <PAGE>
<PAGE> 58
Policy loans are stated at their current unpaid principal balance.
Short-term investments include commercial paper, invested cash and other
investments purchased with maturities less than three months and are carried
at amortized cost, which approximates estimated fair value. The company
considers all short-term investments to be cash equivalents. Mortgage and
credit-tenant loans are stated at amortized cost.
Fees received and costs incurred in connection with origination of
investments, principally mortgages and credit-tenant loans are deferred. Fees,
costs, discounts and premiums are amortized as yield adjustments over the
contractual life of the investments. Anticipated prepayments on
mortgage-backed securities are taken into consideration in determining
estimated future yields on such securities.
The specific identification method is used to account for the
disposition of investments. The differences between sale proceeds and carrying
values are reported as gains and losses on investments, or as adjustments to
investment income if the proceeds are prepayments by issuers prior to maturity.
The Company regularly evaluates mortgage loans, credit-tenant loans and
other securities based on current economic conditions, past credit loss
experience and other circumstances of the investee. Impaired loans are
revalued at the present value of expected cash flows discounted at the loan's
effective interest rate when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the agreement.
A decline in a security's net realizable value that is other than temporary is
treated as a realized loss and the cost basis of the security is reduced to its
estimated fair value.
Separate Accounts
Separate accounts represent funds for which investment income and gains
or losses accrue directly to certain policyholders. The assets of these
accounts are legally segregated and are not subject to the claims which may
arise out of any other business of the Company. Separate account assets are
reported at market value since the underlying investment risks are assumed by
the contract holders. The related liabilities are recorded at amounts equal
to the underlying assets and the fair value of those liabilities is equal to
their carrying amount.
Cost of Policies Purchased
The cost of policies purchased represents the portion of the cost to
acquire a subsidiary that is attributable to the right to receive future cash
flows from insurance contracts existing at the date of acquisition of the
subsidiary. The value of cost of policies purchased is the actuarially
determined present value of the projected future cash flows from the acquired
policies.
The method used by the Company to value the cost of policies purchased
is consistent with the valuation methods used most commonly to value blocks of
insurance business, which is also consistent with the basic methodology
generally used to value assets. The method used by the Company is summarized
as follows:
- Identify the expected future cash flows from the blocks of business.
- Identify the risks inherent in realizing those cash flows (i.e., what
is the probability that the cash flows will be realized).
- Identify the rate of return that the Company believes it must earn
in order to accept the risks inherent in realizing the cash flows,
based on consideration of the factors summarized below.
- Determine the value of the policies purchased by discounting the
expected future cash flows by the discount rate the Company requires.
<PAGE>
<PAGE> 59
Expected future cash flows used in determining such value are based on
actuarially determined projections of future premium collections, mortality,
surrenders, operating expenses, changes in insurance liabilities, investment
yields on the assets held to back the policy liabilities and other factors.
These projections take into account all factors known or expected at the
valuation date based on the collective judgment of the management of the
Company. Actual experience on purchased business may vary from projections due
to differences in renewal premiums collected, investment spread, investment
gains or losses, mortality and morbidity costs and other factors. These
variances from original projections, whether positive or negative, are included
in net income as they occur. To the extent that these variances indicate that
future cash flows will differ from those reflected in the scheduled
amortization of the cost of policies purchased, current and future amortization
is adjusted. For example, sales of fixed maturity investments that result in
a gain (or loss), but also reduce (or increase) the future investment spread
because the sale proceeds are reinvested at a lower (or higher) earnings rate,
cause amortization to increase (or decrease) reflecting the change in the
incidence of cash flows.
The discount rate used to determine the value of the cost of policies
purchased is the rate of return required in order for the Company to invest in
the business being acquired. In determining the rate of return to be used by
the Company, the following factors are considered:
- The magnitude of the risks associated with each of the actuarial
assumptions used in determining expected future cash flows as
described in the preceding paragraphs.
- The cost of capital to fund the acquisition.
- The perceived likelihood of changes in projected future cash flows
that might occur if there are changes in insurance regulations and
tax laws.
- The compatibility with other Company activities that may favorably
affect future cash flows.
- The complexity of the acquired company.
- Recent purchase prices (i.e., discount rates used in determining
valuations) on similar blocks of business.
After the cost of purchased policies is determined using the methods
described above, the amount is amortized based on the incidence of the expected
cash flows. For acquisitions made on or before November 19, 1992, the asset
is amortized with interest at the same rate used to determine the discounted
value of the asset. For acquisitions after November 19, 1992, including the
acquisition of additional shares of Bankers on September 30, 1993, the asset
is amortized using an interest rate comparable to the rate credited to the
underlying products. This amortization methodology is in accordance with the
conclusions reached by the Emerging Issues Task Force of the Financial
Accounting Standards Board in their November 19, 1992, meeting.
Recoverability of the cost of policies purchased is evaluated annually
by comparing the current estimate of expected future cash flows (discounted at
the rate of interest earned on invested assets) to the unamortized asset
balance by line of insurance business. If such current estimate indicates that
the existing insurance liabilities, together with the present value of future
net cash flows from the blocks of business purchased, will not be sufficient
to recover the cost of policies purchased, the difference is charged to
expense. Amortization is also adjusted for the current and future years to
reflect (i) the revised estimate of future cash flows and (ii) the revised
interest rate (but not greater than the rate initially used and not lower than
the rate of interest earned on invested assets) at which the discounted present
value of such expected future profits equals the unamortized asset balance.
<PAGE>
<PAGE> 60
Cost of Policies Produced
Costs of producing new business (primarily commissions and certain costs
of policy issuance and underwriting, net of fees charged to the policy in
excess of ultimate fees charged), which vary with and are primarily related to
the production of new business, are deferred to the extent recoverable from
future profits. Such costs are amortized with interest as follows:
- For universal life-type contracts and investment-type contracts, in
relation to the present value of expected gross profits from these
contracts, discounted using the interest rate credited to the policy.
- For immediate annuities with mortality risks, in relation to the
present value of benefits to be paid.
- For traditional life and accident and health products, in relation
to future anticipated premium revenue using the same assumptions that
are used in calculating the insurance liabilities.
Recoverability of the unamortized balance of the cost of policies
produced is evaluated regularly. For universal life-type contracts and
investment-type contracts, the accumulated amortization is adjusted (whether
an increase or a decrease) whenever there is a material change in the estimated
gross profits expected over the life of a block of business in order to
maintain a constant relationship between cumulative amortization and the
present value (discounted at the rate of interest that accrues to the policies)
of expected gross profits. For most other contracts, the unamortized asset
balance is reduced by a charge to income only when the present value of future
cash flows, net of the policy liabilities, is not sufficient to cover such
asset balance.
Goodwill
The excess of the cost to acquire purchased companies over the net
assets acquired is recorded as goodwill and is amortized on the straight-line
basis over a 40-year period.
Property and Equipment
Property and equipment are carried at cost, net of accumulated
depreciation. Depreciation expense was $6.0 million, $3.7 million and $4.0
million for 1993, 1992 and 1991, respectively, computed using the straight-line
method over the estimated useful lives of the assets, which range from 3 to 50
years.
Insurance Liabilities, Recognition of Insurance Policy Income and
Related Benefits and Expenses
Reserves for universal life-type and investment-type contracts are based
on the contract account balance, if future benefit payments in excess of the
account balance are not guaranteed, or on the present value of future benefit
payments when such payments are guaranteed. Additions to insurance liabilities
are made if future cash flows including investment income are insufficient to
cover future benefits and expenses.
For investment contracts without mortality risk (such as deferred
annuities and immediate annuities with benefits paid for a period certain) and
for contracts that permit the Company or the insured to make changes in the
contract terms (such as single-premium whole life and universal life), premium
deposits and benefit payments are recorded as increases or decreases in a
liability account rather than as revenue and expense. Amounts charged against
the liability account for the cost of insurance, policy administration and
surrender penalties are recorded as revenues. Interest credited to the
liability account and benefit payments made in excess of the contract liability
account balance are charged to expense.
<PAGE>
<PAGE> 61
Reserves for traditional and limited-payment contracts are generally
calculated using the net level premium method and assumptions as to investment
yields, mortality, withdrawals and dividends. The assumptions are based on
projections of past experience and include provisions for possible unfavorable
deviation. These assumptions are made at the time the contract is issued or,
in the case of contracts acquired by purchase, at the purchase date.
For traditional insurance contracts, premiums are recognized as income
when due or, for short duration contracts, over the period to which the
premiums relate. Benefits and expenses are recognized as a level percentage
of earned premiums. Such recognition is accomplished through the provision for
future policy benefits and the amortization of deferred policy acquisition
costs.
For contracts with mortality risk, but with premiums paid for only a
limited period (such as single-premium immediate annuities with benefits paid
for the life of the annuitant), the accounting treatment is similar to
traditional contracts. However, the excess of the gross premium over the net
premium is deferred and recognized in relation to the present value of expected
future benefit payments (when accounting for annuity contracts) or in relation
to insurance in force (when accounting for life insurance contracts).
Liabilities for incurred claims are determined using historical
experience and published tables for disabled lives and represent an estimate
of the present value of the remaining ultimate net cost of all reported and
unreported claims. Management believes these estimates are adequate. Such
estimates are reviewed continually and any adjustments are reflected in current
operations.
The liability for future policy benefits for accident and health
policies consists of active life reserves and the estimated present value of
the remaining ultimate net cost of incurred claims. The active life reserves
include unearned premiums and additional reserves. The additional reserves are
computed on the net level premium method using assumptions for future
investment yield, mortality and morbidity experience. The assumptions are
based on projections of past experience and reflect provisions for possible
adverse deviation.
For participating policies, the amount of dividends to be paid is
determined annually by the Company. The portion of the earnings allocated to
participating policyholders is included as an insurance liability.
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 the benefits
paid by ceding reinsurance to other insurance enterprises or reinsurers under
excess coverage and coinsurance contracts. The Company has set its retention
limit for acceptance of risk on life insurance policies at various levels up
to $.8 million.
Assets and liabilities related to insurance contracts are reported
before the effects of reinsurance. Reinsurance receivables and prepaid
reinsurance premiums (including amounts related to insurance liabilities) are
reported as assets. Estimated reinsurance receivables are recognized in a
manner consistent with the liabilities related to the underlying reinsured
contracts. Such amounts have been presented in accordance with Statement of
Financial Accounting Standards No. 113, "Accounting and Reporting for
Reinsurance of Short-Duration and Long-Duration Contracts."
Income Taxes
Income tax expense includes deferred taxes arising from temporary
differences between the tax and financial reporting basis of assets and
liabilities. Additionally, this liability method of accounting for income
taxes requires the effect of a tax rate change on accumulated deferred income
taxes to be reflected in income in the period in which the change is enacted.
<PAGE>
<PAGE> 62
Minority Interest
The consolidated financial statements include all of the assets,
liabilities, revenues and expenses of the Partnership, its subsidiaries and
Bankers. A charge is made against consolidated income representing the share
of the earnings of these partially-owned entities allocable to the minority
interests. Shareholders' equity of such entities allocable to the minority
interests is shown separately on the consolidated balance sheet.
Development Cost
Market development and start-up costs are expensed as incurred. After
its acquisition by Conseco in March 1993, Marketing Distribution Systems
Consulting Group, Inc. and Subsidiaries ("Bankmark") began a program to expand
its business. Start-up costs of approximately $2.4 million were expensed in
1993 related to such program.
Earnings Per Share
All applicable share and per share data have been adjusted for the
two-for-one stock splits distributed on July 1, 1991 and April 1, 1992.
Primary net income per share is computed by dividing earnings, less preferred
dividend requirements and an adjustment for the dilutive securities of
affiliates and of subsidiaries of the Partnership, by the weighted average
number of common and common equivalent shares outstanding for the year. Fully
diluted net income per share is computed on that same basis, except (i) the
number of common equivalent shares related to stock options is based on the
year-end market value of the shares if that is more dilutive than the average
market value and (ii) the conversion of the convertible preferred stock into
common shares is assumed.
Fair Values of Financial Instruments
The following methods and assumptions are used by the Company in
determining estimated fair values of financial instruments:
Investment securities: The estimated fair values for fixed maturity
securities (including redeemable preferred stocks) are based on quoted
market prices, where available. For fixed maturity securities not
actively traded, the 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 a current market rate applicable to the yield, credit quality and
maturity of the investments. The estimated fair values for equity
securities and trading account securities are based on quoted market
prices.
Short-term investments: The estimated fair values for short-term
investments are based on quoted market prices. The carrying amount
reported in the consolidated balance sheet for these instruments
approximates their estimated fair value.
Mortgage loans, credit-tenant loans and policy loans: The estimated
fair values of these loans are determined by discounting future expected
cash flows 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.
Other invested assets: The estimated fair values of other invested
assets are determined using quoted market prices for similar
instruments.
<PAGE>
<PAGE> 63
Off-balance sheet interest rate guarantee and swaps: The estimated
fair value of the Company's interest rate guarantee contract and swap
agreements are based on fees currently charged to enter into similar
agreements, taking into account the remaining terms of the agreements
and the counterparties' credit standings.
Insurance liabilities for investment contracts: The estimated fair
values of the Company's liabilities under investment-type insurance
contracts are determined using discounted cash flow calculations based
on interest rates currently being offered for similar contracts with
maturities consistent with those remaining for the contracts being
valued.
Investment borrowings and notes payable: The estimated fair values of
the Company's investment borrowings and notes payable are determined
using discounted cash flow analyses based on the Company's current
incremental borrowing rates for similar types of borrowing arrangements.
The carrying amount of the Company's investment borrowings approximates
its estimated fair value.
2. ACQUISITIONS:
CCP Insurance, Inc.
As of March 31, 1991, the Partnership completed the acquisition of all
of the outstanding stock of Beneficial Standard for a purchase price of $141.1
million, including $.9 million of fees and other costs. The acquisition was
funded with $27.0 million of capital contributions from the Partnership and the
net proceeds of the following: a $79.5 million senior secured loan from
lending banks; a $9.5 million senior secured loan provided by the Company and
$40.0 million of preferred stock (including $17.9 million provided by the
Company).
In July 1992, CCP, a newly organized holding company for the
Partnership's first three acquisitions, completed an initial public offering
("IPO") of 8,010,700 shares of common stock, with net proceeds to CCP totaling
$111.2 million. The shares issued in the offering represented a 31 percent
ownership interest in the common stock outstanding of CCP. The remaining
ownership interest in CCP was held by Conseco and others who exchanged their
investments in the Partnership and its subsidiaries for common stock of CCP.
In September 1993, CCP completed a public offering in which CCP sold 3.0
million shares of its common stock and certain shareholders sold 6.5 million
shares of CCP common stock. Proceeds of approximately $80.9 million from the
offering of common shares by CCP (after underwriting and issuance costs) were
added to CCP's funds for general corporate purposes. CCP received no proceeds
from the sale of shares by the selling shareholders. In a separate
transaction, Conseco purchased 2.0 million shares of CCP common stock from the
selling shareholders for $53.6 million. In addition, Conseco purchased .3
million shares of CCP common stock in open market transactions for $5.9 million
during 1993. After these transactions, Conseco owns 40 percent of the common
stock of CCP.
The Partnership agreement provided incentive compensation to the general
partner in the form of transfers from the limited partners of a portion of
their returns in excess of prescribed targets. The distribution of CCP shares
to the limited partners in 1992 caused such targets to be exceeded, resulting
in incentive compensation of $6.1 million, net of tax of $3.2 million, to
Conseco. In addition, income in 1992 included $1.9 million, net of tax of $7.3
million, representing Conseco's percentage share in the increase in CCP's
shareholders' equity account attributable to the proceeds from the IPO.
Bankers Life Holding Corporation
On November 9, 1992, the Partnership acquired Bankers Life from I.C.H.
Corporation (I.C.H. Corporation and its subsidiaries are collectively referred
to herein as "ICH"). The acquisition was completed through BLH, a company
formed and controlled by the Partnership.
<PAGE>
<PAGE> 64
The purchase price of $600.0 million was funded with the net proceeds
of the following securities issued by BLH: $175.0 million senior loan from a
group of lending banks; $200.0 million senior subordinated notes; $45.0 million
payment-in-kind junior subordinated notes (including $8.3 million provided by
Conseco and $34.7 million provided by ICH); $158.3 million of payment-in-kind
preferred stock (of which $108.3 million was provided by Conseco and $50.0
million was provided by ICH); and $66.7 million of common stock of BLH,
including $16.7 million directly provided by ICH and $50.0 million provided by
the Partnership (including $25.5 million provided by Conseco and $9.6 million
provided by ICH). The notes are not direct obligations of Conseco. After this
acquisition, Conseco owned approximately 44 percent of the common equity
interest in BLH through direct investments and investments in the Partnership.
For accounting convenience, the acquisition was reported as of November 1,
1992, and adjustments were made to reflect financing costs for the period
between that date and the actual date of acquisition, November 9, 1992.
On March 25, 1993, BLH completed an IPO of 19.6 million shares of its
common stock at $22 per share. Proceeds from the offering of $405.3 million
(after underwriting and issuance costs) were used by BLH to redeem all
outstanding preferred stock, to retire all junior subordinated debt, to prepay
a portion of the senior debt and for other corporate purposes. After the
offering, Conseco owned 31 percent of the common shares of BLH. As a result
of the offering, Conseco recorded a one-time gain of $59.3 million (net of tax
of $39.9 million) in the first quarter of 1993, representing Conseco's direct
percentage share of the increase in Bankers' shareholders' equity account
attributable to the proceeds from the offering. In addition, Conseco recorded
a gain of $2.2 million (net of tax of $.1 million) in the first quarter of
1993, representing Conseco's indirect percentage share (through the Company's
ownership of CCP) of CCP's percentage share of the increase in Bankers'
shareholders' equity account attributable to the proceeds from the offering.
The Partnership agreement provided incentive compensation to Conseco as the
general partner in the form of transfers from the limited partners of a portion
of their returns in excess of prescribed targeted returns. The distribution
of BLH shares to the limited partners caused such targets to be exceeded,
resulting in incentive compensation to Conseco of $21.9 million, net of tax of
$14.7 million.
On September 30, 1993, Conseco completed the acquisition of 13.3 million
shares of common stock of BLH from ICH for $287.6 million. The shares
purchased represented 25 percent of the outstanding shares of common stock of
BLH, increasing Conseco's ownership of shares of common stock of BLH to 56
percent. The purchase price for the shares acquired from ICH was paid by the
surrender for redemption of $50.0 million stated value of ICH preferred stock
owned by a Conseco subsidiary and the payment of $237.6 million in cash. The
cash payment was funded with available cash and the net proceeds from a $200.0
million senior unsecured loan. As described in Note 16, the loan was repaid
in February 1994, using the proceeds from the IPO of Western National
Corporation.
<PAGE>
<PAGE> 65
The closing price of BLH's shares on the New York Stock Exchange on
December 31, 1993, was $21.50 per share. This indicated a total fair value of
Conseco's investment in BLH of $652.8 million, compared to the cost to Conseco
totaling $313.1 million and net equity included in these consolidated financial
statements of $518.8 million. Shares held by the Company are not freely
tradable, and sale of such shares may require a registration statement with the
Securities and Exchange Commission.
Bankmark
In March 1993, Conseco acquired 95 percent of the outstanding common
stock of Bankmark for $6.1 million. Bankmark is an insurance marketing company
which develops marketing relationships with financial institutions to provide
insurance and investment products to their customers.
The acquisitions of CCP, Bankers and Bankmark described above were
recorded in the consolidated statement of cash flows as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities $ - $ (721.3) $(1,314.3)
Mortgage loans (.6) (22.5) (337.0)
Policy loans - (35.9) (66.5)
Investment in CCP Insurance, Inc. (59.5) - -
Trading account securities - (377.2) (43.0)
Other investments 50.0 (35.6) -
Cost of policies purchased (118.4) (516.0) (173.9)
Cost of policies produced 73.3 (152.9) -
Goodwill (154.6) (100.9) -
Reinsurance receivables - (638.7) -
Insurance liabilities 11.2 2,436.4 1,889.6
Tax liabilities 14.3 32.7 .5
Notes payable 12.1 - -
Minority interest (117.8) - -
Other (10.9) (71.1) (27.1)
------- -------- ----------
Cash used $(300.9) $ (203.0) $ (71.7)
------- -------- ----------
------- -------- ----------
</TABLE>
<PAGE>
<PAGE> 66
Following are unaudited pro forma results of operations of the Company
as if the Partnership's acquisition of Bankers, the IPOs of BLH and CCP and
Conseco's subsequent purchases of additional shares of BLH and CCP had occurred
at the beginning of the periods presented. Prior operations of Bankmark are
not included in the following table since the effect is not material.
<TABLE>
<CAPTION>
1993 1992
---- ----
(Dollars in millions, except per share amounts)
<S> <C> <C>
Revenues $2,497.0 $2,290.0
Income before extraordinary charge 242.8 189.7
Earnings before extraordinary charge
per common share and common
equivalent share:
Primary $7.60 $6.15
Fully diluted 7.14 6.12
</TABLE>
3. INVESTMENTS:
The amortized cost, estimated fair value and carrying value of fixed
maturities were as follows at December 31, 1993:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---- ----- ------ ----- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Actively managed:
United States Treasury
securities and obligations
of United States government
corporations and agencies $ 76.5 $ 3.9 $ 2.0 $ 78.4 $ 78.4
Obligations of states and
political subdivisions 77.8 1.0 2.5 76.3 76.3
Debt securities issued
by foreign governments 2.9 .9 - 3.8 3.8
Public utility securities 2,255.1 80.6 28.2 2,307.5 2,307.5
Other corporate securities 4,029.7 206.8 38.3 4,198.2 4,198.2
Mortgage-backed securities 3,083.4 90.6 17.6 3,156.4 3,156.4
-------- ------ ----- -------- --------
Total actively managed 9,525.4 383.8 88.6 9,820.6 9,820.6
Held to maturity:
Obligations of states and
political subdivisions 1.1 .5 - 1.6 1.1
-------- ------ ----- -------- --------
Total fixed maturities $9,526.5 $384.3 $88.6 $9,822.2 $9,821.7
-------- ------ ----- -------- --------
-------- ------ ----- -------- --------
</TABLE>
<PAGE>
<PAGE> 67
At December 31, 1992, the amortized cost and estimated fair value of
fixed maturities were as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
---- ----- ------ ----- -----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Actively managed:
United States Treasury securities and
obligations of United States
government corporations
and agencies $ 91.1 $ 2.5 $ 1.8 $ 91.8 $ 91.8
Obligations of states and
political subdivisions 55.6 .5 .5 55.6 55.6
Debt securities issued by
foreign governments 2.5 .6 - 3.1 3.1
Public utility securities 1,841.1 50.9 7.9 1,884.1 1,884.1
Other corporate securities 2,870.8 65.0 43.9 2,891.9 2,891.9
Mortgage-backed securities 2,487.7 96.2 15.2 2,568.7 2,568.7
-------- ------ ----- -------- --------
Total activity managed 7,348.8 215.7 69.3 7,495.2 7,495.2
-------- ------ ----- -------- --------
Held to maturity:
Obligations of states and
political subdivisions 1.0 .4 - 1.4 1.0
Other corporate securities 17.6 .4 - 18.0 17.6
-------- ------ ----- -------- --------
Total held to maturity 18.6 .8 - 19.4 18.6
-------- ------ ----- -------- --------
Total fixed maturities $7,367.4 $216.5 $69.3 $7,514.6 $7,513.8
-------- ------ ----- -------- --------
-------- ------ ----- -------- --------
</TABLE>
The following table sets forth the amortized cost and estimated fair
value of fixed maturities as of December 31, 1993, based upon the source of the
estimated fair value:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Nationally recognized pricing services $7,137.9 $7,383.5
Broker-dealer market makers 2,361.1 2,411.1
Internally developed methods (calculated based
on a weighted-average current market yield of 4.31 percent) 27.5 27.6
-------- --------
Total fixed maturities $9,526.5 $9,822.2
-------- --------
-------- --------
</TABLE>
<PAGE>
<PAGE> 68
The following table sets forth the quality of total fixed maturity
investments as of December 31, 1993, classified in accordance with the highest
rating by a nationally recognized statistical rating organization or, as to
$69.1 million fair value of fixed maturities not rated by such firms, based on
ratings assigned by the National Association of Insurance Commissioners
("NAIC") as follows: for purposes of the table, NAIC Class 1 is included in
the "A" rating; Class 2, "BBB-"; Class 3, "BB-"; and Classes 4-6, "B+ and
below."
<TABLE>
<CAPTION>
Percent of Percent of
Investment Rating Fixed Maturities Total Investments
----------------- ---------------- -----------------
<S> <C> <C>
AAA 34% 28%
AA 9 8
A 20 17
BBB+ 10 9
BBB 11 9
BBB- 10 8
--- --
Investment grade 94 79
--- --
BB+ 2 2
BB 1 1
BB- 1 1
B+ and below 2 1
--- --
Below investment grade 6 5
--- --
Total fixed maturities 100% 84%
--- --
--- --
</TABLE>
Below investment grade fixed maturity investments, summarized by the
amount their amortized cost exceeds fair value, were as follows at December 31,
1993:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Amortized cost exceeds fair value by 15% or more $ 20.2 $ 16.6
Amortized cost exceeds fair value by 5%,
but not more than 15% 38.0 34.4
All others 524.3 546.7
------ ------
Total below investment grade
fixed maturity investments $582.5 $597.7
------ ------
------ ------
</TABLE>
<PAGE>
<PAGE> 69
The amortized cost and estimated fair value of fixed maturities at
December 31, 1993, by contractual maturity, are shown below. Actual maturities
will differ from contractual maturities because borrowers may have the right
to call or prepay obligations with or without call or prepayment penalties and
because most mortgage-backed securities provide for periodic payments
throughout their lives.
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Cost Value
---- -----
(Dollars in millions)
<S> <C> <C>
Due in one year or less $ 23.4 $ 25.7
Due after one year through five years 184.1 185.7
Due after five years through ten years 1,216.1 1,256.0
Due after ten years 5,019.5 5,198.4
-------- --------
Subtotal 6,443.1 6,665.8
Mortgage-backed securities 3,083.4 3,156.4
-------- --------
Total fixed maturities $9,526.5 $9,822.2
-------- --------
-------- --------
</TABLE>
Equity securities consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
----------------- -----------------
Estimated Estimated
Fair Fair
Cost Value Cost Value
---- ----- ---- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
Common stock, principally
insurance companies $15.2 $15.3 $ 8.4 $24.0
Preferred stock, non-redeemable 15.0 15.0 56.6 47.6
----- ----- ----- -----
Total equity securities $30.2 $30.3 $65.0 $71.6
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE> 70
Net investment income consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities $777.6 $762.2 $766.7
Equity securities 7.1 10.5 10.8
Mortgage loans 23.2 49.8 57.9
Credit-tenant loans 24.2 15.7 10.5
Policy loans 11.3 13.8 16.9
Other 23.8 8.6 3.5
Short-term investments 28.2 26.5 52.4
Separate accounts 5.9 6.1 7.9
------ ------ ------
Gross investment income 901.3 893.2 926.6
Investment expenses 5.1 4.6 5.2
------ ------ ------
Net investment income $896.2 $888.6 $921.4
------ ------ ------
------ ------ ------
</TABLE>
The carrying value of investments not accruing investment income totaled
$19.6 million, $24.8 million and $36.8 million at December 31, 1993, 1992 and
1991, respectively.
The proceeds from sales of fixed maturity investments were $6.5 billion,
$4.2 billion and $4.8 billion for the years ended December 31, 1993, 1992 and
1991, respectively. The proceeds from the sales of trading account securities
were $10.0 billion, $6.7 billion and $5.6 billion for the years ended December
31, 1993, 1992 and 1991, respectively. In 1993, there were no sales of fixed
maturities classified as held to maturity, although some were called by the
issuer.
Realized gains (losses) from trading account securities, net of
investment expenses, were included in revenue as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Gross gains $129.5 $75.0 $68.7
Gross losses (26.4) (30.3) (10.7)
------ ----- -----
Net realized gains from trading
account securities before expenses 103.1 44.7 58.0
Trading expenses 10.0 8.8 7.3
------ ----- -----
Net trading income $ 93.1 $35.9 $50.7
------ ----- -----
------ ----- -----
</TABLE>
<PAGE>
<PAGE> 71
Realized gains (losses), net of investment expenses, were included in
revenue as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Fixed maturities:
Gross gains $214.9 $141.4 $163.6
Gross losses (46.6) (16.4) (14.2)
Decline in net realizable value of
fixed maturities (7.9) - (18.7)
------ ------ ------
Net realized gains from fixed
maturities before expenses 160.4 125.0 130.7
Equity securities 10.4 3.8 .4
Mortgages (6.1) (6.7) .2
Other (2.1) 6.6 (2.5)
------ ------ ------
Net realized gains before expenses 162.6 128.7 128.8
Realized gain expenses 13.1 4.4 5.5
------ ------ ------
Net realized gains $149.5 $124.3 $123.3
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
<PAGE> 72
Changes in unrealized appreciation (depreciation) on investments were as
follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Investments carried at amortized cost:
Fixed maturities held to maturity $ (.3) $(280.8) $456.5
------ ------- -------
------ ------- -------
Investments carried at estimated fair value:
Actively managed fixed maturities $148.8 $146.4 $ -
Equity securities (6.5) 18.8 6.0
Other investments 14.4 - -
Trading account securities (3.3) (42.0) 43.4
------ ------- -------
153.4 123.2 49.4
Equity in unrealized appreciation of CCP's investments 15.0 9.6 -
Less effect on other balance sheet accounts:
Cost of policies purchased (5.3) (26.8) -
Cost of policies produced (65.0) (56.3) -
Insurance liabilities (14.2) (24.9) -
Income tax liabilities (24.5) (8.2) (16.8)
Minority interest (4.8) 8.3 (3.9)
------ ------- -------
Change in unrealized appreciation of
investments carried at estimated fair value $ 54.6 $ 24.9 $ 28.7
------ ------- -------
------ ------- -------
</TABLE>
<PAGE>
<PAGE> 73
Accumulated net appreciation of equity securities before tax as of
December 31, 1993, was $.1 million consisting of $.1 million of appreciation
and no depreciation.
The carrying value and fair value of fixed maturity investments in
default as to the payment of principal or interest totaled $25.3 million at
December 31, 1993, net of total recorded writedowns of $16.8 million. During
1991, the Company recorded $18.7 million of writedowns of fixed maturity
investments as a result of changes in conditions which caused the Company to
conclude the issuer may be unable to comply with the terms of the investment.
During 1992, the Company recorded no such writedowns. During 1993, the Company
recorded $7.9 million of such writedowns.
Investments in mortgage-backed securities at December 31, 1993, included
collateralized mortgage obligations ("CMOs") of $2,193.9 million and
mortgage-backed pass-through securities of $962.5 million. At December 31,
1993, the par value, amortized cost and estimated fair value of investments in
mortgage-backed securities summarized by interest rates on the underlying
collateral were comprised of the following:
<TABLE>
<CAPTION>
Par Amortized Estimated
Value Cost Fair Value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Pass-through securities:
Below 7% $ 467.7 $ 469.5 $ 465.8
7% - 8% 410.2 416.5 418.8
8% - 9% 26.1 26.2 27.3
Above 9% 46.5 46.6 50.6
Planned amortization class CMO instruments:
Below 7% 315.9 309.2 303.6
7% - 8% 574.9 557.1 572.4
8% - 9% 232.5 229.9 239.6
Above 9% 261.5 263.9 274.3
Other CMO instruments:
Below 7% 87.6 87.7 88.2
7% - 8% 71.2 69.5 70.6
8% - 9% 61.7 62.4 63.8
Above 9% 564.9 544.9 581.4
-------- -------- --------
Total mortgage-backed securities $3,120.7 $3,083.4 $3,156.4
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1993, the balance of mortgage loans was comprised of 78
percent commercial loans and 22 percent junior and residual interests in
collateralized mortgage obligations. The total estimated fair value of
mortgage loans was approximately $175 million and $190 million at December 31,
1993 and 1992, respectively. Approximately 22 percent, 15 percent, 10 percent
and 8 percent of the mortgage loans were on properties located in Texas, New
York, Virginia and Missouri, respectively. No other state comprised greater
than 7 percent of the mortgage loan balance. At December 31, 1993, the Company
had an allowance for loss on mortgage loans of $3.9 million. During the year
ended December 31, 1993, the Company realized losses of $6.1 million on
mortgage loans, of which $5.8 million related to other than temporary declines
in the value of certain residual interests in collateralized mortgage
obligations.
At December 31, 1993 and 1992, the estimated fair values of
credit-tenant loans, policy loans and other invested assets were approximately
equal to their respective carrying values.
<PAGE>
<PAGE> 74
As part of its investment strategy, the Company enters into repurchase
agreements and dollar roll transactions to increase its return on investments
and improve liquidity. These transactions generally terminate after 30 days
and are accounted for as short-term collateralized borrowings. Such borrowings
averaged approximately $410 million during 1993 (compared to $215 million
during 1992) and were collateralized by mortgage-backed securities with fair
values approximately equal to the loan value.
In 1992, the Company entered into an interest rate guarantee contract
to convert the characteristics of certain investments to match those of related
insurance liabilities. The agreement expires in January 1995 and provides for
a constant yield on $100.0 million indexed to current rates on U.S. Treasuries.
The estimated fair value of the agreement was approximately $.1 million and $.9
million at December 31, 1993 and 1992, respectively, which was not recognized
in the accompanying consolidated balance sheet.
At December 31, 1993, the Company had outstanding interest rate swap
agreements which expire at various dates through 1999. Under the agreements,
the Company receives a fixed rate averaging 6.7 percent on $295.0 million and
pays a floating rate based on LIBOR. The estimated fair value of the
agreements was approximately $13.7 million at December 31, 1993, which was not
recognized in the accompanying consolidated balance sheet.
Life insurance companies are required to maintain certain amounts of
assets on deposit with state regulatory authorities. Such assets had an
aggregate carrying value of $27.0 million at December 31, 1993.
Investments in any entity in excess of 10 percent of shareholders'
equity at December 31, 1993, other than investments in affiliates and
investments issued or guaranteed by the U.S. government, substantially all of
which were actively managed fixed maturities, were as follows:
<TABLE>
<CAPTION>
Estimated
Amortized Fair
Investment Cost Value
---------- ---- -----
(Dollars in millions)
<S> <C> <C>
News America Holding Corporation $149.8 $159.1
Commonwealth Edison Company 142.8 140.2
Texas Utilities Electric Company 126.9 128.4
GTE Corporation 120.1 128.2
Time Warner, Inc. 123.9 128.0
</TABLE>
<PAGE>
<PAGE> 75
4. INVESTMENTS IN UNCONSOLIDATED AFFILIATES:
CCP
See Note 2 for a description of transactions affecting Conseco's
ownership of CCP.
Conseco's investment in 40 percent of the common stock of CCP is
included in the consolidated balance sheet on the equity basis at $244.3
million at December 31, 1993, representing the effect of the transactions
described in Note 2 plus equity in CCP's earnings. The closing price of CCP's
shares on the New York Stock Exchange on December 31, 1993, was $27.875 per
share, indicating a total fair value of the CCP shares owned by Conseco of
$322.1 million, compared to the total cost to Conseco of $102.8 million. A
substantial portion of the shares of CCP common stock held by Conseco are
subject to restrictions on trading.
<PAGE>
<PAGE> 76
The difference of $22.8 million between the carrying value of Conseco's
investment in CCP and the amount of its underlying equity in net assets is
amortized on the straight-line basis over a 40-year period. Financial
information of CCP at December 31, 1993 and 1992, for the year ended December
31, 1993, and for the six months ended December 31, 1992 (the period CCP and
its subsidiaries were included in Conseco's financial statements on the equity
basis) were as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Financial position:
Total assets $5,298.1 $4,856.5
Total investments 4,872.5 4,373.7
Cost of policies purchased 175.5 247.9
Cost of policies produced 42.3 44.4
Total liabilities 4,734.2 4,522.7
Insurance liabilities 4,233.3 4,137.2
Notes payable 173.5 231.9
Common shareholders' equity 563.9 333.8
Amounts recorded by Conseco:
Investment in CCP $ 244.3 $ 130.5
</TABLE>
<TABLE>
<CAPTION>
Year Ended Six Months Ended
December 31, 1993 December 31, 1992
----------------- ------------------
(Dollars in millions)
<S> <C> <C>
Results of operations:
Total revenues $632.5 $318.0
Investment activity insurance policy income 127.8 72.4
Investment activity:
Net investment income 412.9 193.4
Net trading income 24.3 10.7
Net realized gains 55.8 40.7
Total benefits and expenses 459.0 249.9
Interest expense on annuities
and financial products 243.5 128.2
Interest expense on long-term debt 16.1 9.8
Income before income taxes and extraordinary charge 173.5 68.1
Income tax expense 65.9 24.4
Income before extraordinary charge 107.6 43.7
Extraordinary charge on extinguishment of debt, net of tax - 8.3
Net income 107.6 35.4
Amounts recorded by Conseco:
Equity in earnings before extraordinary charge $37.4 $15.8
Fees received for services provided by Conseco to CCP 10.6 4.5
Extraordinary charge - 3.9
Dividends received .8 .2
</TABLE>
<PAGE>
<PAGE> 77
Life Re Corporation
At December 31, 1991, the Company owned a 31 percent equity interest
(after exercise of warrants held by others) in the common stock and $30.0
million of 12 percent junior preferred stock of Life Re Corporation ("Life
Re"), a company engaged in the life reinsurance business. In November 1992,
Life Re completed an initial public offering of its common stock and redeemed
all of the common and preferred stock held by the Company. As a result, a gain
of $15.2 million (net of tax of $21.2 million) was recorded in 1992. The
following amounts were recorded in Conseco's financial statements related to
the results of operations of Life Re:
<TABLE>
<CAPTION>
1992 1991
---- ----
(Dollars in millions)
<S> <C> <C>
Equity in earnings of Life Re $11.3 $ 9.3
Net investment income received on preferred stock 3.0 3.6
Gain on sale of investment in Life Re 36.4 -
</TABLE>
5. INSURANCE LIABILITIES:
Insurance liabilities consisted of the following:
<TABLE>
<CAPTION> Interest December 31,
Withdrawal Mortality Rate ----------------------
Assumption Assumption Assumption 1993 1992
---------- ---------- ---------- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C>
Future policy benefits:
Investment contracts N/A N/A (c) $ 7,114.4 $ 6,553.2
Limited-payment contracts None (a) (d) 1,583.9 1,357.7
Traditional life insurance Company
contracts experience (b) (e) 632.7 713.3
Universal life-type contracts N/A N/A (f) 341.0 337.4
Individual accident and health Company Company (g) 545.1 513.0
experience experience
Group life and health N/A N/A N/A 14.2 26.4
Unearned premiums N/A N/A N/A 189.4 183.2
Claims payable and other
policyholders' funds N/A N/A N/A 377.6 354.8
--------- ---------
Total insurance liabilities $10,798.3 $10,039.0
--------- ---------
--------- ---------
<FN>
(a) Principally the 1984 United States Population Table.
(b) Principally modifications of the 1965 - 70 Basic, Select and Ultimate Tables.
(c) In both 1993 and 1992, approximately 94 percent of this liability represented account balances where
future benefits are not guaranteed and 6 percent represented the present value of guaranteed future benefits
determined using interest rates ranging from 3 percent to 12 percent.
(d) The weighted average rate was approximately 9 percent at December 31, 1993.
(e) The weighted average rate was approximately 7 percent at December 31, 1993.
(f) The weighted average rate was approximately 5 percent at December 31, 1993.
(g) The weighted average rate was approximately 7 percent at December 31, 1993.
</TABLE>
<PAGE>
<PAGE> 78
Participating policies represented approximately 11 percent, 12 percent
and 14 percent of total life insurance in force at December 31, 1993, 1992 and
1991, respectively, and approximately 3 percent, 8 percent and 18 percent of
premium income for 1993, 1992 and 1991, respectively. Dividends on
participating policies amounted to $16.0 million, $11.1 million and $14.6
million in 1993, 1992 and 1991, respectively.
The sales of fixed maturity investments during 1993 reduced the expected
future yields on the investment of policyholder balances to the extent that
projected future cash flows on certain products were insufficient to cover
future benefits and expenses. Accordingly, additional estimated insurance
liabilities of $37.1 million were established by a charge to expense.
As described in Note 1, an adjustment was made to increase insurance
liabilities by $39.1 million related to recording unrealized gains on actively
managed fixed maturities.
The estimated fair value of the liabilities for investment contracts was
approximately equal to its carrying value at December 31, 1993 and 1992,
because interest rates credited on the vast majority of account balances
approximate current rates paid on similar investments and are not generally
guaranteed beyond one year. Fair values for the Company's insurance
liabilities other than those for investment contracts are not required to be
disclosed. However, the estimated fair values of liabilities for all insurance
contracts are taken into consideration in the Company's overall management of
interest rate risk, which minimizes exposure to changing interest rates through
the matching of investment maturities with amounts due under insurance
contracts.
6. REINSURANCE:
Cost of reinsurance ceded where the reinsured policy contains mortality
risks totaled $34.9 million, $41.9 million and $63.8 million in 1993, 1992 and
1991, respectively, and was deducted from insurance premium revenue. The
Company is contingently liable for claims reinsured if the assuming company is
unable to pay. Reinsurance recoveries netted against insurance policy benefits
totaled $41.9 million, $45.4 million and $68.1 million in 1993, 1992 and 1991,
respectively.
The Company has ceded blocks of insurance under reinsurance transactions
which represent 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.
Net statutory surplus provided by such treaties totaled $2.9 million and $11.2
million at December 31, 1993 and 1992, respectively. Risk fees paid to
reinsurers generally ranged from 2 percent to 4 percent of the net amount of
surplus provided.
<PAGE>
<PAGE> 79
The Company has also ceded policy liabilities under assumption
reinsurance agreements where all obligations under the insurance contracts have
been ceded to another company. Accordingly, insurance liabilities related to
such policies were not reported in the balance sheet. The Company believes the
assuming companies are able to honor all contractual commitments under the
assumption reinsurance agreements based on periodic reviews of financial
statements, insurance industry reports and reports filed with state insurance
departments.
At December 31, 1993 and 1992, reinsurance receivables with carrying
values of $398.5 million and $420.0 million, respectively, were associated with
annuity business ceded by Bankers to an unaffiliated company and retroceded on
substantially identical terms to an ICH affiliate. Bankers provides investment
management, administrative, data processing and general management services
related to the reinsured business in exchange for annual fees equal to .45
percent of reinsured reserves. Administrative fees earned were $1.8 million
and $.3 million for 1993 and the two months ended December 31, 1992,
respectively. Experience refunds including administrative fees, earned during
1993 and the two months ended December 31, 1992, were $3.2 million and $.3
million, respectively.
At December 31, 1992, insurance liabilities of approximately $182.0
million, were reinsured by Bankers with a subsidiary of ICH. During the first
quarter of 1993, Bankers recaptured the reinsured business with assets
approximately equal to the insurance liabilities. Recapture fees of $15.5
million were capitalized as a component of cost of policies purchased.
On June 30, 1993, the Company recaptured certain annuity business with
insurance liabilities of $156.5 million that had previously been reinsured with
an unaffiliated company. Assets with a fair value approximating the insurance
liabilities were transferred to the Company.
<PAGE>
<PAGE> 80
7. INCOME TAXES:
Income tax liabilities were comprised of the following:
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Deferred income tax liabilities:
Investments $ 67.9 $ 37.8
Cost of policies purchased and
cost of policies produced 275.8 250.3
Insurance liabilities (245.1) (224.5)
Other (17.9) (36.3)
Unrealized appreciation 41.8 17.3
Less net operating loss carryforward (33.2) (6.4)
------ ------
Deferred income tax liabilities 89.3 38.2
Current income tax liabilities 28.9 43.2
------ ------
Income tax liabilities $118.2 $ 81.4
------ ------
------ ------
</TABLE>
Income tax expense was as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Current tax provision $162.9 $110.9 $75.5
Deferred tax provision 60.2 13.7 2.7
------ ------ -----
Income tax expense $223.1 $124.6 $78.2
------ ------ -----
------ ------ -----
</TABLE>
Income tax expense differed from that computed at the applicable federal
statutory rate (35 percent during 1993 and 34 percent during 1992 and 1991) for
the following reasons:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Tax on income before income taxes
at statutory rates $213.6 $112.2 $75.9
Additional tax on unrealized gains and income from prior
periods related to increase in corporate income tax rate 3.3 - -
Nontaxable investment income and dividends received deduction (10.8) (.8) (12.8)
Undistributed earnings of affiliates 3.3 6.8 11.9
Nondeductible items 2.2 1.0 1.2
State taxes 11.9 4.2 -
Other (.4) 1.2 2.0
------ ------ -----
Income tax expense $223.1 $124.6 $78.2
------ ------ -----
------ ------ -----
</TABLE>
<PAGE>
<PAGE> 81
The Omnibus Budget Reconciliation Act of 1993 (the "Act") was enacted
on August 10, 1993. The most significant provision of the Act affecting the
Company was the increase in the corporate income tax rate to 35 percent from
34 percent, effective for taxable income reported for the year 1993. As a
result of the increase in the tax rate, the Company recognized additional tax
expense of $8.9 million consisting of: (i) $5.6 million related to income of
1993; (ii) $1.9 million related to a one-time adjustment to accumulated
deferred taxes relating to prior years' income; and (iii) $1.4 million related
to unrealized appreciation of securities at the date the new law was enacted.
In addition, the equity in earnings of CCP was reduced by $1.6 million as a
result of the Company's share of the additional tax expense recorded by CCP
related to the increase in the tax rate. The impact of other provisions of the
Act was not material to the Company.
At December 31, 1993, federal income tax loss carryforwards of $94.9
million were available (subject to various statutory restrictions) for use on
future tax returns, portions of which begin expiring in 1999. Of the loss
carryforwards, $24.5 million may be used to offset income from the non-life
insurance companies only. None of the carryforwards are available to reduce
the tax provision for financial reporting purposes.
The Company's subsidiaries have deducted approximately $12.9 million on
their tax returns allocated to policyholders' surplus for which no provision
has been made for income taxes that may be payable if such amounts are used to
pay dividends to the shareholder or for certain other purposes.
The IRS has completed its examination of the Company for years through
1990. All amounts due have been paid or accrued.
8. NOTES PAYABLE:
Notes payable that are direct obligations of the Company at December 31,
1993 and 1992, were as follows:
<TABLE>
<CAPTION>
Amount
Outstanding
Net of
Par Value Unamortized
---------------------------------- Discount and Estimated
Outstanding at Issuance Costs Fair Value at
December 31, at December 31, December 31,
Initially -------------------- -------------------- --------------------
Issued 1993 1992 1993 1992 1993 1992
------ ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Issued September 1993 $200.0 $200.0 $ - $198.0 $ - $200.0 $ -
Issued February 1993 200.0 200.0 - 195.8 - 208.0 -
Issued July 1987 255.0 - 139.8 - 135.9 - 147.7
Issued June 1989 34.0 14.4 23.8 13.2 21.3 14.9 24.0
Issued June 1990 6.0 6.0 6.0 6.0 6.0 6.5 6.0
------ ------ ------ ------ ------ ------
Total $420.4 $169.6 $413.0 $163.2 $429.4 $177.7
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
On September 30, 1993, the Company executed a $200 million senior
unsecured loan due to a group of banks as financing for Conseco's purchase of
common shares of Bankers as described in Note 2. As discussed in Note 16, on
February 15, 1994, the loan was repaid in full, resulting in an extraordinary
charge of $1.2 million (net of a $.6 million tax benefit) in the first quarter
of 1994.
<PAGE>
<PAGE> 82
In February 1993, the Company completed a public offering of $200
million of its 8.125 percent senior notes due in 2003. Proceeds from the
offering of approximately $195.6 million (after original issue discount and
other associated costs) were used to repurchase in open market transactions or
redeem the remaining outstanding 12.75 percent senior subordinated notes issued
in July 1987 and for general corporate purposes. The repurchase and redemption
of the senior subordinated notes resulted in an extraordinary charge of $8.4
million, net of a $4.3 million tax benefit, in 1993. The 8.125 percent
senior notes bear interest payable semi-annually on February 15 and August 15.
The notes are unsecured and rank pari passu with all other unsecured and
unsubordinated indebtedness of the Company. The notes are not redeemable prior
to maturity.
In June 1989, the Company, as partial acquisition financing for National
Fidelity, executed a senior promissory note payable in the amount of $34.0
million. The note was subsequently rewritten into two notes - one for $24.0
million and one for $10.0 million. The $10.0 million note was held by Great
American Reserve at the time Great American Reserve was acquired by the
Partnership in 1990. In March 1993, the Company redeemed the note held by
Great American Reserve at its current par value of $7.0 million, resulting in
an extraordinary charge of $.4 million (net of a $.3 million tax benefit).
In March 1994, the $24 million note was repaid in full resulting in an
extraordinary charge of $.8 million (net of a $.4 million tax benefit) in the
first quarter of 1994.
In June 1990, the Company, as partial acquisition financing for Great
American Reserve, executed a subordinated promissory note in the amount of $6.0
million. In March 1994, this note was repaid in full.
During 1992 and 1991, the Company purchased in the market or called
$20.0 million and $92.4 million, respectively, par value of senior subordinated
notes. These redemptions resulted in extraordinary charges of $1.4 million,
net of a $.7 million tax benefit, in 1992 and $5.0 million, net of a $2.6
million tax benefit, in 1991.
The following notes payable, which are not direct obligations of
Conseco, were issued by Bankers to finance its acquisition by the Partnership:
<TABLE>
<CAPTION>
Amount
Outstanding
Net of
Par Value Unamortized
----------------------------- Discount and Estimated
Outstanding at Issuance Costs at Fair Value at
December 31, December 31, December 31,
Initially ----------------- ----------------- ---------------
Issued 1993 1992 1993 1992 1993 1992
------ ---- ---- ---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C> <C>
Senior term loan $175.0 $110.0 $175.0 $106.4 $168.2 $110.0 $175.0
Senior subordinated notes 200.0 180.0 200.0 183.9 192.1 216.0 207.0
PIK subordinated notes 36.7 - 36.7 - 31.7 - 31.7
------ ------ ------ ------ ------ ------
Total $290.0 $411.7 $290.3 $392.0 $326.0 $413.7
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
</TABLE>
<PAGE>
<PAGE> 83
The $175.0 million senior term loan is due to a group of banks with
principal due in varying amounts from 1994 through 1999. The interest rate is
based on either LIBOR plus an applicable margin or prime rate plus an
applicable margin for periods of one, two, three or six months as selected by
Bankers from time to time (such rate was 5.5 percent at December 31, 1993).
The applicable margin for the rate based on a prime rate will vary from .75
percent to 1.5 percent depending on the principal amount of the senior term
loan outstanding and a defined cash coverage ratio based generally on
cash flows relative to certain fixed charges. The applicable margin for the
LIBOR rate will vary from 2.0 percent to 2.75 percent depending on such
principal amount and ratio. Under the provisions of the note agreement, the
subsidiaries of Bankers are limited in the amount of dividends they may pay on
common stock and Bankers must comply with other covenants, including the
maintenance of specific financial ratios. The senior term loan has as
collateral the majority of the common stock of Bankers and the common stock and
surplus debentures issued by its life insurance subsidiary to BLH.
The $200.0 million senior subordinated notes bear interest at 13
percent, payable semi-annually on May 1 and November 1, are due November 1,
2002, and may be redeemed, at the Company's option, on or after November 1,
1997, at a redemption price initially at 106.5 percent and declining
thereafter. In December 1993, Bankers repurchased $20.0 million of the notes
in open market transactions for $24.0 million, resulting in an extraordinary
charge, net of tax, of $3.1 million. Conseco's share of this charge ($1.0
million) was included as an extraordinary charge in the consolidated financial
statements.
The PIK subordinated notes were subordinated in right of payment to the
prior payment in full of the senior term loan and, in certain circumstances,
the senior subordinated notes. In 1993, Bankers retired all of its PIK
subordinated notes totaling $38.3 million and prepaid $55.0 million of its
senior term loan. The repayment of this debt resulted in an extraordinary
charge for Bankers of $4.8 million, net of a $2.5 million tax benefit, in 1993.
Conseco's share of this charge ($2.1 million) was included as an extraordinary
charge in the consolidated financial statements.
A summary of the maturity dates of the various notes is as follows:
<TABLE>
<CAPTION>
Par Value Par Value Notes
Notes Payable Payable of Par Value
of Conseco Bankers Total
---------- ------- -----
(Dollars in millions)
<S> <C> <C> <C>
Repaid in the first quarter of 1994 $220.4 $ 11.0 $231.4
1994 - - -
1995 - 16.0 16.0
1996 - 18.0 18.0
1997 - 21.0 21.0
1998 - 22.0 22.0
Thereafter 200.0 202.0 402.0
------ ------ ------
Total par value $420.4 $290.0 $710.4
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
<PAGE> 84
Certain notes payable, not direct obligations of Conseco, were issued
by subsidiaries of the Partnership to finance portions of the purchase prices
of Great American Reserve, Jefferson National and Beneficial Standard. In
connection with the IPO and recapitalization of CCP, a significant portion of
CCP's debt was retired, resulting in an extraordinary charge for CCP of $8.8
million, net of a $4.8 million tax benefit, in 1992. Conseco's share of this
charge ($3.9 million) was included as an extraordinary charge in the
consolidated financial statements in 1992. The remaining outstanding debt was
no longer consolidated in the Company's consolidated financial statements as
described in Note 1.
9. OTHER DISCLOSURES:
Leases
The Company rents office space, equipment and computer software under
noncancellable operating leases. Rental expense during 1993, 1992 and 1991,
amounted to $11.9 million, $6.2 million and $5.1 million, respectively. Future
required minimum rental payments as of December 31, 1993, were as follows
(dollars in millions):
<TABLE>
<S> <C>
1994 $ 15.1
1995 13.9
1996 12.9
1997 12.1
1998 11.5
Thereafter 87.6
------
Total $153.1
------
------
</TABLE>
Employment Arrangements
Some officers of the Company are employed pursuant to long-term
employment agreements. One of these agreements provides for a base salary plus
an annual bonus equal to 3 percent of the Company's consolidated defined pretax
profits. This agreement renews annually for a five-year period unless either
party notifies the other, in which case the agreement expires five years from
the last renewal date. Additionally, a $1.9 million interest-free loan has
been granted to the officer with repayment due two years after termination of
the officer's employment contract.
During March of 1994, the Company's Board of Directors approved a
Performance-Based Compensation Bonus Plan (the "Bonus Plan") for certain
officers of the Company. This Bonus Plan is intended to comply with the
recently enacted Internal Revenue Code Section 162(m), which potentially limits
the deductibility of amounts paid to officers of public companies. The Bonus
Plan provides for the payment of bonuses based upon the Company's return on
equity and pretax profits. This Bonus Plan, to meet Section 162(m), must be
ratified by the Company's shareholders.
The Company has a qualified defined contribution plan in which
substantially all employees of the Company's wholly owned subsidiaries are
eligible to participate. Company contributions, which match certain voluntary
employee contributions to the plan, totaled $.3 million, $.9 million and $.1
million in the years ended December 31, 1993, 1992 and 1991, respectively, and
are in the form of Conseco's common stock. In addition, a stock bonus and
deferred compensation program was adopted for certain executives and directors
whereby the participants may voluntarily defer a portion of their compensation.
Company contributions vary based on the amount of the increase in earnings per
share of the Company and the amount of compensation of each participant. Each
year's contribution, which is in the form of Conseco's common stock, vests five
years later or upon certain other events. The cost of the program is charged
to expense over the vesting period and amounted to $2.3 million, $1.9 million
and $1.8 million in 1993, 1992 and 1991, respectively.
<PAGE>
<PAGE> 85
Bankers has a qualified defined contribution plan in which substantially
all of its employees are eligible to participate. Company contributions, which
match certain voluntary contributions to the plan, totaled $1.1 million and $.1
million in 1993 and 1992, respectively.
Bankers has a noncontributory unfunded deferred compensation plan for
qualifying members of its career agency force. Benefits are based on years of
service and career earnings. The amounts recognized in the consolidated
balance sheet for the agents deferred compensation plan were as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Projected benefit obligation for services rendered to date
(vested benefits: 1993 - $26.5; 1992 - $22.9) $28.1 $27.2
Unrecognized net gain from effects of changes in assumptions .4 -
----- -----
Accrued liability for pension cost included in other liabilities $28.5 $27.2
----- -----
----- -----
</TABLE>
Net pension costs included in other operating expenses consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Service cost for benefit earned during the period $ .7 $.2
Interest cost on projected benefit obligations 2.1 .4
---- ---
Pension cost included in other operating expenses $2.8 $.6
---- ---
---- ---
</TABLE>
The weighted-average discount rate and rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation were 7 percent and 5 percent, respectively, at
December 31, 1993, and 8 percent and 5 percent, respectively, at December 31,
1992.
<PAGE>
<PAGE> 86
During 1993, Bankers announced several changes to its postretirement plan
that: (i) established a maximum annual cost-sharing amount for Bankers; (ii)
eliminated Bankers' cost-sharing for certain future retirees; and (iii)
effective July 1, 1993, revised certain assumptions to the plan resulting in
a $41.5 million reduction to its accumulated post retirement benefit obligation
("APBO"). Such changes also resulted in a net unrecognized reduction to prior
service costs of $7.8 million and a net unrecognized gain of $1.3 million. The
APBO and net unrecognized amounts consist of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Retirees $13.3 $33.4
Fully eligible active plan participants 7.2 16.8
Other active plan participants 4.0 12.8
----- -----
Total APBO 24.5 63.0
Unrecognized net reduction in prior service costs 7.4 -
Unrecognized net gain 1.3 -
----- -----
Accrued liability included in other liabilities $33.2 $63.0
===== =====
</TABLE>
The net cost of providing these benefits, included in other operating
expenses, was comprised of the following:
<TABLE>
<CAPTION>
December 31,
-----------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Service cost $1.1 $ .1
Interest cost 1.4 .4
Amortization (.4) -
---- ----
Net periodic cost $2.1 $ .5
==== ====
</TABLE>
The discount rate used in determining the accumulated postretirement
benefit obligation was 7 percent and 8 percent at December 31, 1993 and 1992,
respectively. The assumed annual increase in salary levels used in determining
the portion of the postretirement benefit obligation related to life benefits
was 5.2 percent and 5.3 percent at December 31, 1993 and 1992, respectively.
The average annual assumed rate of increase in the per capita cost of covered
benefits is 12 percent for 1994 and is assumed to decrease gradually to 5
percent for 2006 and remain at that level thereafter. Increasing the assumed
health care cost trend rates by 1 percentage point in each year would increase
the accumulated postretirement benefit obligation by $1.7 million at December
31, 1993, and the postretirement benefit cost by $.3 million for 1993.
Bankers has an incentive stock option plan which is authorized to grant
employees or directors options to purchase shares of common stock, stock
appreciation rights and limited rights (rights exercisable only in the event
of a tender offer for or acquisition of 25 percent or more of BLH's outstanding
common stock). The maximum number of shares of common stock which may be
issued under options and related rights granted under the plan is 3.5 million,
with an exercise price not less than the fair market value of the underlying
shares on the date of the grant. Options may become exercisable immediately
or over a period of time and remain exercisable for up to 10 years after grant.
During 1993, options for 820,000 shares of BLH common stock were granted to
employees at a price per share of $22.00 to $23.63. No rights have been
granted and no options are vested at December 31, 1993.
<PAGE>
<PAGE> 87
Litigation
From time to time, the Company and its subsidiaries are involved in
lawsuits which are related to their operations. In most cases, such lawsuits
involve claims under insurance policies or other contracts of the Company.
Even though the Company may be contesting the validity or extent of its
liability in response to such lawsuits, the Company has established reserves
in its consolidated financial statements which approximate its estimated
potential liability. Accordingly, none of the lawsuits currently pending,
either individually or in the aggregate, is expected to have a material effect
on the Company's consolidated financial condition or results of operations.
Related Party Transactions
A director of the Company is a principal in several entities that
received a total of approximately $8.3 million from the Company during the
three years ended December 31, 1993, for the sale of land and the construction
of facilities and approximately $2.7 million for management and rental of
offices. In 1989, the Company loaned the director $8.0 million on an
eight-year note with interest at the prime interest rate plus one percentage
point. The note is repayable in annual installments of $1.0 million and had
a balance of $2.0 million at December 31, 1993.
Minority Interest
Minority interest represents the interest of investors other than Conseco
in Bankers and included: (i) $295.0 million, which represented such interests
in the common equity of Bankers; and (ii) $(71.2), which represented the excess
of the value received by BLH for the issuance of common stock over the
historical accounting bases of the net assets of Bankers as described in Note
1.
10. SHAREHOLDERS' EQUITY:
Authorized preferred stock is 20,000,000 shares, of which 100,000 shares
of $55 Series B Redeemable Preferred Stock with a stated value of $50.0 million
($500 per share) were issued in 1987, 400,000 shares of Series C Preferred
Stock with a stated value of $10.0 million ($25 per share) were issued in 1990
and 5,750,000 shares of Series D Cumulative Preferred Stock with a stated value
of $287.5 million ($50 per share) were issued in January 1993 in a public
offering. The Series B and Series C preferred stocks were redeemed at their
stated values in 1993 and 1991, respectively. The Series D Cumulative
Preferred Stock is convertible at the holder's option into shares of common
stock at a conversion price of $63.75 per share, equivalent to a ratio of
approximately 0.7843 shares of common stock for each share of preferred stock.
Proceeds from the offering of approximately $278.5 million (after underwriting
and other associated costs) were used to redeem the Series B preferred stock
and were added to the Company's general funds. During 1993, 274 Series D
preferred shares were converted to 215 common shares.
<PAGE>
<PAGE> 88
Changes in the number of shares of common stock outstanding for the
years 1993, 1992 and 1991, were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Balance, beginning of year 24,911,148 24,676,658 20,586,196
Shares issued in public offering - - 4,874,000
Stock options exercised 849,232 2,086,272 301,220
Common shares converted from
Series D preferred shares 215 - -
Shares issued under compensation
plans 1,878 85,444 19,004
Treasury stock purchased (450,700) (1,937,226) (1,103,762)
---------- ---------- ----------
Balance, end of year 25,311,773 24,911,148 24,676,658
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Dividends declared on common stock for 1993, 1992 and 1991, were $.30,
$.085 and $.07 per common share, respectively.
The Company's 1983 employee stock option plan was authorized to grant
options to purchase up to 12.0 million shares of the Company's common stock at
a price not less than its market value on the date the option is granted. The
1983 stock option plan expired in December 1993. A new plan was adopted in
1994, subject to shareholder approval, which authorizes the granting of options
to purchase up to 6.0 million shares of the Company's common stock at a price
not less than its market value on the date the option is granted. The options
are exercisable for up to 10 years from date of grant and may become
exercisable immediately or over a period of time. The plan also permits
granting of stock appreciation rights.
Stock options granted were as follows:
<TABLE>
<CAPTION>
Number of Shares
-----------------
Option Price 1993 1992 1991
------------ ---- ---- ----
<S> <C> <C> <C> <C>
Outstanding at January 1, $2.625 to $31.125 6,402,194 8,293,832 8,490,760
Granted during the year $2.375 to $56.375 1,461,400 - -
$25.375 to $31.125 - 216,490 -
$6.844 to $21.375 - - 113,612
Exercised during the year $2.625 to $26.875 (849,232) (2,086,272) (301,220)
Canceled during the year $3.063 to $53.250 (275,078) (21,856) (9,320)
--------- --------- ---------
Outstanding at December 31, $2.625 to $53.25 6,739,284 6,402,194 8,293,832
========= ========= =========
Portion thereof that
is exercisable at
December 31, $2.625 to $31.125 4,062,693 3,768,970 5,728,548
========= ========= =========
Available for future grant - 2,791,994 2,986,628
========= ========= =========
</TABLE>
<PAGE>
<PAGE> 89
In addition to 12,699,284 shares of common stock reserved for issuance
under the 1983 and 1994 employee stock option plans, 711,764 shares of common
stock are reserved for issuance under the defined contribution and the stock
bonus and deferred compensation plans. The common stock account was reduced
by $8.5 million, consisting of the unearned portion of the incentive deferred
compensation program.
In February 1994, Conseco implemented an option exercise program under
which its chief executive officer and four of its executive vice presidents
exercised outstanding options to purchase approximately 3.6 million shares of
the Company's common stock. The options would otherwise have remained
exercisable until the years 1999 and 2000. As a result of the exercise, the
Company will be able to realize a tax deduction of approximately $200 million,
equal to the aggregate tax gain recognized by the executives as a result of the
exercise. The tax benefit together with the proceeds from exercise of the
options will be reflected as an increase to paid-in capital. The Company
withheld sufficient shares to cover federal and state taxes owed by the
executives as a result of the exercise transaction. Net of withheld shares,
the Company issued approximately 1.8 million shares of common stock to the
executives. The Company also granted to the executive officers new options to
purchase a total of 3,016,000 shares of the Company's common stock at $59.25
per share under the 1994 Stock Option and Incentive Plan to replace the shares
surrendered for taxes and the exercise price on this and other recent option
exercises and as the 1994 incentive grant to six executives.
In addition to the 1.8 million shares retired in February as described
in the preceding paragraph, the Company repurchased approximately 1.1 million
shares of its common stock for $65.5 million between January 1 and March 25,
1994, as part of its previously announced stock repurchase program.
11. OTHER OPERATING STATEMENT DATA:
Insurance policy income consisted of the following:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Direct premiums collected $2,169.9 $1,513.4 $ 1,899.8
Reinsurance assumed 6.0 2.2 15.2
Reinsurance ceded (35.8) (50.7) (266.3)
-------- -------- --------
Premiums collected, net of reinsurance 2,140.1 1,464.9 1,648.7
Less premiums on universal life and products
without mortality and morbidity risk which are
recorded as additions to insurance liabilities 887.5 1,143.4 1,451.1
-------- -------- --------
Premiums on products with mortality risk,
recorded as insurance policy income 1,252.6 321.5 197.6
Fees and surrender charges 38.8 55.3 82.6
Amortization of deferred policy fees 2.4 1.9 .6
-------- -------- --------
Insurance policy income $1,293.8 $ 378.7 $ 280.8
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE>
<PAGE> 90
The five states with the largest shares of the subsidiaries' premiums
collected in 1993 were Illinois (15 percent), Texas (7.6 percent), Michigan
(6.7 percent), Indiana (5.8 percent) and New Jersey (5.8 percent). No other
state accounted for more than 5 percent of total collected premiums. Premiums
on reinsurance assumed of $6.0 million, $2.2 million and $15.2 million for the
years 1993, 1992 and 1991, respectively, were included in direct premiums in
the preceding table.
Other operating costs and expenses were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Commission expense $ 31.6 $ 21.4 $ 28.7
Other 182.8 80.2 65.6
------ ------ -----
Other operating costs and expenses $214.4 $101.6 $94.3
------ ------ -----
------ ------ -----
</TABLE>
Anticipated returns from the investment of policyholder balances are
considered in determining the amortization of the cost of policies purchased
and cost of policies produced. Sales of fixed maturity investments change the
incidence of profits on such policies because capital gains (losses) are
recognized currently and the expected future yields on the investment of
policyholder balances are reduced (increased). Accordingly, amortization of
the cost of policies purchased was increased by $46.0 million, $63.3 million
and $33.0 million in the years ended December 31, 1993, 1992 and 1991,
respectively, and amortization of the cost of policies produced was increased
by $43.2 million, $30.1 million and $17.4 million in the years ended December
31, 1993, 1992 and 1991, respectively.
The changes in the cost of policies purchased were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year $623.5 $555.5 $460.3
Amounts acquired 3.8 527.1 169.2
Amortization:
Cash flow realized (181.1) (108.0) (129.0)
Interest added 115.8 69.4 98.2
Amounts related to gains on sales of investments (46.0) (63.3) (33.0)
Amounts related to fair value adjustment
of actively managed fixed maturities (5.3) (26.8) -
Transferred to cost of policies produced related to
exchanged health policies (25.4) - -
Amounts related to purchase of additional
shares of BLH 118.4 - -
Amounts related to deconsolidation of CCP - (330.4) -
Amounts related to business sold - - (10.2)
------ ------ ------
Balance, end of year $603.7 $623.5 $555.5
------ ------ ------
------ ------ ------
</TABLE>
<PAGE>
<PAGE> 91
The changes in the cost of policies produced were as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Balance, beginning of year $310.8 $212.9 $152.4
Additions 168.8 89.7 89.8
Acquired historical basis of Bankers Life - 152.9 -
Amortization (69.4) (20.6) (12.6)
Amortization of deferred revenue 1.3 1.0 .7
Amounts related to gains on sales of investments (43.2) (30.1) (17.4)
Amounts related to fair value adjustment of
actively managed fixed maturities (65.0) (56.3) -
Transferred from cost of policies purchased related to
exchanged health policies 25.4 - -
Amounts related to purchase of additional
shares of BLH (73.3) - -
Amounts related to reinsurance treaty 3.2 - -
Amounts related to deconsolidation of CCP - (38.7) -
------ ------ ------
Balance, end of year $258.6 $310.8 $212.9
------ ------ ------
------ ------ ------
</TABLE>
Based on current conditions and assumptions as to future events on all
policies in force, the Company expects to amortize in 1994 approximately 13
percent of the cost of policies purchased balance at December 31, 1993, 11
percent in 1995, 10 percent in 1996, 9 percent in 1997, and 9 percent in 1998.
The average discount rate used to determine the amortization of the cost of
policies purchased prior to November 19, 1992, ranged from 15 percent to 20
percent during the three-year period ended December 31, 1993. The discount
rate for the cost of policies purchased thereafter is 7.5 percent.
12. CONSOLIDATED STATEMENT OF CASH FLOWS:
The following non-cash items were not reflected in the consolidated
statement of cash flows: in 1993, the surrender for redemption of $50.0
million stated value of ICH preferred stock in exchange for common shares of
Bankers (as described in Note 2 to the consolidated financial statements) and
the recapture of insurance liabilities and invested assets each totaling
approximately $338.5 million in connection with the recapture of reinsurance
as described in Note 6 to the consolidated financial statements.
Cash flows from operations included interest paid on debt of $58.8
million, $42.7 million and $63.9 million in 1993, 1992 and 1991, respectively.
Income taxes paid were $204.9 million, $108.5 million and $59.3 million in
1993, 1992 and 1991, respectively.
<PAGE>
<PAGE> 92
13. STATUTORY INFORMATION:
Statutory accounting practices prescribed or permitted for the Company's
insurance subsidiaries by regulatory authorities differ from generally accepted
accounting principles. The Company's life insurance subsidiaries reported the
following amounts to regulatory agencies, after appropriate eliminations of
intercompany accounts among such subsidiaries:
<TABLE>
<CAPTION>
December 31,
--------------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Statutory capital and surplus $ 768.8 $434.7
Asset valuation reserve 94.7 84.7
Interest maintenance reserve 272.0 83.7
-------- ------
Total $1,135.5 $603.1
======== ======
</TABLE>
In connection with the acquisition of Bankers, the capital of one of the
life insurance subsidiaries (Bankers Life Insurance Company of Illinois) was
increased by providing cash in exchange for a surplus debenture. The remaining
balance of the surplus debenture of $485.0 million at December 31, 1993, is
considered a part of statutory capital and surplus of the life insurance
subsidiary. Payments to BLH of principal and interest on the surplus debenture
may be made from available funds only with the approval of the Illinois
Department of Insurance when its Director is satisfied that the financial
condition of the subsidiary warrants that action. Such approval may not be
withheld provided the surplus of the subsidiary exceeds, after such payment,
approximately $128 million. Such subsidiary's surplus at December 31, 1993,
was $331 million.
Statutory accounting practices require that portions of surplus, called
the asset valuation reserve ("AVR") and the interest maintenance reserve
("IMR"), be appropriated and reported as liabilities. The purpose of these
reserves is to stabilize statutory surplus against fluctuations in the market
value of investments. The IMR captures all investment gains and losses on
debt instruments resulting from changes in interest rates and provides for
subsequent amortization of such amounts into statutory net income on a basis
reflecting the remaining life of the assets sold. The AVR captures investment
gains and losses related to changes in creditworthiness and is also adjusted
each year based on a formula related to the quality and loss experience of the
Company's investment portfolio.
<PAGE>
<PAGE> 93
Included in statutory capital and surplus shown above are the following
investments in affiliates, all of which are eliminated in the consolidated
financial statements prepared in accordance with generally accepted accounting
principles:
<TABLE>
<CAPTION>
1993 1992
--------------------- ---------------------
Admitted Admitted
Asset Asset
Cost Value Cost Value
---- ----- ---- -----
(Dollars in millions)
<S> <C> <C> <C> <C>
9,098,476 shares of common stock of Conseco
purchased in open market transactions $ 30.7 $ - $30.7 $19.5
Notes of Conseco and its non-life
subsidiaries 63.0 42.4 88.9 80.6
2,314,737 shares of common stock of BLH
acquired from ICH in exchange for
preferred stock of ICH previously held 50.0 49.8 - -
Preferred stock of a non-life subsidiary 900.0 - - -
</TABLE>
The following table compares the consolidated pretax income determined on
a statutory accounting basis with such income reported herein in accordance
with generally accepted accounting principles:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Life insurance subsidiaries:
Pretax income as reported on a statutory
accounting basis before deduction of
expenses paid to affiliates and
transfers to and from and amortization
of the IMR $566.8 $383.7 $376.4
Net effect of adjustments for generally
accepted accounting principles (48.1) (72.0) (76.1)
------ ------ ------
Pretax income, generally accepted
accounting principles 518.7 311.7 300.3
Non-life companies:
Interest expense (58.0) (46.2) (69.9)
Net gain on sale of stock of Life Re - 36.4 -
Equity in earnings of CCP Insurance, Inc. 37.4 15.8 -
Incentive earnings allocation from Partnership 36.6 9.3 -
Gain on sale of stock by subsidiaries 101.5 11.1 -
All other income and expense, net
(excluding amounts received from affiliates) (26.0) (8.1) (7.2)
------ ------ ------
Consolidated pretax income, generally accepted
accounting principles $610.2 $330.0 $223.2
====== ====== ======
</TABLE>
State insurance laws generally restrict the ability of insurance companies
to pay dividends or make other distributions. Net assets of the Company's
wholly owned life insurance subsidiaries, determined in accordance with
generally accepted accounting principles, aggregated approximately $1.0 billion
at December 31, 1993, of which approximately $18.7 million is available for
distribution to Conseco in 1994 without the permission of state regulatory
authorities.
<PAGE>
<PAGE> 94
Most states have adopted risk-based capital ("RBC") rules, effective
December 31, 1993, to evaluate the adequacy of statutory capital and surplus
in relation to investment and insurance risks. The RBC formula is designed as
an early warning tool to help state regulators identify possible weakly
capitalized companies for the purpose of initiating regulatory action.
At December 31, 1993, the ratios of total adjusted capital to RBC, as defined
by the rules, for all of Conseco's primary subsidiaries and investees were
greater than twice the level at which regulatory attention is triggered.
14. BUSINESS SEGMENT AND DISTRIBUTION CHANNELS:
Conseco's earnings result from three different activities: (i) the
operation of life insurance companies; (ii) services provided to both
affiliates and others for fees; and (iii) the acquisition and restructuring of
life insurance companies. Conseco's life insurance operations are primarily
conducted through BLH (which distributes Medicare supplement policies and other
life and health products to the senior citizens market through career agents,
most of whom sell only Bankers' products), Western National (which distributes
single premium deferred annuities through financial institutions and other
annuity products through personal producing general agents), CCP (which
distributes: (i) tax qualified annuities and certain employee benefit-related
products primarily to school teachers and administrators through educator
market specialists; and (ii) annuities and life insurance products through
other diversified cost effective distribution channels) and Conseco's other
wholly owned subsidiaries (which have profitable blocks of in-force life
business, although new sales are currently not being emphasized).
<PAGE>
<PAGE> 95
Financial information related to these activities is as follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Premiums collected, net of reinsurance
BLH $ 1,436.9 $ 235.1 $ -
Western 561.0 833.3 1,118.3
CCP - 320.5 440.3
Conseco's other wholly owned insurance subsidiaries 142.2 76.0 90.1
--------- --------- ---------
Total $ 2,140.1 $ 1,464.9 $ 1,648.7
========= ========= =========
Revenues:
Insurance operations:
BLH $ 1,450.5 $ 222.5 $ -
Western 774.2 653.2 580.6
CCP 37.4 297.6 539.1
Conseco's other wholly owned insurance subsidiaries 207.4 288.1 276.2
Life Re - 11.3 9.3
--------- --------- ---------
Subtotal 2,469.5 1,472.7 1,405.2
Services provided for fees 49.0 30.2 22.4
Acquisition and restructuring of life insurance companies 138.1 54.9 -
Corporate and other 14.1 9.3 10.9
Eliminations (34.7) (43.2) (46.7)
--------- --------- ---------
Total $ 2,636.0 $ 1,523.9 $ 1,391.8
========= ========= =========
Income before income taxes, minority interest and extraordinary charge:
Insurance operations:
BLH $ 208.1 $ 37.2 $ -
Western 204.5 156.8 149.0
CCP 37.4 64.7 85.9
Conseco's other wholly owned insurance subsidiaries 55.0 38.1 29.5
Life Re - 11.3 9.3
--------- --------- ---------
Subtotal 505.0 308.1 273.7
Services provided for fees 22.5 22.2 17.1
Acquisition and restructuring of life insurance companies 138.1 54.9 -
Corporate and other (52.4) (50.6) (61.1)
Eliminations (3.0) (6.2) (6.5)
--------- --------- ---------
Total $ 610.2 $ 328.4 $ 223.2
========= ========= =========
Assets:
Insurance operations:
BLH $ 4,146.1 $ 3,367.5 $ -
Western 8,369.7 7,640.6 6,674.3
CCP 244.3 130.5 4,458.1
Conseco's other wholly owned insurance subsidiaries 993.7 2,072.7 2,121.7
--------- --------- ---------
Subtotal 13,753.8 13,211.3 13,254.1
Servicing companies 34.4 11.8 4.1
Corporate and other 1,892.1 995.5 764.3
Eliminations (1,931.0) (2,445.9) (2,190.1)
--------- --------- ---------
Total $13,749.3 $11,772.7 $11,832.4
========= ========= =========
</TABLE>
<PAGE>
<PAGE> 96
15. QUARTERLY FINANCIAL DATA (UNAUDITED):
Earnings per common share for each quarter are computed independently
of earnings per share for the year. Due to the transactions affecting the
weighted average number of shares outstanding in each quarter and due to the
uneven distribution of earnings during the year, the sum of the quarterly
earnings per share may not equal the earnings per share for the year.
<TABLE>
<CAPTION>
1993
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
Insurance policy income $319.5 $322.8 $324.7 $326.8
Revenues 751.6 619.0 628.7 636.7
Income before income taxes, minority interest
and extraordinary charge 251.1 112.8 123.0 123.3
Net income 131.5 51.4 52.2 61.9
Earnings per common share and common
equivalent share:
Primary:
Earnings before extraordinary charge $4.69 $1.55 $1.61 $1.99
Extraordinary charge .37 - - .03
----- ----- ----- -----
Net income $4.32 $1.55 $1.61 $1.96
===== ===== ===== =====
Fully diluted:
Earnings before extraordinary charge $4.31 $1.48 $1.53 $1.87
Extraordinary charge .33 - - .03
----- ----- ----- -----
Net income $3.98 $1.48 $1.53 $1.84
===== ===== ===== =====
</TABLE>
<PAGE>
<PAGE> 97
<TABLE>
<CAPTION>
1992
----
1st Qtr. 2nd Qtr. 3rd Qtr. 4th Qtr.
-------- -------- -------- --------
(Dollars in millions, except per share amounts)
<S> <C> <C> <C> <C>
Insurance policy income $ 65.6 $ 66.6 $ 32.4 $214.1
Revenues 362.9 375.3 296.8 488.9
Income before income taxes, minority interest
and extraordinary charge 69.0 64.3 70.1 126.6
Net income 35.3 35.0 39.4 59.8
Earnings per common share and common
equivalent share:
Primary:
Earnings before extraordinary charge $1.11 $1.08 $1.40 $2.01
Extraordinary charge .05 .01 .11 -
----- ----- ----- -----
Net income $1.06 $1.07 $1.29 $2.01
===== ===== ===== =====
Fully diluted:
Earnings before extraordinary charge $1.11 $1.08 $1.40 $2.00
Extraordinary charge .05 .01 .11 -
----- ----- ----- -----
Net income $1.06 $1.07 $1.29 $2.00
===== ===== ===== =====
</TABLE>
Quarterly results of operations are based on numerous estimates,
principally related to policy reserves, the amortization of cost of policies
purchased, the amortization of cost of policies produced and income taxes.
Such estimates are revised quarterly and are ultimately adjusted to year-end
amounts. When such revisions are determined, they are reported as part
of operations of the current quarter.
16. SUBSEQUENT EVENTS:
Conseco Capital Partners II, L.P.
On February 2, 1994, Conseco announced the closing of Conseco Capital
Partners II, L.P., a partnership which will invest in privately negotiated
acquisitions of specialized annuity, life and accident and health insurance
companies and related businesses, in which 36 investors committed a total of
$624 million of capital. Commitments to the new partnership include $100
million from Conseco, $25 million from Bankers, $25 million from CCP, $50
million from Western and $36 million from executive officers and directors of
Conseco and its affiliates.
<PAGE>
<PAGE> 98
Initial Public Offering of Common Stock by Western National Corporation:
On February 15, 1994, Western National Corporation ("WNC") completed the
initial public offering of 37,202,500 shares of common stock, of which
2,300,000 shares were sold by WNC and 34,902,500 shares were sold by Conseco.
In addition, Conseco sold 150,000 shares to the President of WNC at the initial
public offering price less underwriting discounts and commissions. Prior to
the initial public offering, Western National and WNC were wholly owned
subsidiaries of Conseco. WNC was formed in October 1993 as a Delaware
corporation to be the holding company for Western National. In connection with
the organization of WNC and the transfer of the stock of Western National to
WNC by Conseco, WNC issued 60,000,000 shares of its common stock and a $150.0
million, 6.75 percent senior note due March 31, 1996 (the "Conseco Note") to
Conseco. On February 22, 1994, WNC completed a public offering of $150.0
million aggregate principal amount of its 7.125 percent senior notes due
February 15, 2004. The net proceeds from the offering of $147.5 million (after
original issue discount, underwriting discount and estimated offering expenses)
and certain proceeds from WNC's initial public offering of common stock were
used to repay the Conseco Note.
The shares issued in the offering and the related transaction represent
a 60 percent interest in WNC. The remaining common shares, which represent
a 40 percent interest, are held by Conseco. Net pretax proceeds to Conseco
from the repayment of the Conseco Note and the sale of WNC shares totaling
$537.9 million were used to repay a $200 million senior unsecured loan and for
other general corporate purposes. Effective January 1, 1994, WNC will be
included in Conseco's financial statements on the equity method. In the first
quarter of 1994 Conseco will report a one-time, after-tax gain of approximately
$43 million as a result of the transaction. At February 15, 1994, the WNC
shares owned by Conseco had a fair value of approximately $330.6 million (based
on the closing price of $13.25 per share) and a net carrying value of
approximately $270.0 million.
The following summarizes selected account balances of Western National
that are consolidated with the accounts of the Company in the accompanying
consolidated financial statements:
<TABLE>
<CAPTION>
Years ended December 31,
-------------------------------
1993 1992 1991
---- ---- ----
(Dollars in millions)
<S> <C> <C> <C>
Results of operations data:
Revenues:
Insurance policy income $ 21.8 $ 48.0 $ 43.9
Investment activity:
Net investment income 610.1 507.8 450.7
Net trading income 49.6 25.0 23.8
Net realized gains 92.7 72.4 62.2
Total revenues 774.2 653.2 580.6
Benefits and expenses:
Insurance policy benefits 101.9 93.7 88.4
Interest expense on annuities and financial products 333.1 267.1 249.5
Amortization related to operations 16.5 16.3 11.3
Amortization and change in future policy benefits
related to realized gains 84.3 64.6 24.3
Income before taxes 204.5 155.2 147.8
Income tax expense 74.5 53.0 50.3
Net income 130.0 102.2 97.5
</TABLE>
<PAGE>
<PAGE> 99
<TABLE>
<CAPTION>
December 31,
----------------------
1993 1992
---- ----
(Dollars in millions)
<S> <C> <C>
Balance sheet data:
Total investments $7,918.1 $5,787.9
Total assets 8,369.7 7,640.6
Insurance liabilities 7,379.9 6,894.3
Total liabilities 7,608.8 7,018.3
Total shareholder's equity 760.9 622.3
</TABLE>
The following unaudited pro forma balance sheet data are presented as if
the IPO of WNC and related transactions had occurred on December 31, 1993. The
pro forma statement of operations data are presented as if such transactions
had occurred on January 1, 1993 and assumes the net proceeds to Conseco from
the IPO and related transactions were invested to earn 3 percent per year
before income tax.
<TABLE>
<CAPTION>
(Dollars in millions, except
per share data)
<S> <C>
Pro forma balance sheet data as of December 31, 1993:
Investment in WNC $ 254.6
Total investments 4,317.7
Total assets 6,020.1
Total liabilities 4,628.9
Shareholders' equity 1,167.4
Pro forma statement of operations data for the year ended
December 31, 1993:
Revenues 1,942.9
Income before extraordinary charge 230.8
Earnings before extraordinary charge per common
share and common equivalent share:
Primary 7.19
Fully diluted 6.79
</TABLE>
<PAGE>
<PAGE> 100
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
PART III
--------
The information required by Part III is hereby incorporated by reference
from the Registrant's definitive proxy statement to be filed with the
Commission pursuant to Regulation 14A within 120 days after December 31, 1993,
except that the information required by Item 10 regarding Executive Officers
is included herein under a separate caption at the end of Part I.
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K.
(a) 1. Financial Statements. See Index to Financial Statements on page
47 for a list of financial statements included in this Report.
2. Financial Statement Schedules. The following financial statement
schedules are included as part of this Report immediately following the
signature page:
Schedule III -- Condensed Financial Information of Registrant (Parent
Company)
Schedule V -- Supplementary Insurance Information
Schedule VI -- Reinsurance
All other schedules are omitted because they are not applicable or are not
required, or because the required information is included in the consolidated
financial statements or notes thereto.
3. Exhibits. See Exhibit Index immediately preceding.
(b) Reports on Form 8-K. A report on Form 8-K dated September 30,
1993, was filed with the Commission to report under Item 2 the
acquisition of 13.3 million common shares of Bankers Life Holding
Corporation by Conseco. Form 8-K/A, Amendment No. 1 to this
report, was filed December 14, 1993, to report under Item 7b pro
forma consolidated financial information of Conseco, Inc. and
Subsidiaries.
A report on Form 8-K dated February 15, 1994 was filed with the
Commission to report under Item 2 the disposition of a majority
interest in Western National Corporation and to report under Item
7b pro forma financial information of Conseco and its
subsidiaries.
<PAGE>
<PAGE> 101
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, this 31st day of March, 1994.
CONSECO, INC.
By: /s/ STEPHEN C. HILBERT
Stephen C. Hilbert, President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title (Capacity) Date
--------- ---------------- ----
<S> <C> <C>
/s/ STEPHEN C. HILBERT Chairman of the Board, March 31, 1994
Stephen C. Hilbert President and Director
(Principal Executive Officer)
/s/ ROLLIN M. DICK Executive Vice President and Director March 31, 1994
Rollin M. Dick (Principal Financial Officer and
Principal Accounting Officer)
Michael G. Browning Director March 31, 1994
/s/LOUIS P. FERRERO Director March 31, 1994
Louis P. Ferrero
/s/ARTHUR M. GERBER Director March 31, 1994
Arthur M. Gerber
/s/ DONALD F. GONGAWARE Director March 31, 1994
Donald F. Gongaware
/s/ M. PHIL HATHAWAY Director March 31, 1994
M. Phil Hathaway
</TABLE>
<PAGE>
<PAGE> 102
REPORT OF INDEPENDENT ACCOUNTANTS
ON FINANCIAL STATEMENT SCHEDULES
To the Shareholders and
Board of Directors
Conseco, Inc.
Our report on the consolidated financial statements of Conseco, Inc. and
Subsidiaries is included on page 47 of this Form 10-K. In connection with our
audits of such financial statements, we have also audited the related financial
statement schedules listed in the index on page 100 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein.
/s/COOPERS & LYBRAND
Indianapolis, Indiana
March 24, 1994
<PAGE>
<PAGE> 103
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
SCHEDULE III
Condensed Financial Information of Registrant (Parent Company)
Balance Sheet
as of December 31, 1993 and 1992
(Dollars in millions)
ASSETS
1993 1992
---- ----
<S> <C> <C>
Short-term investments $ 17.7 $ 7.3
Actively managed fixed maturities 31.8 -
Equity securities 4.7 6.6
Trading account securities 6.6 -
Other invested assets 8.5 -
Investment in CCP Insurance, Inc. 244.3 130.5
Investment in Western (eliminated in consolidation) 760.9 622.3
Investment in wholly owned subsidiaries excluding Western
(eliminated in consolidation) 207.8 5.0
Investment in Bankers Life Holding Corporation
(eliminated in consolidation) 518.8 147.0
Receivable from subsidiaries (eliminated in consolidation) 15.1 11.6
Other assets 45.1 34.4
-------- ------
Total assets $1,861.3 $964.7
======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Income tax liabilities $ 92.4 $ 17.3
Notes payable 413.0 156.9
Note payable to affiliate - 6.3
Notes payable to subsidiaries (eliminated in consolidation) 58.2 80.6
Other liabilities due subsidiaries (eliminated in consolidation) 97.7 64.7
Other liabilities 57.4 44.6
-------- ------
Total liabilities 718.7 370.4
-------- ------
Shareholders' equity:
Preferred stock 287.5 50.0
Common stock and additional paid-in capital (no par value, 500,000,000
shares authorized, shares issued and outstanding: 1993 - 25,311,773;
1992 - 24,911,148) 102.8 115.4
Unrealized appreciation of securities (net of applicable deferred
income taxes: 1993 - $41.8; 1992 - $17.3) 97.5 42.9
Retained earnings 654.8 386.0
-------- ------
Total shareholders' equity 1,142.6 594.3
-------- ------
Total liabilities and shareholders' equity $1,861.3 $964.7
======== ======
<FN>
The accompanying note is an integral part
of the condensed financial information.
</TABLE>
<PAGE>
<PAGE> 104
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE III
Condensed Financial Information of Registrant (Parent Company)
Statement of Operations
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Revenues:
Net investment income $ 8.4 $ 3.6 $ 3.8
Dividends from subsidiaries (eliminated in consolidation) 18.6 82.2 70.6
Equity in earnings of CCP Insurance, Inc. 37.4 15.8 -
Equity in earnings of Life Re - 11.3 9.3
Fee and interest income from subsidiaries (eliminated in consolidation) 12.0 46.5 49.8
Gain on sale of stock of Life Re - 36.4 -
Gain on sale of stock by subsidiaries 101.5 9.2 -
Incentive earnings allocation 36.6 9.3 -
Other income 1.7 4.1 .9
------ ------ ------
Total revenues 216.2 218.4 134.4
------ ------ ------
Expenses:
Interest expense on long-term debt 22.8 22.8 36.2
Interest expense to subsidiaries (eliminated in consolidation) 7.8 10.9 13.3
Operating costs and expenses 40.4 29.0 25.0
Operating expenses of subsidiaries (eliminated in consolidation) .5 .5 .5
------ ------ ------
Total expenses 71.5 63.2 75.0
------ ------ ------
Income before income taxes, equity in undistributed
earnings of subsidiaries and extraordinary charge 144.7 155.2 59.4
Income tax expense (benefit) 44.2 31.5 (4.6)
------ ------ ------
Income before equity in undistributed earnings
of subsidiaries and extraordinary charge 100.5 123.7 64.0
Equity in undistributed earnings of subsidiaries 208.4 51.1 57.0
------ ------ ------
Income before extraordinary charge 308.9 174.8 121.0
Extraordinary charge on extinguishment of debt, net of tax 11.9 5.3 5.0
------ ------ ------
Net income 297.0 169.5 116.0
Less preferred stock dividends 20.6 5.5 6.8
------ ------ ------
Earnings applicable to common stock $276.4 $164.0 $109.2
====== ====== ======
<FN>
The accompanying note is an integral
part of the condensed financial information.
</TABLE>
<PAGE>
<PAGE> 105
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE III
Condensed Financial Information of Registrant (Parent Company)
Statement of Cash Flows
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $297.0 $169.5 $116.0
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed earnings of consolidated subsidiaries (208.4) (51.1) (57.0)
Equity in undistributed earnings of equity investments (36.6) (26.9) (9.3)
Gain on sale of stock by subsidiaries (101.5) (9.2) -
Incentive earnings allocation from the Partnership (36.6) (9.3) -
Income taxes 39.3 1.1 .2
Extraordinary gain on extinguishment of debt 11.9 5.3 5.0
Other 11.8 3.0 (4.9)
------ ------- ------
Net cash provided (used) by operating activities (23.1) 82.4 50.0
------ ------- ------
Cash flows from investing activities:
Redemption of debt and preferred stock by subsidiaries 118.3 53.5 12.4
Sales and maturities of investments 45.5 10.1 -
Sale of investment in Life Re - 42.6 -
Investments in consolidated subsidiaries (391.4) (129.7) (69.5)
Purchases of investments (76.2) - -
Investments in equity investments (59.5) - -
------ ------- ------
Net cash used by investing activities (363.3) (23.5) (57.1)
------ ------- ------
Cash flows from financing activities:
Issuance of equity securities, net 281.7 6.3 133.1
Issuance of debt, net 393.4 - -
Payments on debt (180.0) (24.8) (101.2)
Payments to retire equity securities (75.3) (49.4) (19.5)
Dividends paid (23.0) (7.6) (8.3)
------ ------- ------
Net cash provided (used) by financing activities 396.8 (75.5) 4.1
------ ------- ------
Net decrease in short-term investments 10.4 (16.6) (3.0)
Short term investments, beginning of year 7.3 23.9 26.9
------ ------- ------
Short term investments, end of year $ 17.7 $ 7.3 $ 23.9
====== ======= ======
<FN>
The accompanying note is an
integral part of the condensed financial information.
</TABLE>
<PAGE>
<PAGE> 106 CONSECO, INC. AND SUBSIDIARIES
SCHEDULE III
Note to Condensed Financial Information
Basis of Presentation
The condensed financial information should be read in conjunction with the
consolidated financial statements of Conseco, Inc. The condensed financial
information includes the accounts and activity of the Parent Company and its
non-insurance subsidiaries which act as the holding companies for the Company's
life insurance subsidiaries and equity investment in CCP Insurance, Inc.
<PAGE>
<PAGE> 107
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
SCHEDULE V
Supplementary Insurance Information
(Dollars in millions)
<CAPTION> Amortization
of
Cost of Policies Insurance Cost of Policies
Produced and Insurance Net Policy Benefits Produced and Other
Cost of Policies Insurance Policy Investment and Cost of Policies Operating
Segment Purchased Liabilities Income Income Expenses(1) Purchased(2) Expenses(3)
- - ------- --------- ----------- ------ ------ ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
1993
- - ----
Bankers $680.6 $ 2,756.7 $1,200.7 $174.7 $ 900.8 $143.5 $198.1
Western 146.8 7,379.9 21.8 610.1 454.3 63.7 51.7
CCP - - - - - - -
Conseco's other
wholly owned
subsidiaries 34.9 661.7 72.3 110.2 121.2 17.6 13.6
Services provided
for fees - - - - - - 25.1
Corporate and
other - - - 12.4 - - 66.5
Eliminations - - (1.0) (11.2) - (.9) (29.4)
------ --------- -------- ------ -------- ------ ------
Total $862.3 $10,798.3 $1,293.8 $896.2 $1,476.3 $223.9 $325.6
====== ========= ======== ====== ======== ====== ======
1992
- - ----
Bankers $661.2 $ 2,490.2 $191.5 $ 21.1 $125.4 $ 25.2 $ 34.7
Western 165.2 6,894.3 48.0 507.8 397.3 80.9 18.2
CCP - - 67.1 187.0 159.1 26.1 47.7
Conseco's other
wholly owned
subsidiaries 107.9 1,996.9 81.4 181.3 199.9 29.9 20.2
Services provided
for fees - - - - - - 7.6
Corporate
and other - - - 8.4 - - 59.9
Eliminations - (1,342.4) (9.3) (17.0) - (9.5) (28.7)
------ --------- ------ ------ ------ ------ ------
Total $934.3 $10,039.0 $378.7 $888.6 $881.7 $152.6 $159.6
====== ========= ====== ====== ====== ====== ======
1991
- - ----
Bankers $ - $ - $ - $ - $ -
Western 43.9 450.7 375.4 35.6 20.6
CCP 161.9 318.1 311.8 40.5 100.9
Conseco's other
wholly owned
subsidiaries 79.6 162.5 203.0 22.1 21.6
Services provided
for fees - - - - 5.0
Corporate and other - 10.0 - - 72.0
Eliminations (4.6) (19.9) (.1) (4.4) (35.4)
----- ------ ------ ------ -----
Total $280.8 $921.4 $890.1 $93.8 $184.7
====== ====== ====== ===== ======
<FN>
(1) Includes insurance policy benefits, change in future policy benefits and interest expense on annuities and financial products.
(2) Includes additional amortization related to gains on sales of investments.
(3) Includes interest expense on long-term debt, interest expense on short-term investment borrowings, change in future policy
benefits related to realized gains and other operating costs and expenses.
</TABLE>
<PAGE>
<PAGE> 108
CONSECO, INC. AND SUBSIDIARIES
SCHEDULE VI
Reinsurance
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Life insurance in force:
Direct $21,554.5 $22,916.9 $22,522.1
Assumed 89.8 108.0 1,693.5
Ceded (1,754.1) (2,383.9) (3,784.8)
--------- --------- ---------
Net insurance in force $19,890.2 $20,641.0 $20,430.8
========= ========= =========
Percentage of assumed to net .5% .5% 8.3%
========= ========= =========
Premiums recorded as revenue for generally
accepted accounting principles:
Direct $1,282.4 $361.2 $246.2
Assumed 6.0 2.2 15.2
Ceded (35.8) (41.9) (63.8)
-------- ------ ------
Net premiums $1,252.6 $321.5 $197.6
======== ====== ======
Percentage of assumed to net .5% .7% 7.7%
======== ====== ======
</TABLE>
<PAGE>
<PAGE> 109
<TABLE>
EXHIBIT INDEX
Annual Report on Form 10-K
of Conseco, Inc.
<CAPTION>
Exhibit
No. Document
- - ------- --------
<S> <C>
2.1 Stock Purchase and Redemption Agreement dated September 11, 1993 by and between I.C.H.
Corporation and Bankers National Life Insurance Company was filed with the Commission as
Exhibit 2.1 to the Registrant's Report on Form 8-K dated September 30, 1993, and is incorporated
herein by this reference.
2.2 Letter Agreement dated September 11,1993 between the Registrant and I.C.H. Corporation was
filed with the Commission as Exhibit 2.2 to the Registrant's Report on Form 8-K dated September
30, 1993, and is incorporated herein by this reference.
3.1 Amended and Restated Articles of Incorporation of the Registrant were filed with the Commission
as Exhibit 3.1 to the Registration Statement on Form S-2, No. 33-8498; Articles of Amendment
thereto, as filed September 9, 1988 with the Indiana Secretary of State, were filed with the
Commission as Exhibit 3.1.1 to the Registrant's Annual Report on Form 10-K for 1988; and
Articles of Amendment thereto, as filed June 13, 1989 with the Indiana Secretary of State, were
filed with the Commission as Exhibit 3.1.2 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1989, and Articles of Amendment thereto, as filed June 29, 1993 with
the Indiana Secretary of State, were filed with the Commission as Exhibit 3.1.3 to the Registrant's
Report on Form 10-Q for the quarter ended June 30, 1993, and is incorporated herein by this
reference.
3.2 Amended and Restated By-Laws of the Registrant effective February 10, 1986 were filed with the
Commission as Exhibit 3.2 to its Registration Statement on Form S-1, No. 33-4367, and an
Amendment thereto was filed with the Commission as Exhibit 3.2.1 to Amendment No. 2 to its
Registration Statement on Form S-1, No. 33-4367; and are incorporated herein by this reference.
4.8 Indenture dated as of February 18, 1993, between the Registrant and Shawmut Bank Connecticut,
National Association, as Trustee, for the 8 1/8 percent Senior Notes due 2003, was filed with the
Commission as Exhibit 4.8 to the Registrant's Annual Report on Form 10-K for 1992, and is
incorporated herein by this reference.
4.11 Articles of Amendment to the Registrant's Articles of Incorporation as filed January 22, 1993,
with the Indiana Secretary of State establishing the designations, rights and preferences of the
Series D Cumulative Convertible Preferred Stock were filed with the Commission as Exhibit 4.11
to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this
reference.
10.1.2 Employment Agreement dated January 1, 1987, between the Registrant and Stephen C. Hilbert
was filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K
for 1986, and Amendment No. 1 thereto were filed with the Commission as Exhibit 10.1.2 to the
Registrant's Annual Report on Form 10-K for 1987; and are incorporated herein by this reference.
10.1.3 Employment Agreement dated July 1, 1991, between the Registrant and Rollin M. Dick was filed
with the Commission as Exhibit 10.1.3 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991, and is incorporated herein by this reference.
10.1.4 Employment Agreement dated July 1, 1991, between the Registrant and Donald F. Gongaware
was filed with the Commission as Exhibit 10.1.4 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991, and is incorporated herein by this reference.
10.1.5 Employment Agreement dated July 1, 1991, between the Registrant and Lawrence W. Inlow was
filed with the Commission as Exhibit 10.1.5 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991, and is incorporated herein by this reference.
</TABLE>
<PAGE>
<PAGE> 110
<TABLE>
<CAPTION>
Exhibit
No. Document
- - ------- --------
<S> <C>
10.1.7 Employment Agreement dated July 1, 1991, between the Registrant and Walter T. Kirkbride was
filed with the Commission as Exhibit 10.1.7 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991 and is incorporated herein by this reference.
10.1.9 Secured Promissory Note of Stephen C. Hilbert and Pledge Agreement between the Registrant and
Stephen C. Hilbert dated February 25, 1988, were filed with the Commission as Exhibit 10.1.9
to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1988, and are
incorporated herein by this reference.
10.1.10 Employment Agreement dated August 17, 1992, between the Registrant and Ngaire E. Cuneo was
filed with the Commission as Exhibit 10.1.10 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1992, and is incorporated herein by this reference.
10.8 The Registrant's Stock Option Plan was filed with the Commission as Exhibit B to its definitive
Proxy Statement dated December 10, 1983; Amendment No. 1 thereto was filed with the
Commission as Exhibit 10.8.1 to its Report on Form 10-Q for the quarter ended June 30, 1985;
Amendment No. 2 thereto was filed with the Commission as Exhibit 10.8.2 to its Registration
Statement on Form S-1, No. 33-4367; Amendment No. 3 thereto was filed with the Commission
as Exhibit 10.8.3 to the Registrant's Annual Report on Form 10-K for 1986; Amendment No. 4
thereto was filed with the Commission as Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for 1987; Amendment No. 5 thereto was filed with the Commission as Exhibit 10.8 to the
Registrants's Report on Form 10-Q for the quarter ended September 30, 1991; and are
incorporated herein by this reference.
10.8.2 ConsecoSave Plan dated as of January 1, 1993, was filed with the Commission as Exhibit 10.8.2
to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this
reference.
10.8.3 The Registrant's Cash Bonus Plan was filed with the Commission as Exhibit 10.8.3 to the
Registrant's Report on Form 10-Q for the quarter ended March 31, 1989, and is incorporated
herein by this reference.
10.8.4 Amended and Restated Conseco Stock Bonus and Deferred Compensation Program was filed with
the Commission as Exhibit 10.8.4 to the Registrant's Annual Report on Form 10-K for 1992, and
is incorporated herein by this reference.
*10.8.5 Amendment of ConsecoSave Plan.
*10.8.6 Conseco Performance - Based Compensation Bonus Plan for Executive Vice Presidents.
10.18.6 Assignment of Real Estate Purchase Agreement dated April 20, 1992 between Lincoln Income
Life Insurance Company and Browning Construction, Inc. was filed with the Commission as
Exhibit 10.8.6 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1992,
and is incorporated herein by this reference.
10.18.7 Assignment of Real Estate Purchase Agreement dated April 20, 1992 between Lincoln Income
Life Insurance Company and Browning Construction, Inc. was filed with the Commission as
Exhibit 10.8.7 to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1992,
and is incorporated herein by this reference.
</TABLE>
<PAGE>
<PAGE> 111
<TABLE>
<CAPTION>
Exhibit
No. Document
- - ------- --------
<S> <C>
10.18.9 Promissory Note of Michael Browning dated January 1, 1990 in the principal amount of
$8,000,000 and Collateral Assignment of Corporate Stock evidencing a collateralized loan from
Lincoln Income Life Insurance Company were filed with the Commission as Exhibit 10.18.9 to
the Registrant's Report on Form 10-Q for the quarter ended March 31, 1990, and are incorporated
herein by this reference.
10.18.10 Construction agreement dated April 2, 1992 between Lincoln Income Life Insurance Company and
Browning Construction, Inc. was filed with the Commission as Exhibit 10.8.10 to the Registrant's
Report on Form 10-Q for the quarter ended March 31, 1992, and is incorporated herein by this
reference.
10.18.18 Contract for Purchase of Real Estate dated December 1, 1992, between Lincoln Income Life
Insurance Company and Technology Center Associates, L.P. was filed with the Commission as
Exhibit 10.18.18 to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated
herein by this reference.
10.18.19 Contract for Purchase of Real Estate and Building dated December 1, 1992, between Lincoln
Income Life Insurance Company and Technology Center Associates, L.P. was filed with the
Commission as Exhibit 10.18.19 to the Registrant's Annual Report on Form 10-K for 1992, and
is incorporated herein by this reference.
*10.18.20 Construction Agreement dated February 7, 1994 between the Registrant and Browning
Construction, Inc.
*10.18.21 Agency Agreement dated December 17, 1993 between Bankers National Life Insurance Company
and Browning Investments, Inc.
*10.18.22 Agreement to Assign Contract for Purchase of Real Estate dated January 7, 1994 between Bankers
National Life Insurance Company and Carmel Drive Realty, Inc.
*10.18.23 Contract for Purchase of Real Estate dated January 7, 1994 between Bankers National Life
Insurance Company and Meridian Mile Associates, L.P.
*10.18.24 Development Agreement dated January 7, 1994 between Bankers National Life Insurance
Company and Browning Investments, Inc.
*10.18.25 Construction Agreement dated July 29, 1993 between Bankers National Life Insurance Company
and Browning Construction, Inc.
10.23 Aircraft Lease Agreement dated December 22, 1988, between General Electrical Capital
Corporation and Conseco Investment Holding Company was filed with the Commission as Exhibit
10.23 to the Registrant's Annual Report on Form 10-K for 1988, and is incorporated herein by
this reference.
*10.23.1 Amendment to Aircraft Lease Agreement dated December 22, 1988, between General Electric
Capital Corporation and Conseco Investment Holding Company.
10.24 Aircraft Lease Agreement dated April 26, 1991 between General Electric Capital Corporation and
Conseco Investment Holding Company was filed with the Commission as Exhibit 10.29 to the
Registrant's Report on Form 10-Q for the quarter ended September 31, 1991, and is incorporated
herein by this reference.
*10.24.1 Amendment to Aircraft Lease Agreement dated April 26, 1991, between General Electric Capital
Corporation and Conseco Investment Holding Company.
*10.25 Aircraft Lease Purchase Agreement dated December 28, 1993, between MetLife Capital
Corporation and Conseco Investment Holding Company.
</TABLE>
<PAGE>
<PAGE> 112
<TABLE>
<CAPTION>
Exhibit
No. Document
- - ------- --------
<S> <C>
10.30 Stock Acquisition Agreement dated February 20, 1992, relating to Bankers Life and Casualty
Company was filed with the Commission, as Exhibit 10.30 to the Registrant's Annual Report on
Form 10-K for 1991 and Amendments thereto were filed with the Commission as Exhibit 2 to the
Registrant's Report on Form 8-K dated November 20, 1992; and are incorporated herein by this
reference.
10.31 Helicopter Lease Agreement dated April 9, 1992 between General Electric Capital Corporation
and Conseco Investment Holding Company was filed with the Commission as Exhibit 10.31 to the
Registrant's Report on Form 10-Q for the quarter ended June 30, 1992, and is incorporated herein
by this reference.
*10.32 Aircraft Lease Agreement dated October 6, 1993, between General Electric Capital Corporation
and Conseco Investment Holding Company and the associated Assignment Agreement dated
October 25, 1993, between General Electric Capital Corporation and Nationsbanc Leasing
Corporation.
*10.33.1 U.S. Purchase Agreement dated February 8, 1994 among Western National Corporation, Conseco
Investment Holding Company, Conseco, Inc. and Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Ladenburg,
Thalmann and Co., Inc. as representatives of the several underwriters named therein.
*10.33.2 International Purchase Agreement dated February 8, 1994 among Western National Corporation,
Conseco Investment Holding Company, Conseco, Inc., and Merrill Lynch International Limited,
Dean Witter International Ltd., Goldman Sachs International Limited and Ladenburg, Thalmann
& Co. Inc., as Lead Managers of the several managers named therein.
*10.34 Separation Agreement dated February 8, 1994 between Conseco, Inc. and Western National
Corporation
*11.1 Computation of Earnings Per Share - Primary.
*11.2 Computation of Earnings Per Share - Fully Diluted.
*12.1 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends.
*12.2 Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends for Which Conseco
is Directly Liable.
*21 List of Subsidiaries.
*23 Consent of Independent Accountants
*Filed herewith
</TABLE>
<PAGE>
<PAGE> 113
<TABLE>
<CAPTION>
Exhibit
No. Document
- - ------- --------
Executive Compensation Plans and Arrangements
<S> <C>
10.1.2 Employment Agreement dated January 1, 1987, between the Registrant and Stephen C. Hilbert
was filed with the Commission as Exhibit 10.1.2 to the Registrant's Annual Report on Form 10-K
for 1986, and Amendment No. 1 thereto were filed with the Commission as Exhibit 10.1.2 to the
Registrant's Annual Report on Form 10-K for 1987; and are incorporated herein by this reference.
10.1.3 Employment Agreement dated July 1, 1991, between the Registrant and Rollin M. Dick was filed
with the Commission as Exhibit 10.1.3 to the Registrant's Report on Form 10-Q for the quarter
ended June 30, 1991, and is incorporated herein by this reference.
10.1.4 Employment Agreement dated July 1, 1991, between the Registrant and Donald F. Gongaware
was filed with the Commission as Exhibit 10.1.4 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991, and is incorporated herein by this reference.
10.1.5 Employment Agreement dated July 1, 1991, between the Registrant and Lawrence W. Inlow was
filed with the Commission as Exhibit 10.1.5 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991, and is incorporated herein by this reference.
10.1.7 Employment Agreement dated July 1, 1991, between the Registrant and Walter T. Kirkbride was
filed with the Commission as Exhibit 10.1.7 to the Registrant's Report on Form 10-Q for the
quarter ended June 30, 1991 and is incorporated herein by this reference.
10.1.9 Secured Promissory Note of Stephen C. Hilbert and Pledge Agreement between the Registrant and
Stephen C. Hilbert dated February 25, 1988, were filed with the Commission as Exhibit 10.1.9
to the Registrant's Report on Form 10-Q for the quarter ended March 31, 1988, and are
incorporated herein by this reference.
10.1.10 Employment Agreement dated August 17, 1992, between the Registrant and Ngaire E. Cuneo was
filed with the Commission as Exhibit 10.1.10 to the Registrant's Report on Form 10-Q for the
quarter ended September 30, 1992, and is incorporated herein by this reference.
10.8 The Registrant's Stock Option Plan was filed with the Commission as Exhibit B to its definitive
Proxy Statement dated December 10, 1983; Amendment No. 1 thereto was filed with the
Commission as Exhibit 10.8.1 to its Report on Form 10-Q for the quarter ended June 30, 1985;
Amendment No. 2 thereto was filed with the Commission as Exhibit 10.8.2 to its Registration
Statement on Form S-1, No. 33-4367; Amendment No. 3 thereto was filed with the Commission
as Exhibit 10.8.3 to the Registrant's Annual Report on Form 10-K for 1986; Amendment No. 4
thereto was filed with the Commission as Exhibit 10.8 to the Registrant's Annual Report on Form
10-K for 1987; Amendment No. 5 thereto was filed with the Commission as Exhibit 10.8 to the
Registrants's Report on Form 10-Q for the quarter ended September 30, 1991; and are
incorporated herein by this reference.
10.8.2 ConsecoSave Plan dated as of January 1, 1993, was filed with the Commission as Exhibit 10.8.2
to the Registrant's Annual Report on Form 10-K for 1992, and is incorporated herein by this
reference.
10.8.3 The Registrant's Cash Bonus Plan was filed with the Commission as Exhibit 10.8.3 to the
Registrant's Report on Form 10-Q for the quarter ended March 31, 1989, and is incorporated
herein by this reference.
10.8.4 Amended and Restated Conseco Stock Bonus and Deferred Compensation Program was filed with
the Commission as Exhibit 10.8.4 to the Registrant's Annual Report on Form 10-K for 1992, and
is incorporated herein by this reference.
*10.8.5 Amendment of ConsecoSave Plan.
*10.8.6 Conseco Performance - Based Compensation Bonus Plan for Executive Vice Presidents.
</TABLE>
<PAGE> 1
AMENDMENT TO CONSECOSAVE PLAN
Effective as of January 1, 1994, the ConsecoSave Plan is
hereby amended by:
1. Amending Section 7.1 by:
(i) Revising the first sentence to read as follows:
Employer Matching Contributions shall be
invested and reinvested in the Conseco Matching
Stock Fund.
(ii) Changing subsection (b) to read as follows:
(b) CCP Insurance, Inc. Stock Fund
(iii) Adding a new subsection (h) immediately
following subsection (g):
(h) Bankers Stock Fund
2. Adding a new sentence immediately following the last
sentence of Section 7.3 to read as follows:
The Administrator may, in its sole discretion,
designate more frequent investment transfer dates
if the Administrator deems it appropriate in light
of the market volatility to which the investment
alternatives may reasonably be expected to be
subject.
3. Adding a new Section 8.4, immediately following section
8.3, to read as follows:
8.4 Voting of Company, Bankers Life Holding
Corporation and CCP Insurance, Inc. Stock. Voting,
tender and similar rights shall be passed through
to Participants and beneficiaries pursuant to the
provisions of the Trust.
4. Revising the first sentence of the second paragraph of
Section 10.7(c) to read as follows:
Lump sum distributions will be made in cash;
provided, however, Participants who elect immediate
lump sum distributions pursuant to (a)(1) above
whose Accounts are vested in the Conseco Stock
Fund, the Bankers Stock Fund or the CCP Insurance,
Inc. Stock Fund at the time distribution is to
commence may elect to receive cash or the number of
shares equal to the value of the selected
Investment Fund.
<PAGE> 1
CONSECO PERFORMANCE-BASED COMPENSATION BONUS PLAN
FOR EXECUTIVE VICE PRESIDENTS
Each of the Executive Vice Presidents shall receive annually a
performance-based cash bonus. The bonus shall be determined by
multiplying the applicable percentages (defined below) times the
Company's consolidated pre-tax net profits for the year. Such
percentage is to be based on the following table.
<TABLE>
<CAPTION>
If the ratio of the average return on Then the current year's performance-based
equity ("ROE")(1) of Conseco to the bonus for each such executive shall be the
average ROE of all publicly-held life sum of the following percentages multiplied
and health insurance companies is times the designated portion of the consol-
at least the following percentage idated pre-tax profits of the current year
- - -------------------------------------- -------------------------------------------
Non-Recurring Remaining
Portion(2) Portion
-------------- ----------
<S> <C> <C>
80% 0.0% 0.0%
100% 1.0% .1%
120% 1.0% .2%
140% 1.0% .4%
160% 1.0% .6%
180% 1.0% .8%
200% 1.0% 1.0%
Upon the recommendation of Conseco's Chief Executive Officer, the Compensation Committee may reduce the amount of the bonus that
would have been payable under the preceding formula to any of the affected executives. Such reduction shall be at the sole discre-
tion of the Compensation Committee after taking into account such subjective factors or other matters as they believe are appropri-
ate in the best interests of Conseco and its shareholders.
The Compensation Committee shall have the sole authority to administer the Plan and make all decisions to interpret and apply its
provisions. Written interpretations not inconsistent with the terms hereof may be issued from time to time by the Compensation
Committee as guidance for interpreting and applying the Plan's provisions.
<FN>
1. Average ROE for Conseco and for all companies is to be calculated for the five years prior to the current year as reported
by Firemark Insurance Perspectives or comparable independent publication. No year prior to 1993 shall be included in computing such
average ROE; therefore, until five years have been completed after 1993, the ratio of the average ROE for Conseco to the average
ROE for all companies shall be computed as follows:
- For 1994 and 1995, the ratio shall be deemed to be 200%
- For 1996, 1997 and 1998, the ratio shall be computed using results for
two, three or four years, respectively, commencing with the results of
the year 1994.
2. For purposes of this calculation, the non-recurring portion includes the total of gains from sale of subsidiaries or affiliates;
sale of investments made or monitored by the Conseco Private Capital Group; 20% carried interest earned on acquisition partnership
investments; and acquisition; arrangement and investment banking fees earned from acquisition partnerships.
</TABLE>
<PAGE> 1
ADDITION TO CONSECO FLIGHT OPERATIONS
7811 HEADWIND DRIVE
CONSTRUCTION AGREEMENT
THIS AGREEMENT, made and entered into by and between Conseco, inc.,
11815 North Pennsylvania Street, Carmel, In 46032, an Indiana corporation
(hereinafter referred to as the "Owner"), and BROWNING CONSTRUCTION, INC., an
Indiana corporation (hereinafter referred to as the "Contractor"), WITNESSETH
THAT:
WHEREAS, the Owner desires to design and construct an aircraft
hangar expansion to the east of the existing hangar at 7815 Headwind Drive,
Indianapolis, Indiana, (the "Project").
WHEREAS, Cuppy, Graef & Turner, Architects, as design architects
(the "Design Architects"), heretofore has completed preliminary plans and
requirements based upon which it has begun to develop and prepare or cause to
be prepared, complete drawings, plans and specifications for the Project,
subject to final approval by the Owner and the Contractor, which approval will
not unreasonably be withheld (such approved drawings being hereinafter referred
to as the "Drawings" and such plans and specifications being hereinafter
referred to as the "Specification"); and
WHEREAS, with the Owner's approval, the Contractor has commenced
work on the Project, and has expended funds and incurred borrowing costs in
connection therewith prior to the date hereof;
WHEREAS, the Owner and the Contractor have agreed that the contract
price will be paid to the Contractor as construction progresses and costs are
incurred in the manner provided herein;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein contained and each act performed pursuant hereto, the parties
now enter into the following Agreement:
ARTICLE I
Contract Documents; Definitions
Section 1.1. Contract Documents and Amendments. The "Contract
Documents" shall mean and include (a) this Agreement, (b) the Drawings and
Specifications upon completion and approval thereof by the Owner and the
Contractor and (c) any duly authorized and executed Contract Change Orders
pursuant to Section 4.3, and any written interpretations of the Drawings and
Specifications signed by the Owner and by the Contractor. It is agreed that
the Contract Documents contain the entire agreement of the parties, that in the
event there is any conflict between the provisions of this Agreement and the
provisions of the Specifications and/or the Drawings, then the provisions of
this Agreement shall prevail; and that in the event there is any conflict
between the Specifications and the Drawings, the Drawings shall prevail. The
Contract Documents otherwise may be amended by written instruments signed by
the Owner and by the Contractor, and any provision or provisions of the
Contract Documents may be so amended without affecting the other provisions of
the Contract Documents.
Section 1.2. Architect and Engineer. The term "Design Architect,"
as used in the Contract Documents, shall mean Cuppy, Graef & Turner Architects,
and the term "Engineer" shall mean the inspecting architect or engineer
designated by the Owner's construction lender (or by the Owner in the absence
of such designation by the lender) to make periodic inspections and certify as
to the progress of construction for purposes of progress payments to the
Contractor.
<PAGE>
<PAGE> 2
Section 1.3. Subcontractor. The term "subcontractor," as used in
the Contract Documents, except where otherwise specified, means only those
persons, firms or corporations having a direct contract with the Contractor and
includes any person, firm or corporation who or which performs any part of the
Work (as defined herein), or leases equipment or tools (whether or not an
operator is provided by the lessor), or who furnishes material worked to a
special design according to the Drawings or Specifications, but does not
include any person, firm or corporation who or which merely furnishes material
not so worked to a special design (herein called a "supplier"), nor does it
include the Design Architect or Inspector.
Section 1.4. Completion Date. The term "Completion Date," as used
in the Contract Documents, means the date when the Work (as defined herein) is
certified by the Contractor as substantially completed in accordance with the
Contract Documents, subject to any additional or corrective work reasonably
required by the Engineer's final inspection pursuant to Section 4.6. For this
purpose, the hangar shall be substantially complete and ready for use,
notwithstanding any minor or insubstantial details of construction, that remain
to be done, so long as (a) ready access to the Project, are available to the
Owner, all utilities to be provided to the Project are installed and in working
order (subject to minor adjustments and to the Owner's responsibilities
regarding utilities as provided in Section 5.4. For the purposes of the
Agreement, there will be a "Completion Date" for the hangar.
Section 1.5. Day and Working Day. As used in the Contract
Documents, the term "day" shall mean a calendar day of twenty-four (24) hours
beginning at 12:00 midnight, and the term "working day" shall mean each
calendar day except a Saturday, Sunday or legal holiday.
ARTICLE II
Scope of the Work
Section 2.1. The Work. The term "Work" as used in the Contract
Documents shall mean the Contractor shall furnish all of the labor,
supervision, materials, supplies and equipment and perform all labor and other
work shown on, and in accordance with the Drawings and Specifications as
finally approved by the Owner and Contractor.
Section 2.2. Time of Completion. In the absence of circumstances
beyond its control, the Contractor agrees to complete the Work prior to June
30, 1994 for the hangar, except as such period to complete the Work may be
extended pursuant to the provisions of Sections 4.2, 4.3 or 4.5 of this
Agreement.
ARTICLE III
Contract Price and Payment
Section 3.1. Contract Price. The Owner agrees to pay the
Contractor for the performance of this Agreement cost plus twelve eight five
percent (12.85%) for the Project, including all of the Work, as the contract
price for the hangar subject to additions and deductions by Contract Change
Order pursuant to Section 4.3.
Section 3.2. Method of Payment. The Owner hereby agrees to pay
to the Contractor the Contract Price in the following manner:
(b) Progress Payments.
(i) For all work except as identified in clause (ii) of this
paragraph, (b)after the initial payment, the Contractor shall make
a monthly request for payment by the Owner, for construction costs
incurred for work during the preceding month, plus the earned
portion of the Contractor's overhead and fee allocable to such Work,
less any retainage withheld from the Contractor and Subcontractors
as hereinafter provided. In no event shall the total of all such
progress payments under this clause (i) of this paragraph (b) at any
time, when added to the initial payment and any retainage then held,
exceed the agreed total Contract Price, plus any additions or less
any deletions for Contract Change Orders; and
<PAGE>
<PAGE> 3
(ii) Contractor shall make a monthly request for payment equal to
the cost of work in place as of the end of the preceding month, plus
an amount equal to 12.85% of such costs for overhead and profit
minus retainage as per 3.2 (iii). Each request for payment shall be
submitted at least five (5) business days before the date payment is
desired, and payments shall, insofar as possible, be scheduled for
the 28th day of each calendar month. Owner agrees to make payments
no later than six (6) business days after receipt of the
Contractor's request. Contractor shall provide copies of invoices
or such other cost backup as the Owner may reasonably request from
time to time as follows: (a) payment request on form acceptable to
Owner, (b) copies of invoices, (c) affidavits of lien waivers from
all subcontractors and supplies covering prior disbursements.
(c) All payments by the Owner are subject to the following:
(i) Construction Costs. As used herein, the term "construction
costs" means and includes all costs and expenses incurred by the
Contractor in the performance of the Work, including but not limited
to amounts payable under subcontracts and other costs for labor,
materials, equipment and fixtures, including sales taxes and freight
and transportation charges, costs for architectural and engineering
work, expenses for workers' compensation insurance and other
insurance coverage required by the terms of this Agreement, rental
costs of equipment used on the Work, utility costs and fees, and
charges or other amounts payable for permits, licenses or approvals
necessary to perform the Work.
(ii) Overhead and Fee. The Contractor's overhead and fee is twelve
eight five percent (12.85%), and shall be deemed earned for purposes
of payment as follows:
(1) The overhead and fee portion of the Contract price for the
hangar shall be deemed earned in proportion to costs incurred for
which payment is requested from time to time, in increments equal to
12.85% minus retainage as in (iii) below, of the costs so incurred;
the full balance shall be deemed earned on the Completion Date.
(iii) Retainage. (1) Retainage shall be withheld only as to
amounts payable Contractor and Subcontractors and there shall be no
retainage as to suppliers or other amounts payable to the
Contractor; (2) retainage as to Subcontractors shall be 10% of
amounts invoiced until such Subcontractor's work is 50% completed,
and thereafter, unless the Contractor, in its discretion, elects to
continue the 10% retainage as to one or more Subcontractors, no
additional retainage shall be withheld; (3) retainage as to each
Subcontractor will be released to the Contractor for payment to the
Subcontractor sixty (60) days after 100% completion of the
Subcontractor's work.
(iv) Inspection Reports. The Owner may require, prior to payment,
receipt of a report from the Engineer, dated not more than five (5)
days prior to the requested disbursement, setting forth a breakdown
of the Work completed to date and stating that he has inspected the
construction and that all construction to the date of the
certificate is in accordance with the Drawings and Specifications.
It is the Owner's responsibility to schedule such inspections to
ensure that the report, if requested, is received in a timely manner
so as not to otherwise affect timing of payments.
(b) Final Payment. Final payment to the Contractor of the entire
unpaid balance of the Contract Price for the hangar including but
not limited to any retainage withheld and the full balance of the
Contractor's overhead and fee and any profit to the Contractor,
shall be paid within thirty (30) days after the Completion Date for
such hangar. The Owner shall receive prior to such payment; (i)
delivery of a release or waiver of liens signed by the Contractor
<PAGE>
<PAGE> 4
and all Subcontractors (or a title insurance policy insuring over
any such lien or possible lien), and (ii) the Owner shall be
entitled to withhold an amount reasonably estimated by the Engineer
to complete or correct for items of Work identified upon final
inspection pursuant to Section 4.6, until completion or correction
of such item, and (iii) as built drawings, maintenance and operation
manuals.
ARTICLE IV
Other General Conditions
Section 4.1. Representations and Warranties of Contractor. The
Contractor represents and warrants that:
(a) The Contractor has the facilities and personnel to perform the
Work, and the Work shall be done in good and workmanlike manner,
free from defects and in conformity with the Contract Documents, and
all applicable laws, ordinances, rules and regulations of all
governmental authorities having jurisdiction of the subject matter.
(b) The Contractor shall supervise and direct the Work, using its
best skill and attention. The Contractor shall be solely
responsible for all construction means, methods, techniques,
sequences and procedures and for coordinating all portions of the
Work;
(c) All materials and equipment incorporated in the Work will be
new, unless otherwise specified in the Plans and Specifications;
(d) The Contractor shall provide and pay (and provided the Owner
makes all payments due to the Contractor as provided in Article III,
Sections 3.2 (b) (ii) and 3.2 (d), shall hold the Owner harmless
from claims for) all Subcontractors and Suppliers, and other amounts
payable for all labor, materials , equipment, tools, construction
equipment and machinery, water, heat, utilities, transportation and
other facilities and services necessary for proper completion of the
Work and shall remove all construction equipment, tools and
machinery from the Project site promptly upon completion of the
Work.
(e) The Contractor shall inform the Owner if it becomes necessary
to make any arrangements with public utilities or municipal
authorities for removal or replacement on the Project site of any
poles, lines, hydrants, pipes or other items required to be removed
or replaced in order to complete the Work, provided that if any work
or expense will be required to connection therewith, the same shall
be considered an addition to the Work requiring a Contract Change
Order. The Contractor knows of no such requirement as of the date
of this Contract.
(f) The Contractor shall secure all permits, licenses and
approvals necessary for execution of the Work;
(g) The Contractor at all times shall keep the Project site free
from excessive accumulation of waste materials and rubbish caused by
its operations. At the completion of the Work, the Contractor shall
remove all waste materials and rubbish from and about the Project
site, as well as his tools, construction equipment, machinery and
surplus materials, and leave the Work in "broom clean" or equivalent
condition except as otherwise specified.
Section 4.2. Extension of Time of Completion. The contractor
shall be entitled to extensions of time for completion of the Work in the event
of delays caused by labor disputes, fire, unusual delay in transportation,
unavoidable casualties or other causes or conditions beyond the Contractor's
control. Any such extension of time shall be for the actual number of working
days lost by reason of the occurrence or condition, as determined and certified
by the Contractor, unless the Engineer reasonably determines that a longer or
shorter extension of time should apply.
<PAGE>
<PAGE> 5
Section 4.3. Change in the Work. The Owner and the Contractor,
without invalidating the Contract Documents or the agreement of the parties as
represented thereby, but subject to the limiting provisions of Section 1.1, may
make changes within the general scope of the Contract Documents by altering,
adding to or deducting from the Work. No change in the Work shall be
authorized except by a "Contract Change Order," signed by the Owner and the
Contractor, and approved by the Owner's construction lender, if required. All
extra work and changes in the Work shall be performed under the conditions of
the Contract Documents.
Section 4.4. Owner's Right to Terminate. In the event the
Contractor violates any material provision of the Contract Documents, the Owner
may, after giving thirty (30) days written notice to the Contractor setting
forth the violation, if the violation is not corrected by the expiration of
such thirty (30) day period, at the Owner's option, either (a) make good the
deficiencies and deduct the cost thereof from any payment then or thereafter
due the Contractor, and (b) terminate this Agreement, take possession of all
materials and the Contractor's equipment, tools and appliances and finish the
Work by any reasonable means, or (c) specifically enforce this Agreement
against the Contractor and force the Contractor to complete the Work for the
Fixed Contract Price in accordance with the provisions of this Agreement. If
the Owner exercises such option to terminate this Agreement, and the unpaid
balance of the Contract Price exceeds the reasonable cost to the Owner of
completing the Work, such excess shall be paid to the Contractor in the manner
provided in Section 3.2, but, if such cost exceeds such unpaid balance, then
the Contractor shall pay the entire amount of the difference to the Owner.
Section 4.5. Contractor's Right to Terminate. Should the
Owner fail to pay the Contractor any payment when due, then the Contractor, at
the Contractor's option, after giving seven (7) days written notice to the
Owner, if payment is not made within seven (7) days of receipt by the Owner of
such notice may stop performing the work until payment is received. Should the
Work be stopped by any public authority for a period of thirty (30) days or
more through no fault of the Contractor, or should the Work be stopped through
act of neglect of the Owner or should the Owner fail to pay the Contractor
within said seven (7) day period, then, at the Contractor's option, at any time
before the condition is corrected or cured, following thirty (30) days written
notice to the Owner, with a copy to the Owner's construction lender, if the
condition is not cured by the end of such thirty (30) day period, and if the
Contractor is not in default under the Agreement, the Contractor amy terminate
this Agreement and retain or recover from the Owner so much of the Contract
Price as represents payment in full for all of the Work completed, less
payments previously received, including all of the Contractor's costs of the
construction as set forth on the Cost Breakdown, plus a pro rata portion of the
Contractor's total overhead and profit as provided for in the Cost Breakdown,
based upon the proportion of the Work completed. In any event, the delay
caused by the existence of any such condition shall automatically extend the
time during which the Work is to be completed pursuant to Section 2.2 by an
amount of time equal to two (2) days for each of the first thirty (30 days of
existence of any such condition, and one day for each day of existence of the
condition in excess of thirty (30) days.
Section 4.6. Final Inspection. The Engineer's final inspection
as regards to the hangar shall be made within fifteen (15) days after the
Contractor delivers to the Owner its written certification that the Work has
been completed. The making and acceptance of the final payment shall not
constitute a waiver of any claims by the Owner as to any matters reasonably
required by the Engineer to be completed or corrected by the Contractor after
the Completion Date.
Section 4.7. Warranty and Correction of Work. The Contractor
guarantees to the Owner that all labor and materials incorporated in the Work
shall be free from defects for a period of one year from the Completion Date.
The Contractor, at its expense, shall correct any Work that fails to conform
to the requirements of the Contract Documents where such failure to conform
appears during the progress of the Work, and shall remedy any defects in the
Work which appear within the applicable warranty period. The warranty under
this Section 4.7 applies to the entire Work, (a) whether done by Contractor,
any subcontractor (whether or not under a direct contract with the Contractor),
or any employee of any of them or any other person performing any of the Work,
or (b) any electrical or other finished manufactured equipment or product,
except that the Contractor hereby assigns to the Owner the warranty, if any,
of the manufacturer and/or supplier of any such equipment or product, and
<PAGE> 6
warrants (for one year as set forth above) that such equipment and products
shall be properly installed and connected in accordance with the Drawings and
Specifications, and any manufacturer's instructions.
Section 4.8. Inspections. The Owner, its construction lender,
prospective tenants, and their authorized representatives, including the
Engineer, shall, at all reasonable times, have the right of access to the
Project and Work for the purpose of inspection. The Owner shall have the right
to reject materials and workmanship which the Owner reasonably determines to
be defective, and the Contractor, within a reasonable time after the receipt
of written notice from the Owner of such rejection, take such reasonable steps
as shall be necessary to correct or remove defective materials or workmanship
without charge or cost to the Owner. The Engineer will make periodic visits
to the site to familiarize himself generally with the progress and quality of
the Work, and to determine in general if the Work is proceeding in accordance
with the Plans and Specifications pursuant to Section 3.2. If the Owner
becomes aware of any defect in the Work, through the Engineer or otherwise, it
shall give notice of such defect to the Contractor promptly after discovery
thereof. If the Owner fails to give such notice of a defect known to it, such
defect may
not serve as a ground for termination by the Owner pursuant to Section 4.4,
unless the Contractor independently knew of such defect at or prior to the time
of the Owner's discovery thereof.
ARTICLE V
The Owner's Responsibilities
Section 5.1. Prompt Decisions. The Owner, through a designated
authorized representative, shall examine Contract Documents and other documents
submitted by the Contractor from time to time, and shall render decisions
pertaining thereto and furnish requested information and approvals promptly and
expeditiously to avoid unreasonable delay in the completion of Plans and
Specifications or in the progress of the Work of the Contractor.
Section 5.2. Notices. The Owner shall give prompt written notice
to the Contractor of any defect in the Work or other nonconformance with the
Contract Documents that may in any manner come to the Owner's attention. The
Owner shall provide to the Contractor promptly, copies of any notice or other
communication concerning the project received directly by the Owner from the
Design Architect, the Engineer, any subcontractor or other person performing
work on the project or any governmental authority (unless the Owner has
knowledge that the Contractor already has received a copy thereof).
Section 5.3 Payments. The Owner shall provide for the timely
payment of all amounts due as anticipated by this Agreement, as and when
payable as construction progresses and Work is completed and inspected, in
accordance with the terms of this Agreement. The Owner shall schedule any
required inspections to occur within the time periods provided for herein so
as not to delay the scheduled payments to the Contractor.
Section 5.4 Utilities/Governmental Fees. The Owner is solely
responsible for any and all necessary approvals, consents, permits, deposits,
assessments, connection or availability fees and other charges of any kind
levied or required to be obtained, made or paid in order to allow, permit or
otherwise obtain the right and authority to connect the buildings and
improvements to the facilities of, and/or acquire the services of, any public
utility or governmental agency, sewer, telephone and electric service. The
Contractor shall cooperate with and assist the Owner in connection with such
approvals and other matters, and shall notify the Owner in advance of the date
by which any such matter must be completed in order not to cause any delay in
the completion or availability of the Project.
<PAGE>
<PAGE> 7
ARTICLE VI
Indemnity and Insurance
Section 6.1. Indemnity. The Contractor shall indemnify and save
the Owner harmless from and against any and all liability for any bodily
injury, sickness, disease or death of any person or persons, or for damage to
or destruction of tangible property (other than the Work itself) including the
loss of use resulting therefrom, arising out of or connected with the
performance of the Work, provided such liability or damage is caused in whole
or in part by any negligent act or omission of the Contractor, any
subcontractor (whether or not under a direct contract with the Contractor), or
anyone directly or indirectly employed by any of them or any one for whose acts
any of them may be liable, and from all cost, expenses and liabilities,
including but not limited to reasonable attorney's fees incurred by the Owner
in connection therewith; provided, however, that the provisions of this Section
5.1 shall not give to any person, firm or corporation not a party to this
Agreement any right, claim, action or cause of action which any such person,
firm or corporation would not otherwise have.
Section 6.2. Contractor's Liability Insurance. Without
limitation upon the Contractor's liability under the indemnity agreement in
Section 5.1, the Contractor shall, at its own expense, obtain and maintain
insurance that will protect the Contractor, the Owner and such other interested
persons as the Owner may reasonably request from time to time, from all claims
under worker's compensation acts and other employees benefit acts claims for
damages because of bodily injury, including death, and from claims for damages
to property which may arise out of or result from the Contractor's operations
under this Agreement, including products and completed operations coverage for
a period of two (2) years following the Completion Date and including
operations by any subcontractor (whether or not under a direct contract with
the Contractor) or anyone directly or indirectly employed at any of them. The
coverages and amounts below are indicated as minimum requirements, exclusive
of any additional excess umbrella liability coverage that may be reasonably
required by the Owner. The Contractor may determine to carry other coverages
and/or higher limits.
Minimum Coverages Required Minimum Amount of Liability
-------------------------- ---------------------------
Workers'Compensation Applicable Statutory Limits
Insurance including
employer's liability
Contractor's combined $1,000,000
protective bodily injury
and property damage
liability insurance
All policies shall contain a provision that the coverages will not be canceled
or changed without thirty (30) days prior written notice to the Owner and to
the Owner's construction lender. If, at any time during the performance of the
Work, the Contractor shall fail to maintain the minimum insurance coverages set
forth above, the Owner may, at its option, procure and maintain such insurance
in the name of the Contractor, and the Contractor shall pay the cost thereof
and furnish all information and documents necessary to make effective and
maintain such insurance.
Section 6.3. Owner's Liability Insurance. The Owner may
obtain, at its option, additional or other insurance to protect it from
contingent liability to others arising from the Contractor's operations under
this Agreement.
Section 6.4. Builder's Risk Insurance. The Contractor shall
purchase and maintain "all risk" builder's risk and fire insurance, with
extended coverage, upon the Work and the Project on which the Work is to be
performed, to approximately one hundred percent (100%) of the insurable value
from time to time thereof, including items of labor and materials to be
incorporated therein whether in or adjacent to the building insured. Loss
under the insurance, if any, will be adjustable with and payable to the Owner
(or its designee) as trustee for the Owner and the Contractor as their
interests may appear. The Owner and the Contractor hereby waive all rights,<PAGE>
<PAGE> 8
each against the other, for damages caused by fire or extended coverage perils
or other risks covered by insurance, except such rights as they may have to the
proceeds of insurance held by the Owner as trustee. The Contractor shall be
solely responsible for any coverage on its tools or equipment, or those of its
employees, agents or subcontractors, whether owned or rented, and for any other
materials which may temporarily be located on the Project premises.
Section 6.5. Blanket and Umbrella Policies. Any insurance
required to be provided by Contractor pursuant to the Agreement may be provided
by blanket property insurance or umbrella liability insurance covering the
Project and other locations or operations of Contractor or its affiliates,
provided such blanket or umbrella insurance complies with all of the other
requirements of the Agreement with respect to the insurance involved.
Section 6.6. Insurance Coverage and Notice. All policies shall
contain a provision that the coverages will not be canceled or changed without
thirty (30) days prior written notice to the Owner. Upon request, the
Contractor shall provide to the Owner a certificate showing the relevant
insurance coverages and amounts in force respecting the Project. if, at any
time during the performance of the Work, the Contractor shall fail to maintain
the minimum insurance coverages set forth above, the Owner may, at its option,
procure and maintain such insurance in the name of the Contractor, and the
Contractor shall pay the cost thereof and furnish all information and documents
necessary to make effective and maintain such insurance.
ARTICLE VII
Miscellaneous
Section 7.1. Bonds. If required by the Owner, the Contractor
shall require one or more subcontractors performing labor under subcontract for
amounts in excess of $100,000 to furnish dual-obligee payment and performance
bonds, in form and substance acceptable to the Owner, covering themselves and
their subcontractors. The Contract Price shall be increased in an amount equal
to the reasonable cost of any such bonds. For purposes of this paragraph, the
Contractor shall provide to Owner, on request, a list of the Subcontractors and
their respective contract amounts.
Section 7.2. Assignment. This Agreement may not be assigned or
otherwise transferred by either party hereto without the written consent of the
other party except for any assignment to an entity owned or controlled by such
party. No such assignment shall relieve either party of its obligations unless
otherwise agreed by the other party in writing at the time.
Section 7.3. Nonwaiver; Other Remedies. The failure to enforce
any provision of the Contract Documents shall not serve to invalidate any such
provision or any other provision of the Contract Documents and shall not serve
as a bar or limit to subsequent enforcement of any such provision. No remedy
available to either party under this Agreement is intended to be exclusive of
any other remedy. Each remedy shall be cumulative and shall be in addition to
any other remedy given hereunder or existing by statute, at law or in equity.
Section 7.4. Notices. Any notices required to be given under this
Agreement shall be mailed, certified mail, return receipt requested. Any
notice to be served upon the Owner shall be addressed to:
Donald F. Gongaware
Executive Vice President
Conseco, inc.
11815 North Pennsylvania Street
Carmel, Indiana 46032
Any notice to be served upon the Contractor shall be addressed to:
Browning Construction, Inc.
Suite 400, Tower Two
Fidelity Plaza
11350 North Meridian Street
Carmel, Indiana 46032
Attention: Richard J. Pollak
<PAGE>
<PAGE> 9
Section 7.5. Binding on Successors. This Agreement shall be
binding upon, and inure to the benefit of, the parties, their successors,
heirs, legal representatives, legatees and assigns.
Section 7.6. Descriptive Headings. The descriptive headings
contained herein were formulated, used and inserted for convenience only and
shall not affect the meaning or construction of the provisions of this
Agreement.
Section 7.7. Governing Law. This Agreement, executed and to be
performed in the State of Indiana, shall be governed by the law of the State
of Indiana.
IN WITNESS THEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the 7th day of February, 1994.
"OWNER"
CONSECO, INC.
By: /s/ DONALD F. GONGAWARE
-----------------------
Donald F. Gongaware
Executive Vice President
"CONTRACTOR"
BROWNING CONSTRUCTION, INC.
By: /s/ RICHARD J. POLLAK
----------------------
Richard J. Pollak
President
<PAGE> 1
AGENCY AGREEMENT
THIS AGREEMENT, entered into by and between Bankers
National Life Insurance Company, a Texas corporation ("Bankers")
and Browning Investments, Inc., an Indiana corporation ("Agent"),
WITNESSES THAT:
WHEREAS, Bankers desires to acquire certain real estate
in Carmel, Indiana commonly known as 11790 North College Avenue
(the "Real Estate");
WHEREAS, Agent is willing to act for and on behalf of
Bankers in its efforts to acquire the Real Estate by (a) entering
into a contract to purchase the Real Estate ("Purchase Contract")
as agent for Bankers as an undisclosed principal, (b) obtaining
such surveys, tests, examinations and/or investigations of the Real
Estate as Bankers shall request or Agent deems prudent,
(c) entering into an agreement with the current tenant of the Real
Estate to terminate its lease and hold tenant harmless ("Lease
Termination"), as agent for Bankers as an undisclosed principal,
and (d) prior to Closing assigning its interest in the Purchase
Contract and Lease Termination (together the "Contracts") to
Bankers and assisting Bankers in closing the purchase of the Real
Estate and termination of the lease, all upon the terms and
conditions hereinafter set forth;
NOW, THEREFORE, Bankers and Agent, in consideration of
the respective promises and actions to be taken by each as
hereinafter described, agree as follows:
1. Acquisition. Subject to the provisions of this
Agreement, Agent shall at all times use its best efforts to secure
the Purchase Contract and Lease Termination substantially upon the
terms and conditions contained in Exhibit A attached hereto. Upon
execution of the Purchase Agreement and Lease Termination
Agreement, Agent shall promptly notify Bankers and provide it with
a fully executed copy thereof.
2. Agency Capacity. In endeavoring to secure the
Purchase Agreement and Lease Termination Agreement, Agent shall at
all times be acting for the account of and on behalf of Bankers and
not for its individual account and benefit, excepting that Bankers
acknowledges and agrees that Seller under the Purchase Agreement
shall pay Agent, in its capacity as broker and not as agent, a
brokerage commission as provided for in the Purchase Contract
attached hereto as Exhibit A.
3. Performance of Contracts. Agent shall use
reasonably prudent judgment prior to waiving any conditions to the
performance of its obligations under the Contracts and may in its
discretion seek Bankers' prior consent. Agent shall use reasonably
diligent efforts to keep Bankers informed of the progress of
satisfaction of the conditions to closing.
4. Site Investigations. Agent shall cause to be
performed by companies acceptable to Bankers such surveys, tests,
examinations and/or investigations of the Real Estate as Agent
deems prudent or as Bankers shall direct, which directions may be
verbal, but shall be confirmed in writing promptly after having
been given. Any such surveys or written reports of such tests,
examinations or investigations shall be expressly certified to the
undisclosed principal of Agent and any nominee of such principal
acquiring title to the Real Estate or shall otherwise expressly
acknowledge that such principal and nominee shall be entitled to
rely thereon to the same extent as if such principal or nominee had
obtained such surveys or reports directly. Agent shall forward to
Bankers copies of all such surveys and reports or other written
information with respect to such tests, examinations and/or
investigations and shall furnish Bankers with copies of any and all
<PAGE> 2
other information obtained by Agent pursuant to the Contracts. All
costs and expenses payable by Agent to the companies performing
such surveys, tests, examinations or investigations shall be
included within Project Costs as hereinafter defined, and shall be
payable by Bankers to Agent.
5. Cost Statements. Agent shall submit to Bankers
twenty-four (24) hours prior to closing an itemized statement (the
"Cost Statement") of all amounts due and payable at Closing under
the Contracts and for Project Costs, and its good faith estimate of
those Project Costs which will become due and payable after
Closing. At Closing, Bankers shall pay such sums to Agent or the
applicable party under the Contracts. Agent shall pay all bills
and invoices which are Project Costs promptly upon payment from
Bankers and shall furnish Bankers with proof of such payment upon
request. If post closing Project Costs differ from Agents good
faith estimate, Agent and Bankers shall reconcile such sums within
sixty (60) days after Closing. "Project Costs" shall mean all
costs and expenses incurred by Agent in connection with the Real
Estate, the Contracts and this Agreement, including, without
limitation, legal and other professional fees.
6. Agent's Compensation. In addition to reimbursement
of Project Costs, as consideration for the services rendered by
Agent pursuant to this Agreement, Bankers shall pay Agent, in
immediately available funds at Closing, ten percent (10%) of the
lease termination fee received by Bankers from the current tenant
of the Real Estate.
7. Default. If Bankers or Agent fails to satisfy any
of their respective obligations under this Agreement, and such
failure continues for fifteen (15) days after written notice
thereof from the other party, then the other party may terminate
this Agreement (subject to Bankers' continued indemnity obligations
pursuant to paragraph 8 below) or exercise any other right or
remedy hereunder or at law or in equity.
8. Indemnification. Bankers shall defend, indemnify
and hold Agent, its parents and affiliates, and its or their
respective officers, directors and employees (collectively, the
"Agent Indemnities"), harmless from and against any and all third-
party claims or liabilities and all losses, damages, suits, costs,
fees, charges, commissions and expenses in connection therewith
(including, without limitation, reasonable attorneys' fees)
(collectively, for purposes of this paragraph 8, the "third-party
liabilities") arising out of or alleged to arise out of
(a) appraisals, surveys, tests, examinations and/or investigations
of the Real Estate (or any part thereof) which Agent shall cause to
be performed, (b) the termination of any Contract by Agent at the
direction of Bankers or the nonperformance by Agent, at the
direction of Bankers, of its obligations under any Contract,
(c) the nondisclosure by Agent that it is acting for the account of
and on behalf of Bankers in the purchase of the Real Estate and
performance of the services contemplated by this Agreement, (d) the
failure of Bankers to pay any amounts to be paid by it under this
Agreement, or (e) directly or indirectly, Agent's performance of
its obligations under this Agreement. Such indemnity and
obligation to defend shall be effective regardless of whether the
third-party liabilities are caused or alleged to be caused by the
negligence (including the concurrent or sole and exclusive
negligence), breach of contract, strict liability or other breach
of duty of any Agent Indemnitee, but shall not apply or extend to
third-party liabilities caused or alleged to be caused by the
reckless conduct, fraud or willful or wanton misconduct of any
Agent Indemnitee. This indemnity shall survive the termination of
this Agreement.
9. Assignment. Prior to Closing, Agent shall assign
its interest under the Contracts to Bankers or a nominee of Bankers
and Bankers or a nominee of Bankers shall assume the liabilities
thereunder and take title to the Real Estate at Closing.
<PAGE>
<PAGE> 3
10. Governing Law. This Agreement shall be governed,
construed and enforced in accordance with the laws of the State of
Indiana. In the event any suit or action is brought under or in
connection with this Agreement, such suit or action shall be
brought in a court in the State of Indiana, and Agent hereby
consents and submits itself to the jurisdiction of such court and
agrees to service of process by courts located in Indiana.
11. Entire Agreement. This Agreement contains all of
the agreements, representations and warranties of the parties
hereto with respect to the specific subject matter hereof (but not
as to any other matters) and supersedes all prior discussions,
understandings or agreements with respect to the specific subject
matter hereof. This Agreement may not be amended or modified
except by an instrument signed by the parties hereto.
12. No Warranties. Agent, in performing its services
under this Agreement, makes no representations or warranties,
express or implied, with respect to the environmental, structural,
mechanical or other condition or present or future value of the
Real Estate.
13. Attorneys' Fees. The prevailing party in any legal
proceeding brought by or against the other party under or in
connection with this Agreement shall be entitled to recover court
costs and reasonable attorneys' fees from the non-prevailing party.
14. Authority. The undersigned persons executing this
Agreement on behalf of Agent and Bankers, respectively, represent
and certify that (a) they are fully empowered and duly authorized
by all necessary action of Agent or Bankers, respectively, to
execute and deliver this Agreement and (b) this Agreement is the
legal, valid and binding obligation of Agent or Bankers,
respectively.
IN WITNESS WHEREOF, the parties have caused this
Agreement to be executed this 17th day of December, 1993.
BANKERS NATIONAL LIFE INSURANCE
COMPANY
By:/s/ DONALD F. GONGAWARE
________________________________
Printed Name: Donald F. Gongaware
Title: President and Chief Operating Officer
BROWNING INVESTMENTS, INC.
By: /s/ F. RICHARD REMBUSCH
--------------------------------
Printed Name: F. Richard Rembusch
Title: Executive Vice President
<PAGE>
<PAGE> 4
CONTRACT FOR PURCHASE OF REAL ESTATE
OFFER TO PURCHASE REAL ESTATE
BROWNING INVESTMENTS, INC. on behalf of its nominee or assignee
("Purchaser"), hereby offers to purchase from CONGRESSIONAL BOULEVARD
INVESTORS, INC. ("Seller") all of that certain real estate owned by Seller,
commonly known as 11790 North College Avenue, Carmel, Indiana, consisting of
approximately 12.970 acres (the legal description of which real estate will be
subject to precise determination by survey as provided in Section 7.1 below),
together with all buildings, improvements, tangible personal property and
fixtures located thereon, attached to or used in connection therewith, all
rights, privileges and appurtenances thereto, Seller's interest in and to that
certain lease between Seller as landlord and Wal-Mart Stores, Inc. (successor
to the Wholesale Club, Inc.) as tenant (the "Wal-Mart Lease"), together with
any and all other leases, and all rents, security deposits, licenses and/or
permits with respect thereto, seller's interest in all service, maintenance,
management or other contracts (if accepted by purchaser and otherwise
terminated) relating to the ownership or operation thereof and Seller's
interest in all warranties or guaranties relating thereto, (collectively
referred to as the "Real Estate"), for Three Million Seven Hundred Thousand
Dollars ($3,700,000.00) (the "Purchase Price"), subject to and upon the
following terms and conditions:
1. Earnest Money Deposit. Immediately upon acceptance of this Offer by
Seller (the "Acceptance Date"), Purchaser shall deposit Five Thousand Dollars
($5,000.00) (the "Earnest Money") with Hamilton Title Security, Inc., an agent
for Ticor Title Insurance Corporation (the "Title Insurer"). PURCHASER SHALL
FORFEIT THE EARNEST MONEY TO SELLER IF PURCHASER FAILS OR REFUSES TO
PERFORM ITS OBLIGATIONS HEREIN SPECIFIED AND ALL CONDITIONS AND REQUIREMENT OF
THIS CONTRACT HAVE BEEN SATISFIED. Such forfeiture of Earnest Money shall
constitute liquidated damages and shall be Seller's sole remedy at law or in
equity. The Earnest Money otherwise shall be refunded or forfeited in
accordance with the terms contained in this Offer, and, if all of the terms and
conditions of this Offer are satisfied or waived and the transaction is
closed, then the Earnest Money shall be applied to the Purchase Price.
2. Payment of Purchase Price. On closing this transaction, Purchaser shall
pay Seller the Purchase Price, less the Earnest Money and any other credits,
reductions or prorations for which this Contract provides.
3. Closing Date. Subject to all other terms and conditions set forth in this
Contract, the transaction shall be closed not later than ten (10) days after
the expiration of the period referred to in Section 7.3, with the exact date
of closing (the "Closing Date") to be specified by Purchaser in a written
notice delivered to Seller, it being the intent of the parties that both
Purchaser and Seller shall use all good faith efforts to close this transaction
prior to December 31, 1993. The closing will take place at the office of the
Title Insurer or such other place as the parties may mutually agree upon in
writing.
4. Closing Documents. At closing, Seller shall deliver: (a) a fully
executed General Warranty Deed conveying to Purchaser merchantable and
marketable fee simple title to the Real Estate free of any and all liens,
encumbrances, easements, restrictions, covenants or other title defects, except
the lien of nondelinquent real estate taxes and other matters, if any,
disclosed in the Title Commitment (as hereinafter defined) and accepted by
Purchaser in writing; (b) a vendor's affidavit in form and substance
satisfactory to Purchaser and the Title Insurer; (c) a non-foreign person
affidavit in form and substance satisfactory to Purchaser and the Title
Insurer; (d) a Bill of Sale with warranty of title to any and all personal
property comprising a portion of the Real Estate; (e) an assignment of all
warranties and bonds related to the Real Estate; and (f) all other documents
and/or funds, if any, required from Seller to convey the Real Estate to
Purchaser. At Closing, Purchaser and tenant under the Wal-Mart Lease shall
execute a Termination of Lease under terms and conditions mutually satisfactory
to Purchaser and such tenant.
<PAGE>
<PAGE> 5
5. Date of Possession. Possession of the Real Estate shall be delivered to
Purchaser on the Closing Date, free and clear of all rights and claims of any
other party to the possession, use or control of the Real Estate excepting
only tenant under the Wal-Mart Lease.
6. Taxes and Assessment. Purchaser assumes and agrees to pay all
assessments for governmental and private improvements becoming payable after
the Closing Date and installments of real estate taxes first payable in 1994
and thereafter. Seller shall pay all assessments for governmental and private
improvements not assumed by Purchaser and both installments of real estate
taxes payable in 1993. Seller shall pay all common area expenses attributable
to the Real Estate for the period through December 31, 1993.
7. Conditions of Performance. Purchaser's obligations under this Contract are
subject to the timely and complete satisfaction of the following conditions,
unless waived in writing by Purchaser.
7.1 Survey. Seller, at its cost and expense and within fifteen (15) days
after the Acceptance Date, shall provide Purchaser with a survey of the Real
Estate satisfactory to Purchaser, conforming to the Minimum Standards for an
Indiana Land Title Survey, certified as of a current date by Schneider
Engineering Corporation, stating that the Real Estate is not located in a flood
plain, showing no encroachments on the Real Estate, showing that the
improvements are located entirely within the bounds of the Real Estate and
showing all on- and offsite easements affecting the Real Estate. The survey
shall establish the precise perimeter legal description of the Real Estate.
In the event Seller fails to provide Purchaser with a survey as and when
required under this Section 7.1, Purchaser shall have the right to obtain the
survey at Seller's expense, or credit the cost thereof against the Purchase
Price.
7.2 Title Insurance. Seller, at its cost and expense and within fifteen (15)
days after the Acceptance Date, shall provide Purchaser with a title insurance
commitment for the Real Estate issued by the Title Insurer, in which commitment
the Title Insurer shall agree to (a) insure for the full amount of the Purchase
Price merchantable and marketable fee simple tile to the Real Estate in the
name of Purchaser, free of all exceptions (including without limitation, the
standard exceptions), except only the lien of nondelinquent real estate taxes
and assessments and any other matters that Purchaser may accept in writing and
(b) issue such endorsements as Purchaser may reasonably request (including,
without limitation endorsements insuring access to the Real Estate from and to
all adjacent streets and highways, and a 3.1 zoning endorsement)(the "Title
Commitment"). At closing, Seller, at its cost and expense, shall deliver to
Purchaser an owner's policy of title insurance issued by the Title Insurer in
conformity with the Title Commitment. In the event the Seller fails to provide
Purchaser with the Title Commitment as and when required under this Section
7.2, Purchaser shall have the right to obtain the Title Commitment at Seller's
expense, or credit the cost thereof against the Purchaser Price.
7.3 Condition of Real Estate. Purchaser, at its cost and expense and within
twenty (20) days after receipt of the title and survey pursuant to 7.1 and 7.2
above, shall have determined, in its sole discretion, that: (a) the Real Estate
enjoys rights of access to and from public ways, roads and streets which are
adequate for Purchaser intended use and development; (b) the remodeling of any
of the buildings and/or other improvements located on or in the Real Estate
will not violate any applicable laws, statutes, ordinances, rules or
regulations or require extraordinary or unusually costly techniques; (c) the
Real Estate is suitable for and will support and permit Purchaser's intended
use and development; (d) the prospects for the obtaining of all other permits
and approvals, public and private, necessary for Purchaser's intended use and
development, are satisfactory to Purchaser; (e) no tenant or any other party
has any rights or claims to possession of the Real Estate; (f) the Real Estate
is free and clear of any and all asbestos, toxic or hazardous material or
containment and/or the material threat of contamination thereby; (g) all
buildings and other improvements and all mechanical components thereof are
structurally sound, in good working order and in compliance with all
applicable governmental laws, ordinances, regulations, orders and
requirements; and (h) all utilities useful for Purchaser's intended use and
development (including, if applicable, storm and sewer drainage, water,
electric, gas, and telephone) are available at the property lines in sufficient
quantities, pressures and/or capacities for Purchaser's intended use, without
hookup, tap in or other charges, excepting only nominal charges normally
incurred and charged by the applicable public utility.
<PAGE> 6
7.4 Litigation and Representations. As of the Closing Date, no action or
proceeding before a court or other governmental agency or officer shall be
pending (and to the best of either Seller's or Purchaser's knowledge, no
such action or proceeding shall be threatened) that might impair the value of
the Real Estate or prevent Purchaser from undertaking and completing
Purchaser's intended use and development of the Real Estate. As of the Closing
Date, the representation and warranties set forth in Section 9 shall be true
and accurate.
7.5 Lease Termination Agreement. As of the Closing Date, Purchaser shall
have a binding and enforceable agreement with tenant under the Wal-Mart Lease,
pursuant to which Purchaser shall in a simultaneous closing terminate the
Wal-Mart Lease for a termination fee of One Million Dollars ($1,000,000.00).
8. Nonperformance. In the event that one or more of the conditions set forth
in Section 7 are not timely and completely satisfied, Purchaser may cancel this
Contract and all of its obligations hereunder by written notice to Seller, in
which event, all Earnest Money deposited shall be immediately refunded to
Purchaser.
9. Representations and Warranties. Seller hereby represents and warrants to
Purchaser that (a) there is no condemnation or similar proceeding which is
pending or threatened against the Real Estate or any part thereof; (b) Seller
has not received any notification from any governmental agency, authority or
instrumentality of any pending or threatened assessments on or against the Real
Estate for the cost of public improvements to be made with respect to the Real
Estate or any part thereof; (c) after the Acceptance Date, Seller will not
enter into any lease or other agreement affecting the Real Estate or the
possession, use or control thereof; (d) after the Acceptance Date, Seller
will not create, permit or suffer any lien or other encumbrance to attach to
or affect the Real Estate and improvements thereon, except for the lien of
nondelinquent real estate taxes; (e) to the best of Seller's knowledge and
belief there are no underground fuel, chemical or other storage tanks located
in the Real Estate; and (f) to the best of Seller's knowledge and belief the
Real Estate has not been used for the treatment, storage or disposal of or
otherwise contaminated by any hazardous or special wastes, substances,
materials, constituents, pollutants or contaminants (as defined by federal,
state or local laws, statutes, ordinances, rules or regulations).
10. Damage and Condemnation. If at any time after the Acceptance Date (a)
the buildings or improvements located on the Real Estate shall be damaged or
destroyed, (b) the Real Estate shall be condemned, in whole or in part,
or (c) any notice of condemnation shall be given, then Purchaser, at its sole
option, may cancel the Contract or proceed with closing. If Purchaser elects
to proceed with closing, then Purchaser may (a) apply the proceeds of any
condemnation award or insurance policy to reduce the Purchase Price or (b)
accept an assignment of such proceeds. If Purchaser elects to cancel this
Contract, as provided in this Contract, all Earnest Money deposited shall
be immediately refunded to Purchaser.
11. Inspection. Purchaser, its employees, agents and independent
contractors shall have the right from time to time to enter upon the Real
Estate and conduct all surveys, tests, inspections and examinations which
Purchaser deems necessary. Seller, at its cost and expense and within ten (10)
days after the Acceptance Date, shall provide Purchaser with copies of all
plans, specifications, contracts, warranties, service agreements, and other
documents in Seller's possession or control pertaining to the construction,
operation or maintenance of the Real Estate.
12. Notices. All notices shall be deemed delivered to Seller when
deposited in the U.S. Mail, addressed to Seller at Mr. George X. Cannon,
Congressional Boulevard Investors, Inc., 950 North Meridian Street, Suite 200,
Indianapolis Indiana 46204, and to Purchaser when so deposited and addressed
to Purchaser at 11550 North Meridian Street, Carmel, Indiana 46032, Attn: F.
Richard Rembusch.
<PAGE>
<PAGE> 7
13. Specific Performance. Seller agrees that money damages are not an
adequate remedy for breach of this Contract by Seller, and, in addition to any
other remedies available to Purchaser in the event of a breach by Seller,
Purchaser shall be entitled to (a) the remedy of specific performance to
enforce the terms hereof, (b) cure Seller's breaches of any representation,
warranty or other provision of this Contract, and/or expend amounts or take any
other action to cure and remove any title defect created, permitted or suffered
by Seller after the Acceptance Date and not permitted hereunder, and/or (c)
cancel this Contract and all of its obligations hereunder by written notice to
Seller, in which event all Earnest Money deposited shall be immediately
refunded to Purchaser. Any and all amounts incurred by Purchaser to cure or
remove Seller's breaches and/or title defects shall be credited against the
Purchase Price at closing
14. Brokers. Purchaser and Seller each hereby represent and warrant that
they have not dealt with any broker in connection with the sale and purchase
of the Real Estate excepting only that Seller shall pay Browning Investments,
Inc. a broker's fee of three percent (3%) of the Purchase Price. Purchaser and
Seller hereby further represent and warrant that no fee, commission or similar
compensation shall be payable by Seller or Purchaser to any Broker or any other
person, as a result of the purchase and sale of the Real Estate except
Seller's obligation to Browning Investments, Inc. as set forth in the preceding
sentence.
15. Nominee. On or before the Closing I)ate, Purchaser shall have the right
to assign all or any portion of its rights under this Contract to any nominee
or assignee of Purchaser; provided, however, that Purchaser shall remain liable
to perform its obligations under this Contract, and further provided that such
assignment shall not include Browning Investment Inc.'s right to receive a
broker's commission as provided for in paragraph 14 above..
16. Survival and Indemnity. All representations and warranties set forth in
this Contract shall survive the closing, and Seller and Purchaser shall each
indemnify and hold the other harmless from and against all costs and damages
(including attorneys' fees and court costs) incurred as a result of any breach
of any representation or warranty by Seller or Purchaser, respectively.
17. General. The terms and provisions of this Contract shall be governed and
construed in accordance with the laws of the State of Indiana. The captions and
section numbers shall not be considered in any way to affect the interpretation
of this Contract. This Contract shall be binding upon and inure to the benefit
of the parties hereto and their respective successors, assigns, heirs, and
personal representatives. This Contract is the final expression of the complete
and exclusive agreement between Seller and Purchaser and supersedes all prior
offers, negotiations and discussions. The term "Contract" as used herein means
the contract arising between the parties on the terms of this Offer after
acceptance by Seller.
18. Authority. Except as expressly provided otherwise herein, each
undersigned person signing on behalf of any party that is a corporation,
partnership or other entity certifies that (a) he is fully empowered and duly
authorized by any and all necessary action or consent required under any
applicable articles of incorporation, bylaws, partnership agreement or other
agreement to execute and deliver this Contract for and on behalf of said party,
(b) that said party has full capacity, power and authority to enter into and
carry out its obligations under this Contract, and (c) that this Contract has
been duly authorized, executed and delivered and constitutes a legal, valid and
binding obligation of such party, enforceable in accordance with its terms.
19. Recording. This Contract shall not be recorded. However, upon request by
Purchaser, Seller shall execute a deliver to Purchaser, duplicate originals of
a memorandum of this Contract, in recordable form, satisfactory to Purchaser,
in its sole discretion.
20. Attorneys' Fees. Either party to this Contract who is the prevailing
party in any legal or equitable proceeding against any other party to this
Contract brought under or with relation to the Contract or the transaction
contemplated hereby shall, in addition to any other remedy at law or provided
for herein, be entitled to recover court costs and reasonable attorneys' fees
from the nonprevailing party.
21. Duration of Offer. This Offer shall expire if written acceptance endorsed
herein is not delivered to Purchaser at the address specified in Section 12 on
or before November 30, 1993.
<PAGE> 8
This Offer to Purchaser is hereby executed this day of 1993,
as to Purchaser.
PURCHASER: BROWNING INVESTMENTS, INC.
By: /s/ MICHAEL G. BROWNING
--------------------------
Printed: Michael G. Browning
Title: President
ACCEPTANCE OF OFFER
Seller hereby accepts the foregoing Offer on this 30th day of November, 1993
SELLER: CONGRESSIONAL BOULEVARD INVESTORS, INC.
By: /s/ JAMES C. MAY
-----------------------------
Printed: James C. May
Title: President
<PAGE>
<PAGE> 9
EXHIBIT B
AGREEMENT FOR TERMINATION OF LEASE
This Agreement for Termination of Lease ("Agreement") made this ____
day of December, 1993 by and between Browning Investments, Inc. ("BII"), an
Indiana corporation as prospective successor in interest to Congressional
Boulevard Investors, Inc. ("Existing Landlord") and The Wholesale Club, Inc.
("Tenant"), WITNESSES that:
WHEREAS, BII is the contract purchaser of certain real property more
particularly described on Exhibit A attached hereto and incorporated herein by
this reference and commonly known as 11790 North College Avenue, Carmel,
Indiana (the "Leased Premises") pursuant and subject to the terms and
conditions of a certain contract for purchase of real estate between BII and
Existing Landlord dated November 30, 1993 ("Purchase Contract");
WHEREAS, Existing Landlord and Tenant entered into a certain lease
agreement (the "Lease") dated August 4, 1987 for the Leased Premises;
WHEREAS, Tenant has vacated the Leased Premises under the Lease, but
has continued to pay rent and perform its other obligations under the Lease;
WHEREAS, Tenant desires to terminate and be relieved of its
obligations under the Lease;
WHEREAS, BII, upon consummation of its purchase of the Leased
Premises, is willing to accommodate Tenant's desire upon certain terms and
conditions set forth herein;
NOW THEREFORE, in consideration of the premises, the mutual covenants
contained herein and each act to be performed hereunder, the parties agree,
subject only to the closing of the sale by Existing Landlord to BII of the
Leased Premises on or prior to December 31, 1993, as follows:
1. Surrender. Tenant agrees to surrender possession of the Leased
Premises in broom clean condition (including removal of freezers and coolers,
an 8112 G-2 alarm panel and associated equipment, and a "cram-a-lot"
compactor), together with delivery of all keys, plans, specifications, manuals,
warranty information, and all other construction, maintenance and operation
documents and equipment related to the Leased Premises to the extent the same
is in Tenant's possession or under its control, including all fixtures,
equipment and personal property attached thereto or located thereon and used
in connection therewith, to BII on the same date as BII's purchase of the
Leased Premises (the "Effective Date"). BII, its employees, agents and
independent contractors shall have the right from time to time after the date
hereof to enter upon the Leased Premises to conduct such inspections, tests and
examinations as BII deems necessary, provided that BII shall indemnify, defend
and hold Tenant harmless from all expenses, damages, liabilities (including
attorneys fees and court costs) and third party claims associated with such
inspections, tests and examinations, which indemnity shall survive the closing
of the lease termination.
2. Proration. BII and Tenant agree that all items of expense
regarding the use, operation and business of the Leased Premises, which cannot
be or are not terminated as of the Effective Date shall be prorated between BII
and Tenant as of the Effective Date with Tenant to pay all items through and
including the Effective Date. Utility service shall be transferred and placed
in the name of BII as of the Effective Date and Tenant shall pay all utility
expenses through the Effective Date. Tenant shall identify and provide copies
of all contracts and agreements affecting the Leased Premises to BII by
December 20, 1993 and shall, at its cost, terminate all such contracts and
agreements as of the Effective Date unless specifically requested otherwise by
BII. In addition, Tenant shall, pursuant to paragraph 20 of the Lease, pay BII
at closing so much of the real estate taxes for 1993 due and payable in 1994
as shall be allocable to Tenant by proration as of the Effective Date. The
current tax rate shall be used for the purposes of such proration if the
applicable tax rate has not been set. The Base Rent for the month of December
1993, shall not be prorated.
3. Termination Fee. In addition to other sums due BII at closing
under this Agreement, Tenant shall pay BII One Million Dollars ($1,000,000).
4. Lease Termination. Upon the Effective Date, delivery of the
Leased Premises pursuant to Section 1 of this Agreement, and payment to BII,
in immediately available funds, of all sums due pursuant to Sections 2 and
<PAGE> 10
3 of this Agreement, BII and Tenant shall release each other from any and all
of its obligations arising under the Lease pursuant to the form of Release and
Termination of Lease ("Release") attached hereto as Exhibit B. It is
anticipated that the closing shall be by escrow pursuant to which Tenant
shall deliver the executed Release and wire sufficient funds to Hamilton Title
Security, Inc., 11711 North Pennsylvania, Suite 110, Carmel, Indiana, such
Release and funds to be delivered to BII upon BII's purchase of the Leased
Premises pursuant to the Purchase Contract and execution of the Release.
5. Waiver of Right of First Refusal. Tenant hereby waives its
right of first refusal and right of purchase under Article XIX of the Lease as
such rights pertain to BII's purchase of the Leased Premises.
6. Nominee. On or before the Effective Date, BII shall have the
right to assign or transfer all of its rights under this Agreement to any
nominee or assignee of its rights under the Purchase Contract.
IN WITNESS WHEREOF, the parties have executed this Agreement on the
date indicated above.
THE WHOLESALE CLUB, INC. BROWNING INVESTMENTS, INC.
By: ________________________ By: _________________________
Printed: ___________________ Printed: ____________________
Its: _______________________ Its: _________________________
<PAGE>
<PAGE> 11
EXHIBIT A
LEGAL DESCRIPTION
Part of the Southwest Quarter of Section 36 and part of the Southeast
Quarter of Section 35 in Township 18 North, Range 3 East of the Second
Principal Meridian in Hamilton County, Indiana, being more particularly
described as follows:
Commencing at the Southwest corner of the said Southwest Quarter Section;
thence North 89 degrees 07 minutes 52 seconds East (Assumed Bearing) along the
South Line of the said Southwest Quarter Section 148.00 fee; thence North 00
degrees 16 minutes 22 second West, parallel with the West line of the said
Southwest Quarter Section 734.0 feet; thence North 89 degrees 07 minutes 52
second East, parallel with the said South Line 450.06 feet; thence North 00
degrees 16 minutes 22 seconds West, parallel with the said West Line, 763.27
feet to the Beginning Point; thence South 89 degrees 07 minutes 52 seconds West
432.11 feet; thence South 60 degrees 05 minutes 00 seconds West 335.00 feet to
a curve having a radius of 500.0 feet, the radius point of which bears South
60 degrees 05 minutes 00 seconds West; thence Northwesterly along the said
curve 281.57 feet to a point which bears North 27 degrees 49 minutes 03 seconds
East 343.29 feet; thence North 88 degrees 57 minutes 26 seconds East, parallel
with the thence South 00 degrees 16 minutes 22 seconds East, parallel with the
said west line 490.00 feet to the Beginning Point, containing 12.970 acres,
more or less. <PAGE>
<PAGE> 12
EXHIBIT B
RELEASE AND TERMINATION OF LEASE
This Release and Termination of Lease made this _____ day of
December, 1993, by and between _________________________, successor in interest
to Congressional Boulevard Investors, Inc. ("Landlord") and The Wholesale Club,
Inc. ("Tenant"), WITNESSES THAT:
WHEREAS, the predecessor in interest to Landlord and Tenant entered
into a certain lease ("Lease") dated August 4, 1987 with respect to leased
premises (the "Leased Premises") situated at 11790 North College Avenue,
Carmel, Indiana, a memorandum of which Lease was recorded in the Recorder's
Office of Hamilton County, Indiana as Instrument No. 87-29183 on August 10,
1987; and
WHEREAS, Tenant has vacated the Leased Premises and desires to
terminate and be relieved of its obligations under the Lease; and
WHEREAS, Landlord desires to accept the Leased Premises and terminate
and be relieved of its obligations under the Lease;
NOW THEREFORE, in consideration of the premises Tenant surrenders
possession of the Leased Premises to Landlord and Landlord accepts the
surrender thereof "as is" as of the date hereof (excepting only the condition
of the HVAC equipment, as to which Tenant shall have and hereby acknowledges
a continuing obligation to promptly complete the workmanlike repair of such
HVAC equipment to proper working order, which obligation is intended to survive
this Release and Termination of Lease) and Landlord and Tenant each further
agree that the Lease is canceled and terminated, all immediately as of the
execution of this Release and Termination of Lease. Landlord and Tenant each
mutually release the other and their respective successors and assigns and all
past or present officers, directors, partners, agents and employees from any
and all claims, demands, damages, causes of action, obligations, liabilities
or duties to the other arising under the Lease or with respect to the
ownership, use or possession of the Leased Premises pursuant thereto.
Tenant hereby indemnifies and holds Landlord harmless from and
against any and all claims, demands, suits, causes of action, losses, damages,
costs or expenses (including attorneys fees) (collectively "Claims") relating
to Tenant's use or possession of the Leased Premises prior to the date hereof.
Landlord hereby indemnifies and holds Tenant harmless from and against any and
all Claims relating to Landlord's ownership, use or possession of the Leased
Premises on or subsequent to the date hereof, excepting only any Claims
relating to Tenant's repair of the HVAC equipment.
Landlord and Tenant each represent and warrant to the other that they
are the landlord and tenant, respectively, under the Lease, that the
undersigned persons are fully empowered and authorized by all necessary action
of Landlord and Tenant, respectively, to execute and deliver this Release and
Termination of Lease and that this Release and Termination of Lease is valid,
binding and enforceable against Landlord and Tenant, respectively.
This document is intended by the parties to be recorded in the
Recorder's Office of Hamilton County, Indiana and to cross reference the
Memorandum of Lease set forth above.
<PAGE>
<PAGE> 13
IN WITNESS WHEREOF, the parties have executed this Release and
Termination of Lease as of the date first written above.
LANDLORD TENANT
______________________________THE WHOLESALE CLUB, INC.
By: _________________________ By: _________________________
Printed: _____________________Printed: _____________________
Its: _________________________Its: _________________________
STATE OF INDIANA )
) SS:
COUNTY OF _________)
Before me, a Notary Public in and for the State of Indiana,
personally appeared
____________________, the ___________, of _______________________, who
acknowledged the execution of the
foregoing Release and Termination of Lease for and on behalf of said
_____________.
WITNESS my hand and Notarial Seal this _____ day of December, 1993.
______________________________
Notary Public
______________________________
Printed
I am a resident of ___________ County, Indiana.
My commission expires: ________________.
STATE OF _________)
) SS:
COUNTY OF _______)
Before me, a Notary Public in and for the State of ____________,
personally appeared
_________________, the ___________, of The Wholesale Club, Inc., who
acknowledged the execution of the foregoing
Release and Termination of Lease for and on behalf of The Wholesale Club, Inc.
WITNESS my hand and Notarial Seal this _____ day of December, 1993.
______________________________
Notary Public
______________________________
Printed
I am a resident of ___________ County, ___________.
My commission expires: ________________.
This instrument prepared by George W. Somers, Attorney-at-Law, Baker & Daniels,
300 North Meridian Street, Suite 2700, Indianapolis, Indiana 46204.
<PAGE> 1
December 1, 1993
Mr. Charles F. Laughner, General Partner
Token Co.
c/o Mr. Walter B. Freihofer
Freihofer, Inc.
631 East New York Street
Indianapolis, IN 46202
Re: Contract for Purchase of Real Estate (with counteroffers #1 through #6)
as mutually approved September 3, 1993 (the "Contract") between
Token Co. as Seller and Carmel Drive Realty, Inc. as Purchaser
Gentlemen:
This letter will confirm the mutual agreement that we understand from
Walter B. Freihofer has been reached by Purchaser and Seller that the Contract
be amended as follows:
1. The minimum acreage of the Real Estate shall be 7.3 acres rather than
7.8 acres.
2. The Purchase Price shall be $1,065,869.50.
In reliance on the foregoing understanding, we intend to immediately deposit
an additional $15,000 in Earnest Money with the Title Insurance Company.
Please sign and return one copy of this letter to confirm the agreement
described above. We will use our best efforts to cooperate with you in order
for the effective date of the transaction to occur for the Seller in 1994 (not
later than January 7, 1994) as we understand you have requested.
We are requesting that closing documents be provided to your lawyer,
Philip A. Nicely, for his review and comment as promptly as possible. Our
lawyer on this, Mark Wright at Baker & Daniels is working with Indiana
Bell to wrap up the telephone easement modification; he considers this to be
routine and foresees no difficulty in resolving it. Thank you for your
assistance.
Sincerely,
CARMEL DRIVE REALTY, INC.
/s/ F. RICHARD REMBUSCH
F. Richard Rembusch
Vice President
Approved:
TOKEN CO.
By: /s/ CHARLES F. LAUGHNER
Charles F. Laughner
General Partner
<PAGE>
<PAGE> 2
AGREEMENT TO ASSIGN CONTRACT FOR PURCHASE OF REAL ESTATE
This Agreement to Assign Contract for Purchase of Real Estate, executed
and entered into by CARMEL DRIVE REALTY, INC., an Indiana corporation
("Assignor"), and BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas corporation
("Assignee"), WITNESSES:
WHEREAS, Assignor has entered into a Contract for Purchase of Real Estate
with Token Co. ("Seller"), executed by Assignor on September 2, 1993, and
accepted by Seller on September 3, 1993, as amended (the "Purchase Agreement"),
pursuant to which Seller is selling to Assignor certain real estate located on
the west side of Pennsylvania Street, in Hamilton County, Indiana, which
property is more particularly described in the Purchase Agreement (the "Real
Estate");
WHEREAS, Section 15 of the Purchase Agreement expressly provide that
Assignor has the right to assign or transfer all or any portion of its rights
under the Purchase Agreement to any assignee;
WHEREAS, Assignor desires to assign to Assignee and Assignee desires to
accept and assume all of Assignor's rights, title, interest, obligations and
duties under the Purchase Agreement;
WHEREAS, in connection for Assignor's agreement to assign the Purchase
Agreement to Assignee as set forth herein, Assignee desires to agree herein to
(i) reimburse Assignor for Twenty-Five Thousand Dollars ($25,000.00) of Earnest
Money which Assignor has deposited pursuant to the Purchase Agreement with
Hamilton Title Security, Inc. (the "Earnest Money Refund"), (ii) reimburse
Assignor in the amount of Three Thousand One Hundred Fifty Dollars ($3,150.00)
for costs and expenses incurred by Assignor in obtaining a minimum standard
detail survey of the Real Estate (the "Survey Expense"), and (iii) reimburse
Assignor for all of its other costs and expenses related to negotiating and
executing the Purchase Agreement (the "General Expense Reimbursement").
NOW, THEREFORE, in consideration of the premises and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Assignor and Assignee agree as follows:
1. Assignor agrees to assign to Assignee all of its rights, title,
interest, obligations and duties under the Purchase Agreement, and Assignee
agrees to accept and assume all of Assignor's rights, title, interest, duties
and obligations under the Purchase Agreement.
2. In consideration of Assignor's agreement to assign to Assignee of all
of its rights, title, interest, duties and obligations under the Agreement,
Assignor agrees to pay to Assignor the Earnest Money Refund, the Survey Expense
and the General Expense Reimbursement (collectively, the "Reimbursements").
The General Expense Reimbursement shall be an amount equal to that set forth
in an itemized statement to be provided by Assignor to Assignee on or about the
date upon which the closing of the sale of the Real Estate from Seller to
Assignee occurs (the "Closing Date"), provided that, (i) in no event shall the
General Expense Reimbursement exceed Seven Thousand Dollars ($7,000.00) and
(ii) the exact amount of the General Expense Reimbursement shall be subject to
review and approval by Assignee, which approval shall not be unreasonably
withheld.
3. Assignee shall pay the Reimbursements to Assignor outside of, and
separate from, the closing of the sale of the Real Estate from Seller to
Assignee.
Assignor and Assignee have executed this Agreement to Assign Contract for
Purchase of Real Estate on this 7th day of January, 1994.
ASSIGNOR:
CARMEL DRIVE REALTY, INC., an Indiana corporation.
By: /s/ F. RICHARD REMBUSCH
Printed: F. Richard Rembusch
Title:Vice President
<PAGE>
<PAGE> 3
ASSIGNEE:
BANKERS NATIONAL LIFE INSURANCE COMPANY,
a Texas corporation
By: /s/ DONALD F. GONGAWARE
Printed: Donald F. Gongaware
Title:President and Chief Operating Officer
<PAGE>
<PAGE> 4
COUNTER OFFER # 1
(A.M.) (P.M.) August 17, 1993
The undersigned hereby makes the following Counter Offer to a certain
Purchase Agreement dated August 9, 1993, concerning real property commonly
known as 11901 N. Meridian St. in Clay Township, Hamilton County, Carmel,
Indiana between: Token Company and Charles F. Laughner as Seller(s) and
Carmel Drive Realty, Inc. as Purchaser(s).
1. Purchase price to be $1,300,000.00 dollars.
2. Earnest money shall be $50,000.00.
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer.
This Counter Offer # 1 is void if not accepted in writing on or before 12:00
(Midnight) on August 24, 1993.
This Agreement may be executed simultaneously or in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered,
if requested.
/s/ CHARLES F. LAUGHNER 8/17/93
- - ------------------------------ ------- ------------------------------ ------
(Seller)(Purchaser) Signature Date (Seller) (Purchaser) Signature Date
TOKEN CO. & CHARLES F. LAUGHNER
By: Charles F. Laughner
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER #
The above Counter Offer # is hereby accepted at
(A.M.) (P.M.) (Noon) (Midnight) , 19 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged. This
Agreement may be executed simultaneously or in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered,
if requested.
- - ------------------------------ ------- ----------------------------- ------
(Seller) (Purchaser) Signature Date (Seller)(Purchaser) Signature Date
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 5
COUNTER OFFER # 2
11:00 (A.M.) August 23, 1993
The undersigned hereby makes the following Counter Offer to a certain
Counter Offer #1 dated August 17, 1993, concerning real property commonly known
as approximated 8 acres shown on Exhibit A to Offer in Clay Township, Hamilton
County, Indiana between: Token Co. as Seller(s) and Carmel Drive Realty, Inc.
as Purchaser(s).
1. The Purchase Price shall be One Million Dollars ($1,000,000.00).
2. The earnest Money shall be Twenty-Five Thousand Dollars ($25,000.00), of
which Five Thousand Dollars shall be deposited initially, and the remaining
Twenty Thousand Dollars ($20,000.00) of which shall be deposited upon
expiration of the ninety day period described in section 7.3 of the Purchase
Agreement.
3. The date for response to the original offer was extended through August 18,
1993.
4. Token Co. is the sole owner of the Real Estate; Token Co. is an Indiana
General partnership, not a corporation; Charles F. Laughner is a general
partner of Token Co. and has full authority to execute documents on behalf
of Token Co., and Seller agrees to promptly provide evidence of such
authority upon request by Purchaser.
5. Upon full agreement of Purchaser and Seller by way of counter offers, a
binding contract shall exist; however, the parties agree that upon such full
agreement, the offer and counter offers shall be promptly consolidated for
convenience into a single document.
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer. This Counter Offer # 2 is void if not accepted in writing on or before
5:00 (P.M.) on August 26, 1993.
CARMEL DRIVE REALTY, INC.
/s/ F. RICHARD REMBUSCH 8/23/93
- - ------------------------------ ------- ------------------------------ ----
(Purchaser) Signature Date (Seller) (Purchaser) Signature Date
F. Richard Rembusch, Vice President
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER
The above Counter Offer # is hereby accepted at
(A.M.) (P.M.) (Noon) (Midnight) , 19 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged.
TOKEN CO.
- - ------------------------------ ------ ------------------------------ -----
(Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 6
COUNTER OFFER # 3
1:00 (P.M.) August 25, 1993
The undersigned hereby makes the following Counter Offer to a certain
Purchase Agreement dated August 9, 1993, concerning real property commonly
known as approximately 8 acres as shown on Exhibit "A" to offer in Clay
Township, Hamilton County, Carmel, Indiana between: Token Company as Seller(s)
and Carmel Drive Realty, Inc. as Purchaser(s).
1. Purchase price to be $1,200,000.00
2. The earnest money shall be $25,000.00, of which $10,000.00 shall be
deposited initially, and the remaining $15,000.00 of which shall be
deposited upon expiration of the 90 day period described in Section
7.3 of the purchase agreement.
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer.
This Counter Offer # 3 is void if not accepted in writing on or before 5:00
(P.M.) on August 30, 1993. This Agreement may be executed simultaneously or
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument. Delivery of
this document may be accomplished by electronic facsimile reproduction (FAX);
if FAX delivery is utilized, the original document shall be promptly executed
and/or delivered, if requested.
/s/ CHARLES F. LAUGHNER
- - ----------------------------- ----- ----------------------------- -----
(Seller) Signature Date (Seller)(Purchaser) Signature Date
TOKEN CO.
By: Charles F. Laughner
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER #
The above Counter Offer # is hereby accepted at
(A.M.) (P.M.) (Noon) (Midnight) , 19 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged. This
Agreement may be executed simultaneously or in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered,
if requested.
- - ------------------------------ ------ ------------------------------ -----
(Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date
CARMEL DRIVE REALTY, INC.
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 7
COUNTER OFFER # 4
3:00 (P.M.) August 26, 1993
The undersigned hereby makes the following Counter Offer to a certain
Purchase Agreement dated August 9, 1993, concerning real property commonly
known as approximately 8 acres as shown on Exhibit A to Offer in Clay Township,
Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and
Carmel Drive Realty, Inc. as Purchaser(s).
1. The Purchase Price shall be One Million Seventy-Five Thousand Dollars
($1,075,000.00).
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer.
This Counter Offer # 4 is void if not accepted in writing on or before
5:00 (P.M.) on August 30, 1993.
CARMEL DRIVE REALTY, INC.
/s/ F. RICHARD REMBUSCH 8/26/93
- - ------------------------------ ----- ------------------------------ -----
(Purchaser) Signature Date (Seller) (Purchaser) Signature Date
F. Richard Rembusch
Vice President
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER
The above Counter Offer # is hereby accepted at
(A.M.) (P.M.) (Noon) (Midnight) , 19 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged.
TOKEN CO.
- - ------------------------------ ---- ------------------------------ ----
(Seller) (Purchaser) Signature Date (Seller) (Purchaser) Signature Date
Charles F. Laughner
General Partner
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 8
COUNTER OFFER # 5
1:00 (P.M.) August 30, 1993
The undersigned hereby makes the following Counter Offer to a certain
Purchase Agreement dated August 9, 1993, concerning real property commonly
known as approximately 8 acres as shown on Exhibit "A" in Clay Township,
Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and
Carmel Drive Realty, Inc. as Purchaser(s).
1. The Purchase price shall be one million one hundred fifty thousand
dollars and 00/100. ($1,150,000.00)
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer.
This Counter Offer # 5 is void if not accepted in writing on or before
5:00 (P.M.) on September 2, 1993.
This Agreement may be executed simultaneously or in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered,
if requested.
/s/ CHARLES F. LAUGHNER Aug. 30/93
- - ----------------------------- ----- ------------------------------ ------
(Seller) Signature Date (Seller) (Purchaser) Signature Date
Token Co.
By: Charles F. Laughner
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER #
The above Counter Offer # is hereby accepted at
(A.M.) (P.M.) (Noon) (Midnight) , 19 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged. This
Agreement may be executed simultaneously or in two or more counterparts, each
of which shall be deemed an original, but all of which together shall
constitute one and the same instrument. Delivery of this document may be
accomplished by electronic facsimile reproduction (FAX); if FAX delivery is
utilized, the original document shall be promptly executed and/or delivered,
if requested.
(Purchaser) Signature Date (Seller)(Purchaser) Signature Date
F. Richard Rembusch, Vice President
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 9
COUNTER OFFER # 6
4:00 (P.M.) September 2, 1993
The undersigned hereby makes the following Counter Offer to a certain
Purchase Agreement dated August 9, 1993, concerning real property commonly
known as approximately 8 acres as shown on Exhibit A to Offer in Clay Township,
Hamilton County, near Carmel, Indiana between: Token Co. as Seller(s) and
Carmel Drive Realty, Inc. as Purchaser(s).
The Purchase Price shall be One Million One Hundred Thousand Dollars
($1,100,000.00).
All other terms and conditions of the Purchase Agreement and all previous
Counter Offers shall remain in effect except as modified by this Counter
Offer.
This Counter Offer # 6 is void if not accepted in writing on or before
5:00 (P.M.) on September 3, 1993.
CARMEL DRIVE REALTY, INC.
/s/ F. RICHARD REMBUSCH 9/2/93
- - ---------------------------- ---- ----------------------------- -----
(Purchaser) Signature Date (Seller)(Purchaser) Signature Date
F. Richard Rembusch
Vice President
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
ACCEPTANCE OF COUNTER OFFER
The above Counter Offer # 6 is hereby accepted at 3:00
(A.M.) (P.M.) (Noon) (Midnight) September 3 , 1993 .
Receipt of a signed copy of this Counter Offer is hereby acknowledged.
TOKEN CO.
/s/ CHARLES F. LAUGHNER 9/3/93
- - ------------------------------ ---- ------------------------------ -----
(Seller) Signature Date (Seller) (Purchaser) Signature Date
Charles F. Laughner
General Partner
Social Security # / Federal I.D. # Social Security # / Federal I.D. #
<PAGE>
<PAGE> 10
CONTRACT FOR PURCHASE OF REAL ESTATE
Offer to Purchase Real Estate
Carmel Drive Realty, Inc. or its assignee ("Purchaser"), hereby offers
to purchase from TOKEN COMPANY, INC. and CHARLES F. LAUGHNER (collectively
"Seller"), all of that certain real estate owned by Seller, and located on the
west side of Pennsylvania Street north of and adjacent to property owned by
Meridian Mile Associates, L.P., in Hamilton County, Indiana, as depicted on
Exhibit A hereto, consisting of approximately 8 acres (the legal description
of which real estate will be subject to precise determination by survey as
provided in Section 7.1 below), together with all rights pertaining thereto,
(all referred to as the "Real Estate"), for Nine Hundred Fifty Thousand Dollars
($950,000) (the "Purchase Price"), subject to the following terms and
conditions:
1. Earnest Money Deposit. Immediately upon acceptance of this
offer by Seller, Purchaser shall deposit Five Thousand Dollars ($5,000) (the
"Earnest Money") with Hamilton Title Security, Inc. PURCHASER SHALL FORFEIT
THE EARNEST MONEY TO SELLER IF PURCHASER FAILS OR REFUSES TO PERFORM ITS
OBLIGATIONS HEREIN SPECIFIED AND ALL CONDITIONS AND REQUIREMENTS OF THIS
CONTRACT HAVE BEEN SATISFIED. Such forfeiture of Earnest Money shall
constitute liquidated damages and shall be Seller's sole remedy at law or in
equity. The Earnest Money otherwise shall be refunded or forfeited in
accordance with the terms contained in this Offer, and if all of the terms and
conditions of this Offer are satisfied or waived and the transaction is closed,
the Earnest Money shall be applied to the Purchase Price.
2. Payment of Purchase Price. On closing this transaction, the
Purchaser shall pay the full Purchase Price to Seller in cash.
3. Closing Date. Subject to all other terms and conditions set
forth in this Contract, the transaction shall be closed on or before thirty
(30) days after the expiration of the ninety day period referred to in Section
7.3 (the "Closing Date").
4. Closing Documents. At closing, Seller shall deliver: (a) a
fully executed general Warranty Deed conveying to Purchaser title to the Real
Estate and improvements thereon subject only to the lien for non-delinquent
assessments and real estate taxes, and to Permitted Exceptions (as defined in
Section 7.2); (b) a vendor's affidavit in form and substance reasonably
satisfactory to Purchaser; (c) the unconditional written agreement by the Title
Insurer (as defined in Section 7.2) to issue pursuant to the Title Commitment
(as defined in Section 7.2) a final title policy insuring fee simple title to
the Real Estate in Purchaser subject only to the lien for non-delinquent taxes
and assessments and the Permitted Exceptions (as defined in Section 7.2); and
(d) such other documents as are required by law in connection with the sale of
real estate in Indiana.
5. Date of Possession. Possession of the Real Estate shall be
delivered to Purchaser on or before the Closing Date, subject only to the
rights of tenants, if any, approved by Purchaser. Rents, if any, shall be
prorated to the Closing Date.
6. Taxes and Assessments. Purchaser shall assume and agree to
pay all installments of real estate taxes due and payable in May, 1994 and
thereafter, and all assessments for municipal improvements becoming a lien
after the Closing Date.
7. Conditions of Performance. Purchaser's obligations hereunder
are subject to the timely and complete satisfaction of the following
conditions, unless waived in writing by Purchaser:
<PAGE>
<PAGE> 11
7.1 Survey. Purchaser shall obtain a staked survey of the
Real Estate satisfactory to Purchaser, conforming to the Minimum Standards for
an Indiana Land Title Survey, certified as of a current date by a registered
Indiana land surveyor of Purchaser's choice. The survey shall establish the
precise legal description of the Real Estate and that the net acreage of the
Real Estate is not less than 7.8 acres. The Purchaser shall pay the cost and
expense of the survey and shall receive a credit against the Purchase Price in
the amount of such cost and expense but not more than Two Thousand Dollars
($2,000).
7.2 Title Insurance. Purchaser, at Seller's cost and
expense, shall obtain a title insurance commitment (the "Title Commitment") for
the Real Estate issued by a title insurance company selected by Purchaser (the
"Title Insurer"), in which commitment the Title Insurer shall agree to insure
for the full amount of the Purchase Price merchantable and marketable title to
the Real Estate in the name of the Purchaser with such endorsements as
Purchaser shall reasonably require, free of all exceptions (including without
limitation, the standard exceptions), except only (i) the lien of taxes and
assessments, if any, that Purchaser has agreed to pay, (ii) such other
exceptions shown thereon to which Purchaser does not object in writing within
ten (10) days after receipt thereof (the "Permitted Exceptions"), and (iii) any
existing mortgage lien which shall be released at closing.
7.3 Development. Within ninety (90) days after complete
agreement between Purchaser and Seller as to this Contract, Purchaser, at
Purchaser's cost and expense, shall have determined and satisfied itself that:
(a) the Real Estate is an acceptable site for Purchaser's prospective tenant;
(b) the Real Estate does not contain any subterranean or other soil defects or
conditions which would impair or adversely affect Purchaser's intended use and
development or require extraordinary or unusually costly development techniques
or measures; (c) the storm drainage water retention requirement for the real
estate will not significantly interfere with Purchaser's intended use and
development of the Real Estate, and an outlet pipe is available near the
property line of sufficient size and ready accessibility to accommodate storm
drainage runoff from the Real Estate; (d) the Real Estate is free of any
environmental defects or hindrances to its use or development; and (e) the Real
Estate is in all other respects suitable for and will support and permit
Purchaser's intended use and development.
8. Seller's Representations and Warranties. Seller hereby
represents and warrants to Purchaser (and shall be deemed to represent and
warrant on the Closing Date) that: (a) there is no condemnation or similar
proceeding which is pending or, to Seller's knowledge, threatened against the
Real Estate or any part thereof; (b) Seller has not received any notification
from any governmental agency, authority or instrumentality of any pending or
threatened assessments on or against the Real Estate for the cost of public
improvements to be made with respect to the Real Estate or any part thereof;
(c) Seller will not permit any lien or other encumbrance to attach to or affect
the Real Estate and improvements thereon after the acceptance of this Offer,
except for the lien of non-delinquent real estate taxes and any existing
mortgage lien to be released at closing; (d) to the best of Seller's knowledge,
there are no underground fuel, chemical or other storage tanks located in the
Real Estate; and (e) to the best of Seller's knowledge, the Real Estate has not
been used for the treatment, storage or disposal of or otherwise contaminated
by any hazardous or special wastes, substances, materials, constituents,
pollutants or contaminates (as defined by federal, state or local laws,
statutes, ordinances, rules or regulations).
9. Nonperformance. In the event that one or more of the
conditions set forth in Section 7 are not timely and completely satisfied,
Purchaser may cancel this Contract and all of its obligations hereunder by
written notice to Seller, in which event the Earnest Money shall be immediately
refunded to Purchaser.
10. Damage and Condemnation. If the Real Estate shall be damaged,
destroyed or condemned, in whole or in part, or if any notice of condemnation
shall be given at any time after acceptance of this Offer, Purchaser, at its
sole option, may (a) cancel the Contract or (b) proceed with closing, in which
event Purchaser may apply the proceeds of any condemnation award or insurance
policy to reduce the Purchase Price. If Purchaser elects to cancel this
Contract for such cause, the Earnest Money shall be immediately refunded to
Purchaser.
<PAGE> 12
11. Inspection; Review of Documents. (a) Purchaser shall have the
right to enter upon the Real Estate and conduct all tests and examinations
which Purchaser reasonably deems necessary. In the event Purchaser conducts
tests and/or examinations of the Real Estate and changes its present condition
and provided further that Purchaser fails or refuses to close this purchase,
Purchaser shall return the Real Estate to its original condition; (b) Seller
shall furnish to Purchaser, within ten (10) days after acceptance of this
Contract, copies of any and all material agreements and written instruments not
of record and in Seller's possession that are binding upon the Real Estate or
the owner thereof.
12. Notices. All notices shall be deemed delivered to Seller when
deposited in the U.S. mail, addressed to Seller c/o Walter B. Freihofer, 5745
Broadway, Indianapolis, Indiana 46220 (or such other address as Seller may
designate to Purchaser in writing) and to Purchaser when so deposited and
addressed to Purchaser c/o Browning Investments, Inc., 11550 North Meridian
Street, Suite 150, Carmel, Indiana 46032.
13. Specific Performance. Seller agrees that money damages is not
an adequate remedy for breach of this Contract by Seller, and, in addition to
any other remedies available to Purchaser, in the event of a breach by Seller,
Purchaser shall be entitled to the remedy of specific performance to enforce
the terms hereof.
14. Brokers. Purchaser represents and warrants that no fee,
commission or similar compensation will be payable by Purchaser or Seller to
any broker or other person in connection with this transaction on account of
any agreement or action of Purchaser, except for the aggregate commission of
six percent (6%) of the Purchase Price to be paid at closing by Seller from the
proceeds of the transaction with one-half of said commission to Walter B.
Freihofer as listing broker and the other half of said commission to Browning
Investments, Inc. as selling broker.
15. Assignment. On or before the Closing Date, Purchaser shall
have the right to assign or transfer all or any portion of its rights under the
Contract to any assignee of Purchaser; provided, however, that Purchaser shall
remain obligated to fulfill the terms and conditions of the Contract.
16. Survival and Indemnity. All representations, warranties and
agreements contained in this Contract shall survive the closing, and Seller and
Purchaser shall each indemnify and hold the other harmless from and against all
costs and damages (including attorneys' fees and court costs) incurred as a
result of any breach of any representation or warranty.
17. Construction. The terms and provisions of this Contract shall
be governed and construed in accordance with the laws of the State of Indiana.
The captions and section numbers shall not be considered in any way to affect
the interpretation of this Contract. This Contract shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs, and personal representatives. This Contract is the final
expression of the complete and exclusive agreement between Seller and
Purchaser. The term "Contract" as used herein means the contract arising
between the parties or the terms of this Offer following acceptance by Seller.
18. Authority. The individuals executing this Offer represent and
warrant that they have been and are fully authorized and empowered to execute
this Offer on behalf of the person or entity on whose behalf they are signing.
19. Memorandum of Contract. Upon request by Purchaser, Seller
shall execute and deliver to Purchaser duplicate originals of a memorandum of
this Contract, in recordable form, satisfactory to Purchaser in its sole
discretion; however, such memorandum shall not disclose the Purchase Price.
20. Facsimile. Facsimile copies signed by Purchaser or Seller and
transmitted by one to the other shall be binding on the parties as if they were
original documents. Nevertheless, whenever any document is signed and
transmitted by facsimile, the transmitting party shall promptly thereafter
provide the receiving party with the original signed document.
21. Duration of Offer. This Offer shall expire if written
acceptance endorsed herein is not delivered to Purchaser at the address
specified in Section 12 on or before 5:00 p.m. August 11, 1993.
<PAGE> 13
This Offer to Purchase is hereby executed this 9th day of August, 1993,
as to Purchaser.
PURCHASER:
Carmel Drive Realty, Inc.
By:/s/ F. RICHARD REMBUSCH
________________________________
Printed Name: F. Richard Rembusch
Title: Vice President
ACCEPTANCE OF OFFER
Seller hereby accepts the foregoing Offer on this _____ day of
_______________, 1993. Seller represents and warrants that no fee, commission
or similar compensation will be payable by Seller or Purchaser to any broker
or other person in connection with this transaction on account of any agreement
or action of Seller, except as provided in section 14 hereof.
SELLER:
TOKEN COMPANY, INC.
By:________________________________
Edward F. Karsch
President
CHARLES F. LAUGHNER
By:________________________________
Charles F. Laughner
<PAGE> 1
CONTRACT FOR PURCHASE OF REAL ESTATE
BANKERS NATIONAL LIFE INSURANCE COMPANY, a Texas
corporation ("Purchaser"), hereby agrees to purchase, and MERIDIAN
MILE ASSOCIATES, L.P., an Indiana limited partnership ("Seller"),
hereby agrees to sell, certain real estate described below on the
following terms and conditions:
All rights, title and interest in and to three adjacent
tracts of real estate owned by Seller and located on the west side
of Pennsylvania Street in Hamilton County, Indiana, consisting in
the aggregate of approximately 1.565 acres, which tracts are more
particularly described on the attached Exhibit A (the "Real
Estate").
1. Purchase Price and Method of Payment. The purchase
price for the Real Estate shall be Two Hundred Forty-Eight Thousand
Dollars ($248,000) (the "Purchase Price"), payable in cash or in
immediately available funds at closing, subject to adjustments for
prorated real estate taxes as provided in Paragraph 7 hereof and to
reduction by the brokerage commission payable as provided in
Paragraph 15 hereof.
2. Closing Date and Location. The closing shall occur
on or before January 3, 1994, with the exact date of closing to be
determined by the mutual agreement of the parties; provided that in
no event shall the closing occur prior to the expiration of
Purchaser's objection period as set forth in Section 3 hereto (the
"Closing Date"). The closing shall take place at the office of
Hamilton Title Security, Inc. (the "Title Company"), or such other
place as the parties may determine by mutual agreement.
3. Conditions to Closing. Purchaser's only conditions
to closing are the following:
(a) Title Insurance and Survey. Promptly after the date
of this Contract, Seller shall provide to Purchaser a commitment
for an owner's policy of title insurance and a survey, as follows:
(i) Title Insurance. A commitment (the "Title
Commitment") from the Title Company to insure marketable
title to the Real Estate in the name of Purchaser at the
time of the closing, subject to the exceptions stated
therein (except for the lien of any mortgage identified
therein, if applicable, which shall be released at
closing).
(ii) Survey. A survey (the "Survey") of the
Real Estate meeting the Minimum Standards for an Indiana
Land Title Survey and establishing the precise legal
description of the Real Estate.
Seller shall pay the expenses and premium for the owner's
policy of title insurance, and the survey costs. Any objection by
Purchaser to any exceptions or matters affecting title as disclosed
in the Title Commitment, or matters disclosed by the Survey, shall
be stated in writing to Seller within seven (7) business days after
receipt of the Title Commitment and the Survey, and if not so
stated, shall be deemed waived. If any objections are so stated,
and Seller does not cure such objections, then Purchaser shall have
the option, as its sole remedy, to waive the objections and proceed
to closing or to terminate this Contract.
<PAGE>
<PAGE> 2
(b) No Subsequent Encumbrances or Litigation. The Real
Estate shall not be subject to further encumbrances of any kind
after the date of this Contract (except for the lien of real estate
taxes and public and private assessments). At the time of closing,
there shall be no litigation pending or, to the best of Seller's
knowledge, threatened, that could impair the validity of
Purchaser's title to the Real Estate. If any such litigation
exists, then Purchaser shall have the option, as its sole remedy,
to waive the objections and proceed to closing or to terminate this
Contract.
4. Representations and Warranties of Seller. Seller
represents and warrants to Purchaser that:
(a) The surface and subsurface conditions of the Real
Estate are suitable for the construction of office buildings and
related facilities.
(b) No portion of the Real Estate has ever been used by
Seller as a waste storage or disposal site, and Seller is not aware
of any such prior use;
(c) All applicable laws, ordinances, rules, requirements
and regulations of any governmental agency or body in effect with
respect to the Real Estate have been complied with by Seller, and
Seller is not aware of the existence of any violation of such laws
or governmental regulations with respect to the Real Estate;
(d) All utilities required by law and for the normal
operation of an office building and related facilities are
available in sufficient capacity at the boundary line of the Real
Estate upon payment by Purchaser of any fees or charges for
availability or connections assessed by or otherwise payable to the
applicable public utilities and governmental authorities;
(e) Adequate ingress to and egress from the Real Estate
is available over existing public and private roads which Purchaser
has the right to use;
(f) Seller is a limited partnership validly existing
under the laws of the State of Indiana with full power and
authority to enter into this Contract and to sell the Real Estate
on the terms set forth herein, and the execution and delivery of
this Contract and the performance by Seller of its obligations
hereunder will not violate or constitute an event of default under
the terms or provisions of any agreement, document or instrument to
which Seller is a party or by which Seller is bound;
(g) This Contract has been duly and validly authorized,
executed and delivered by Seller, and no other action, consent or
waiver is required for the consummation by Seller of the
transaction contemplated herein; and
(h) To the best of the Seller's knowledge, there are no
actions, suits, or proceedings in or before any court or
administrative agency pending or threatened against Seller or
affecting the Real Estate.
5. Representations and Warranties of Purchaser.
Purchaser represents and warrants to Seller that:
(a) Purchaser is a corporation validly existing under
the laws of the State of Texas with full power and authority to
enter into this Contract and to purchase the Real Estate on the
terms set forth herein, and the execution and delivery of this
Contract and the performance by Purchaser of its obligations
hereunder will not violate or constitute an event of default under
the terms or provisions of any agreement, document or instrument to
which Purchaser is a party or by which Purchaser is bound; and
(b) This Contract has been duly and validly authorized,
executed and delivered by Purchaser, and no other action, consent
or waiver is required for the consummation by Purchaser of the
transaction contemplated herein.
<PAGE> 3
6. Possession. Possession of the Real Estate shall be
delivered to Purchaser at closing, free and clear of any and all
claims (except as may be disclosed by the Title Commitment).
7. Prorations. Real estate taxes and all public and
private assessments shall be prorated as of December 31, 1993 (the
"Proration Date"), with a corresponding credit at closing against
the Purchase Price. Purchaser shall assume and pay all real estate
taxes and public and private assessments which are levied or become
a lien after the Proration Date. The current tax rate shall be
used for the purposes of calculating the proration of real estate
taxes if the applicable tax rate has not been set.
8. Closing Documents. At closing, assuming that all
conditions set forth in Paragraph 3 (including without limitation,
removal or cure of any exceptions or other matters affecting title
to the Real Estate to which Purchaser has made timely objection)
have been satisfied or waived by Purchaser, Seller shall deliver to
Purchaser (i) a General Warranty Deed conveying to Purchaser fee
simple title to the Real Estate, free and clear of all exceptions
(except for current taxes and assessments not delinquent, all
matters of record, matters disclosed by the Title Commitment and
Survey and applicable zoning and governmental restrictions), (ii)
a Vendor's Affidavit in form and substance acceptable to the Title
Company to permit the Title Company to issue the final policy of
title insurance without the standard exceptions or any other
exception not permitted under the terms of this Contract and
(iii) a Non-Foreign Person Affidavit in the form and substance
required by the Internal Revenue Code and the regulations related
thereto.
9. Assignment. Purchaser shall not be permitted to
assign this Contract without the prior written consent of Seller
(except for any assignment to an entity affiliated with Purchaser).
No assignment shall relieve Purchaser of its obligations hereunder,
unless otherwise agreed by Seller in writing.
10. Right of Inspection and Risk of Loss. Purchaser and
its agents, employees and contractors shall have the right to enter
upon the Real Estate and conduct any and all tests and examinations
which Purchaser deems necessary. Purchaser shall indemnify and
save Seller harmless from any and all loss and damage to any person
or property occurring on or about the Real Estate prior to the
Closing Date and caused by Purchaser or its agents, employees or
contractors (except to the extent that the acts or conduct of
Seller or its agents, employees or contractors contributes to said
loss or damage). Otherwise, all liability and risk of loss shall
be the sole responsibility of Seller until final closing of this
transaction. All insurance policies, if any, currently in effect
for the Real Estate shall be canceled as of the Closing Date.
11. Specific Performance. The parties agree that money
damages are not an adequate remedy for a breach by Seller and that
Purchaser shall be entitled to the remedy of specific performance
in the event of such breach.
12. Parties. Except as provided in Paragraph 9, this
Contract shall be binding upon and inure to the benefit of the
parties hereto and their respective personal representatives,
successors and assigns.
13. Notices. All notices shall be deemed delivered to
Seller when deposited in the mail addressed to Seller, c/o
F. Richard Rembusch, at Suite 150, 11550 North Meridian Street,
Carmel, Indiana 46032, and to Purchaser when so deposited in the
mail addressed to Purchaser, c/o Conseco, Inc., at 11825 North
Pennsylvania Street, Carmel, Indiana 46032, Attention:
Lawrence W. Inlow.
14. Governing Law. This Contract shall be governed by
and in accordance with the laws of the State of Indiana. This
Contract may be amended only by an agreement in writing signed by
the parties hereto.
<PAGE> 4
15. Brokerage Commission. Purchaser and Seller
acknowledge and agree that Browning Investments, Inc., shall be
paid at closing a brokerage commission equal to six percent (6%) of
the Purchase Price, and such commission shall reduce the net
proceeds of the Purchase Price received by Seller at closing.
Purchaser and Seller represent and warrant that no other fee,
commission or similar compensation shall be payable by Purchaser or
Seller to any other broker as a result of any act or agreement of
Purchaser or Seller, respectively.
This Contract for Purchase of Real Estate is executed by
Seller and Purchaser on this 7th of January, 1994.
SELLER:
MERIDIAN MILE ASSOCIATES, L.P., an
Indiana limited partnership
By: BROWNING REAL ESTATE
PARTNERSHIP, L.P., Its Sole
General Partner
By: BROWNING REAL ESTATE,
INC., Its General Partner
By: /s/ F. RICHARD REMBUSCH
______________________________________________
Printed: F. Richard Rembusch
Title: Vice President
PURCHASER:
BANKERS NATIONAL LIFE INSURANCE
COMPANY, a Texas corporation
By: /s/ DONALD F. GONGAWARE
_________________________________________________
Printed: Donald F. Gongaware
Title: President and Chief Operating Officer
<PAGE>
<PAGE> 5
EXHIBIT A
Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East
in Hamilton County, Indiana, being more particularly described as follows:
Beginning at a point on the East line of the said Northwest Quarter Section
North 00 degrees 09 minutes 35 seconds West (assumed bearing) 249.00 feet from
the Southeast corner of the said Northwest Quarter Section; thence North 00
degrees 09 minutes 35 seconds West along the said East line 123.00 feet; thence
South 88 degrees, 45 minutes 10 seconds West parallel with the South line of
the said Quarter Section, 182.00 feet; thence South 00 degrees 09 minutes 35
seconds East, parallel with the said East line, 123.00 feet; thence North 88
degrees 45 minutes 10 seconds East 182.00 feet to the Beginning Point,
Together with:
Tract II
Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East
in Hamilton County, Indiana, being more particularly described as follows:
Beginning at a point on the East line of the said Northwest Quarter Section
North 00 degrees 09 minutes 35 seconds West (assumed bearing) 149.00 feet from
the Southeast corner of the said Northwest Quarter Section; thence North 00
degrees 09 minutes 35 seconds West along the said East line 100.00 feet; thence
South 88 degrees 45 minutes 10 seconds West parallel with the South line of the
said Quarter Section, 184.00 feet; thence South 00 degrees 09 minutes 35
seconds East parallel with the said East line, 98.00 feet; thence North 89
degrees 22 minutes 32 seconds East 183.97 feet to the Beginning Point,
Together with:
Tract III
Part of the Northwest Quarter of Section 35, Township 18 North, Range 3 East
in Hamilton County, Indiana, being more particularly described as follows:
Beginning at the Southeast Corner of the said Northwest Quarter Section; thence
South 00 degrees 45 minutes 10 seconds West along the South line of the said
quarter Section 184.00 feet; thence North 00 degrees 09 minutes 35 seconds
West, parallel with the East line of the said Quarter Section, 151.00 feet;
thence North 89 degrees 22 minutes 32 seconds East 183.97 feet to the East line
of the said Quarter Section; thence South 00 degrees 09 minutes 35 seconds East
along the said East line 149.00 feet to the Beginning Point.
<PAGE> 1
DEVELOPMENT AGREEMENT
THIS AGREEMENT, made and entered into this 7th day of January,
1994, by and between BANKERS NATIONAL LIFE INSURANCE COMPANY, a
Texas corporation, hereinafter called the "Owner", and BROWNING
INVESTMENTS, INC., an Indiana corporation, hereinafter called the
"Developer";
WITNESSETH:
WHEREAS, Owner has purchased in five separate transactions a total
of approximately 63 acres of land in Carmel, Hamilton County,
Indiana, described on Exhibits "D", "E", "I", "J" and "K" attached
hereto ("Real Estate"), for purposes of future expansion of its
corporate headquarters complex located in the Meridian Technology
Center;
WHEREAS, Developer, in addition to being a leasing agent and
property manager, is also experienced and has expertise in planning
and developing commercial real estate projects, including the
Meridian Technology Center and other complexes of office and
commercial buildings, and in rendering various services prior to
the construction period;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties enter into the following:
AGREEMENT
1. For the period from the date of this Agreement to December 31,
1996, Developer agrees to direct and coordinate the future
development of the Real Estate; Developer's services shall include
the following:
(a) Upon request, Developer shall counsel and assist Owner in
its selection of architects, engineers or other persons, firms
or corporations Owner may want to employ at Owner's expense in
developing the Real Estate with respect to the requirements
set forth by Owner.
(b) Upon request, Developer shall review and comment on any
plans, designs or drawings obtained by Owner, at Owner's
expense. Such review shall include advice regarding
coordinating the development of the Real Estate with the
existing development as to site plan, parking and access,
landscaping, building materials and quality of construction,
reasonableness of expense and aesthetics.
2. In consideration of these services, Owner agrees to pay the
Developer the sum of SEVENTY FIVE THOUSAND AND NO/100 DOLLARS
($75,000.00), which amount shall be in addition to any amounts
payable under any property management, construction, or any other
agreement. The Developer's fee shall be paid upon execution of
this agreement.
3. This Agreement may not be assigned or otherwise transferred by
either party hereto without the written consent of the other party,
unless the assignment or transfer is to an entity owned or
controlled by such party at the time, and written notice is given
to the other party. No such assignment shall release a party from
primary responsibility for its obligations hereunder, without the
written consent of the other party.
<PAGE>
<PAGE> 2
4. This Agreement shall be binding upon, and inure to the benefit
of, the parties, their successors, heirs, legal representatives,
legatees and assigns.
5. This Agreement, executed and to be performed in the State of
Indiana, shall be governed by the laws of the State of Indiana.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
duly executed as of the date first written above.
DEVELOPER: OWNER:
BROWNING INVESTMENTS, INC. BANKERS NATIONAL LIFE
INSURANCE COMPANY
By: /s/ F. RICHARD REMBUSCH By: /s/ DONALD F. GONGAWARE
------------------------ -------------------------
Name: F. Richard Rembusch Name: Donald F. Gongaware
Title: Executive Vice President Title: President and Chief Operating Officer
<PAGE>
<PAGE> 3
EXHIBIT "D"
Part of the Southeast Quarter of Section 3.5, Township 18 North,
Range 3 East of the Second Principal Meridian in Hamilton County,
Indiana, being more particularly described as follows:
Commencing at a railroad spike marking the Southwest corner of the
said Southeast Quarter Section: thence North 00 degrees 05 minutes
40 seconds West (assumed bearing) along the West line of the said
Quarter Section a distance of 728.45 feet; thence North 88 degrees
46 minutes 54 seconds East, parallel with the South line of the
said Quarter Section, a distance of 387.75 feet to a curve having
a radius of 750.00 feet, the radius point of which bears North 01
degrees 13 minutes 06 seconds West; thence Easterly along said
curve an arc distance of 142.35 feet to an existing P.K. nail and
the BEGINNING POINT (said point bears South 12 degrees 05 minutes
35 seconds East from said radius point); thence North 01 degrees 13
minutes 06 seconds West a distance of 495.38 feet to an existing
rebar w/yellow cap; thence South 88 degrees 46 minutes 54 seconds
West, parallel with the said South line, a distance of 464.27 feet
to an existing P.K. nail and the East right-of-way line for
Pennsylvania Street; thence North 00 degrees 05 minutes 40 seconds
West, parallel with the West line of the said Quarter Section and
along the said East right-of-way line, a distance of 573.33 feet to
a P.K. nail; thence North 88 degrees 46 minutes 54 seconds East,
parallel with the said South line, a distance of 1260.47 feet to a
P.K. nail; thence South 00 degrees 00 minutes 00 seconds West a
distance of 831.72 feet to a 5/8 inch rebar w/yellow cap and a
curve having a radius of 1000.00 feet, the radius point of which
bears South 12 degrees 13 minutes 54 seconds East; thence
Southwesterly along said curve an arc distance of 113.12 feet to a
P.K. nail which bears North 18 degrees 43 minutes 06 seconds West
from said radius point; thence South 71 degrees 16 minutes 54
seconds West a distance of 625.00 feet to an existing rebar
w/yellow cap and a curve having a radius of 750.00 feet, the radius
point of which bears North 18 degrees 43 minutes 06 seconds West;
thence Southwesterly along said curve an arc distance of 86.72 feet
to the BEGINNING POINT (said point bears South 12 degrees 05
minutes 35 seconds East from said radius point).
<PAGE>
<PAGE> 4
EXHIBIT "E"
Part of the Northeast Quarter of Section 35, Township 18 North,
Range 3 East of the Second Principal Meridian in Hamilton County,
Indiana, being more particularly described as follows:
Commencing at a railroad spike marking the Southwest Corner of the
said Northeast Quarter Section; thence North 00 degrees 07 minutes
31 seconds West (assumed bearing) along the West line of the said
Quarter Section a distance of 510.08 feet to a P.K. nail and the
BEGINNING POINT; thence North 88 degrees 49 minutes 16 seconds
East, parallel with the South line of the said Quarter Section, a
distance of 1326.90 feet to a 5/8 inch rebar w/yellow cap and the
Southwest corner of Block 3 in the Conditional Secondary Plat
Carmel Science and Technology Park, the plat of which is recorded
in Plat Book 13, pages 65 thru 71 in the Office of the Recorder of
Hamilton County, Indiana; thence North 00 degrees 06 minutes 12
seconds West along the West line of said Block 3 a distance of
572.31 feet to a 5/8 inch rebar w/yellow cap which lies South 00
degrees 06 minutes 12 seconds East 1542.00 feet from the Northeast
corner of the West Half of the said Quarter Section; thence South
88 degrees 40 minutes 34 seconds West, parallel with the North line
of the said Quarter Section, a distance of 1327.19 feet to an
existing P.K. Nail and the West line of the Said Quarter Section;
thence South 00 degrees 07 minutes 31 seconds East along the said
West line a distance of 568.95 feet to the BEGINNING POINT,
containing 17.381 acres more or less.
<PAGE>
<PAGE> 5
EXHIBIT "I"
Part of the Southwest Quarter of Section 36 and part of
the Southeast Quarter of Section 35 in Township 18 North, Range 3
East of the Second Principal Meridian in Hamilton County, Indiana,
being more particularly described as follows:
Commencing at the Southwest corner of the said Southwest
Quarter Section; thence North 89 degrees 07 minutes 52 seconds East
(Assumed Bearing) along the South line of the said Southwest
Quarter Section 148.00 feet; thence North 00 degrees 16 minutes 22
seconds West, parallel with the West line of the said Southwest
Quarter Section 734.00 feet; thence North 89 degrees 07 minutes 52
seconds East, parallel with the said South line 450.06 feet; thence
North 00 degrees 16 minutes 22 seconds West, parallel with the said
West line, 763.37 feet to the Beginning Point; thence South 89
degrees 07 minutes 52 seconds West 432.11 feet; thence South 60
degrees 05 minutes 00 seconds West 335.00 feet to a curve having a
radius of 500.00 feet, the radius point of which bears South 60
degrees 05 minutes 00 seconds West; thence Northwesterly along the
said curve 281.57 feet to a point which bears North 27 degrees 49
minutes 03 seconds East from said radius point; thence North 62
degrees 10 minutes 57 seconds West 317.60 feet; thence North 27
degrees 49 minutes 03 seconds East 343.29 feet; thence North 88
degrees 57 minutes 26 seconds East, parallel with the north line of
the said Southwest Quarter Section, 1041.01 feet; thence South 00
degrees 16 minutes 22 seconds East, parallel with the said west
line 490.00 feet to the Beginning Point, containing 12.970 acres,
more or less.
<PAGE>
<PAGE> 6
EXHIBIT "J"
Land Description
(Token Parcel together with Part Old Highway R/W)
Part of the Northwest Quarter of Section 35, Township 18 North,
Range 3 East in Hamilton County, Indiana, being more particularly
described as follows:
Commencing at a Railroad Spike marking the Southeast Corner of the
said Northwest Quarter Section; thence South 88 degrees 45 minutes
10 seconds West (Assumed Bearing) along the South Line of the said
Northwest Quarter Section a distance of 184.00 feet to a 5/8 inch
rebar with yellow cap marked "S" and the BEGINNING POINT; thence
continue South 88 degrees 45 minutes 10 seconds West along the said
South Line a distance of 402.60 feet to an existing 5/8 inch rebar
with yellow cap stamped "S" and the East Limited Access right-of-
way line for U.S. 31 per D.O.T. plans, project STF-222(9), sheets
16 and 17, dated 1973; thence North 00 degrees 04 minutes 52 West
along said East Limited access right-of-way line a distance of
660.01 feet to a 5/8 inch rebar with yellow cap marked "Firm #
0001" (hereinafter referred to as "rebar") distant 660 feet north
of the south line of the said Northwest Quarter Section; thence
North 88 degrees 45 minutes 10 seconds East, parallel with the
South Line of the said Northwest Quarter Section, a distance of
585.70 feet to a "railroad spike" in the East Line of the said
Northwest Quarter Section; thence South 00 degrees 09 minutes 35
seconds East along the said East Line a distance of 288.00 feet to
a "railroad spike" at a point distant 372.00 feet north of the
Southeast Corner of said Northwest Quarter Section; thence South 88
degrees 45 minutes 10 seconds West, parallel with the said South
Line, a distance of 182.00 feet to a "rebar"; thence South 00
degrees 09 minutes 35 seconds East, parallel with the said East
Line, a distance of 123.00 feet to a "rebar" distant 249.00 feet
north of the south line of said Northwest Quarter Section; thence
South 88 degrees 45 minutes 10 seconds West, parallel with the said
South Line, a distance of 2.00 feet to a "rebar"; thence South 00
degrees 09 minutes 35 seconds East, parallel with the said East
Line, a distance of 249.00 feet to the BEGINNING POINT. Containing
7.314 acres, more or less.
<PAGE>
<PAGE> 7
EXHIBIT "K"
LAND DESCRIPTION
(Deed Book 345, Page 490-492)
Part of the Northwest Quarter of Section 35, Township 18 North,
Range 3 East in Hamilton County, Indiana, described as follows:
Beginning at a point in the South line thereof distant West 184
feet of the Southeast corner thereof; thence West in and along said
South line 583 feet to a point in the centerline of U. S. Highway
# 31; thence North therein 255 feet; thence East 554 feet to a
point 184 feet West of the East line of said Northwest Quarter
Section; thence South 249 feet to the place of beginning.
EXCEPT:
Beginning at the intersection of the East boundary of U. S. 31 and
the South line of said Quarter Section South 88 degrees 24 minutes
05 seconds West 722.00 feet from the Southeast corner of said
Quarter Section; thence along the Eastern boundary of U. S. R. 31
Northeasterly 254.79 feet along an arc to the right and having a
radius of 1,859.86 feet and subtended by a long chord having a
bearing of North 6 degrees 07 minutes 32 seconds East and a length
of 254.59 feet to the North line of the owners' land; thence North
88 degrees 46 minutes 46 seconds East 107.19 feet along said North
line; thence South 0 degrees 13 minutes 30 seconds East 251.65 feet
to the South line of the owners' land; thence South 88 degrees 24
minutes 05 seconds West 135.37 feet along said South line to the
point of beginning.
AND ALSO;
A part of the Northwest Quarter of Section 35, Township 18 North,
Range 3 East, more particularly described as follows:
Begin 372 feet North of the Southeast corner of the Northwest
Quarter of Section 35, Township 18 North, Range 3 East and run
thence West 132 feet Deed (182 feet Measured); thence South 123
feet; thence West 606 feed Deed (563.18 feet Measured) to the
center of State Highway No. 31, said point being 738 feet Deed
(745.18 feet Measured) West of the East line of said Quarter
Section; thence Northeastwardly along center of said highway 430
feet, more or less, to a point which is 660 feet North of the South
line of said Quarter Section; thence East 606 feet, more or less,
Deed (623.44 feet Measured) to the East line of said Quarter
Section; thence South 288 feet, more or less, to the place of
beginning, in Hamilton County, Indiana.
EXCEPT:
A part of the Northwest Quarter of Section 35, Township 18 North,
Range 3 East, Hamilton County, Indiana, described as follows:
Commencing at the Southeast corner of said Quarter Section; thence
Northerly 249.00 feet along the East line of said Quarter Section
to the prolonged South line of the owner's land; thence South 88
degrees 46 minutes 46 seconds West 687.99 feet along said prolonged
South line and the South line of the owner's land to the Eastern
boundary of U. S. R. 31 which is the point of beginning of this
description; thence along the Eastern boundary of U. S. R. 31
Northeasterly 384.78 feet along an arc to the right and having a
radius of 1,859.86 feet and subtended by a long chord having a
bearing of North 15 degrees 58 minutes 37 seconds East and a length
of 384.10 feet; thence South 00 degrees 13 minutes 30 seconds East
366.98 feet to the South line of the owner's land; thence South 88
degrees 46 minutes 46 seconds West 107.19 feet along the said South
line to the point of beginning and containing 0.510 acres, more or
less.
<PAGE> 1
501 CONGRESSIONAL BOULEVARD
PARKING LOT EXPANSION
CONSTRUCTION AGREEMENT
THIS AGREEMENT, made and entered into by and between BANKERS
NATIONAL LIFE INSURANCE COMPANY, a Texas corporation (hereinafter referred to
as the "Owner"), and BROWNING CONSTRUCTION, INC., an Indiana corporation
(hereinafter referred to as the "Contractor"), WITNESSETH THAT:
WHEREAS, the Owner desires to design and construct a parking lot
expansion to the west of the existing parking lot at 501 Congressional
Boulevard, Carmel, Indiana, (the "Project").
WHEREAS, Schneider Engineering, as design engineer (the "Design
Engineer"), heretofore has completed preliminary plans and requirements based
upon which it has begun to develop and prepare or cause to be prepared,
complete drawings, plans and specifications for the Project, subject to final
approval by the Owner and the Contractor, which approval will not unreasonably
be withheld (such approved drawings being hereinafter referred to as the
"Drawings" and such plans and specifications being hereinafter referred to as
the "Specification"); and
WHEREAS, with the Owner's approval, the Contractor has commenced
work on the Project, and has expended funds and incurred borrowing costs in
connection therewith prior to the date hereof;
WHEREAS, the Owner and the Contractor have agreed that the contract
price will be paid to the Contractor as construction progresses and costs are
incurred in the manner provided herein;
NOW, THEREFORE, in consideration of the premises, the mutual
covenants herein contained and each act performed pursuant hereto, the parties
now enter into the following Agreement:
ARTICLE I
Contract Documents; Definitions
Section 1.1. Contract Documents and Amendments. The "Contract
Documents" shall mean and include (a) this Agreement, (b) the Drawings and
Specifications upon completion and approval thereof by the Owner and the
Contractor and (c) any duly authorized and executed Contract Change Orders
pursuant to Section 4.3, and any written interpretations of the Drawings and
Specifications signed by the Owner and by the Contractor. It is agreed that
the Contract Documents contain the entire agreement of the parties, that in the
event there is any conflict between the provisions of this Agreement and the
provisions of the Specifications and/or the Drawings, then the provisions of
this Agreement shall prevail; and that in the event there is any conflict
between the Specifications and the Drawings, the Drawings shall prevail. The
Contract Documents otherwise may be amended by written instruments signed by
the Owner and by the Contractor, and any provision or provisions of the
Contract Documents may be so amended without affecting the other provisions of
the Contract Documents.
Section 1.2. Architect and Engineer. The term "Design Engineer,"
as used in the Contract Documents, shall mean Schneider Engineering, and the
term "Engineer" shall mean the inspecting architect or engineer designated by
the Owner's construction lender (or by the Owner in the absence of such
designation by the lender) to make periodic inspections and certify as to the
progress of construction for purposes of progress payments to the Contractor.
Section 1.3. Subcontractor. The term "subcontractor," as used in
the Contract Documents, except where otherwise specified, means only those
persons, firms or corporations having a direct contract with the Contractor and
includes any person, firm or corporation who or which performs any part of the
Work (as defined herein), or leases equipment or tools (whether or not an
operator is provided by the lessor), or who furnishes material worked to a
special design according to the Drawings or Specifications, but does not
<PAGE> 2
include any person, firm or corporation who or which merely furnishes material
not so worked to a special design (herein called a "supplier"), nor does it
include the Design Architect or Inspector.
Section 1.4. Completion Date. The term "Completion Date," as used
in the Contract Documents, means the date when the Work (as defined herein) is
certified by the Contractor as substantially completed in accordance with the
Contract Documents, subject to any additional or corrective work reasonably
required by the Engineer's final inspection pursuant to Section 4.6. For this
purpose, the parking lot shall be substantially complete and ready for use,
notwithstanding any minor or insubstantial details of construction, that remain
to be done, so long as (a) ready access to the Project, are available to the
Owner, all utilities to be provided to the Project are installed and in working
order (subject to minor adjustments and to the Owner's responsibilities
regarding utilities as provided in Section 5.4. For the purposes of the
Agreement, there will be a "Completion Date" for the parking lot.
Section 1.5. Day and Working Day. As used in the Contract
Documents, the term "day" shall mean a calendar day of twenty-four (24) hours
beginning at 12:00 midnight, and the term "working day" shall mean each
calendar day except a Saturday, Sunday or legal holiday.
ARTICLE II
Scope of the Work
Section 2.1. The Work. The term "Work" as used in the Contract
Documents shall mean the Contractor shall furnish all of the labor,
supervision, materials, supplies and equipment and perform all labor and other
work shown on, and in accordance with the Drawings and Specifications as
finally approved by the Owner and Contractor.
Section 2.2. Time of Completion. In the absence of circumstances
beyond its control, the Contractor agrees to complete the Work prior to
September 1, 1993 for the parking lot, except as such period to complete the
Work may be extended pursuant to the provisions of Sections 4.2, 4.3 or 4.5 of
this Agreement.
ARTICLE III
Contract Price and Payment
Section 3.1. Contract Price. The Owner agrees to pay the
Contractor for the performance of this Agreement cost plus twelve eight five
percent (12.85%) for the Project, including all of the Work, as the contract
price for the parking lot subject to additions and deductions by Contract
Change Order pursuant to Section 4.3.
Section 3.2. Method of Payment. The Owner hereby agrees to pay
to the Contractor the Contract Price in the following manner:
(a) Initial Payment. Upon execution and delivery of this
Agreement, the owner shall pay to the Contractor an initial payment
in an amount equal to the Contractor's construction costs incurred
through July 31, 1993, less any retainage withheld from the
Contractor and subcontractors as hereinafter provided, plus (i)
interest costs incurred by the Contractor (or affiliate) for funds
borrowed in order to fund such costs incurred prior to the date of
the initial payment, as certified by the Contractor, and (ii) the
earned portion of the Contractor's overhead and fee allocable to
such Work, determined as hereinafter described.
(b) Progress Payments.
(i) For all work except as identified in clause (ii) of this
paragraph, (b)after the initial payment, the Contractor shall make
a monthly request for payment by the Owner, for construction costs
incurred for work during the preceding month, plus the earned
portion of the Contractor's overhead and fee allocable to such Work,
less any retainage withheld from the Contractor and Subcontractors
as hereinafter provided. In no event shall the total of all such
progress payments under this clause (i) of this paragraph (b) at any
time, when added to the initial payment and any retainage then held,
exceed the agreed total Contract Price, plus any additions or less
any deletions for Contract Change Orders; and
<PAGE> 3
(ii) Contractor shall make a monthly request for payment equal to
the cost of work in place as of the end of the preceding month, plus
an amount equal to 12.85% of such costs for overhead and profit
minus retainage as per 3.2 (iii). Each request for payment shall be
submitted at least five (5) business days before the date payment is
desired, and payments shall, insofar as possible, be scheduled for
the 28th day of each calendar month. Owner agrees to make payments
no later than six (6) business days after receipt of the
Contractor's request. Contractor shall provide copies of invoices
or such other cost backup as the Owner may reasonably request from
time to time as follows: (a) payment request on form acceptable to
Owner, (b) copies of invoices, (c) affidavits of lien waivers from
all subcontractors and supplies covering prior disbursements.
(c) All payments by the Owner are subject to the following:
(i) Construction Costs. As used herein, the term "construction
costs" means and includes all costs and expenses incurred by the
Contractor in the performance of the Work, including but not limited
to amounts payable under subcontracts and other costs for labor,
materials, equipment and fixtures, including sales taxes and freight
and transportation charges, costs for architectural and engineering
work, expenses for workers' compensation insurance and other
insurance coverage required by the terms of this Agreement, rental
costs of equipment used on the Work, utility costs and fees, and
charges or other amounts payable for permits, licenses or approvals
necessary to perform the Work.
(ii) Overhead and Fee. The Contractor's overhead and fee is twelve
eight five percent (12.85%), and shall be deemed earned for purposes
of payment as follows:
(1) The overhead and fee portion of the Contract price for the
parking lot shall be deemed earned in proportion to costs incurred
for which payment is requested from time to time, in increments
equal to 12.85% minus retainage as in (iii) below, of the costs so
incurred; the full balance shall be deemed earned on the Completion
Date.
(iii) Retainage. (1) Retainage shall be withheld only as to
amounts payable Contractor and Subcontractors and there shall be no
retainage as to suppliers or other amounts payable to the
Contractor; (2) retainage as to Subcontractors shall be 10% of
amounts invoiced until such Subcontractor's work is 50% completed,
and thereafter, unless the Contractor, in its discretion, elects to
continue the 10% retainage as to one or more Subcontractors, no
additional retainage shall be withheld; (3) retainage as to each
Subcontractor will be released to the Contractor for payment to the
Subcontractor sixty (60) days after 100% completion of the
Subcontractor's work.
(iv) Inspection Reports. The Owner may require, prior to payment,
receipt of a report from the Engineer, dated not more than five (5)
days prior to the requested disbursement, setting forth a breakdown
of the Work completed to date and stating that he has inspected the
construction and that all construction to the date of the
certificate is in accordance with the Drawings and Specifications.
It is the Owner's responsibility to schedule such inspections to
ensure that the report, if requested, is received in a timely manner
so as not to otherwise affect timing of payments.
(b) Final Payment. Final payment to the Contractor of the entire
unpaid balance of the Contract Price for the parking lot including
but not limited to any retainage withheld and the full balance of
the Contractor's overhead and fee and any profit to the Contractor,
shall be paid within thirty (30) days after the Completion Date for
such parking lot. The Owner shall receive prior to such payment;
(i) delivery of a release or waiver of liens signed by the
Contractor and all Subcontractors (or a title insurance policy
insuring over any such lien or possible lien), and (ii) the Owner
shall be entitled to withhold an amount reasonably estimated by the
Engineer to complete or correct for items of Work identified upon
<PAGE>
<PAGE> 4
final inspection pursuant to Section 4.6, until completion or
correction of such item, and (iii) as built drawings, maintenance
and operation manuals.
ARTICLE IV
Other General Conditions
Section 4.1. Representations and Warranties of Contractor. The
Contractor represents and warrants that:
(a) The Contractor has the facilities and personnel to perform the
Work, and the Work shall be done in good and workmanlike manner,
free from defects and in conformity with the Contract Documents, and
all applicable laws, ordinances, rules and regulations of all
governmental authorities having jurisdiction of the subject matter.
(b) The Contractor shall supervise and direct the Work, using its
best skill and attention. The Contractor shall be solely
responsible for all construction means, methods, techniques,
sequences and procedures and for coordinating all portions of the
Work;
(c) All materials and equipment incorporated in the Work will be
new, unless otherwise specified in the Plans and Specifications;
(d) The Contractor shall provide and pay (and provided the Owner
makes all payments due to the Contractor as provided in Article III,
Sections 3.2 (b) (ii) and 3.2 (d), shall hold the Owner harmless
from claims for) all Subcontractors and Suppliers, and other amounts
payable for all labor, materials , equipment, tools, construction
equipment and machinery, water, heat, utilities, transportation and
other facilities and services necessary for proper completion of the
Work and shall remove all construction equipment, tools and
machinery from the Project site promptly upon completion of the
Work.
(e) The Contractor shall inform the Owner if it becomes necessary
to make any arrangements with public utilities or municipal
authorities for removal or replacement on the Project site of any
poles, lines, hydrants, pipes or other items required to be removed
or replaced in order to complete the Work, provided that if any work
or expense will be required to connection therewith, the same shall
be considered an addition to the Work requiring a Contract Change
Order. The Contractor knows of no such requirement as of the date
of this Contract.
(f) The Contractor shall secure all permits, licenses and
approvals necessary for execution of the Work;
(g) The Contractor at all times shall keep the Project site free
from excessive accumulation of waste materials and rubbish caused by
its operations. At the completion of the Work, the Contractor shall
remove all waste materials and rubbish from and about the Project
site, as well as his tools, construction equipment, machinery and
surplus materials, and leave the Work in "broom clean" or equivalent
condition except as otherwise specified.
Section 4.2. Extension of Time of Completion. The contractor
shall be entitled to extensions of time for completion of the Work in the event
of delays caused by labor disputes, fire, unusual delay in transportation,
unavoidable casualties or other causes or conditions beyond the Contractor's
control. Any such extension of time shall be for the actual number of working
days lost by reason of the occurrence or condition, as determined and certified
by the Contractor, unless the Engineer reasonably determines that a longer or
shorter extension of time should apply.
Section 4.3. Change in the Work. The Owner and the Contractor,
without invalidating the Contract Documents or the agreement of the parties as
represented thereby, but subject to the limiting provisions of Section 1.1, may
make changes within the general scope of the Contract Documents by altering,
adding to or deducting from the Work. No change in the Work shall be
authorized except by a "Contract Change Order," signed by the Owner and the
<PAGE>
<PAGE> 5
Contractor, and approved by the Owner's construction lender, if required. All
extra work and changes in the Work shall be performed under the conditions of
the Contract Documents.
Section 4.4. Owner's Right to Terminate. In the event the
Contractor violates any material provision of the Contract Documents, the Owner
may, after giving thirty (30) days written notice to the Contractor setting
forth the violation, if the violation is not corrected by the expiration of
such thirty (30) day period, at the Owner's option, either (a) make good the
deficiencies and deduct the cost thereof from any payment then or thereafter
due the Contractor, and (b) terminate this Agreement, take possession of all
materials and the Contractor's equipment, tools and appliances and finish the
Work by any reasonable means, or (c) specifically enforce this Agreement
against the Contractor and force the Contractor to complete the Work for the
Fixed Contract Price in accordance with the provisions of this Agreement. If
the Owner exercises such option to terminate this Agreement, and the unpaid
balance of the Contract Price exceeds the reasonable cost to the Owner of
completing the Work, such excess shall be paid to the Contractor in the manner
provided in Section 3.2, but, if such cost exceeds such unpaid balance, then
the Contractor shall pay the entire amount of the difference to the Owner.
Section 4.5. Contractor's Right to Terminate. Should the
Owner fail to pay the Contractor any payment when due, then the Contractor, at
the Contractor's option, after giving seven (7) days written notice to the
Owner, if payment is not made within seven (7) days of receipt by the Owner of
such notice may stop performing the work until payment is received. Should the
Work be stopped by any public authority for a period of thirty (30) days or
more through no fault of the Contractor, or should the Work be stopped through
act of neglect of the Owner or should the Owner fail to pay the Contractor
within said seven (7) day period, then, at the Contractor's option, at any time
before the condition is corrected or cured, following thirty (30) days written
notice to the Owner, with a copy to the Owner's construction lender, if the
condition is not cured by the end of such thirty (30) day period, and if the
Contractor is not in default under the Agreement, the Contractor amy terminate
this Agreement and retain or recover from the Owner so much of the Contract
Price as represents payment in full for all of the Work completed, less
payments previously received, including all of the Contractor's costs of the
construction as set forth on the Cost Breakdown, plus a pro rata portion of the
Contractor's total overhead and profit as provided for in the Cost Breakdown,
based upon the proportion of the Work completed. In any event, the delay
caused by the existence of any such condition shall automatically extend the
time during which the Work is to be completed pursuant to Section 2.2 by an
amount of time equal to two (2) days for each of the first thirty (30 days of
existence of any such condition, and one day for each day of existence of the
condition in excess of thirty (30) days.
Section 4.6. Final Inspection. The Engineer's final inspection
as regards to the parking lot shall be made within fifteen (15) days after the
Contractor delivers to the Owner its written certification that the Work has
been completed. The making and acceptance of the final payment shall not
constitute a waiver of any claims by the Owner as to any matters reasonably
required by the Engineer to be completed or corrected by the Contractor after
the Completion Date.
Section 4.7. Warranty and Correction of Work. The Contractor
guarantees to the Owner that all labor and materials incorporated in the Work
shall be free from defects for a period of one year from the Completion Date.
The Contractor, at its expense, shall correct any Work that fails to conform
to the requirements of the Contract Documents where such failure to conform
appears during the progress of the Work, and shall remedy any defects in the
Work which appear within the applicable warranty period. The warranty under
this Section 4.7 applies to the entire Work, (a) whether done by Contractor,
any subcontractor (whether or not under a direct contract with the Contractor),
or any employee of any of them or any other person performing any of the Work,
or (b) any electrical or other finished manufactured equipment or product,
except that the Contractor hereby assigns to the Owner the warranty, if any,
of the manufacturer and/or supplier of any such equipment or product, and
warrants (for one year as set forth above) that such equipment and products
shall be properly installed and connected in accordance with the Drawings and
Specifications, and any manufacturer's instructions.
<PAGE>
<PAGE> 6
Section 4.8. Inspections. The Owner, its construction lender,
prospective tenants, and their authorized representatives, including the
Engineer, shall, at all reasonable times, have the right of access to the
Project and Work for the purpose of inspection. The Owner shall have the right
to reject materials and workmanship which the Owner reasonably determines to
be defective, and the Contractor, within a reasonable time after the receipt
of written notice from the Owner of such rejection, take such reasonable steps
as shall be necessary to correct or remove defective materials or workmanship
without charge or cost to the Owner. The Engineer will make periodic visits
to the site to familiarize himself generally with the progress and quality of
the Work, and to determine in general if the Work is proceeding in accordance
with the Plans and Specifications pursuant to Section 3.2. If the Owner
becomes aware of any defect in the Work, through the Engineer or otherwise, it
shall give notice of such defect to the Contractor promptly after discovery
thereof. If the Owner fails to give such notice of a defect known to it, such
defect may not serve as a ground for termination by the Owner pursuant to
Section 4.4, unless the Contractor independently knew of such defect at or
prior to the time of the Owner's discovery thereof.
ARTICLE V
The Owner's Responsibilities
Section 5.1. Prompt Decisions. The Owner, through a designated
authorized representative, shall examine Contract Documents and other documents
submitted by the Contractor from time to time, and shall render decisions
pertaining thereto and furnish requested information and approvals promptly and
expeditiously to avoid unreasonable delay in the completion of Plans and
Specifications or in the progress of the Work of the Contractor.
Section 5.2. Notices. The Owner shall give prompt written notice
to the Contractor of any defect in the Work or other nonconformance with the
Contract Documents that may in any manner come to the Owner's attention. The
Owner shall provide to the Contractor promptly, copies of any notice or other
communication concerning the project received directly by the Owner from the
Design Architect, the Engineer, any subcontractor or other person performing
work on the project or any governmental authority (unless the Owner has
knowledge that the Contractor already has received a copy thereof).
Section 5.3 Payments. The Owner shall provide for the timely
payment of all amounts due as anticipated by this Agreement, as and when
payable as construction progresses and Work is completed and inspected, in
accordance with the terms of this Agreement. The Owner shall schedule any
required inspections to occur within the time periods provided for herein so
as not to delay the scheduled payments to the Contractor.
Section 5.4 Utilities/Governmental Fees. The Owner is solely
responsible for any and all necessary approvals, consents, permits, deposits,
assessments, connection or availability fees and other charges of any kind
levied or required to be obtained, made or paid in order to allow, permit or
otherwise obtain the right and authority to connect the buildings and
improvements to the facilities of, and/or acquire the services of, any public
utility or governmental agency, sewer, telephone and electric service. The
Contractor shall cooperate with and assist the Owner in connection with such
approvals and other matters, and shall notify the Owner in advance of the date
by which any such matter must be completed in order not to cause any delay in
the completion or availability of the Project.
ARTICLE VI
Indemnity and Insurance
Section 6.1. Indemnity. The Contractor shall indemnify and save
the Owner harmless from and against any and all liability for any bodily
injury, sickness, disease or death of any person or persons, or for damage to
or destruction of tangible property (other than the Work itself) including the
loss of use resulting therefrom, arising out of or connected with the
performance of the Work, provided such liability or damage is caused in whole
or in part by any negligent act or omission of the Contractor, any
subcontractor (whether or not under a direct contract with the Contractor), or
anyone directly or indirectly employed by any of them or any one for whose acts
any of them may be liable, and from all cost, expenses and liabilities,
including but not limited to reasonable attorney's fees incurred by the Owner
in connection therewith; provided, however, that the provisions of this Section
<PAGE> 7
5.1 shall not give to any person, firm or corporation not a party to this
Agreement any right, claim, action or cause of action which any such person,
firm or corporation would not otherwise have.
Section 6.2. Contractor's Liability Insurance. Without
limitation upon the Contractor's liability under the indemnity agreement in
Section 5.1, the Contractor shall, at its own expense, obtain and maintain
insurance that will protect the Contractor, the Owner and such other interested
persons as the Owner may reasonably request from time to time, from all claims
under worker's compensation acts and other employees benefit acts claims for
damages because of bodily injury, including death, and from claims for damages
to property which may arise out of or result from the Contractor's operations
under this Agreement, including products and completed operations coverage for
a period of two (2) years following the Completion Date and including
operations by any subcontractor (whether or not under a direct contract with
the Contractor) or anyone directly or indirectly employed at any of them. The
coverages and amounts below are indicated as minimum requirements, exclusive
of any additional excess umbrella liability coverage that may be reasonably
required by the Owner. The Contractor may determine to carry other coverages
and/or higher limits.
Minimum Coverages Required Minimum Amount of Liability
-------------------------- ---------------------------
Workers'Compensation Applicable Statutory Limits
Insurance including
employer's liability
Contractor's combined $1,000,000
protective bodily injury
and property damage
liability insurance
All policies shall contain a provision that the coverages will not be canceled
or changed without thirty (30) days prior written notice to the Owner and to
the Owner's construction lender. If, at any time during the performance of the
Work, the Contractor shall fail to maintain the minimum insurance coverages set
forth above, the Owner may, at its option, procure and maintain such insurance
in the name of the Contractor, and the Contractor shall pay the cost thereof
and furnish all information and documents necessary to make effective and
maintain such insurance.
Section 6.3. Owner's Liability Insurance. The Owner may obtain,
at its option, additional or other insurance to protect it from contingent
liability to others arising from the Contractor's operations under this
Agreement.
Section 6.4. Builder's Risk Insurance. The Contractor shall
purchase and maintain "all risk" builder's risk and fire insurance, with
extended coverage, upon the Work and the Project on which the Work is to be
performed, to approximately one hundred percent (100%) of the insurable value
from time to time thereof, including items of labor and materials to be
incorporated therein whether in or adjacent to the building insured. Loss
under the insurance, if any, will be adjustable with and payable to the Owner
(or its designee) as trustee for the Owner and the Contractor as their
interests may appear. The Owner and the Contractor hereby waive all rights,
each against the other, for damages caused by fire or extended coverage perils
or other risks covered by insurance, except such rights as they may have to the
proceeds of insurance held by the Owner as trustee. The Contractor shall be
solely responsible for any coverage on its tools or equipment, or those of its
employees, agents or subcontractors, whether owned or rented, and for any other
materials which may temporarily be located on the Project premises.
Section 6.5. Blanket and Umbrella Policies. Any insurance
required to be provided by Contractor pursuant to the Agreement may be provided
by blanket property insurance or umbrella liability insurance covering the
Project and other locations or operations of Contractor or its affiliates,
provided such blanket or umbrella insurance complies with all of the other
requirements of the Agreement with respect to the insurance involved.
<PAGE>
<PAGE> 8
Section 6.6. Insurance Coverage and Notice. All policies shall
contain a provision that the coverages will not be canceled or changed without
thirty (30) days prior written notice to the Owner. Upon request, the
Contractor shall provide to the Owner a certificate showing the relevant
insurance coverages and amounts in force respecting the Project. if, at any
time during the performance of the Work, the Contractor shall fail to maintain
the minimum insurance coverages set forth above, the Owner may, at its option,
procure and maintain such insurance in the name of the Contractor, and the
Contractor shall pay the cost thereof and furnish all information and documents
necessary to make effective and maintain such insurance.
ARTICLE VII
Miscellaneous
Section 7.1. Bonds. If required by the Owner, the Contractor
shall require one or more subcontractors performing labor under subcontract for
amounts in excess of $100,000 to furnish dual-obligee payment and performance
bonds, in form and substance acceptable to the Owner, covering themselves and
their subcontractors. The Contract Price shall be increased in an amount equal
to the reasonable cost of any such bonds. For purposes of this paragraph, the
Contractor shall provide to Owner, on request, a list of the Subcontractors and
their respective contract amounts.
Section 7.2. Assignment. This Agreement may not be assigned or
otherwise transferred by either party hereto without the written consent of the
other party except for any assignment to an entity owned or controlled by such
party. No such assignment shall relieve either party of its obligations unless
otherwise agreed by the other party in writing at the time.
Section 7.3. Nonwaiver; Other Remedies. The failure to enforce
any provision of the Contract Documents shall not serve to invalidate any such
provision or any other provision of the Contract Documents and shall not serve
as a bar or limit to subsequent enforcement of any such provision. No remedy
available to either party under this Agreement is intended to be exclusive of
any other remedy. Each remedy shall be cumulative and shall be in addition to
any other remedy given hereunder or existing by statute, at law or in equity.
Section 7.4. Notices. Any notices required to be given under this
Agreement shall be mailed, certified mail, return receipt requested. Any
notice to be served upon the Owner shall be addressed to:
Thomas G. Mills
Vice President of Operations
Bankers National Life Insurance Company
560 College Drive
Carmel, Indiana 46032
Any notice to be served upon the Contractor shall be addressed to:
Browning Construction, Inc.
Suite 400, Tower Two
Fidelity Plaza
11350 North Meridian Street
Carmel, Indiana 46032
Attention: Richard J. Pollak
Section 7.5. Binding on Successors. This Agreement shall be
binding upon, and inure to the benefit of, the parties, their successors,
heirs, legal representatives, legatees and assigns.
Section 7.6. Descriptive Headings. The descriptive headings
contained herein were formulated, used and inserted for convenience only and
shall not affect the meaning or construction of the provisions of this
Agreement.
Section 7.7. Governing Law. This Agreement, executed and to be
performed in the State of Indiana, shall be governed by the law of the State
of Indiana.<PAGE>
<PAGE> 9
IN WITNESS THEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers on the 29th day of July, 1993.
"OWNER"
BANKERS NATIONAL LIFE INSURANCE CO.
By: /s/ THOMAS G. MILLS
--------------------
Thomas G. Mills
Vice President of Operations
"CONTRACTOR"
BROWNING CONSTRUCTION, INC.
By: /s/ RICHARD J. POLLAK
---------------------
Richard J. Pollak
President
<PAGE> 1
AMENDMENT
TO AIRCRAFT LEASE AGREEMENT
DATED AS OF DECEMBER 22, 1988
THIS AMENDMENT amends and supplements the above Aircraft Lease
Agreement (the "Lease"), between GENERAL ELECTRIC CAPITAL
CORPORATION ("Lessor") and CONSECO INVESTMENT HOLDING COMPANY
("Lessee") and is hereby incorporated into the Lease as though
fully set forth therein. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Lease.
The Lease is hereby amended as follows:
1. Annex B of the Lease is replaced with the attached Annex
B-2 and Amendment #1 to Annex F.
Except as expressly modified hereby, all terms and provisions
of the Lease shall remain in full force and effect. This Amendment
is not binding or effective with respect to the Lease or the
Equipment until executed on behalf of Lessor and Lessee by
authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this
Amendment to be executed by their duly authorized representatives
as of the date first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CONSECO INVESTMENT HOLDING
CORPORATION COMPANY
By: /s/WILLIAM J. McELROY By: /s/MARK A. FERRUCCI
--------------------- --------------------
Name: William J. McElroy Name: Mark A. Ferrucci
Title: Region Credit Analyst Title: President
Attest:
By: /s/KIM E. LUTTHANS
-------------------
Name: Kim E. Lutthans <PAGE>
<PAGE> 2
GUARANTOR:
Agree, Acknowledge and Accept Amendment
to Aircraft Lease Agreement as set forth
herein.
CONSECO, INC.
By: /s/LAWRENCE W. INLOW
---------------------
Name: Lawrence W. Inlow
Title: Executive Vice President<PAGE>
<PAGE> 3
GENERAL ELECTRIC CAPITAL CORPORATION
ANNEX B-2
Financial Terms
(178 month Basic Lease Term)
Basic Term Commencement
Date: January 1, 1989
Basic Term: One Hundred Seventy Eight (178) Months
Advance Rent: (a) Amount: $87,631.97
(b) Due Date: Lease Commencement Date
Interim Rent: Due Date: Lease Commencement Date
Original Lessors' Cost: $4,700,000.00
First Basic Rent Date: January 2, 1989
Basic Rent Dates: Monthly in Advance
First Termination Date: January 2, 1992
Last Basic Rent Date: October 1, 2003
Expiration Date: October 1, 2003
Daily Lease Rate Factor: .0321%
Basic Term Rental Payment: Dollar Amount Rental No.
------------- ----------
(First Rental Period) $87,631.97 #1
(Second Rental Period) $45,287.790 #2 through #58
(Third Rental Period) $33,625.18 #59 through #178
Primary Hangar Location: Indianapolis International Airport
Indianapolis, Indiana<PAGE>
<PAGE> 4
GENERAL ELECTRIC CAPITAL CORPORATION
ANNEX B-2
Financial terms
(178 month Basic Lease Term)
Last Deliver Date: December 31, 1988
Tax Benefits: Method: 200% declining balance method
over the Recovery Period, switching to
straight line method for the 1st
taxable year for which using the
straight line method with respect to
the adjusted basis as of the beginning
of such year will yield a larger
allowance.
Recovery Period: Five (5) Years
Basis: 100% of Equipment Cost
LESSOR:
General Electric Capital
Corporation
By: /s/WILLIAM J.McELROY
--------------------
Name: William J. McElroy
Title: Region Credit Analyst
LESSEE:
Conseco Investment Holding Company
By: /s/MARK A FERRUCCI
------------------
Name: Mark A Ferruci
Title: President
<PAGE>
<PAGE> 5
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 1 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Interim
Basic Term
<S> <C> <C>
107.957% 101.573%
1 107.957 101.573
2 107.014 100.654
3 106.963 100.628
4 106.896 100.586
5 106.816 100.530
6 106.723 100.462
7 106.618 100.382
8 106.507 100.296
9 106.384 100.197
10 106.247 100.086
11 106.106 99.969
12 105.952 99.840
13 105.784 99.698
14 105.612 99.550
15 105.431 99.394
16 105.238 99.227
17 105.037 99.051
18 104.827 98.867
19 104.610 98.675
20 104.387 98.477
21 104.156 98.272
22 103.916 98.058
23 103.671 97.838
24 103.418 97.611
25 103.156 97.375
26 102.889 97.134
27 102.615 96.886
28 102.335 96.631
29 102.049 96.371
30 101.757 96.106
</TABLE>
<PAGE>
<PAGE> 6
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 2 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the
Aircraft shall be the percentage of Capitalized Lessor's Cost of
the Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Basic Term
<S> <C> <C>
31 101.460 95.835
32 101.158 95.559
33 100.850 95.278
34 100.537 94.991
35 100.218 94.699
36 99.894 94.401
37 99.564 94.097
38 99.228 93.789
39 98.887 93.474
40 98.540 93.154
41 98.188 92.829
42 97.830 92.498
43 97.466 92.162
44 97.097 91.820
45 96.722 91.472
46 96.342 91.119
47 95.955 90.760
48 95.563 90.395
49 95.166 90.025
50 94.762 89.649
51 94.353 89.267
52 93.940 88.882
53 93.523 88.493
54 93.103 88.101
55 92.680 87.706
56 92.250 87.304
57 91.817 86.900
58 91.380 86.491
59 87.754 81.779
60 87.406 81.456
</TABLE>
<PAGE>
<PAGE> 7
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 3 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the
Aircraft shall be the percentage of Capitalized Lessor's Cost of
the Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Basic Term
<S> <C> <C>
61 87.056 81.131
61 86.702 80.802
63 86.345 80.470
64 85.988 80.138
65 85.629 79.804
66 85.270 79.470
67 84.910 79.135
68 84.546 78.796
69 84.182 78.457
70 83.817 78.117
71 83.448 77.773
72 83.078 77.428
73 82.707 77.082
74 82.333 76.733
75 81.956 76.381
76 81.580 76.030
77 81.201 75.676
78 80.821 75.321
79 80.440 74.965
80 80.056 74.606
81 79.671 74.246
82 79.284 73.884
83 78.895 73.520
84 78.504 73.154
85 78.112 72.787
86 77.718 72.418
87 77.321 72.046
88 76.924 71.674
89 76.524 71.299
90 76.122 70.922
</TABLE>
<PAGE>
<PAGE> 8
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 4 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the
Aircraft shall be the percentage of Capitalized Lessor's Cost of
the Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Basic Term
<S> <C> <C>
91 75.719 70.544
92 75.314 70.164
93 74.907 69.782
94 74.498 69.398
95 74.087 69.012
96 73.674 68.624
97 73.259 68.234
98 72.842 67.842
99 72.424 67.449
100 72.003 67.053
101 71.581 66.656
102 71.157 66.257
103 70.730 65.855
104 70.302 65.452
105 69.872 65.047
106 69.439 64.639
107 69.005 64.230
108 68.569 63.819
109 68.130 63.405
110 67.690 62.990
111 67.247 62.572
112 66.803 62.153
113 66.356 61.731
114 65.908 61.308
115 65.457 60.882
116 65.004 60.454
117 64.549 60.024
118 64.092 59.592
119 63.633 59.158
120 63.172 58.722
</TABLE>
<PAGE>
<PAGE> 9
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 5 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the
Aircraft shall be the percentage of Capitalized Lessor's Cost of
the Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Basic Term
<S> <C> <C>
121 62.708 58.283
122 62.243 57.843
123 61.775 57.400
124 61.305 56.955
125 60.833 56.508
126 60.359 56.059
127 59.882 55.607
128 59.403 55.153
129 58.922 54.697
130 58.439 54.239
131 57.953 53.778
132 57.466 53.316
133 56.976 52.851
134 56.483 52.383
135 55.989 51.914
136 55.492 51.442
137 54.992 50.967
138 54.491 50.491
139 53.987 50.012
140 53.481 49.531
141 52.972 49.047
142 52.461 48.561
143 51.948 48.073
144 51.432 47.582
145 50.913 47.088
146 50.393 46.593
147 49.870 46.095
148 49.344 45.594
149 48.816 45.091
150 48.285 44.585
</TABLE>
<PAGE>
<PAGE> 10
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 6 of 6
Stipulated Loss and Termination Values
The stipulated Loss and Termination Value of the
Aircraft shall be the percentage of Capitalized Lessor's Cost of
the Aircraft* set forth opposite the applicable rent payment.
<TABLE>
<CAPTION>
*Capitalized Lessor's Cost: $4,700,000.00
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
Basic Term
<S> <C> <C>
151 47.752 44.077
152 47.217 43.567
153 46.679 43.054
154 46.138 42.538
155 45.595 42.020
156 45.050 41.500
157 44.502 40.977
158 43.951 40.451
159 43.397 39.922
160 42.841 39.391
161 42.283 38.858
162 41.722 38.322
163 41.158 37.783
164 40.591 37.241
165 40.022 36.697
166 39.450 36.150
167 38.876 35.601
168 38.299 35.049
169 37.719 34.494
170 37.136 33.936
171 36.551 33.376
172 35.963 32.813
173 35.372 32.247
174 34.778 31.678
175 34.181 31.106
176 33.582 30.532
177 32.980 29.955
178 32.375 29.375
</TABLE>
<PAGE> 1
AMENDMENT
TO AIRCRAFT LEASE AGREEMENT
DATED AS OF APRIL 26, 1991
THIS AMENDMENT amends and supplements the above Aircraft Lease
Agreement (the "Lease"), between GENERAL ELECTRIC CAPITAL
CORPORATION ("Lessor") and CONSECO INVESTMENT HOLDING COMPANY
("Lessee") and is hereby incorporated into the lease as though
fully set forth therein. Capitalized terms not otherwise defined
herein shall have the meanings set forth in the Lease.
The Lease is hereby amended as follows:
1. Annex B of the Lease is replaced with the attached Annex
B-1 and Amendment #1 to Annex F.
Except as expressly modified hereby, all terms and provisions
of the Lease shall remain in full force and effect. This Amendment
is not binding or effective with respect to the Lease or the
Equipment until executed on behalf of Lessor and Lessee by
authorized representatives of Lessor and Lessee.
IN WITNESS WHEREOF, Lessee and Lessor have caused this
Amendment to be executed by their fully authorized representatives
as of the date first above written.
LESSOR: LESSEE:
GENERAL ELECTRIC CAPITAL CORPORATION CONSECO INVESTMENT
HOLDING COMPANY
By: /s/WILLIAM J. McELROY By: /s/MARK A FERRUCCI
________________________ ______________________
Name: William J. McElroy Name: Mark A. Ferrucci
Title: Region Credit Analyst Title: President
Attest:
By: /s/KIM E. LUTTHANS
_____________________
Name: Kim E. Lutthans
GUARANTOR:
Agree, Acknowledger and Accept Amendment
to Aircraft Lease Agreement as set forth
herein.
CONSECO, INC.
By: /s/LAWRENCE W. INLOW
______________________________
Name: Lawrence W. Inlow
Title: Executive Vice President
<PAGE>
<PAGE> 2
GENERAL ELECTRIC CAPITAL CORPORATION
ANNEX B-1
__________
Financial Terms
_______________
(150 month Basic Lease Term)
Basic Term Commencement Date: May 1, 1991
Basic Term: One Hundred Fifty (150) months
Advance Rent: (a) Amount: $43,380.55
(b) Due Date: Lease Commencement Date
Interim Rent: Due Date: Lease Commencement Date
Original Lessors' Cost: $4,500,000.00
First Basic Rent Date: May 1, 1991
Basic Rent Dates: Monthly in Advance
First Termination Date: May 1, 1994
Last Basic Rent Date: October 1, 2003
Expiration Date: October 31, 2003
Daily Lease Rate Factor: .032059%
Basic Term Rental Payment: Dollar Amount Rental No.
------------- ----------
(First Rental Period) $43,280.55 #1 through #30
(Second Rental Period) $39,322.32 #31 through #150
Primary Hanger Location: Indianapolis International Airport
Indianapolis, Indiana<PAGE>
<PAGE> 3
GENERAL ELECTRIC CAPITAL CORPORATION
ANNEX B-1
Financial Terms
(150 month Basic Lease Term)
Last Delivery Date: April 30, 1991
Tax Benefits: Depreciation Deductions:
Method: 200% declining balance
method over the Recovery Period,
switching to straight line method
for the first taxable year for
which using the straight line
method with respect to the
adjusted basis as of the
beginning of such year will
yield a larger allowance.
Recovery Period: Five (5) Years
Basis: 100% of Equipment Cost
LESSOR: LESSEE:
General Electric Capital Corporation Conseco Investment Holding
Company
By: /s/WILLIAM J. McELROY By: /s/MARK A. FERRUCCI
__________________________ ________________________
Title: Region Credit Analyst Title: President
<PAGE>
<PAGE> 4
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 1 of 5
Stipulated Loss and Termination Values
The Stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payment.
*Capitalized lessor's Cost: $4,500,000.00
<TABLE>
<CAPTION>
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
________________ __________ ___________
<S> <C> <C>
Interim 106.303% 103.351%
Basic Term
1 106.303 103.351
2 106.258 103.330
3 106.203 103.299
4 106.143 103.263
5 106.075 103.219
6 105.996 103.164
7 105.914 103.106
8 105.822 103.038
9 105.720 102.960
10 105.614 102.878
11 105.501 102.789
12 105.374 102.686
13 105.234 102.570
14 104.082 102.442
15 104.917 102.301
16 104.747 102.155
17 104.565 101.997
18 104.371 101.827
19 104.171 101.651
20 103.959 101.463
21 103.735 101.263
22 103.505 101.057
23 103.267 100.843
24 103.018 100.618
25 102.761 100.385
26 102.497 100.145
27 102.224 99.896
28 101.946 99.642
29 101.661 99.381
30 101.367 99.111
</TABLE>
<PAGE>
<PAGE> 5
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 2 of 5
Stipulated Loss and Termination Value
The Stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payable.
Capitalized Lessor's Cost: $4,500,000.00
<TABLE>
<CAPTION>
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
________________ __________ ___________
Basic Term
<S> <C> <C>
31 98.469 92.494
32 98.101 92.151
33 97.727 91.802
34 97.348 91.448
35 96.964 91.089
36 96.576 90.726
37 96.183 90.358
38 95.785 89.985
39 95.382 89.607
40 94.975 89.225
41 94.563 88.838
42 94.146 88.446
43 93.725 88.050
44 93.298 87.648
45 92.867 87.242
46 92.431 86.831
47 91.991 86.416
48 91.545 85.995
49 91.095 85.570
50 90.640 85.140
51 90.179 84.704
52 89.715 84.265
53 89.245 83.820
54 88.770 83.370
55 88.290 82.915
56 87.806 82.456
57 87.316 81.991
58 86.821 81.521
59 86.322 81.047
60 85.820 80.570
</TABLE>
<PAGE>
<PAGE> 6
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 3 of 5
Stipulated Loss and Termination Value
The Stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payable.
Capitalized Lessor's Cost: $4,500,000.00
<TABLE>
<CAPTION>
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
________________ __________ ___________
Basic Term
<S> <C> <C>
61 85.314 80.089
62 84.806 79.606
63 84.294 79.119
64 83.777 78.627
65 83.257 78.132
66 82.734 77.634
67 82.206 77.131
68 81.674 76.624
69 81.140 76.115
70 80.600 75.600
71 80.056 75.081
72 79.510 74.560
73 78.963 74.038
74 78.414 73.514
75 77.863 72.988
76 77.307 72.457
77 76.750 71.925
78 76.191 71.391
79 75.627 70.852
80 75.061 70.311
81 74.493 69.768
82 73.920 69.220
83 73.344 68.669
84 72.767 68.117
85 72.188 67.563
86 71.608 67.008
87 71.025 66.450
88 70.437 65.887
89 69.848 65.323
90 69.257 64.757
</TABLE>
<PAGE>
<PAGE> 7
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 4 of 5
Stipulated Loss and Termination Value
The Stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payable.
Capitalized Lessor's Cost: $4,500,000.00
<TABLE>
<CAPTION>
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
________________ __________ ___________
Basic Term
<S> <C> <C>
91 68.660 64.185
92 69.062 63.612
93 67.461 63.036
94 66.855 62.455
95 66.246 61.871
96 65.636 61.286
97 65.023 60.698
98 64.409 60.109
99 63.793 59.518
100 63.171 58.921
101 62.548 58.323
102 61.922 57.722
103 61.291 57.116
104 60.658 56.508
105 60.022 55.897
106 59.382 55.282
107 58.737 54.662
108 58.091 54.041
109 57.443 53.418
110 56.793 52.793
111 56.141 52.166
112 55.483 51.533
113 54.823 50.898
114 54.161 50.261
115 53.493 49.618
116 52.823 48.973
117 52.151 48.326
118 51.473 47.673
119 50.791 47.016
120 50.107 46.357
</TABLE>
<PAGE>
<PAGE> 8
GENERAL ELECTRIC CAPITAL CORPORATION
AMENDMENT #1
to
ANNEX F
Page 5 of 5
Stipulated Loss and Termination Value
The Stipulated Loss and Termination Value of the Aircraft
shall be the percentage of Capitalized Lessor's Cost of the
Aircraft* set forth opposite the applicable rent payable.
Capitalized Lessor's Cost: $4,500,000.00
<TABLE>
<CAPTION>
Interim Period and
Basic Rent Stipulated Termination
Payment Number Loss Value Value
________________ __________ ___________
Basic Term
<S> <C> <C>
121 49.421 45.696
122 48.733 45.033
123 48.043 44.368
124 47.347 43.697
125 46.648 43.023
126 45.947 42.347
127 45.240 41.665
128 44.531 40.981
129 43.819 40.294
130 43.101 39.601
131 42.379 38.904
132 41.656 38.206
133 40.933 37.508
134 40.214 36.814
135 39.491 36.116
136 38.765 35.415
137 38.035 34.710
138 37.301 34.001
139 36.564 33.289
140 35.823 32.573
141 35.079 31.854
142 34.330 31.130
143 33.578 30.403
144 32.822 29.672
145 32.063 28.938
146 31.299 28.199
147 30.532 27.457
148 29.761 26.711
149 28.986 25.961
150 28.207 25.207
</TABLE>
<PAGE> 1
AIRCRAFT LEASE PURCHASE AGREEMENT
THIS AIRCRAFT LEASE PURCHASE AGREEMENT (this "Lease") is entered into
the 28th day of December, 1993 by and between METLIFE CAPITAL CORPORATION, a
Delaware corporation, as lessor ("Lessor") and CONSECO INVESTMENT HOLDING
COMPANY, a Delaware corporation, as lessee ("Lessee").
1. Request to Purchase. Lessee hereby requests Lessor to purchase from
C.I.T. Leasing Corporation ("CIT") the following described aircraft and related
equipment and accessories (hereinafter referred to individually as a
"Component" and collectively as the "Aircraft"). Lessee hereby represents and
warrants to Lessor that the Aircraft and Components are as described below, and
that Lessee is presently in possession of the Aircraft under the terms of a
lease (the "CIT Lease") from CIT to Lessee. Lessee has provided Lessor with
the specifications (the "Specifications") of the Aircraft, which appear below.
Lessee assumes full responsibility with respect to the selection of the
Aircraft and the Specifications thereof; Lessor shall have no liability or
responsibility with respect thereto regardless of whether the Specifications
prove inadequate for Lessee's intended purpose or use.
Name and Address of Seller: C.I.T. Leasing Corporation
Complete Description of Equipment:
One (1) 1989 Canadair Ltd. CL-600-2B16 Aircraft, N652CN, S/N 5040 , two (2)
General Electric CF34 Engines, S/N 350325 and 350328, Honeywell and Dual
Collins Avionics, Airshow 200 System, Wulfsberg Flitefone, cabin video system,
Sony CD player, security system, together with all parts and accessories,
accessions, additions and attachments thereto and replacements thereof.
Price: $15,586,933.08
TOTAL PRICE $15,586,933.08
EXCISE/SALES TAX $
TRANSPORTATION $
OTHER $
TOTAL COST: $15,586,933.08
2. Agreement to Lease; Fees. Lessor agrees to lease the Aircraft to see,
and Lessee agrees to lease the Aircraft from Lessor, on the terms and subject
to the conditions set forth herein.
(a) Lease Fee. Concurrently with execution of this Lease, Lessee
shall deliver to Lessor a lease fee (the "Lease Fee") in an amount equal to
.229% of the Total Cost (as set forth in the chart above).
(b) Expenses Lessee has paid to Lessor a $250.00 non-refundable
documentation fee to cover Lessor's usual and customary administrative expenses
in processing this transaction. If Lessor engages outside counsel for the
purpose of closing this transaction (including Federal Aviation Administration
counsel), or if Lessor is required to obtain appraisals or to incur other
extraordinary expenses, Lessee shall pay such costs to Lessor upon demand.
(c) Deposit. Lessee has paid to Lessor a non-interest bearing
deposit (the "Deposit) in the amount of 1% of the Total Cost. This Deposit,
less the $250 documentation fee, will be returned to Lessee on the Closing
Date.
3. Inspection; Acceptance. Lessee shall inspect and test each Component
and the Aircraft prior to execution by Lessee of this Agreement. Lessee shall
give Lessor written notice of acceptance of each Component and the Aircraft
concurrently with execution of this Lease. As between Lessee and Lessor, the
giving of such written notice shall constitute Lessee's irrevocable acceptance
of the Component and the Aircraft, regardless of whether the Component or the
Aircraft is defective in any respect, and notwithstanding any failure of the
Component or the Aircraft to conform to the Specifications, without prejudice
however to rights, if any, that Lessor and Lessee or either of them may have
against any other person, whether with respect to design, manufacture,
condition or otherwise.
<PAGE> 2
4. Purchase Cut-Off Date. If Lessee shall not have given Lessor written
notice of acceptance of a Component or the Aircraft concurrently with or before
execution of this Lease by Lessee (the "Purchase Cut-Off Date"), Lessor shall
have no obligation to lease the Component or the Aircraft to Lessee. In such
event, Lessee shall immediately pay all accrued Interim Rental and reimburse
Lessor for all sums Lessor may have paid for or with respect to the Component
or the Aircraft and for all of Lessor's costs and expenses with respect
thereto, and Lessee shall indemnify and defend Lessor against and hold Lessor
harmless from any and all cost, expense, loss, liability and damage that Lessor
may suffer or that may be asserted against Lessor by reason of Lessor's failure
or refusal to lease such Component.
5. Conditions Precedent. Lessee shall deliver to Lessor such further
instruments, documents and certifications as Lessor reasonably may request,
including without limitation evidences of authority (e.g., corporate
certificates, resolutions and authorizations) evidence of insurance in
accordance with Section 12, purchase orders and acceptances thereof, purchase
and sale agreements and financial information, and instruments and documents
to implement, perfect or continue the perfection of Lessor's rights and
remedies as lessor of the Aircraft, including Uniform Commercial Code forms.
Any obligation of Lessor to (a) make any commitments to make payment for the
Aircraft or any Component, and (b) lease the Aircraft and any Component to
Lessee are conditioned upon (i) Lessee's delivery of the Lease Fee, (ii)
release of the CIT Lease on the records of the Federal Aviation Administration
(the "FAA"), (iii) registration of the Aircraft with the FAA with no other
encumbrance on the Aircraft, and (iv) Lessee's delivery to Lessor or its agent
of the following documents: a signed corporate resolution of Lessee,
authorizing execution and delivery of this Lease and all related documents; an
executed Uniform Commercial Code financing statement reflecting Lessor as
secured party and Lessee as debtor; an executed Guaranty of Conseco, Inc.; an
executed Letter of Acceptance; an executed Pay Proceeds Letter; and an executed
Closing Schedule.
6. Term. The Term of this Lease ("Term") shall consist of a "Basic Term,"
and may in addition consist of an "Interim Term." The Interim Term, if any,
shall begin on the date Lessor makes any disbursement directly to Lessee from
escrow of a portion of the Total Cost (as shown in Section 1), and shall
continue until the time the Basic Term begins. The Basic Term shall begin on
the Closing Date, as defined in Section 9 below, and shall continue for
ninety-six (96) months.
7. Interim Rental. During the Interim Term, if any, Lessee shall pay
rent ("Interim Rental") in an amount calculated daily, payable monthly
(including any partial month), and determined by applying the Interim Rental
Rate (as defined below) to the portion of the Total Cost disbursed by Lessor
and remaining outstanding. "Interim Rental Rate" shall mean the average weekly
yield of 30-day Commercial Paper (as published in the Federal Reserve
Statistical Release H.15[519]) as published immediately prior to the date
Lessor makes a partial disbursement of funds hereunder plus 1.45%.
8. Periodic Rental. Lessee shall pay monthly rent ("Periodic Rental") for
the Basic Term in the amounts set forth below. Periodic Rental payments are
payable monthly in arrears beginning upon the Closing Date, as defined in
Section 9.
(a) Initial Periodic Rental. The Periodic Rental for each of the
first twelve (12) months of the Basic Term shall be a level amount equal to the
product of the Total Cost times 0.81456%.
(b) Adjustment of Periodic Rental; Subsequent Years. On each
anniversary of the Closing Date (each such date being an "Adjustment Date"),
the Periodic Rental payable for the next twelve months shall be re-calculated
in accordance with the following formula: treating the Stipulated Loss Value
(as defined in Section 17) as of the Adjustment Date as though it were an
outstanding principal balance under a loan (the "Hypothetical Remaining
Principal"), amortize the Hypothetical Remaining Principal over the then
remaining term of this Lease, assuming a hypothetical end of term balloon
payment of 50% of Total Cost, at a rate equal to the weekly average yield of
30-day Commercial Paper (as published in the Federal Reserve Statistical
Release H.15[519]) (each such weekly average yield being referred to herein as
the "Commercial Paper Rate") for the complete week immediately preceding the
Adjustment Date plus 1.45%.
<PAGE> 3
(c) Supplemental Rent; Rent Rebate; Preceding Year. On each
Adjustment Date, the Periodic Rental for the preceding year shall be adjusted
in accordance with the following formula:
(i) calculate the average of the Commercial Paper Rate for
the preceding 52 weeks (the "Average Yield");
(ii) on the first Adjustment Date, subtract 3.14% from the
Average Yield, and on each Adjustment Date after the first Adjustment Date,
subtract from the Average Yield the Commercial Paper Rate as published for the
complete week immediately preceding the previous Adjustment Date.
The result of the calculation so made shall be referred to herein as the
"Adjustment Factor." If the Adjustment Factor is a positive number, Lessee
shall immediately remit to Lessor upon demand the Supplemental Rent, as defined
below. If the Adjustment Factor is a negative number, Lessor shall immediately
remit to Lessee the Rent Rebate, as defined below. "Supplemental Rent" shall
be equal to the product of the positive Adjustment Factor times the Stipulated
Loss Value for the month that is six (6) months prior to the relevant
Adjustment Date. "Rent Rebate" shall be equal to the product of the negative
Adjustment Factor times the Stipulated Loss Value for the month that is six (6)
months prior to the relevant Adjustment Date.
9. Closing. The "Closing Date" shall be the later of (i) the date Lessee
gives Lessor written notice of acceptance of the last Component, (ii) the
Purchase Cut-Off Date, (iii) the date a release of the CIT Lease has been filed
with the FAA and this Lease has been filed with the FAA, or (iv) such other
date as is mutually agreed between Lessor and Lessee. On or before the Closing
Date, Lessor shall send Lessee a Closing Schedule ("Schedule"), setting forth
any adjustments to descriptions and costs, and confirming the Closing Date, the
amount of Periodic Rental installments, the payment schedule, and insurance
requirements. On the Closing Date, Lessee shall execute and return to Lessor
the Schedule. Lessee's signature on the Schedule shall signify Lessee's
agreement that the Schedule is correct. Notwithstanding any discrepancies or
disagreements between Lessor and Lessee regarding the Schedule, Lessee shall
pay all rentals as they become due in accordance with the terms and conditions
of this Lease. The Schedule is incorporated herein by this reference.
10. Purchase Options/Sale Obligations.
(A) End of Lease Term.
(i) Purchase Option. On the last day of the Term, Lessee
shall have the option to purchase the Aircraft for a price (the "Purchase
Option Price") equal to fifty percent (50%) of the Total Cost. If Lessee
elects to purchase the Aircraft, Lessee shall deliver to Lessor the Purchase
Option Price, in cash, on the last day of the Term. Upon receipt of the
Purchase Option Price, Lessor shall deliver to Lessee a bill of sale,
transferring title from Lessor to Lessee. If Lessee fails to deliver the
Purchase Option Price to Lessor on the last day of the Term, Lessee shall be
deemed to have waived its right to exercise this purchase option.
(ii) Sale of Aircraft. If Lessee fails to exercise, or
waives its right to exercise, the purchase option described in Section 10(A)(i)
above, then Lessee shall, on the last day of the Term, sell the Aircraft in a
commercially reasonable manner; provided, however, that Lessee shall not sell
the Aircraft for less than twenty percent (20%) of the Total Cost without
Lessor's prior written consent. If Lessee requests permission from Lessor to
sell the Aircraft for less than twenty percent (20%) of the Total Cost, or if
Lessee fails to sell the Aircraft on or before the last day of the Term, Lessor
may, at its sole option, sell the Aircraft as agent for Lessee. The net
proceeds of any sale under this Section 10(A)(ii) shall be paid to Lessor;
provided, however, that if the net proceeds of any sale hereunder exceed fifty
percent (50%) of the Total Cost, then Lessee shall be entitled to that portion
of the price received for the Aircraft in excess of fifty percent (50%) of the
Total Cost; and provided further that if the net proceeds received from any
sale hereunder are less than fifty percent (50%) of the Total Cost, then Lessee
shall immediately pay to Lessor the difference between the price received and
the amount that is equal to fifty percent (50%) of the Total Cost, up to a
maximum amount equal to thirty five and 75/100 percent (35.75%) of the Total
Cost. If Lessee sells the Aircraft pursuant to the terms of this Section 10,
upon Lessor's receipt of the total amount owed to Lessor under this section,
Lessor shall deliver to the purchaser of the Aircraft a bill of sale
transferring title to the Aircraft from Lessor to such purchaser.
<PAGE> 4
(iii) Interest Prior to Sale of Aircraft. If Lessee fails
to exercise, or waives its right to exercise, the purchase option described in
Section 10(A)(i) above, and Lessee does not complete the sale required by
Section 10(A)(ii) above and does not transfer the net sale proceeds therefrom
to Lessor on or before the last day of the Term, then Lessee, in lieu of any
payment pursuant to Section 24, shall pay Lessor interest on the minimum
allowable sales price at the then current prime rate until the sale is
consummated and Lessor has received the net sales proceeds and deficiency
payment, if any. Partial payments hereunder shall reduce the balance against
which interest is accrued.
(B) Purchase During Lease Term. Lessee shall have the option, at
any time after the first year of the Basic Term, upon not less than thirty (30)
days prior written notice to Lessor, to purchase the Aircraft prior to the end
of the Term. If Lessee wishes to purchase the Aircraft prior to the end of the
Term, it shall deliver to Lessor written notice of its intent to purchase the
Aircraft not less than thirty (30) days prior to the date Lessee proposes to
purchase the Aircraft, specifying the proposed purchase date. After delivery
of such notice, Lessee shall on or before the proposed purchase date deliver
to Lessor, in cash or other funds immediately available in Bellevue,
Washington, the Stipulated Loss Value of the Aircraft as of the proposed
purchase date, together with a prepayment premium equal to the product of the
Total Cost times the relevant premium factor set forth in Exhibit A attached
hereto and by this reference incorporated herein. (The product of the Total
Cost times the premium factor set forth in Exhibit A for the date any such
calculation may be, or is required to be, made under the terms of this Lease
is referred to in this Lease as the "Prepayment Premium.") If Lessee purchases
the Aircraft pursuant to the terms of this section, upon receipt by Lessor of
the purchase amount, together with the prepayment premium and all other amounts
owed by Lessee under this section, Lessor shall deliver to Lessee a bill of
sale transferring title to the Aircraft from Lessor to Lessee.
(C) Special Purchase Option. If the Internal Revenue Service
determines that, for tax purposes, Lessee is not entitled to depreciation on
the Aircraft, then, for a period of thirty (30) days after such determination
Lessee shall have the right to purchase the Aircraft for the then Stipulated
Loss Value, plus a Prepayment Premium, calculated as set forth above, plus or
minus any Supplemental Rent or Rent Rebate, respectively, accrued to such
dates, plus any and all other amounts then due hereunder. If Lessee exercises
the right to purchase the Aircraft pursuant to the terms of this section, upon
receipt by Lessor of the purchase amount, together with the prepayment premium
and all other amounts owed by Lessee under this section, Lessor shall deliver
to Lessee a bill of sale transferring title to the Aircraft from Lessor to
Lessee.
11. Lessee's Warranties.
(A) Lessee represents and warrants to Lessor that it is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its organization and that it is qualified to do
business in the jurisdiction where the Aircraft is to be kept when not in use
as provided in Subsection (B) below; it has taken all corporate action which
may be required to authorize the execution, delivery and performance of this
Lease, and such execution, delivery and performance will not conflict with or
violate any provision of its Charter or Articles or Certificate of
Incorporation, By-Laws or any provisions thereof, or result in a default or
acceleration of any obligation under any agreement, order, decree or judgment
to which it is a party or by which it is bound, nor is it now in default under
any of the same; there is no litigation or proceeding pending or threatened
against it which may have a materially adverse effect on Lessee or which would
prevent or hinder the performance by it of its obligations hereunder; this
Lease and the attendant documents constitute valid obligations of Lessee,
binding and enforceable against it in accordance with their respective terms,
except as such enforceability may be limited by fraudulent conveyance,
moratorium, bankruptcy, insolvency, reorganization or other similar laws
affecting the enforceability of creditors' rights generally and by general
equity principles (regardless of whether such enforcement is considered in a
proceeding in equity or at law); no action by or with any commission or
administrative agency is required in connection herewith; it has the power to
own its assets and to transact business in which it is engaged; and it will
give to Lessor prompt notice of any change in its name, identity or structure.
<PAGE> 5
(B) Lessee's written acceptance of a Component shall constitute a
REPRESENTATION AND WARRANTY BY Lessee to Lessor that: (i) the Component is
personal property in good order and condition; (ii) the Component conforms to
Specifications; (iii) at all times when not in use Lessee shall keep the
Aircraft at the following location: 7815 Headwind Drive, Indianapolis, IN
46241 unless Lessor shall otherwise consent in writing.
12. Insurance. Lessee shall at its own cost, procure, maintain and carry in
full force and effect insurance policies with coverages as hereafter described
in Sections (A) and (B). Prior to funding and upon request by Lessor, Lessee
shall provide Lessor with certificates of insurance evidencing compliance with
this Section 12. Each and every policy shall contain an agreement by the
insurer that, notwithstanding the lapse of any such policy for any reason or
any right of cancellation of the insurer or any cancellation by Lessee, whether
voluntary or involuntary, each such policy shall continue in force for the
benefit of Lessor for at least thirty (30) days after written notice of such
cancellation to Lessor, and that no material alteration whatsoever in any such
policy shall be made in respect of the Aircraft or any part thereof except upon
thirty (30) days' written notice of such proposed alteration to Lessor. Each
such policy shall insure Lessor's interest regardless of any breach or
violation by Lessee of any warranties, declarations or conditions contained in
such policies. Lessee covenants, warrants and represents that Lessee will not
do any act or voluntarily suffer or permit any act to be done whereby any
insurance required hereunder shall or may be suspended, impaired or defeated
and that Lessee in no circumstances will suffer or permit the Aircraft to be
used or operated during any period under this Lease without all said insurance
being in full force and effect. The geographic limits, if any, in each and
every such policy of insurance shall include at a minimum all territories over
which Lessee will operate the Aircraft. Upon notice from Lessor, Lessee will
supply Lessor with written documentation of the geographic limits of such
insurance coverage. If Lessee wishes to extend such geographic limits, it may
only do so upon the consent of Lessor. In the event that Lessee should for any
reason fail to renew or replace any such policy or contract of insurance at
least ten (10) days prior to the expiration thereof or fail to keep any such
policy in full force and effect, Lessor shall have the option, unless Lessee
shall have notified Lessor that it is actively investigating alternative
coverage (provided that coverage has not expired), to pay the premiums on any
said policy or contract of insurance or to take out new insurance in amount,
type, coverage and terms satisfactory to Lessor, and any sum paid therefor by
Lessor shall be immediately due and payable to Lessor by Lessee; provided,
however, that no exercise by Lessor of said option shall in any way affect the
provisions of this Lease, including the provision which makes failure by Lessee
to maintain the prescribed insurance an Event of Default.
(A) Public Liability Insurance. Lessee shall obtain and maintain
aircraft liability, public liability, passenger liability and property damage
insurance coverages of not less than $20,000,000 with financially responsible
insurers having a Best "A" rating or better. All policies of insurance carried
in accordance with this Subsection (A) shall include Lessor as an additional
insured thereunder with respect to the Aircraft. Each liability policy shall
expressly provide that all of the provisions thereof, except the limits of
liability, shall operate in the same manner as if there were a separate policy
covering each insured. Each policy shall contain a clause in which the
insurance company acknowledges existence of the indemnification provided in
Section 19 of this Lease.
(B) Casualty Insurance. Lessee shall obtain and maintain "All
Risk" type hull insurance on the Aircraft, including comprehensive ground and
crash coverage both on the ground and while in flight (such insurance shall
include the breach of warranty endorsement) in an amount not less than the full
replacement value of the Aircraft. Notwithstanding anything else herein
contained, the Aircraft shall not be used in any geographical area not covered
by the prescribed policies issued to Lessee and then in effect. Lessee further
covenants and agrees that any policies under this Subsection (B) shall include
Lessor as an additional insured shall be made payable to Lessor to the extent
of the Stipulated Loss Value and shall insure Lessor's interest regardless of
any breach or violation by Lessee of any warranties, declarations or conditions
contained in such policies; provided, however, that upon the payment of any
Stipulated Loss Value by Lessee to Lessor with respect to a casualty, Lessor
shall take all such actions as shall be required to cause Lessee to become the
loss payee with respect to any and all proceeds of insurance applicable
thereto.
<PAGE> 6
(C) Proceeds. In the event that the Aircraft shall be lost,
destroyed, or irreparably damaged from any cause whatsoever during the term of
this Lease, Lessor and Lessee shall proceed diligently and cooperate fully with
each other in the recovery of any and all proceeds of insurance applicable
thereto. Unless Lessor shall have previously received payment from Lessee on
account of such event under the terms of Section 16, Lessor or its assignee
shall receive from the proceeds of said insurance recovery an amount equal to
the sum of: (i) unpaid rentals with respect to such Aircraft, if any, to the
date of such loss, destruction or irreparable damage, including any accrued
Supplemental Rent or less any Rent Rebate, as the case may be, (ii) the
Stipulated Loss Value with respect to such Aircraft determined as of the date
of such loss, destruction or irreparable damage, and (iii) any and all other
amounts then due hereunder. Upon receipt by Lessor or its assignee of the
amount specified herein in respect of such Aircraft so lost, destroyed or
damaged, this Lease shall be deemed terminated as to the Aircraft, and Lessee
shall be entitled to receive the remainder, if any, of all insurance proceeds
as compensation for loss of Lessee's leasehold interest in respect of such
Aircraft.
(D) Application of Proceeds. Any proceeds of insurance received
by Lessor with respect to the Aircraft, the repair of which is practicable,
shall, at the election of Lessee, be applied either to the reasonable cost of
repairing the Aircraft or to the reimbursement of Lessee for the reasonable
cost of such repair.
(E) Separate Insurance. Nothing in this Section 11 shall be
construed to prohibit Lessor from insuring at its own expense the Aircraft or
its interest therein, and any insurance so maintained shall not provide for or
result in a reduction of the coverage of the amounts payable under any of the
insurance required to be maintained by Lessee.
13. Taxes. Lessee shall pay all taxes, fees, assessments and other
governmental charges of whatsoever kind or character and by whomsoever payable
on or relating to the Aircraft or the sale, purchase, ownership, use, value,
value added, possession, shipment, transportation, delivery or operation
thereof or the exercise of any option, election or performance of any
obligation by Lessee hereunder, which may accrue or be levied, assessed or
imposed during the Term or which remain unpaid as of the date of surrender of
such Aircraft to Lessor, and all taxes of any kind imposed by any federal,
state, local, or foreign taxing authority against Lessor on or measured by any
amount payable by Lessee hereunder, including, without limitation, all license
and registration fees and all sales, use, value, ad valorem, personal property,
excise, gross receipts, stamp or other taxes, imposts, duties and charges
together with any penalties, fines or interest thereon, except taxes of Lessor
on net income imposed by the United States or any state. Without limiting the
generality of the foregoing, Lessee shall remit to the appropriate taxing
authority, within ten (10) days after the Closing Date, the excise tax that is
due with respect to this transaction, and shall at the same time file with the
appropriate taxing authority a Form #7695. In addition, Lessee shall deliver
to Lessor at the Closing a Form ST 105 exemption certificate with respect to
sales tax. Lessee shall reimburse Lessor for any payments made by Lessor which
are the obligation of Lessee under this Lease, but Lessee shall not be
obligated to pay any amount under this Section 13 so long as it shall in good
faith and by appropriate proceedings contest the validity or the amount
thereof, unless such contest would adversely affect Lessor's interest in the
Aircraft or would subject the Aircraft to forfeiture or sale. Lessee shall
indemnify Lessor on an after-tax basis against any loss, claim, demand and
expense, including legal expense, resulting from such nonpayment or contest and
further agrees to indemnify Lessor against any and all taxes, assessments and
other charges imposed upon Lessor under the laws of any federal, state, local
or foreign government or taxing authority, as a result of any payment made by
Lessee pursuant to this Section. Upon lease termination, Lessee will, on
request, advance to Lessor the amount reasonably estimated by Lessor to equal
personal property taxes on the Aircraft which are not yet payable but for which
Lessee will afterward become liable hereunder. Lessor shall provide to Lessee
a written accounting for such advances, and shall promptly deliver to Lessee
the excess, if any, of the amount advanced by Lessee over the actual amount of
the personal property taxes. If Lessor's estimate as to the amount of such
personal property taxes is less than the actual amount due, Lessee shall
immediately upon request of Lessor deliver the shortfall to Lessor. On request
of either Lessor or Lessee, the other will submit written evidence of all
payments required of it under this Section.
<PAGE> 7
14. Maintenance, Etc.
(A) Lessee at its expense at all times shall: (i) keep the Aircraft
in good and efficient working order, condition and repair, ordinary wear and
tear excepted, and make all inspections and repairs, including replacement of
worn parts, to effect the foregoing and to comply with requirements of laws,
regulations, rules and provisions and conditions of insurance policies; and
(ii) pay all costs, expenses, fees and charges incurred in connection with the
use or operation of the Aircraft, including but not limited to repairs,
maintenance, storage and servicing. Lessee shall at is sole cost and expense,
maintain, service (including but not limited to the establishment of an engine
oil analysis program during the Term), repair and overhaul the Aircraft as
required to meet the standards of the FAA and to keep the Aircraft currently
registered, certificated and air worthy under and in accordance with
requirements of the FAA. In addition, Lessee shall comply with all applicable
service, maintenance, repair and overhaul regulations, airworthiness directives
and instructions of the FAA and all appropriate maintenance, service, repair
and overhaul manuals and mandatory service bulletins published by the
manufacturers of the airframe, engines, propellers, accessories and parts
installed on the Aircraft. All freight records, logs, flight manuals and other
materials shall be made available by Lessee to Lessor for inspection at such
times and places as Lessor may reasonably request. Lessee shall not make any
material alterations, substitutions, improvements or additions to the Aircraft,
except those required in order to comply with laws, regulations, rules and
insurance policies, unless Lessor first shall have consented thereto in
writing, which consent shall not be unreasonably withheld. Notwithstanding any
consent by Lessor, Lessee shall pay all costs and expenses of the foregoing.
All replacements, repairs, improvements, alterations, substitutions and
additions shall constitute accessions to the Aircraft and shall become the
property of Lessor.
(B) Lessor hereby transfers and assigns to Lessee, for so long during
the Term as Lessee is not in default, Lessor's right, title and interest in,
under and to any assignable factory and dealer warranty, whether express or
implied, with respect to the Aircraft. All claims and actions upon any
warranty shall be made and prosecuted by Lessee at its sole cost and expense.
Lessor shall have no obligation to make or prosecute any claim upon or under
a warranty. So long as Lessee shall not be in default, Lessor shall cooperate
with Lessee with respect to a claim on a non-assignable warranty, at Lessee's
expense. Lessee shall have proceeds of a warranty claim or recovery paid to
Lessor. Lessor shall make such proceeds available for any repair, restoration
or replacement to correct such warranted condition. Any excess proceeds shall
be paid to Lessee.
15. Use. So long as Lessee shall not be in default, Lessee shall be entitled
to the possession, use and quiet enjoyment of the Aircraft during the Term in
accordance with the terms of this Lease. Lessee warrants that the Aircraft
will at all times be used and operated for the purpose for which it was
designed and intended and under and in compliance with applicable laws and all
lawful acts, rules, regulations and orders of any governmental bodies or
officers having power to regulate or supervise the use of such property, except
that Lessee may in good faith and by appropriate proceedings contest the
application of any such rule, regulation or order in any reasonable manner that
will not adversely affect the interest of Lessor in the Aircraft or subject the
same to forfeiture or sale. Lessee will not permit its rights or interest
hereunder to be subject to any lien, charge or encumbrance and will keep the
Aircraft free and clear of any and all liens, charges, encumbrances and adverse
claims (except those arising from acts of Lessor). Lessee shall not use the
Aircraft in any geographical area outside the geographical area specified in
any policy or policies of insurance covering the Aircraft.
16. Net Lease; Loss and Damage.
(A) This is a net lease. Lessee assumes all risk of and shall
indemnify Lessor against all damage to and loss of the Aircraft from any cause
whatsoever, whether or not such loss or damage is or could have been covered
by insurance. Except as otherwise specifically provided herein, this Lease
shall not terminate and there shall be no abatement, reduction, suspension or
deferment of Interim or Periodic Rental for any reason, including damage to or
loss of the Aircraft. Lessee promptly shall give Lessor written notice of any
material loss or damage, describing completely and in detail the cause and the
extent of loss and damage. At the option of Lessee, Lessee shall: (i) repair
or restore the Aircraft to good condition and working order; or (ii) replace
<PAGE> 8
the damaged Aircraft with similar aircraft in good condition and working order;
or (iii) pay Lessor in cash the Stipulated Loss Value of the Aircraft plus a
Prepayment Premium calculated as set forth in Section 10(B) plus any and all
other amounts then due hereunder. Upon Lessee's complying with the foregoing,
Lessor shall pay or cause to be paid over to Lessee the net proceeds of
insurance, if any, with respect to such damage or loss. "Damage" and "loss"
shall include damages and losses of any kind whatsoever including, without
limitation, physical damage and partial or complete destruction, including
intentionally caused damage and destruction, and theft.
(B) If Lessee pays Lessor the Stipulated Loss Value of the Aircraft
and all other amounts set forth in Section 16(A)(iii), then this Lease shall
terminate with respect to the Aircraft and Lessee shall be entitled to retain
the Aircraft. However, it is understood that Lessor makes no representation
or warranty with respect to the Aircraft, and further that Lessor shall have
no obligation to pay any tax with respect thereto. In the event that Lessee
pays Lessor the Stipulated Loss Value for the Aircraft, together with all other
amounts set forth in Section 16(A)(iii), Periodic Rental for the remainder of
the Term shall be abated.
17. Stipulated Loss Value. The "Stipulated Loss Value" of the Aircraft on any
given date shall be the amount set forth opposite the date that most recently
precedes such given date in Exhibit B attached hereto and by this reference
incorporated herein.
18. Title; Marking; Security Interest. Lessor and Lessee acknowledge and agree
that title to the Aircraft shall be vested in Lessor. If so requested by
Lessor, Lessee will affix tags, supplied by Lessor, reflecting Lessor's
interest in the Aircraft. The size, design and requested location on the
Aircraft for such tags will be subject to Lessee's consent. As security for
the due and punctual payment of any and all of the present and future
obligations of Lessee to Lessor, whether direct or contingent or joint and
several, Lessee hereby conveys, assigns and grants to Lessor, its successors
and assigns, a continuing security interest in any and all of Lessee's right,
title and interest in and to the Aircraft, including all present and future
additions, attachments, accessions, parts, equipment, tools, accessories,
supplies and improvements thereto, all substitutions and replacements therefor
and all proceeds thereof, including proceeds of insurance.
19. Lessee's Indemnities. Lessee will defend, indemnify and hold harmless
Lessor from and against any claim, cause of action, damage, liability, cost or
expense (including but not limited to legal fees and costs) which may be
asserted against or incurred in any manner by or for the account of Lessor or
Lessee: (i) relating to the Aircraft or any part thereof, including without
limitation the manufacture, construction, purchase, delivery, acceptance or
rejection, installation, ownership, sale, leasing, removal or return of the
Aircraft, or as a result of the use, maintenance, repair, replacement,
operation or the condition thereof (whether defects are latent or
discoverable); (ii) by reason or as a result of any act or omission of Lessee
for itself or as agent or attorney-in-fact for Lessor hereunder; (iii) as a
result of claims for patent, trademark or copyright infringement relating to
the Aircraft or its use; or (iv) as a result of product liability claims or
claims for strict liability relating to the Aircraft or its use.
20. Late Payment. If any installment of rent or other sum owing under this
Lease shall not be paid when due and shall remain unpaid for ten (10) days,
Lessee shall pay Lessor a late charge equal to five percent (5%) of the amount
delinquent, but in no event at a rate greater than limited by any applicable
law. Such late charge is in addition to and not in lieu of other rights and
remedies Lessor may have.
21. Lessor May Perform. If Lessee at any time shall fail to pay to any person
any sum which Lessee is required by this Lease to pay or shall fail to do or
perform any other thing Lessee is required by this Lease to do or perform,
Lessor at its option may pay such sum or do or perform such thing, and Lessee
shall reimburse Lessor on demand for the amount of such payment and for the
cost and expense which may be incurred by Lessor for such acts or performance,
together with interest thereon at the Default Rate from the date of demand
until paid.
22. Events of Default and Remedies.
(A) Events of Default. Each of the following shall constitute an
event of default:
<PAGE> 9
(i) Failure to perform and comply with the provisions and
conditions of Section 12 hereof; or
(ii) Failure to pay on the date when due, any sum, including
installments of rental, owed by Lessee or any affiliate of Lessee at anytime
to Lessor; or
(iii) Failure to perform and comply with any other provision or
condition of this Lease within thirty (30) days after Lessor shall have given
Lessee written notice of default with respect thereto; or
(iv) If any representation or warranty made by Lessee herein or in
any statement or certificate furnished by Lessee in connection with this Lease
proves untrue in any material respect as of the date of making thereof, and
shall not be made good within thirty (30) days after written notice thereof to
Lessee; or
(v) Lessee becomes insolvent or is generally not paying its debts
as they become due or makes an assignment for benefit of creditors; or
(vi) Proceedings are commenced by Lessee under the Federal
Bankruptcy Code or any similar Federal or State laws for the relief of debtors
or such proceedings are commenced against Lessee and are not dismissed within
ninety (90) days after such commencement, or a trustee or receiver is appointed
for Lessee or a major part of its property and is not discharged within sixty
(60) days after such appointment; or
(vii) The Aircraft is seized or levied on under legal or
governmental
process against Lessee; or
(viii) The merger, consolidation, reorganization or dissolution of
Lessee which has a materially adverse effect upon Lessor's position under this
Lease; provided, however, that the merger, consolidation or reorganization of
Lessee within its consolidated group shall not be an Event of Default if the
consolidated financial position of the consolidated group is not materially
adversely affected by such merger, consolidation or reorganization.
(B) Remedies. The occurrence of an Event of Default shall
terminate any obligation of Lessor to lease the Aircraft to Lessee. When an
Event of Default has occurred and is continuing, Lessor at its option may:
(i) Proceed by appropriate court action or actions, either at law
or in equity, to enforce performance by the Lessee of the applicable covenants
of this Lease or to recover damages for the breach thereof; and/or
(ii) Without notice or demand declare immediately due and payable
the entire Stipulated Loss Value of the Aircraft as of the date of the Event
of Default plus any and all amounts which under the terms of this Lease may
then be due; and thereupon Lessor shall have an immediate right to pursue all
remedies provided by law, including, without limitation, the following:
(a) Lessee agrees to put Lessor in possession of the Aircraft on
demand;
(b) Lessor is authorized to enter any premises where the Aircraft
is then situated and take possession thereof without notice or demand and
without legal proceedings;
(c) At Lessor's request, Lessee will make the Aircraft available
to Lessor at a place designated by Lessor which is reasonably convenient to
both parties;
(d) Lessee agrees that ten (10) days after sending notice shall be
a reasonable period of notification of a sale or other disposition of the
Aircraft;
(e) Lessee agrees to pay on demand the amount of all expenses
reasonably incurred by Lessor in protecting or realizing on the Aircraft;
(f) If Lessor disposes of the Aircraft, Lessee agrees to pay any
deficiency remaining after application of the net proceeds to the amounts due
hereunder.
If, upon the occurrence of an Event of Default, Lessor brings suit or otherwise
incurs expenses for protection of Lessor's rights, Lessee will pay Lessor its
legal fees, in a reasonable amount, together with Lessor's collection expenses
and court costs. In addition, from and after an Event of Default, Lessee shall
be liable for interest on amounts due Lessor hereunder at a rate per annum
computed monthly which shall be five (5) percentage points above the prime
rate, but not greater than the maximum rate, if any, limited by applicable law
("Default Interest"); provided however, that Lessee shall not be assessed a
late charge during such period of time that Default Interest is accruing
against Lessee as herein stated. The remedies herein provided in favor of
Lessor shall not be deemed to be exclusive but shall be concurrent and
cumulative and in addition to all other remedies available at law or equity.
The exercise or partial exercise of any remedy shall not restrict Lessor from
further exercise of that remedy or any other remedy.
<PAGE> 10
23. Return of Aircraft and Records.
(A) General and TBO Adjustment. If Lessor shall rightfully demand
possession of the Aircraft pursuant to this Lease or otherwise, Lessee shall
forthwith deliver possession of the Aircraft to Lessor at such airport within
the United States as may be designed by Lessor free and clear of all liens and
encumbrances of any kind whatsoever except those created by Lessor or any party
(other than Lessee or parties claiming under Lessee) claiming by, through or
under Lessor. The Aircraft when so delivered to Lessor shall be clean by
corporate aircraft operating standards, shall have all engines, avionics and
parts installed thereon at the Closing Date or replacements therefore made in
accordance with this Lease, shall be in as good condition as when delivered to
Lessee hereunder, ordinary wear and tear and changes or alterations properly
made by Lessee as permitted under this Lease excepted, shall be in good
operating condition, shall have a currently effective airworthiness certificate
issued by the FAA, and the Aircraft shall not have been operated, during the
period following the last powerplant, airframe and component overhaul or
replacements performed to FAA standards, more than fifty percent (50%) of the
allowable time between overhauls (as specified by manufacturer and approved by
the appropriate aeronautics authority). If the Aircraft has been operated
(during the period from the last overhaul to the date the Aircraft is returned)
more than fifty percent (50%) of the allowable time, as described above, Lessee
will pay Lessor a dollar amount (described below) based on the number of hours
of operation in excess of fifty percent (50%) of allowable time between
overhauls ("TBO") for the period immediately preceding return of the Aircraft.
The dollar amount will be an amount equal to the product of:
(i) the then anticipated cost of overhaul or replacement, as
determined by an estimate from an FAA authorized repair facility which is
mutually agreeable, times
(ii) the quotient of
(a) the number of hours in excess of fifty percent of
allowable time divided by
(b) the total allowable time between overhauls for
that period.
For illustrative purposes only, and not by way of limitation, if the allowable
TBO is 100 hours, so that the number of hours of use between overhauls is 50
hours, and the Aircraft has been operated during the period immediately
preceding return of the Aircraft for 60 hours since the last overhaul, then
Lessee shall pay Lessor a dollar amount equal to (10/100) or 10% of the then
anticipated cost of overhaul or replacement.
(B) Servicing and Repair. If, upon return, the Aircraft requires
repair work which could not reasonably be deemed to have resulted from ordinary
wear and tear, or if the Aircraft shall not have been serviced in accordance
with the manufacturer's specifications, then Lessee shall reimburse Lessor for
the cost of such repairs and servicing. The determination of condition and
cost herein contemplated shall be made by a mutually acceptable FAA certified
mechanic.
(C) Inspection Costs. Lessee shall pay Lessor a pro rata share of
the cost of the next regularly scheduled Aircraft inspection according to the
following formula:
Hours Since Last X Anticipated Cost of Inspection
Inspection (based on survey of 3 FAA repair
------------------ facilities)
Total Hours Between
Inspections.
Notwithstanding the foregoing to the contrary, Lessee shall not be
obligated to pay Lessor any amount under this Section 23 after Lessor shall
have received all amounts payable to Lessor hereunder including any deficiency
payable following the sale of the Aircraft.
(D) Markings and Logbook. All special markings of Lessee as
Lessor may in writing request Lessee to remove, shall be removed by Lessee by
methods approved by Lessor (such approval not to be unreasonably withheld).
Lessee shall also deliver to Lessor with the Aircraft the aircraft log book and
all inspection, modification and overhaul records applicable to the Aircraft.
<PAGE> 11
24. Holdover. If Lessee shall not immediately redeliver and surrender the
Aircraft to Lessor when required by the terms hereof, Lessee shall pay Lessor,
at such time or times as Lessor may demand, a sum equal to a one-month
installment of Periodic Rental, as in effect at the time redelivery and
surrender were required, for each calendar month, or fraction of a calendar
month prorated daily, during which such failure to redeliver and surrender
continues.
25. Inspection; Reports. Lessor, its agents and employees shall have the right
to enter upon any premises where the Aircraft is then located to inspect and
examine the same during normal business hours and at any other times if Lessor
reasonably believes the Aircraft or Lessor's rights are in jeopardy of damage
or loss. So long as Lessee is not in default, Lessor shall give Lessee not
less than twenty-four (24) hours notice of such inspection; provided, however,
that Lessee shall not be required to remove the Aircraft from scheduled
operations in order to satisfy Lessor's request for inspection. Lessee shall
immediately give Lessor written notice of any material damage to or loss of the
Aircraft any cause, including without limitation damage or loss caused by
accident, the elements, intentional acts and theft. Such notice shall set
forth an itemization of the damage and a detailed account of the event,
including names of any injured persons and a description of any damaged
property arising from any such event or from any use or operation of the
Aircraft, and of any attempt to take, distrain, levy upon, seize or attach the
Aircraft. All rights granted to Lessor herein are for the benefit of Lessor
and shall not be construed to impose any obligation on Lessor, whether or not
Lessor makes any inspections or receives any reports.
26. Financial and Other Data. During the Term Lessee: (a) shall furnish Lessor
annual consolidated balance sheets and profit and loss statements of Lessee's
consolidated group and any guarantor of Lessee's obligations accompanied, at
Lessor's request, by the audit report of an independent certified public
accountant acceptable to Lessor; and (b) at Lessor's request, shall furnish
Lessor all other financial information and reports reasonably requested by
Lessor at any time, including quarterly or other interim balance sheets and
profit and loss statements of Lessee's consolidated group and any such
guarantor. Lessee shall furnish such other information as Lessor may
reasonably request at any times concerning Lessee and its affairs.
27. Warranty of Information. Lessee warrants that all information furnished
and to be furnished to Lessor is accurate and that all financial statements it
has furnished and hereafter may furnish Lessor, including operating statements
and statements of condition, are and will be prepared in accordance with
generally accepted accounting principles, consistently applied, and reasonably
reflect and will reflect, as of their respective dates, results of the
operations and the financial condition of Lessee and of any other entity they
purport to cover.
28. Non-Waiver. Neither the acceptance by Lessor of any payment or any other
performance, nor any act or failure of Lessor to act or to exercise any rights,
remedies or options in any one or more instances shall constitute a waiver of
any such right, remedy or option or of any other then existing or thereafter
accruing right, remedy or option, or of any breach or default then existing or
thereafter occurring. No purported waiver by Lessor of any right, remedy,
option, breach or default shall be binding unless in writing and signed by an
officer of Lessor. A written waiver by Lessor of any right, remedy, option,
breach or default shall not constitute a waiver of any other then existing or
thereafter accruing right, remedy or option or of any other then existing or
thereafter occurring breach or default.
29. Notices; Payments.
(A) A written notice may be given: (i) by delivering the same to a
corporate officer of the party to whom it is directed (the "Addressee"); or
(ii) by mailing the notice to the Addressee by first class mail, registered or
certified, with postage prepaid, addressed to the Addressee as shown below, or
to such other address as Addressee may specify by notice in writing given in
accordance with this Section. A notice so mailed shall be deemed given on the
third business day following the date of mailing. A "business day" shall be
any day that is not a Saturday or Sunday or a legal holiday.
<PAGE>
<PAGE> 12
If to Lessee: Conseco Investment Holding Company
1209 Orange Street
Wilmington, Delaware 19801
If to Lessor: MetLife Capital Corporation
10900 N.E. 4th St., Suite 500
P.O. Box C-97550
Bellevue, WA 98009
Attn: Vice President/Contract Administration
(B) Lessee shall make all payments to Lessor at the place where notice
is to be mailed to Lessor pursuant to subparagraph (A). Payments are deemed
paid when received by Lessor.
30. Assignment.
(A) Lessee shall not assign this Lease or any rights in or to the
Aircraft, nor shall Lessee sublease the Aircraft; provided, however, that
Lessee shall be entitled to sublease the aircraft to Conseco, Inc., after
Lessor's approval of the form of such sublease, and provided, further, that
Lessee shall be entitled to sublease the aircraft to an affiliate of Conseco,
Inc. (such affiliates being described in Exhibit C attached hereto and by this
reference incorporated herein) under the following conditions: (i) Lessee
shall deliver to Lessor prior written notice of such sublease; (ii) the
sublease shall be in substantially the form of sublease between Lessee and
Conseco, Inc.; and (iii) Lessee shall deliver to Lessor, within three (3) days
of execution of the sublease, an executed assignment of such sublease to Lessor
for security purposes, an executed Uniform Commercial Code financing statement
reflecting the sublessee as debtor, Lessee as secured party, and Lessor as
assignee, and an executed Uniform Commercial Code financing statement
reflecting Lessee as debtor, Lessor as secured party, and the sublease as the
collateral. Any attempted assignment shall be of no effect, unless Lessor
first shall have consented thereto in writing. Lessor's consent to an
assignment in any one or more instances shall not impose any obligation upon
Lessor to consent to any other or further assignments. Lessor's consent to an
assignment shall not release Lessee from any obligations with respect to this
Lease unless expressly so stated in the written consent.
(B) All rights of Lessor hereunder may be assigned, pledged,
mortgaged, transferred or otherwise disposed of, either in whole or in part,
without notice to Lessee but subject always to the rights of Lessee under this
Lease. If Lessee is given notice of any such assignment, Lessee shall
acknowledge receipt thereof in writing. In the event that Lessor assigns this
Lease or the rent due or to become due hereunder or any other interest herein,
whether as security for any of its indebtedness or otherwise, no breach or
default by Lessor hereunder or pursuant to any other agreement between Lessor
and Lessee, should there be one, shall excuse performance by Lessee of any
provision hereof, it being understood that in the event of such default or
breach by Lessor that Lessee shall pursue any rights on account thereof solely
against Lessor. No such assignee shall be obligated to perform any duty,
covenant or condition requested to be performed by Lessor under the terms of
this Lease.
31. Survival. The representations, warranties, indemnities and agreements of
Lessee and Lessor, and their obligations under any and all provisions of this
Lease, shall survive the expiration or other termination of this Lease, shall
be binding upon their successors and assigns and are expressly made for the
benefit of and shall be enforceable by Lessee and Lessor and their successors
and assigns.
32. Miscellaneous.
(A) The term "Lessor" shall mean the lessor named herein and its
successors and assigns.
(B) Whenever the context so requires, any pronoun gender includes all
other genders, and the singular includes the plural. If more than one person
constitute lessee, whether as a partnership or otherwise, all such persons are
and shall be jointly and severally liable for all agreements, undertakings and
obligations of the lessee.
(C) All captions and section, paragraph and other divisions and
subdivisions are for convenience of reference only and shall not affect the
construction, interpretation or meaning of the agreement or Lease or of any of
the provisions thereof.
<PAGE> 13
(D) This Lease shall be governed by and construed according to the law
of the State of Washington.
(E) This Lease shall be binding upon and, except as limited in Section
30 hereof, shall inure to the benefit of Lessor and Lessee and their respective
successors and assigns.
(F) This Lease cannot be canceled or terminated except as expressly
provided herein.
(G) Wherever Lessor's consent is required hereunder, such consent will
no be unreasonably withheld.
(H) Lessee's obligation to pay or reimburse Lessor for expenses as
provided hereunder shall be limited to reasonable expenses.
33. Lessor's Disclaimer. Lessee acknowledges and agrees that it has selected
both the Aircraft of the type and quantity which is the subject of this Lease
and the supplier from whom the Aircraft was purchased. LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE DESIGN, COMPLIANCE
WITH SPECIFICATIONS, CONDITION, QUALITY, WORKMANSHIP, OR THE SUITABILITY,
ADEQUACY, OPERATION, USE OR PERFORMANCE OF THE AIRCRAFT OR AS TO ITS
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, AND LESSOR MAKES NO
REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, AS TO THE TAX AND/OR ACCOUNTING
TREATMENT OF THIS LEASE. ANY DELAY IN DELIVERY SHALL NOT AFFECT THE VALIDITY
OF THIS LEASE. Lessee understands and agrees that neither the supplier nor any
salesman or any agent of the supplier is an agent of Lessor. No salesman or
agent of supplier is authorized to waive or alter any term or condition of this
Lease, and no representation as to the Aircraft or any other matter by the
supplier shall in any way affect Lessee's duty to pay the rent and perform its
obligations as set forth in this Lease. Lessor shall not be liable to Lessee
for any incidental, consequential, or indirect damages or for any act, neglect,
omission, breach or default by any third party.
34. No Affiliation with Suppliers. Lessee warrants that neither it nor any of
its officers, directors has, directly or indirectly, a substantial financial
interest in the manufacturer or supplier of the Aircraft except as previously
disclosed in writing to Lessor.
35. Entire Agreement. This Lease and the Schedule(s) hereto shall constitute
the entire agreement between the parties with respect to the subject matter
contained herein, and shall not be altered or amended except by an agreement
in writing signed by the parties hereto or their successors or assigns.
Specifically, this Lease supersedes and replaces that certain proposal letter
(the "Proposal Letter") dated November 4, 1993 from Lessor to Lessee, and
accepted by Lessee on November 5, 1993.
36. Truth in Leasing.
(A) The parties hereby certify as follows: During the twelve months
(or portion thereof during which the Aircraft has been subject to United States
registration) preceding the execution of this Lease, the Aircraft has been
maintained and inspected under Part 91 of the Federal Aviation Regulations.
The Aircraft is in compliance with applicable maintenance and inspection
requirements under the Federal Aviation Regulations for the operation of the
Aircraft to be conducted under this Lease.
(B) The name and address of the person responsible for operational
control of the aircraft under this Lease are:
Name: Danny A. Rice
Title: Vice President - Aviation
Address: 7815 Headwind Drive
Indianapolis, Indiana 46241
by the signature below, Lessee certifies that it understands its
responsibilities for compliance with the applicable Federal Aviation
Regulations.
(C) An explanation of factors bearing on operational control and
pertinent Federal Aviation Regulations can be obtained from the nearest FAA
Flight Standards District Office, General Aviation District Office, or Air
Carrier District Office.
<PAGE> 14
IN WITNESS WHEREOF Lessor and Lessee have caused this Lease to be
executed by their respective duly authorized officers as of the day and year
first above written.
LESSOR: LESSEE:
METLIFE CAPITAL CORPORATION: CONSECO INVESTMENT HOLDING COMPANY
By: /s/ MICHAEL E. TAFT By: /s/ MARK A. FERRUCCI
______________________ -----------------------
Title: Executive Vice President Title: President
<PAGE>
<PAGE> 15
Exhibit A
to
Aircraft Lease Purchase Agreement
Prepayment Premium Factors
<TABLE>
<CAPTION>
Conseco
Prepayment Premiums
Remaining Premium
Months Factor
<S> <C>
84 0.90090%
83 0.89014%
82 0.87938%
81 0.86863%
80 0.85787%
79 0.84711%
78 0.83635%
77 0.82559%
76 0.81483%
75 0.80480%
74 0.79332%
73 0.78256%
72 0.77180%
71 0.76142%
70 0.75103%
69 0.74065%
68 0.73027%
67 0.71988%
66 0.70950%
65 0.69912%
64 0.68873%
63 0.67835%
62 0.66797%
61 0.65758%
60 0.64720%
59 0.63719%
58 0.62718%
57 0.61718%
56 0.60717%
55 0.59716%
54 0.58715%
53 0.57714%
52 0.56713%
51 0.55712%
50 0.54712%
49 0.53711%
48 0.00000%
</TABLE>
<PAGE>
<PAGE> 16
Exhibit B
to
Aircraft Lease Purchase Agreement
Stipulated Loss Value Schedule
<TABLE>
<CAPTION>
Conseco
SLV Table
<S> <C> <C>
0 1/4/94 15,000,000.00
1 2/4/94 15,433.035.06
2 3/4/94 15,365,813.98
3 4/4/94 15,298,335.78
4 5/4/94 15,230,599.47
5 6/4/94 15,162,604.07
6 7/4/94 15,094,348.60
7 8/4/94 15,025,832.04
8 9/4/94 14,957,053.41
9 10/4/94 14,888,011.70
10 11/4/94 14,818,705.90
11 12/4/94 14,749,135.01
12 1/4/95 14,679.298.01
13 2/4/95 14,609,193.89
14 3/4/95 14,538,821.61
15 4/4/95 14,468,180.17
16 5/4/95 14,397,268.52
17 6/4/95 14,326,085.63
18 7/4/95 14,254,630.46
19 8/4/95 14,182,901.99
20 9/4/95 14,110,899.15
21 10/4/95 14,038,620.90
22 11/4/95 13,966,066.18
23 12/4/95 13,893,233.94
24 1/4/96 13,820,123.12
25 2/4/96 13,746,732.65
26 3/4/96 13,673,061.47
27 4/4/96 13,599,108.49
28 5/4/96 13,524,872.64
29 6/4/96 13,450,352.83
30 7/4/96 13,375,547.99
31 8/4/96 13,300,457.03
32 9/4/96 13,225,078.83
33 10/4/96 13,149,412.32
34 11/4/96 13,073,456.38
35 12/4/96 12,997,209.91
36 1/4/97 12,920,671.90
37 2/4/97 12,843,840.93
38 3/4/97 12,766,716.18
39 4/4/97 12,689,296.43
40 5/4/97 12,611,580.55
41 6/4/97 12,533,567.41
42 7/4/97 12,455,255.86
43 8/4/97 12,376,644.77
44 9/4/97 12,297,733.00
45 10/4/97 12,218,519.39
46 11/4/97 12,139,002.79
47 12/4/97 12,059,182.03
48 1/4/98 11,979,055.96
49 2/4/98 11,898,623.41
50 3/4/98 11,817,883.21
51 4/4/98 11,736,834.17
52 5/4/98 11,655,475.12
53 6/4/98 11,573,804.87
54 7/4/98 11,491,822.24
55 8/4/98 11,409,526.02
56 9/4/98 11,326,915.01
57 10/4/98 11,243,988.02
58 11/4/98 11,160,743.84
59 12/4/98 11,077,181.24
60 1/4/99 10,993,299.02
61 2/4/99 10,909,095.95
62 3/4/99 10,824,570.80
63 4/4/99 10,739,722,35
<PAGE> 17
64 5/4/99 10,654.549.34
65 6/4/99 10,569,050.56
66 7/4/99 10,483,224.73
67 8/4/99 10,397,070.63
68 9/4/99 10,310,586,98
69 10/4/99 10,223,772.54
70 11/4/99 10,136,626.03
71 12/4/99 10,049,146.18
72 1/4/00 9,961,331.73
73 2/4/00 9,873,181.38
74 3/4/00 9,784,693.86
75 4/4/00 9,695,867.87
76 5/4/00 9,606,702.13
77 6/4/00 9,517,195,32
78 7/4/00 9,427,346.16
79 8/4/00 9,337,153.32
80 9/4/00 9,246,615.49
81 10/4/00 9,155,731.35
82 11/4/00 9,064,499.58
83 12/4/00 8,972,918.85
84 1/4/01 8,880,987,83
85 2/4/01 8,788,705.17
86 3/4/01 8,696,069.52
87 4/4/01 8,603,079.55
88 5/4/01 8,509,733.89
89 6/4/01 8,416,031.18
90 7/4/01 8,321,970.06
91 8/4/01 8,227,549.16
92 9/4/01 8,132,767.09
93 10/4/01 8,037,622.49
94 11/4/01 7,942,113.95
95 12/4/01 7,846,240.10
96 1/4/02 -0.47
</TABLE>
<PAGE>
<PAGE> 18
Exhibit C
to
Aircraft Lease Purchase Agreement
Organizational Chart of Conseco, Inc.
Listing Affiliates
<TABLE>
<CAPTION>
IRS Employer State of
ID Number Incorporation
------------- --------------
<S> <C> <C>
Conseco, Inc. 35-1468632 IN
Bankers National Life Insurance Company 75-1056842 TX
Lincoln Fire & Casualty Insurance Company 61-0573931 KY
National Fidelity Life Insurance Company 44-0367450 MO
Western National Life Insurance Company 75-0770838 TX
Lincoln American Life Insurance Company - TN
Conseco Annuity Guarantee Company 35-1723821 TX
Conseco Capital Management, Inc. 22-2403791 DE
Conseco Risk Management, Inc. 35-1784981 IN
Conseco Private Capital Group, Inc. 35-1882445 IN
Marketing Distributions Systems Consulting Group, Inc. 22-2930182 DE 95% (1)
MDS of New Jersey, Inc. 22-2898228 NJ
MDS Securities Incorporated 22-3120482 DE
BankMark School of Business, Inc. 22-3135005 DE
Conseco Mortgage Capital, Inc. 51-0331205 DE
Conseco Investment Holding Company 52-1536829 DE
Western National Corp 75-2502064 DE
CCP Insurance, Inc. 35-1854231 IN 39.78%
GARCO Acquisition Corporation 52-1680369 DE
GARCO Holding Corporation 52-1688285 DE
Jefferson National Life Insurance Company of Texas 75-2351012 TX
Beneficial Standard Life Insurance Company 95-0540891 CA
Beneficial Assurance Company 86-6054041 AZ
Jefferson National Life Insurance Company 35-0421411 IN
Great American Reserve Insurance Company 75-0300900 TX
GARCO Equity Sales, Inc. 75-1301573 TX
Bankers Life Holding Corporation 51-0342500 DE 55.66%
Bankers Life Insurance Company of Illinois 36-3851005 IL
Bankers Life & Casualty Company 36-0770740 IL
Certified Life Insurance Company 95-2109398 CA
Conseco Partnership Management Co., L.P. 35-1793582 IN
Conseco Partnership Management, Inc. 35-1793581 IN
<FN>
NOTES:
All subsidiaries are 100% owned unless otherwise indicated.
(1) Stock options and performance incentives which vest through 1995 may
dilute Conseco's ownership to 84%.
</TABLE>
<PAGE> 1
AIRCRAFT LEASE AGREEMENT
THIS AIRCRAFT LEASE AGREEMENT, dated as of October 6, 1993
(together with all supplements, annexes, exhibits and schedules hereto
hereinafter referred to as the "Lease"), between General Electric Capital
Corporation, with an office at 1415 W. 22nd St., Suite 800, Oak Brook IL
60521 (hereinafter called, together with its successors and assigns, if any,
"Lessor") and Conseco Investment Holding Company, a corporation organized and
existing under the laws of the State of Delaware with its mailing address and
chief place of business at 1209 Orange Street, Wilmington, Delaware 19801
(hereinafter called "Lessee").
WITNESSETH:
----------
I. LEASING:
(a) Subject to the terms and conditions set forth below, Lessor agrees
to lease to Lessee, and Lessee agrees to lease from Lessor, the aircraft,
including the airframe, engines and all appurtenant equipment (together
hereinafter the "Aircraft") described in Annex A.
(b) The obligation of Lessor to purchase the Aircraft from the
manufacturer or supplier thereof ("Supplier") and to lease the same to Lessee
hereunder shall be subject to the Commencement Date of the Lease, as that term
is hereinafter defined in Section II, occurring on or prior to the Last
Delivery Date specified in Annex B, on the representations and warranties of
Lessee contained herein being true and accurate as of the Commencement Date and
further conditioned on receipt by Lessor, on or prior to the Commencement Date,
of each of the following documents in form and substance satisfactory to
Lessor: (i) a copy of this Lease executed by Lessee, (ii) unless Lessor shall
have delivered its purchase order for such Aircraft, the Purchase Document(s)
Assignment and Consent in the form of Annex G, with copies of the purchase
order or other purchase documents attached thereto; (iii) copies of insurance
policies or, at Lessor's option, such other evidence of insurance which
complies with the requirements of Section IX, (iv) evidence of Lessee's
reservation of an N number for the Aircraft together with an assignment of the
rights thereto to Lessor; (v) evidence that the Aircraft has been duly
certified as to type and airworthiness by the Federal Aviation Administration
("FAA"); (vi) evidence that FAA counsel has received in escrow the executed
bill of sale and AC Form 8050-1 Aircraft Registration Form (except for the pink
copy which shall be available to be placed on the Aircraft upon acceptance
thereof), and an executed duplicate of this Lease all in proper form for filing
with the FAA; (vii) resolution of Lessee authorizing this Lease
substantially in the form of Annex D; and (viii) such other documents as Lessor
may reasonably request. Lessor's obligation to lease the Aircraft hereunder
is further conditioned upon (aa) the cost to Lessor of the acquisition of the
Aircraft not exceeding the Capitalized Lessor's Cost stated on Annex A; (bb)
Lessee's execution and delivery to Lessor of a Certificate of Acceptance in the
form of Annex E; and (cc) filing of all necessary documents with, and the
acceptance thereof by, the FAA.
<PAGE>
<PAGE> 2
(c) Lessor hereby appoints Lessee its agent for inspection and
acceptance of the Aircraft from the Supplier. Subject to the aforestated
conditions, upon execution by Lessee of the Certificate of Acceptance, the
Aircraft described thereon shall be deemed to have been delivered to, and
irrevocably accepted by, Lessee for lease hereunder.
II. TERM, RENT AND PAYMENT:
(a) The rent ("Rent') payable hereunder and Lessee's right to use the
Aircraft shall commence on the date of execution by Lessee of the Certificate
of Acceptance ("Commencement Date"). The term ("Term") of this Lease shall
commence on the Commencement Date and shall continue, unless earlier
terminated pursuant to the provisions hereof, until and including the
Expiration Date stated in Annex B. If any term is extended or renewed, the
word "Term" shall be deemed to refer to all extended or renewal terms, and all
provisions of this Lease shall apply during any such extension or renewal
terms, except as may be otherwise specifically provided in writing.
(b) Rent shall be paid to Lessor at its address stated above, except
as otherwise directed by Lessor. Payments of Rent shall be in the amount,
payable at such intervals and shall be due in accordance with subsections (c)
through (d) hereof and the provisions of Annex B. (Each payment of Rent is
hereinafter referred to as a "Rent Payment'.) If one or more Advance Rent
is payable, such Advance Rent shall be (i) set forth on Annex B and due in
accordance with the provisions of Annex B, and (ii) when received by Lessor,
applied to the first Basic Term Rent Payment and the balance, if any, to the
final Rent Payment(s), in inverse order of maturity. In no event shall any
Advance Rent or any other Rent Payment be refunded to Lessee. If Rent is not
paid within ten (10) days of its due date, Lessee agrees to pay a late charge
of five cents (5) per dollar on, and in addition to, the amount of such Rent
but not exceeding the lawful maximum, if any.
(c) For the period from and including the Commencement Date to the
Basic Term Commencement Date ("Interim Period") stated in Annex B, Lessee
shall pay as Rent ("Interim Rent") for the Aircraft, the product of the Daily
Lease Rate Factor stated in Annex B times the Capitalized Lessor's Cost of
same stated in Annex A times the number of days in the Interim Period.
Interim Rent shall be due on the date stated in Annex B.
(d) Commencing on the First Basic Rent Date stated in Annex B and
thereafter as stated in Annex B (each, a "Rent Payment Date") during the Basic
Term, Lessee shall pay as Rent ("Basic Term Rent") the product of the Basic
Term Lease Rate Factor stated in Annex B times the Capitalized Lessor's Cost
stated in Annex A.
III. TAXES: Lessee shall have no liability for taxes imposed by the
United States of America or any State or political subdivision thereof which
are on or measured by the net income of Lessor. Lessee shall report (to the
extent that it is legally permissible) and pay promptly all other taxes, fees
and assessments due, imposed, assessed or levied against the Aircraft (or the
purchase, ownership, delivery, leasing, possession, use or operation
thereof), this Lease (or any rentals or receipts hereunder), Lessor or Lessee
by any foreign, federal, state or local government or taxing authority during
or related to the Term of this Lease, including, without limitation, all
license and registration fees, and all sales, use, personal property, excise,
gross receipts, franchise, stamp or other taxes, imposts, duties and charges,
together with any penalties, fines or interest thereon (all hereinafter called
'Taxes"). Lessee shall (a) reimburse Lessor upon receipt of written request
for reimbursement for any Taxes charged to or assessed against Lessor, (b) on
request of Lessor, submit to Lessor written evidence of Lessee's payment of
Taxes, (c) on all reports or returns show the ownership of the Aircraft by
Lessor, and (d) send a copy thereof to Lessor. Lessee shall have the right to
contest any Taxes and shall not be required to pay, or cause to be paid, any
Taxes, if such payment is being contested diligently, in good faith, and by
appropriate proceedings which will prevent foreclosure upon the Aircraft and
adequate reserves for the payment of such Taxes have been established by
Lessee. Lessor agrees to give Lessee prompt notice of the assessment of any
Taxes for which Lessor intends to claim indemnification pursuant to this
provision.
<PAGE>
<PAGE> 3
IV. REPORTS: Lessee will provide Lessor with the following in writing
within the time periods specified: (a) notice of tax or other lien which
attaches to the Aircraft within ten (10) days of Lessee's obtaining knowledge
of such attachment and such additional information with respect to the tax or
lien forthwith upon request of Lessor; (b) Lessee's balance sheet and profit
and loss statement within ninety (90) days of the close of each fiscal year of
Lessee, and any further financial information or reports, upon request; (c)
notice to Lessor of the Aircraft's location, and, the location of all
information, logs, documents and records regarding or in respect to the
Aircraft and its use, maintenance and/or condition, immediately upon request;
(d) notice to Lessor of the relocation of the Aircraft's primary hangar
location, ten (10) days prior to any relocation; (e) notice of loss or damage
to the Aircraft (where the estimated repair costs would exceed 10% of the
Aircraft's then fair market value) within ten (10) days of such loss or
damage; (f) notice of any accident involving the Aircraft causing personal
injury or property damage within ten (10) days of such accident; (g) copies of
the insurance policies or other evidence of insurance required by the terms
hereof, promptly upon request by Lessor; (h) copies of all information, logs,
documents and records regarding or in respect to the Aircraft and its use,
maintenance and/or condition, within ten (10) days of such request; (i) a
certificate of the authorized officer of Lessee stating that he has reviewed
the activities of Lessee and that, to the best of his knowledge, there exists
no default (as described in Section XI) or event which with notice or lapse of
time (or both) would become such a default, within ten (10) days of such
request; (j) such information as may be required to enable Lessor to file any
reports required by any governmental authority as a result of Lessor's
ownership of the Aircraft, promptly upon request of Lessor; (k) copies of any
manufacturer's maintenance service program contract for the airframe or
engines, promptly upon request; (1) evidence of Lessee's compliance with FAA
airworthiness directives and advisory circulares and of compliance with other
maintenance provisions of Section VI hereof and the return provisions of
Section X, upon request of Lessor; and (m) such other reports as Lessor may
reasonably request.
V. DELIVERY, REGISTRATION, USE AND OPERATION:
(a) The parties acknowledge that this is a lease transaction and the
Aircraft shall be delivered directly from the Supplier to Lessee.
(b) Lessee, at its own cost and expense, shall cause the Aircraft to
be duly registered in the name of Lessor under the U.S. Federal Aviation Act
and shall not register the Aircraft under the laws of any other country.
(c) The possession, use and operation of the Aircraft shall be at the
sole risk and expense of Lessee. Lessee agrees that the Aircraft will be used
and operated in compliance with any and all statutes, laws, ordinances,
regulations and standards or directives issued by any governmental agency
applicable to the use or operation thereof, in compliance with any
airworthiness certificate, license or registration relating to the Aircraft
issued by any agency and in a manner that does not modify or impair any
existing warranties on the Aircraft or any part thereof. Lessee will operate
the Aircraft predominantly in the conduct of its business and not operate or
permit the Aircraft to be operated (i) in a manner wherein the predominance
of use during any consecutive twelve month period would be for a purpose other
than transportation for Lessee, or in a manner, for any time period, such that
Lessor or a third party shall be deemed to have "operational control" of the
Aircraft, or (ii) for the carriage of persons or property for hire or the
transport of mail or contraband. The Aircraft will, at all times be operated
by duly qualified pilots holding at least a valid commercial airman
certificate and instrument rating and any other certificate, rating, type
rating or endorsement appropriate to the Aircraft, purpose of flight,
condition of flight or as otherwise required by the Federal Aviation
Regulations ("FAR'). Pilots shall be employed, paid and contracted for by
Lessee, shall meet all recency of flight requirements and shall meet the
requirements established and specified by the insurance policies required
hereunder and the FAA. The primary hangar location of the Aircraft shall be
as stated in Annex B. Lessee shall not relocate the primary hangar location
to a hangar location outside the United States.
<PAGE>
<PAGE> 4
(d) The engines set forth on Annex A shall be used only on the airframe
described in Annex A and shall only be removed for maintenance in accordance
with the provisions hereof. So long as the Aircraft is predominantly used
within the continental United States Lessee may use the Aircraft outside the
continental United States provided Lessee shall not operate the Aircraft in,
or otherwise permit the Aircraft to go into or over, (i) any area of
hostilities, (ii) any country or jurisdiction that does not then maintain
full diplomatic relations with the United States of America, (iii) in a
communist block country or (iv) any geographic area which is not covered by
any insurance policy required under this Lease provided, that any losses,
costs, expenses, (including those losses, costs, expenses for which Lessor is
indemnified hereunder) incurred as a result of or relating to such use in a
non-communist block country shall be Lessee's responsibility and Lessee shall
pay such amounts upon written demand by Lessor. In addition, in the event the
Aircraft is confiscated by a foreign government for whatever reason and
Lessee's insurance company pays the insured amount as required by Section
VIII, IX and XIV hereof, Lessor shall release its interest in the Aircraft.
VI. MAINTENANCE:
(a) Lessee agrees that the Aircraft will be maintained in compliance
with any and all statutes, laws, ordinances, regulations and standards or
directives issued by any governmental agency applicable to the maintenance
thereof, in compliance with any airworthiness certificate, license or
registration relating to the Aircraft issued by any agency and in a manner
that does not modify or impair any existing warranties on the Aircraft or any
part thereof.
(b) Lessee shall maintain, inspect, service, repair; overhaul and test
the Aircraft (including each engine of same) in accordance with (i) all
maintenance manuals initially furnished with the Aircraft, including any
subsequent amendments or supplements to such manuals issued by the
manufacturer from time to time, (ii) all recommended "Service Bulletins"
issued, supplied, or available by or through the manufacturer and/or the
manufacturer of any engine or part with respect to the Aircraft, and (iii) all
airworthiness directives and advisory circulares issued by the FAA or similar
regulatory agency having jurisdictional authority, and causing compliance to
such directives or circulares to be completed through corrective modification
in lieu of operating manual restrictions. Lessee shall maintain all records,
logs and other materials required by the manufacturer thereof for enforcement
of any warranties or by the FAA. All maintenance procedures required hereby
shall be undertaken and completed in accordance with the manufacturer's
recommended procedures, and by properly trained, licensed, and certificated
maintenance sources and maintenance personnel, so as to keep the Aircraft and
each engine in as good operating condition as when delivered to Lessee
hereunder, ordinary wear and tear excepted, and so as to keep the Aircraft in
such operating condition as may be necessary to enable the airworthiness
certification of such Aircraft to be maintained in good standing at all times
under the FAA.
(c) Lessee agrees, at its own cost and expense, to (i) cause the
Aircraft and each engine thereon to be kept numbered with the identification
or serial number therefor as specified in Annex A; (ii) prominently display on
the Aircraft that N number, and only that N number, specified in Annex A;
(iii) notify Lessor in writing thirty (30) days prior to making any change in
the configuration (other than changes in configuration mandated by the FAA),
appearance and coloring of the Aircraft from that in effect at the time the
Aircraft is accepted by Lessee hereunder, and in the event of such change or
modification of configuration, coloring or appearance, to restore, upon
request of Lessor, the Aircraft to the configuration, coloring or appearance
in effect on the Commencement Date or, at Lessor's option to pay to Lessor an
amount equal to the reasonable cost of such restoration, (iv) affix and
maintain inside the Aircraft adjacent to the airworthiness certificate and on
each engine a metal nameplate bearing the Aircraft marking specified in
Annex A and such other markings or writings as from time to time may be
required by law or otherwise deemed necessary by Lessor in order to protect
its title to the Aircraft and its rights hereunder. Lessee will not place the
Aircraft in operation or exercise any control or dominion over the same until
such Aircraft marking has been placed thereon. Lessee will replace promptly
any such Aircraft marking which may be removed, defaced or destroyed.
<PAGE>
<PAGE> 5
(d) Lessee shall be entitled from time to time during the Term of this
Lease to acquire and install on the Aircraft at Lessee's expense, any
additional accessory, device or equipment as Lessee may desire (each such
accessory, device or equipment, an "Addition"), but only so long as such
Addition (i) is ancillary to the Aircraft; (ii) is not required to render the
Aircraft complete for its intended use by Lessee; (iii) does not alter or
impair the originally intended function or use of the Aircraft; and (iv) can
be readily removed without causing material damage. Title to each Addition
which is not removed by Lessee prior to the return of the Aircraft to Lessor
shall vest in Lessor upon such return. Lessee shall repair all damage to the
Aircraft resulting from the installation or removal of any Addition so as to
restore the Aircraft to its condition prior to installation, ordinary wear and
tear excepted.
(e) Any alteration or modification (each an "Alteration") with respect
to the Aircraft that may at any time during the Term of this Lease be required
to comply with any applicable law or any governmental rule or regulation shall
be made at the expense of Lessee. Any repair made by Lessee of or upon the
Aircraft or replacement parts, including any replacement engine, installed
thereon in the course of repairing or maintaining the Aircraft, or any
Alteration required by law or any governmental rule or regulation, shall be
deemed an accession, and title thereto shall be immediately vested in Lessor
without cost or expense to Lessor.
(f) Except as permitted under this Section VI, Lessee will not modify
the Aircraft or affix or remove any accessory to the Aircraft leased hereunder.
VII. LIENS, SUBLEASE AND ASSIGNMENT:
(a) Lessee shall not sell, transfer, assign or encumber the Aircraft,
any engine or any part thereof, Lessor's security interest or its rights under
this Lease and shall not sublet or part with possession of the Aircraft or any
engine or part thereof or enter into any interchange agreement. Lessee shall
not permit any engine to be used on any other Aircraft. Lessee shall keep the
Aircraft each engine and any part thereof free and clear of all liens and
encumbrances other than those which result from (i) the respective rights of
Lessor and Lessee as herein provided; (ii) liens arising from the acts of
Lessor; (iii) liens for taxes not yet due; and (iv) inchoate materialmen's,
mechanics', workmen's, repairmen's, employees' or other like liens arising in
the ordinary course of business of Lessee for sums not yet delinquent or being
contested in good faith (and for the payment of which adequate assurances in
Lessor's judgment have been provided Lessor).
(b) Lessor and any assignee of Lessor may assign this Lease, or any
part hereof and/or the Aircraft subject hereto. Lessee hereby waives and
agrees not to assert against any such assignee, or assignee's assigns, any
defense, set-off, recoupment claim or counterclaim which Lessee has or may at
any time have against Lessor for any reason whatsoever.
<PAGE>
<PAGE> 6
VIII. LOSS, DAMAGE AND STIPULATED LOSS VALUE: Lessee hereby assumes and
shall bear the entire risk of any loss, theft, confiscation, expropriation,
requisition, damage to, or destruction of, the Aircraft, any engine or part
thereof from any cause whatsoever. Lessee shall promptly and fully notify
Lessor in writing if the Aircraft, or any engine thereto shall be or become
worn out, lost, stolen, confiscated, expropriated, requisitioned, destroyed,
irreparably damaged or permanently rendered unfit for use from any cause
whatsoever (such occurrences being hereinafter called "Casualty Occurrences").
In the event that, in the reasonable opinion of Lessor, a Casualty Occurrence
has occurred which affects only the engine(s) of the Aircraft, then Lessee, at
its own cost and expense, shall replace such engine(s) with an engine(s)
acceptable to Lessor and shall cause title to such engine(s) to be transferred
to Lessor for lease to Lessee hereunder. Upon transfer of title to Lessor of
such engine(s), such engine(s) shall be subject to the terms and conditions of
this Lease, and Lessee shall execute whatever documents or filings Lessor deems
necessary and appropriate in connection with the substitution of such
replacement engine(s) for the original engine(s). In the event that, in the
opinion of Lessor, a Casualty Occurrence has occurred in respect to the
Aircraft in its entirety, on the Rent Payment Date next succeeding a Casualty
Occurrence (the "Payment Date"), Lessee shall pay Lessor the sum of (a) the
Stipulated Loss Value as set forth in Annex F calculated as of the Rent Payment
Date immediately preceding such Casualty Occurrence; and (b) all Rent and other
amounts which are due hereunder as of the Payment Date. Upon payment of all
sums due hereunder, the Term of this Lease as to the Aircraft shall terminate
and Lessor shall be entitled to recover possession of the salvage thereof.
IX. INSURANCE: Lessee shall secure and maintain in effect at its own
expense throughout the Term hereof insurance against such hazards and for such
risks as Lessor may direct. All such insurance shall be with companies
satisfactory to Lessor. Without limiting the generality of the foregoing,
Lessee shall maintain (a) breach of warranty insurance, (b) liability
insurance covering public liability and property, cargo and environmental
damage, in amounts not less than fifty (50) million U.S. dollars for any
single occurrence, (c) all-risk aircraft hull and engine insurance (including,
without limitation, foreign object damage insurance) in an amount which is not
less than the then Stipulated Loss Value, and (d) confiscation and war risk
insurance. All insurance shall name the Lessor as owner of the Aircraft and
as loss payee and additional insured (without responsibility for premiums) and
shall provide that any cancellation or substantial change in coverage shall
not be effective as to the Lessor for thirty (30) days after receipt by Lessor
of written notice from such insurer(s) of such cancellation or change, shall
insure Lessor's interest regardless of any breach or violation by Lessee of
any warranties, declarations or conditions in such policies, shall include a
severability of interest clause providing that such policy shall operate in
the same manner as if there were a separate policy covering each insured,
shall waive any right of set-off against Lessee or Lessor, and shall waive any
rights of subrogation against Lessor. Such insurance shall be primary and not
be subject to any offset by any other insurance carried by Lessor or Lessee.
Lessee hereby appoints Lessor as Lessee's attorney-in-fact to make proof of
loss and claim for and to receive payment of and to execute or endorse all
documents, checks or drafts in connection with all policies of insurance in
respect of the Aircraft. Any expense of adjusting or collecting insurance
proceeds shall be borne by Lessee. Lessor may, at its option, apply proceeds
of insurance, in whole or in part, to (i) repair or replace the Aircraft or
any part thereof or (ii) satisfy any obligation of Lessee to Lessor hereunder.
Any balance remaining shall be retained by Lessor.
<PAGE>
<PAGE> 7
X. RETURN OF AIRCRAFT:
(a) Upon the expiration or termination of this Lease and provided
Lessee has not elected to purchase the Aircraft as provided herein, Lessee, at
its own expense, will return the Aircraft and shall deliver all logs, manuals
and data, including without limitation inspection, modification and overhaul
records required to be maintained with respect thereto under this Lease or
under the applicable rules and regulations of the FAA and under the
manufacturer's recommended maintenance program, along with a currently
effective FAA airworthiness certificate to Lessor to any location within the
continental United States as Lessor shall direct. Lessee shall, upon request,
assign to Lessor its rights under any manufacturer's maintenance service
contract or extended warranty for the Aircraft, any engine or part thereof. All
expenses for return of the Aircraft and delivery of the aforementioned
logs, manuals and data shall be borne by Lessee. The Aircraft shall be
returned in the condition in which the Aircraft is required to be maintained
pursuant to Section VII hereof, but with all logos or other identifying marks
of Lessee removed. Additionally, the Lessee (i) shall have had completed
within thirty (30) days prior to return, the next required annual inspection
on the Aircraft, and the next periodic inspection on each engine; (ii) shall
assure that each engine shall have available operating hours until both the
next scheduled "hot section" inspection and next scheduled major overhaul of
not less than 50% of the total operating hours respectively available between
such hot section inspections or major overhauls; and (iii) shall assure that
the airframe shall have at least: (aa) one-half the available operating hours;
and (bb) one-half the available operating months until the next scheduled
major airframe inspection allowable between major airframe inspections.
(b) Upon the return of the Aircraft: (i) each fuel tank shall contain
the same quantity of fuel as was contained in such tanks when such Aircraft was
delivered to Lessee, (which shall be presumed to be 50 percent (50%) of
full capacity unless otherwise specified in the purchase order or other
purchase documents or, in the case of differences in such quantity, an
appropriate adjustment will be made by payment at the then current market price
of fuel.
(c) Upon return of the Aircraft, Lessor shall arrange for the inspection
of same within one hundred and twenty (120) days of return to determine if the
Aircraft has been maintained and returned in accordance with the provisions
hereof. Lessee shall be responsible for the cost of such inspection and shall
pay Lessor such amount as additional Rent within ten (10) days of demand for
same. In the event that the results of such inspection indicate that the
Aircraft, any engine thereto or part thereof, has not been maintained or
returned in accordance with the provisions hereof, Lessee shall pay to Lessor
within ten (10) days of demand, as liquidated damages, the estimated cost
("Estimated Cost") of servicing or repairing the Aircraft, engine or part.
The Estimated Cost shall be determined by Lessor by obtaining two quotes for
such service or repair work and taking the average of same. Lessee shall bear
the cost, if any, incurred by Lessor in obtaining such quotes.
(d) If Lessee fails to return the Aircraft on termination or expiration
of the Term, Lessor shall be entitled to damages equal to the higher of (i) the
Rent for the Aircraft, pro-rated on a per diem basis, for each day the
Aircraft is retained in violation of the provisions hereof; or (ii) the daily
fair market rental for the Aircraft at termination or expiration, as
applicable. Such damages for retention of the Aircraft after termination or
expiration of the Term shall not be interpreted as an extension or
reinstatement of the Term.
(e) If Lessee desires to return the Aircraft, it shall (i) pay to
Lessor on the last day of the Basic Term of the Aircraft, in addition to the
Basic Term Rent then due on such date and all other sums then due hereunder,
an amount equal to 50% of the Capitalized Lessor's Cost of such Aircraft and
(ii) return the Aircraft to Lessor in accordance with this Section X.
Thereafter, Lessor and Lessee would arrange for the commercially reasonable
sale, scrap or other disposition of such Aircraft. Upon the sale, scrap or
other disposition of the Aircraft the net sales proceeds with respect to the
Aircraft sold will be paid to Lessor. Lessor shall promptly hereafter pay to
Lessee the Reciprocal Amount (as defined in Annex B) of such Aircraft (less
all reasonable and documented costs, expenses and fees, including storage,
maintenance and other remarketing fees incurred in connection with the sale,
scrap, or disposition of such Aircraft) plus all net proceeds, if any, of such
sale in excess of the Reciprocal Amount of the Aircraft.
<PAGE> 8
(f) All of Lessor's rights contained in this Section shall survive the
expiration or other termination of this Lease.
Xi. EVENTS OF DEFAULT: The term "Event of Default", wherever used herein,
shall mean any of the following events under this Lease, whatever the reason
for such Event of Default and whether it shall be voluntary or involuntary,
or come about or be effected by operation of law, or be pursuant to or in
compliance with any judgment, decree or order of any court or any order, rule
or regulation or any administrative or governmental body: (a) Lessee shall
fail to make any payment of Rent within ten (10) days after the same shall
become due; or (b) Lessee shall fail to keep in full force and effect
insurance required under this Lease; or (c) Lessee shall or shall attempt to
(except as expressly permitted by the provisions of this Lease) remove, sell,
transfer, encumber, part with possession of, assign or sublet the Aircraft,
any engine or any part thereof, use the Aircraft for an illegal purpose, or
permit the same to occur; or (d) Lessee shall fail to perform or observe any
covenant, condition or agreement not included within (a), (b) or (c) above
which is required to be performed or observed by it under this Lease or any
agreement, document or certificate delivered by Lessee in connection
herewith, and such failure shall continue for twenty (20) days after written
notice thereof from Lessor to Lessee; or (e) any representation or warranty
made by Lessee in this Lease or any agreement, document or certificate
delivered by Lessee in connection herewith or pursuant hereto shall prove to
have been incorrect in any material respect when any such representation or
warranty was made or given (or, if a continuing representation or warranty, at
any material time); or (f) Lessee shall generally fail to pay its debts as they
become due or shall file a voluntary petition in bankruptcy or a voluntary
petition or an answer seeking reorganization in a proceeding under any
bankruptcy laws (as now or hereafter in effect) or an answer admitting the
material allegations of a petition filed against Lessee in any such proceeding,
or Lessee shall, by voluntary petition, answer or consent, seek relief under
the provisions of any other now existing or future bankruptcy or other similar
law (other than a law which does not provide for or permit the readjustment or
alteration of Lessee's obligations hereunder) providing for the reorganization
or liquidation of corporations, or providing for an agreement, composition,
extension or adjustment with its creditors; or (g) a petition is filed against
Lessee in a proceeding under applicable bankruptcy laws or other insolvency
laws (other than any law which does not provide for or permit any readjustment
or alteration of Lessee's obligations hereunder in each case), as now or
hereafter in effect, and is not withdrawn or dismissed within ninety (90) days
thereafter, or if, under the provisions of any law (other than any law which
does not provide for or permit any readjustment or alteration of Lessee's
obligations hereunder in each case) providing for reorganization or liquidation
of corporations which may apply to Lessee, any court of competent jurisdiction
shall assume jurisdiction, custody or control of Lessee or of any substantial
part of its property and such jurisdiction, custody or control shall remain in
force unrelinquished, unstayed or unterminated for a period of sixty (60) days;
or (h) Lessee breaches or is in default under any other agreement by and
between Lessor and Lessee; (i) there is a material adverse change in the
financial condition of Lessee from the time of execution hereof.
II. REMEDIES:
(a) Upon the occurrence of any Event of Default and so long as the
same shall be continuing, Lessor may, at its option, at any time, thereafter,
exercise one or more of the following remedies, as Lessor in its sole
discretion shall lawfully elect: (i) demand that Lessee forthwith pay as
liquidated damages, for loss of a bargain and not as a penalty, an amount
equal to the Stipulated Loss Value of the Aircraft, computed as of the Basic
Rent Date immediately preceding such demand together with all Rent and other
amounts due and payable for all periods up to and including the Basic Rent
Date following the date on which Lessor made its demand for liquidated
damages; (ii) demand that Lessee pay all amounts due for failure to maintain
or return the Aircraft as provided herein and cause Lessee to assign to Lessor
Lessee's rights under any manufacturer's service program contract or any
extended warranty contract in force for the Aircraft; (iii) proceed by
appropriate court action, either at law or in equity, to enforce the
performance by Lessee of the applicable covenants of this Lease or to recover
damages for breach hereof; (iv) by notice in writing terminate this Lease,
whereupon all rights of Lessee to use of the Aircraft or any part thereof
shall absolutely cease and terminate, and Lessee shall forthwith return the
Aircraft in accordance with Section X, but Lessee shall remain liable as
provided in Section X; (v) request Lessee to return the Aircraft to a
designated location in accordance with Section X; (vi) enter the premises,
<PAGE> 9
with or without legal process, where the Aircraft is believed to be and take
possession thereof; (vii) sell or otherwise dispose of the Aircraft at private
or public sale, in bulk or in parcels, with or without notice, and without
having the Aircraft present at the place of sale; (viii) lease or keep idle
all or part of the Aircraft; (ix) use Lessee's premises for storage pending
lease or sale or for holding a sale without liability for rent or costs; (x)
collect from Lessee all costs, charges and expenses, including reasonable
legal fees and disbursements, incurred by Lessor by reason of the occurrence
of any Event of Default or the exercise of Lessor's remedies with respect
thereto; (xi) in the case of a failure of Lessee to comply with any provision
of this Lease, Lessor may effect such compliance, in whole or in part, and
collect from Lessee as additional Rent, all monies spent and expenses incurred
or assumed by Lessor in effecting such compliance; and/or (xii) declare any
default under the terms of this Lease to be a default under any other
agreement between Lessor and Lessee, except those agreements by and between
Lessor and Lessee.
(b) The foregoing remedies are cumulative, and any or all thereof may
be exercised in lieu of or in addition to each other or any remedies at law,
in equity, or under statute.
(c) Lessor shall have the right to any proceeds of sale, lease or
other disposition of the Aircraft, if any, and shall have the right to apply
same in the following order of priorities: (i) to pay all of Lessor's costs,
charges and expenses incurred in enforcing its rights hereunder or in taking,
removing, holding, repairing, selling, leasing or otherwise disposing of the
Aircraft; then, (ii) to the extent not previously paid by Lessee, to pay Lessor
all sums due from Lessee hereunder; then (iii) to reimburse to Lessee any sums
previously paid by Lessee as liquidated damages; and (iv) any surplus shall be
retained by Lessor.
(d) Waiver of any default shall not be a waiver of any other or
subsequent default. Lessor's effecting compliance in accordance with
sub-section (a)(xi) hereof shall not constitute a waiver of an Event of
Default. The failure or delay of Lessor in exercising any rights granted it
hereunder upon any occurrence of any of the contingencies set forth herein
shall not constitute a waiver of any such right upon the continuation or
recurrence of any such contingencies or similar contingencies and any single
or partial exercise of any particular right by Lessor shall not exhaust the
same or constitute a waiver of any other right provided for in this Lease.
XIII. NET LEASE; NO SET-OFF, ETC: This Lease is a net lease. Lessee's
obligation to pay Rent and other amounts due hereunder shall be absolute and
unconditional. Lessee shall not be entitled to any abatement or reduction of,
or set-offs against, said Rent or other amounts, including, without limitation,
those arising or allegedly arising out of claims (present or future, alleged
or actual, and including claims arising out of strict tort or negligence of
Lessor) of Lessee against Lessor under this Lease or otherwise. Nor shall this
Lease terminate or the obligations of Lessee be affected by reason of any
defect in or damage to, or loss of possession, use or destruction of, the
Aircraft from whatsoever cause. It is the intention of the parties that Rent
and other amounts due hereunder shall continue to be payable in all events in
the manner and at the times set forth herein unless the obligation to do so
shall have been terminated pursuant to the express terms hereof.
XIV. INDEMNIFICATION:
(a) Lessee hereby agrees to indemnify, save and keep harmless Lessor,
its agents, employees, successors and assigns from and against any and all
losses, damages, penalties, injuries, claims, actions and suits, including
legal expenses, of whatsoever kind and nature, in contract or tort, whether
caused by the active or passive negligence of Lessor or otherwise, and
including, but not limited to, Lessor's strict liability in tort, arising out
of (i) the selection, manufacture, purchase, acceptance or rejection of
Aircraft, the ownership of Aircraft during the Term of this Lease, and the
delivery, lease, possession, maintenance, use, condition, return or operation
of the Aircraft (including, without limitation, latent and other defects,
whether or not discoverable by Lessor or Lessee and any claim for patent,
trademark or copyright infringement), or (ii) the condition of the Aircraft
sold or disposed of after use by Lessee, any sublessee or employees of Lessee.
Lessee shall, upon request, defend any actions based on, or arising out of, any
of the foregoing. At all times Lessee shall have the right to defend any
actions based on or arising out of the foregoing, provided that Lessee has
indemnified Lessor as provided for herein.
<PAGE> 10
(b) All of Lessor's rights, privileges and indemnities contained in this
Section shall survive the expiration or other termination of this Lease and the
rights, privileges and indemnities contained herein are expressly made for the
benefit of, and shall be enforceable by Lessor, its successors and assigns.
XV. DISCLAIMER: LESSEE ACKNOWLEDGES THAT IT HAS SELECTED THE AIRCRAFT
WITHOUT ANY ASSISTANCE FROM LESSOR, ITS AGENTS OR EMPLOYEES AND THAT IT IS
LEASING THE AIRCRAFT IN AN "AS IS" CONDITION. LESSOR DOES NOT MAKE, HAS NOT
MADE, NOR SHALL BE DEEMED TO MAKE OR HAVE MADE, ANY WARRANTY OR REPRESENTATION,
EITHER EXPRESS OR IMPLIED, WRITTEN OR ORAL, WITH RESPECT TO THE AIRCRAFT LEASED
HEREUNDER OR ANY COMPONENT THEREOF, OR ANY ENGINE INSTALLED THEREON, INCLUDING,
WITHOUT LIMITATION, ANY WARRANTY AS TO CONDITION, AIRWORTHINESS, DESIGN,
COMPLIANCE WITH SPECIFICATIONS, QUALITY OF MATERIALS OR WORKMANSHIP,
MERCHANTABILITY, FITNESS FOR ANY PURPOSE, USE OR OPERATION, SAFETY, PATENT,
TRADEMARK OR COPYRIGHT INFRINGEMENT, OR TITLE. All such risks, as between
Lessor and Lessee, are to be borne by Lessee. Without limiting the foregoing,
Lessor shall have no responsibility or liability to Lessee or any other person
with respect to any of the following, regardless of any negligence of Lessor
(i) any liability, loss or damage caused or alleged to be caused directly or
indirectly by any Aircraft, any inadequacy thereof, any deficiency or defect
(latent or otherwise) therein, or any other circumstance in connection
therewith; (ii) the use, operation or performance of any Aircraft or any risks
relating thereto; (iii) any interruption of service, loss of business or
anticipated profits or consequential damages; or (iv) the delivery, operation,
servicing, maintenance, repair, improvement or replacement of any Aircraft.
If, and so long as, no default exists under this Lease, Lessee shall be, and
hereby is, authorized during the Term to assert and enforce, at Lessee's sole
cost and expense, from time to time, in the name of and for the account of
Lessor and/or Lessee, as their interests may appear, whatever claims and rights
Lessor may have against any Supplier of the Equipment.
XVI. REPRESENTATIONS AND WARRANTIES OF LESSEE: Lessee hereby represents and
warrants to Lessor that on the date hereof and at all times during the Term
hereof:
(a) Lessee has adequate power and capacity to enter into, and perform
under, this Lease and all related documents (together, the "Documents") and
is duly qualified to do business wherever necessary to carry on its present
business and operations, including the jurisdiction(s) where the Aircraft is
or is to have its primary hangar location.
(b) The Documents have been duly authorized, executed and delivered by
Lessee and constitute valid, legal and binding agreements, enforceable in
accordance with their terms, except to the extent that the enforcement of
remedies therein provided may be limited under applicable bankruptcy and
insolvency laws.
(c) No approval, consent or withholding of objections is required from
any governmental authority or instrumentality with respect to the entry into
or performance by Lessee of the Documents except such as have already been
obtained.
(d) The entry into and performance by Lessee of the Documents will not:
(i) violate any judgment, order, law or regulation applicable to Lessee or any
provision of Lessee's Certificate of Incorporation or By-Laws; or (ii) result
in any breach of, constitute a default under or result in the creation of any
lien, charge, security interest or other encumbrance upon any Aircraft pursuant
to any indenture, mortgage, deed of trust, bank loan or credit agreement or
other instrument (other than this Lease) to which Lessee is a party.
(e) There are no suits or proceedings pending or threatened in court
or before any commission, board or other administrative agency against or
affecting Lessee, which will have a material adverse effect on the ability of
Lessee to fulfill its obligations under this Lease.
(f) The Aircraft is and will remain tangible personal property.
(g) Each Balance Sheet and Statement of Income delivered to Lessor has
been prepared in accordance with generally accepted accounting principles as
to consolidated financial statements of Conseco, Inc. and in accordance with
statutory accounting principles as to the financial statements of its
individual insurance subsidiaries, and since the date of the most recent such
Balance Sheet and Statement of Income, there has been no material adverse
change.
<PAGE> 11
(h) Lessee is and will be at all times validly existing and in good
standing under the laws of the State of its incorporation (specified in the
first sentence of this Lease) and Lessee is and will continue to be a "Citizen
of the United States" within the meaning of Section 101(16) of the Federal
Aviation Act. Lessee shall not consolidate or reorganize or sell, convey,
transfer or lease all or substantially all of its property during the Term
hereof.
(i) The chief executive office or chief place of business (as either
of such terms is used in Article 9 of the Uniform Commercial Code) of Lessee
is located at the address set forth above, and Lessee agrees to give Lessor
prior written notice of any relocation of said chief executive office or chief
place of business from its present location.
(i) A copy of this Lease, and a current and valid AC Form 8050-1 will
be kept on the Aircraft at all times during the Term of this Lease.
(k) Lessee has selected the Aircraft, manufacturer and vendor thereof,
and all maintenance facilities required hereby.
(1) Lessee shall maintain all logs, books and records (including any
computerized maintenance records) pertaining to the Aircraft and engines and
their maintenance during the Term in accordance with FAA rules and regulations.
(m) Lessee shall not operate the Aircraft under Part 135 of the Federal
Aviation Regulations without the prior written approval of Lessor.
XVII. OWNERSHIP FOR TAX PURPOSES, GRANT OF SECURITY INTEREST; USURY SAVINGS:
(a) For income tax purposes, Lessor will treat Lessee as the owner
of the Aircraft. Accordingly, Lessor will not claim any tax
benefits available to an owner of the Aircraft.
(b) Lessee hereby grants to Lessor a first security interest in
the Aircraft, together with all additions, attachments,
accessories and accessions thereto whether or not furnished by the
Supplier of the Aircraft and any and all substitutions,
replacements or exchanges therefor, and any and all insurance
and/or other proceeds of the property in and against which a
security interest is granted hereunder.
(c) It is the intention of the parties hereto to comply with any
applicable usury laws to the extent that this Lease is determined
to be subject to such laws; accordingly, it is agreed that,
notwithstanding any provision to the contrary in this Lease, in no
event shall this Lease require the payment or permit the collection
of interest in excess of the maximum amount permitted by applicable
law. If any such excess interest is contracted for, charged or
received under this Lease, or in the event that all of the
principal balance shall be prepaid, so that under any of such
circumstances the amount of interest contracted for, charged or
received under this Lease shall exceed the maximum amount of
interest permitted by applicable law, then in such event (a) the
provisions of this paragraph shall govern and control, (b) neither
Lessee nor any other person or entity now or hereafter liable for
the payment hereof shall be obligated to pay the amount of such
interest to the extent that it is in excess of the maximum amount
of interest permitted by applicable law, (c) any such excess which
may have been collected shall be either applied as a credit against
the then unpaid principal balance or refunded to Lessee, at the
option of the Lessor, and (d) the effective rate of interest shall
be automatically reduced to the maximum lawful contract rate
allowed under applicable law as now or hereafter construed by the
courts having jurisdiction thereof. It is further agreed that
without limitation of the foregoing, all calculations of the rate
of interest contracted for, charged or received under this Lease
which are made for the purpose of determining whether such rate
exceeds the maximum lawful contract rate, shall be made, to the
extent permitted by applicable law, by amortizing, prorating,
allocating and spreading in equal parts during the period of the
full stated term of the indebtedness evidenced hereby, all interest
at any time contracted for, charged or received from Lessee or
otherwise by Lessor in connection with such indebtedness; provided,
however, that if any applicable state law is amended or the law of
<PAGE> 12
the United States of America preempts any applicable state law, so
that it becomes lawful for Lessor to receive a greater interest per
annum rate than is presently allowed, the Lessee agrees that, on
the effective date of such amendment or preemption, as the case may
be, the lawful maximum hereunder shall be increased to the maximum
interest per annum rate allowed by the amended state law or the law
of the United States of America.
XVIII. PURCHASE OPTION: Provided that no default shall have occurred and be
continuing and unless Lessee has exercised its option to return the Aircraft
in accordance with Section X above, on the first Termination Date or any Rent
Payment Date thereafter (the "Termination Date") Lessee shall have the option,
upon at least ninety (90) days but not more than one hundred eighty (180) days
prior written notice to Lessor, to purchase the Aircraft for the Termination
Value as provided in Annex F. Lessee shall pay to Lessor in cash the
Termination Value for the Aircraft (calculated as of the rental due on the
Termination Date) together with all rent and other sums then due and unpaid
as of the Termination Date, plus all taxes and charges upon sale and all other
reasonable and documented expenses incurred by Lessor in connection with such
sale. Upon satisfaction of the conditions specified in this Section XVIII,
Lessor will transfer, without recourse or warranty (except that Lessor shall
represent and warrant that it has whatever title Lessee conveyed to it subject
to any liens, claims or encumbrances required to be removed by Lessee pursuant
to the terms of the Lease) all of Lessor's right, title and interest in and
to the Aircraft. Except as specified in the preceding sentence with respect
to title, Lessor shall not be required to make and may specifically disclaim
any representation or warranty as to the condition of such Aircraft and other
matters.
XIX. MISCELLANEOUS:
(a) Any cancellation or termination by Lessor, pursuant to the
provisions of this Lease, or any supplement or amendment hereto, or the lease
of any Aircraft hereunder, shall not release Lessee from any then outstanding
obligations to Lessor hereunder. All Aircraft shall at all times remain
personal property of Lessee regardless of the degree of its annexation to any
real property and shall not by reason of any installation in, or affixation
to, real or personal property become a part thereof.
(b) Time is of the essence of this Lease. Lessee agrees, upon Lessor's
request, to execute any instrument necessary or expedient for filing,
recording or perfecting the interest of Lessor. All notices required to be
given hereunder shall be deemed adequately given if delivered in hand or sent
by registered or certified mail to the addressee at its address stated herein,
or at such other place as such addressee may have designated in writing. This
Lease and any Annexes hereto constitute the entire agreement of the parties
with respect to the subject matter hereof, and all Annexes referenced herein
are incorporated herein by reference. NO VARIATION OR MODIFICATION OF THIS
LEASE OR ANY WAIVER OF ANY OF ITS PROVISIONS OR CONDITIONS, SHALL BE VALID
UNLESS IN WRITING AND SIGNED BY AN AUTHORIZED REPRESENTATIVE OF THE PARTIES
HERETO.
(c) Any Rent or other amount not paid to Lessor when due hereunder
shall bear interest, both before and after any judgment or termination hereof,
at the lesser of eighteen percent (18%) per annum or the maximum rate allowed
by law. Any provisions in this Lease which are in conflict with any statute,
law or applicable rule shall be deemed omitted, modified or altered to conform
thereto.
(d) LESSEE HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF
ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR
INDIRECTLY, THIS LEASE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN
LESSEE AND LESSOR RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY
RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED
BETWEEN LESSEE AND LESSOR. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL
ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING,
WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND
ALL OTHER COMMON LAW AND STATUTORY CLAIMS). THIS WAIVER IS IRREVOCABLE MEANING
THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL
APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO
THIS LEASE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS
RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF
LITIGATION, THIS LEASE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
<PAGE> 13
(e) The parties agree that this Lease shall be governed by and
construed in accordance with the laws of the State of Delaware.
XX. TRUTH-IN-LEASING:
(a) LESSEE HAS REVIEWED THE AIRCRAFT'S MAINTENANCE AND OPERATING LOGS
SINCE ITS DATE OF MANUFACTURE AND HAS FOUND THAT THE AIRCRAFT HAS BEEN
MAINTAINED AND INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS.
LESSEE CERTIFIES THAT THE AIRCRAFT PRESENTLY COMPLIES WITH THE APPLICABLE
MAINTENANCE AND INSPECTION REQUIREMENTS OF PART 91 OF THE FEDERAL AVIATION
REGULATIONS.
(b) LESSEE CERTIFIES THAT LESSEE, AND NOT LESSOR, IS RESPONSIBLE FOR
OPERATIONAL CONTROL OF THE AIRCRAFT UNDER THIS LEASE DURING THE TERM HEREOF.
LESSEE FURTHER CERTIFIES THAT LESSEE UNDERSTANDS ITS RESPONSIBILITY FOR
COMPLIANCE WITH APPLICABLE FEDERAL AVIATION REGULATIONS.
(c) LESSEE CERTIFIES THAT THE AIRCRAFT WILL BE MAINTAINED AND
INSPECTED UNDER PART 91 OF THE FEDERAL AVIATION REGULATIONS FOR OPERATIONS TO
BE CONDUCTED UNDER THIS LEASE. LESSEE UNDERSTANDS THAT AN EXPLANATION OF
FACTORS BEARING ON OPERATIONAL CONTROL AND PERTINENT FEDERAL AVIATION
REGULATIONS CAN BE OBTAINED FROM THE NEAREST FAA FLIGHT STANDARDS DISTRICT
OFFICE, GENERAL AVIATION DISTRICT OFFICE, OR AIR CARRIER DISTRICT OFFICE.
IN WITNESS WHEREOF, Lessee and Lessor have caused this Lease to be
executed by their duly authorized representatives as of the date first above
written.
LESSOR: LESSEE:
General Electric Capital Corporation Conseco Investment Holding Company
By: /s/ RON G. ELIASON By: /s/ MARK A. FERRUCI
------------------------ --------------------------
Title: Region Credit Manager Title: PRESIDENT
<PAGE>
<PAGE> 14
ANNEX A
Description of Aircraft, Lessor's Cost, and Aircraft Markings
I. Description Value
1993 Falcon, Model 900B Aircraft $24,641,400.00
which consists of the following components:
(a) Airframe bearing FAA Registration Mark
482FJ* and Manufacturer's Serial No. 127,
(b) Garrett Model TFE-731-5B engines bearing
Manufacturer's Serial Nos. P101172C (left
engine), P101175C (right engine) and P101183C
(center engine), (each of which has 750 or more
rated takeoff horsepower or the equivalent of
such horsepower);
(c) Standard accessories and optional equipment
and such other items fitted or installed on the
Aircraft and set forth
hereinafter: SEE EXHIBIT 1 ATTACHED
HERETO AND MADE A PART HEREOF
(d) Those items of Lessee Furnished Equipment
described in a bill of sale or bills of sale
therefor (copies of which are appended hereto),
delivered by Lessee to Lessor which constitute
appliances and equipment which will be
installed on the Aircraft;
(e) Sales Tax
Capitalized Lessor's Cost $24,641,400.00
II. Aircraft Markings (referenced in Section VI of Lease)
(a) Four-by-six inch plaque to be
maintained in cockpit and affixed in
conspicuous position stating:
GENERAL ELECTRIC CAPITAL CORPORATION
Owner and Lessor. Conseco Investment
Holding Company, Lessee under a
certain Lease dated as of October
1993, has operational control of this
aircraft.
(b) Similar markings shall be
permanently affixed to each engine.
* Lessee acknowledges that this FAA Registration Number will be replaced
with a new mark of N654CN and will give prompt notice to Lessee once
this mark is installed.
<PAGE>
<PAGE> 15
EXHIBIT I
TO
ANNEX A
AIRCRAFT DESCRIPTION
One (1) 1993 Falcon Model 900B, serial number 127 powered by three (3) Garrett
Model TFE-731-5B, engine serial numbers: P101172C (left engine), P101175C
(right engine) and P101183C (center engine), FAA registration number 482FJ*
APU Make: Garrett GTCP36-15OF
Avionics
FDS:
Comm: Dual Collins VHF-22A
Nav: Dual Collins VIR-32, VOR/ILS/MARKER
ADF: Dual Collins ADF-60B
DME: Dual Collins DME-42
Radar: One (1) each Honeywell Primus 870 Radar, with multi-function
display & second controller
Transponder: Dual Collins TDR-94D Model S
Transponder
Auto Pilot: Dual Honeywell SPZ 8000 Flight Control System
Flitefone: Global Wulfsberg Flitefone VI with four cabin control units
Radio Alt: One (1) each Honeywell AA-300 Radio Altimeter System
VLF-NAV:
H/F: Dual King HKF-950, One (1) each Coltech CSD-714 Selcal Decoder
* Lessee acknowledges that this FAA Registration Number will be replaced
with a new mark of N654CN and will give prompt notice to Lessor once
this mark is installed.
<PAGE>
<PAGE> 16
ANNEX B
Financial Terms
(120 - month Basic Lease Term)
Basic Term Commencement Date: October 6, 1993
Basic Term: One Hundred Twenty months
Advance Rent: (a) Amount: N/A
(b) Due Date: N/A
First Basic Rent Date: January 6, 1994
Basic Rent Dates: Quarterly in Arrears (January 6th,
April 6th, July 6th and October 6th)
First Termination Date: October 6, 1998
Last Basic Rent Date: October 6, 2003
Expiration Date: October 6, 2003
Basic Term Lease Rate Factor: 2.5426%
Primary Hangar Location: Indianapolis International Airport
Indianapolis, IN
Last Delivery Date: October 5, 1993
Reciprocal Amount 20% of Capitalized Lessor's Cost
<PAGE>
<PAGE> 17
ANNEX F
Stipulated Loss and Termination Values
The Stipulated Loss and Termination Value of the Aircraft shall be the
percentage of Capitalized Lessor's Cost of the Aircraft* set forth opposite
the applicable rent payment.
*Capitalized Lessor's Cost $24,641,400.00.
<TABLE>
<CAPTION>
Basic Rent Termination/Stipulated Loss
Payment Number Value
Basic Term
<S> <C>
1 104.1075%
2 103.2003
3 102.2782
4 101.3408
5 100.3879
6 99.4194
7 98.4348
8 97.4340
9 96.4167
10 95.3826
11 94.3315
12 93.2630
13 91.1768
14 90.0728
15 88.9505
16 87.8097
17 85.6501
18 84.4714
19 83.2732
20 82.0552
21 77.8171
22 76.5587
23 75.2794
24 73.9790
25 72.6572
26 71.3136
27 69.9478
28 68.5595
29 67.1482
30 65.7137
31 64.2555
32 62.7733
33 61.2665
34 59.7350
35 58.1781
36 56.5956
37 54.9869
38 53.3518
39 51.6896
40 50.0000
</TABLE>
<PAGE>
<PAGE> 18
ANNEX H
TERMINATION
(a) On any quarterly payment date after month sixty (60) (the
"Termination Date"), Lessee may, so long as no default exists hereunder,
terminate this Lease, upon at least ninety (90) days but not more than one
hundred eighty (180) days prior written notice to Lessor effective on the
Termination Date specified in such notice.
(b) Prior to the Termination Date, Lessee shall, and Lessor may, solicit
cash bids for the aircraft on an AS IS, WHERE IS, basis without recourse to
or warranty from Lessor, express or implied ("AS IS BASIS"). Lessee shall
certify to Lessor any bids received by Lessee during this period. The Lessor
or its agents will be permitted to bid on the aircraft.
(c) Lessor shall on or after the Termination Date, (herein after the
"Sale Date"), sell the Aircraft on an AS IS BASIS for cash to the highest
bidder. Lessee and Lessor acknowledge that should the proceeds of such sale
(net of any related expenses of Lessor or its agents) be less than the
"Termination Value" (as described in Annex F the "Stipulated Loss and
Termination Value Table"), then Lessee shall immediately pay to Lessor on the
Sale Date, a rental adjustment equal to the difference between the Sales Price
and the Termination Value (herein after the "Rental Adjustment"). Such
adjustment shall be paid in immediately available funds to the Lessor. Any
proceeds of such sale (net of any related expenses of Lessor or its agents)
in excess of the Termination Value shall be paid to the Lessee. Additionally,
if Lessor performs the customary services of a broker in facilitating such
sale, Lessee agrees to pay to Lessor on the Sale Date, a brokerage fee (the
"Brokerage Fee") for the sale. Such fee amount shall be determined by Lessor
but shall not exceed the then fair market value amount for similar aircraft
brokerage services.
<PAGE>
<PAGE> 19
GENERAL ELECTRIC CAPITAL CORPORATION
SUBLEASE CONSENT AGREEMENT
THIS SUBLEASE CONSENT AGREEMENT is made and entered into this 6th day
of October, 1993, (the "Sublease Consent") by and among General Electric
Capital Corporation ("Lessor"), Conseco Investment Holding Company ("Lessee")
and Conseco, Inc. ("Sublessee").
RECITALS
A. Lessor and Lessee have previously entered into that certain Aircraft
Lease Agreement (the "Agreement") dated as of October 6, 1993 relating to that
certain aircraft (the "Aircraft") more particularly described in Annex A
thereto (the "Schedule").
B. Lessee wishes to sublease the Aircraft to Conseco, Inc. ("Sublessee")
under that certain Sublease Agreement (the "Sublease") attached hereto as
Exhibit A.
C. The Agreement and Schedule, copies of which are attached hereto as
Exhibit B, are hereafter referred to together as the "Lease". All capitalized
terms used herein shall have the meanings set forth in the Lease.
D. The Lease prohibits the subleasing of the Aircraft without Lessor's
consent and Lessee and Sublessee desire Lessor to consent to the sublease of
the Aircraft to said Sublessee.
NOW THEREFORE, in consideration of the promises and the premises herein
contained, the parties hereto agree as follows:
1. The Lessee hereby acknowledges that it continues to be obligated and
bound by the terms, covenants, conditions, warranties and representations of
the Lease, (including, but not limited to, the indemnity obligations,
obligation to pay Rent, and impositions resulting from relocation under the
Sublease) notwithstanding any delegation of duties under the Sublease.
2. Notwithstanding anything to the contrary contained in the Sublease,
the Sublessee hereby acknowledges that its possession of the Aircraft is
subject to the terms and provisions of the Lease and further, that its rights
and privileges to the Aircraft pursuant to the Sublease are subject and
subordinate to the title and rights of the Lessor under such Lease.
Accordingly, Sublessee agrees that the Sublease may be terminated by the
Lessor upon the occurrence of a default under the Lease by the Lessee or upon
the occurrence of a default under the Sublease by the Lessee or the Sublessee.
The Sublessee hereby agrees and waives its rights to raise any defenses or
claims, whether existing or future, arising out of the Sublease against Lessor,
its successors or assigns and Sublessee agrees that it still not look to Lessor
to perform any of the duties of the Lessee under the Sublease including but
not limited to the furnishing of maintenance, repairs, service or insurance.
The Sublessee hereby adopts, restates and ratifies the representations,
warranties and indemnifications of the Lessee to Lessor contained in Section
XV Indemnification of such Lease and Sublessee agrees to be liable, jointly and
severally, with Lessee for such amounts as are determined pursuant to Section
XV of the Lease to the same extent as if both Sublessee and Lessee had made
such representations, warranties and indemnifications under the Lease. These
representations, warranties and indemnifications shall be binding upon the
Sublessee, its successors and assigns and the benefits thereof shall extend to
and include the successors and assigns of Lessor. Sublessee shall not use, or
allow to be used, the Aircraft outside the continental United States except as
otherwise provided in the Agreement. All of Lessor's rights, privileges and
indemnities contained in this paragraph 2 shall survive the expiration or
other termination of the Lease, Sublease or this Sublease Consent.
3. In the event of (i) a default by Lessee under the Lease, or (ii) a
failure by Lessee to fulfill its obligations under the Sublease, and provided
there is no default by Sublessee under the Sublease, Sublessee shall have the
following options:
(a) to assume the obligations of Lessee under the Lease, including
but not limited to curing all past-due payments and any other
default thereunder, and upon such assumption Lessee agrees that
Sublessee shall have no further obligations to Lessee under the
Sublease;
<PAGE> 20
(b) to purchase the Aircraft from Lessor at the greater of (i) the
Fair Market Value, or (ii) the Stipulated Loss Value determined
as of the date of such default or failure as provided in the
Lease; or
(c) to pay Lessor the Termination Value determined as of the date
of such default or failure as provided in the Lease.
Upon the payment by Sublessee of any amount specified in
subparagraphs (a), (b) or (c) hereof the Lessor, Lessee agrees that Sublessee
shall have no further obligations to Lessee under the Sublease.
Sublessee shall inform Lessor of any failure by Lessee to fulfill its
obligations under the Sublease. Within ten (10) days after such notice, or
after Lessor notifies Sublessee of Lessee's default under the Lease, Sublessee
shall inform Lessor as to which of the above options it elects. If Sublessee
fails to so inform Lessor, or if Sublessee is in default under the Sublease,
Lessor may, at is option, exercise any or all of its rights and remedies under
the Lease and hereunder.
4. Lessee and Sublessee represent and warrant that Sublessee is not a
tax exempt entity and the use by and sublease of the Aircraft to Sublessee
shall not result in any loss of tax benefits to Lessor contemplated by the
Lease.
5. Lessee and Sublessee further represent and warrant to Lessor that:
the Sublease is genuine and represents a valid and binding contract; all names,
addresses, dates, signatures and other statements and facts contained therein
are true and correct; the Sublease is and will be enforceable according to its
terms; the Sublease is and will be free from any liens, set-offs, counterclaims
and other defenses; Lessee has the right to assign the Sublease; and this
Sublease Consent conveys good title thereto, free and clear of any other liens
and encumbrances whatsoever.
Sublessee, its successors and assigns and the benefits thereof shall extend to
and include the successors and assigns of Lessor. All of Lessor's rights,
privileges and indemnities contained in this Sublease Consent shall survive the
expiration or other termination of the Lease, Sublease or this Sublease
Consent.
7. NEITHER LESSEE NOR SUBLESSEE MAY (a) SELL OR OFFER FOR SALE THE
AIRCRAFT OR (b) SUBLEASE THE AIRCRAFT TO ANY THIRD PARTY WITHOUT THE PRIOR
WRITTEN CONSENT OR LESSOR.
8. The Sublease shall expire and control of the Aircraft will be returned
to Lessee on or before the expiration of the Lease unless the purchase option
or early termination option, if any, in the Lease is exercised pursuant to the
terms of the Lease.
9. Lessee hereby gives, grants, assigns, transfers, pledges and
hypothecates unto Lessor, as security for the performance of its obligations
under the Lease, all of the right, title and interest of Lessee in and to (a)
the Sublease, (b) all rentals and all other amounts, including but not limited
to all amounts payable due to Sublessee's early termination of the Sublease,
due under the Sublease, (c) any and all proceeds of insurance required by the
Sublease and (d) all products and proceeds of the foregoing. In furtherance
of the foregoing grant of a security interest, Lessee and Sublessee agree to
execute any financing statements or other documents as required by Lessor
necessary for perfecting the interest of Lessor. Lessee and Sublessee further
agree to deliver to Lessor all executed original counterparts of the Sublease
covering the Aircraft (excluding those which have been marked to indicate they
are not the original).
<PAGE>
<PAGE> 21
10. After default by Lessee or Sublessee under the Lease, the Sublease or
this Sublease Consent, Lessor may at it option exercise one or more the
following remedies in addition to any remedies it may have under the Lease:
(a) Lessor may notify Sublessee to make all payments of rent and any other
payments directly to Lessor and, upon such notice, Sublessee shall make all
such rent and other payments directly to Lessor, and in such event Lessee
agrees not to collect said payments thereafter; (Lessor may enforce, modify
or terminate the Sublease; (c) Lessor may at any time from time to time sell
the Sublease in whole or in part, for cash or on time, at public or private
sale; such sales to be held at the same or different times and places than the
sale or other disposition of the Aircraft and to include or not include the
Aircraft at Lessor's sole discretion; and (d) to exercise any other remedy
available to it pursuant to applicable law or available to Lessee under the
Sublease. All rights granted hereunder shall be cumulative and not
alternative, shall be in addition to, and shall in no manner impair or affect,
Lessor's rights under the Lease or any other agreement, statute or rule of law.
11. Sublessee specifically acknowledges and agrees that, notwithstanding
anything to the contrary in the Sublease, LESSOR HAS NOT MADE NOR SHALL BE
DEEMED TO HAVE MADE OR TO MAKE ANY WARRANTY OR REPRESENTATION, EITHER EXPRESS
OR IMPLIED, AS TO THE DESIGN, COMPLIANCE WITH SPECIFICATIONS, OPERATION OR
CONDITION OF, OR AS TO THE QUALITY OF THE MATERIAL, EQUIPMENT OR WORKMANSHIP
IN, THE AIRCRAFT OR ANY COMPONENT THEREOF DELIVERED TO LESSEE OR SUBLESSEE
HEREUNDER, AND LESSOR DOES NOT MAKE ANY WARRANTY OR MERCHANTABILITY OR FITNESS
OF THE AIRCRAFT OR ANY COMPONENT THEREOF FOR ANY PARTICULAR PURPOSE OR AS TO
TITLE TO THE UNITS OR ANY COMPONENT THEREOF, OR ANY OTHER REPRESENTATION OR
WARRANTY, EXPRESS OR IMPLIED, WITH RESPECT TO ANY UNIT OR ANY COMPONENT
THEREOF (EITHER UPON DELIVERY THEREOF TO THE LESSOR OR OTHERWISE).
12. Nothing contained herein or in the Sublease shall operate to excuse
Lessee from any of its obligations under the Lease. Lessor shall have no duty
to enforce Sublessee's performance under the Sublease.
13. Lessee and Sublessee shall notify Lessor of the location of the
Aircraft upon Lessor's request.
14. Sublessee is an aircraft user and not a broker or seller of aircraft.
The Sublease shall meet all applicable requirements of state and federal laws.
including, without limitation, the Federal Aviation Act of 1958, as amended and
the regulations issued pursuant thereto and shall be filed, as appropriate,
with the Federal Aviation Administration.
15. If any provision hereof shall be determined to be unenforceable, the
same shall be deemed stricken, but the remainder of this Sublease Consent shall
remain in full force and effect and shall be construed to effectuate the intent
of the parties as set forth herein. Lessor's failure at any time to require
strict performance by Lessee or Sublessee of any provision hereof require
strict performance by Lessee or Sublessee of any provision hereof shall not
waive or diminish Lessor's right thereafter to demand strict compliance with
that or any other provision.
16. Any modification hereof and any waiver of any of the provisions hereof
shall not be valid unless in writing and signed by an authorized representative
of the parties hereto.
17. The parties agree that this Sublease Consent shall be governed by and
construed in accordance with the laws of the State of Indiana.
LESSEE: SUBLESSEE:
Conseco Investment Holding Company Conseco, Inc.
By: /s/ MARK A. FERRUCCI By: /s/ LAWRENCE W. INLOW
------------------------- -----------------------
Its: PRESIDENT Its: EXECUTIVE VICE PRESIDENT
<PAGE>
<PAGE> 22
By execution hereof, consent is hereby granted for the subleasing of the
Aircraft to the Sublessee. Consent is hereby granted to the relocation of the
Aircraft to the locations) specified in Exhibit C.
LESSOR:
General Electric Capital Corporation
Title:
Date: 10/6/93
-----------------------
<PAGE>
<PAGE> 23
SUBLEASE AGREEMENT
This Lease, by and between CONSECO INVESTMENT HOLDING COMPANY, a Delaware
corporation, 1209 Orange Street, Wilmington, Delaware 19801 ("Lessor") and
CONSECO, INC., a corporation organized and existing under the laws of the State
of Indiana with its residence, mailing address and principal place of business
at 11825 N. Pennsylvania Street, Carmel, Indiana 46032 ("Lessee"), has been
made and entered into to be effective as of the 6th day of October, 1993.
TERMS AND CONDITIONS OF LEASE
For and in consideration of the mutual covenants and promises hereinafter
set forth, the parties hereto agree as follows:
1. LEASE. Lessor hereby leases to Lessee, and Lessee hereby leases
and hires from Lessor, the aircraft and related machinery, equipment and other
property described in Schedule A attached hereto and made a part hereof. All
machinery, equipment and other property described in Schedule A is, with all
replacement parts, repairs, additions and accessories incorporated therein
and/or affixed thereto, collectively called "Equipment." Where reference is
made herein to this "Lease" it shall be deemed to include the terms and
conditions set forth in the Lease and the Schedules attached hereto.
2. TERM. The term of this Lease with respect to the Equipment
shall commence on the first date specified in Schedule B attached hereto and
shall end upon full performance and observance of each and every term,
condition and covenant set forth in this Lease, and any extensions thereof,
including but not limited to, any extension caused by Lessee's continued
possession of the Equipment after the term shown on Schedule B, or any renewal
thereof, whether with Lessor's consent or otherwise. Termination of this Lease
prior to the term established for the Equipment at commencement shall be solely
at the discretion of Lessor, and on such terms as Lessor may from time to time
specify in its sole discretion, including the amount of, and manner of
calculation of, any premature termination payment.
3. RENT. The rent for the Equipment shall be the amount designated
in Schedule B ("Rent"), and shall be due and payable on the dates set forth
therein. Lessee shall pay Lessor Rent at the office of Lessor or its assigns,
or to such other person and/or at such other place as Lessor may from time to
time designate in writing.
4. DELIVERY. The Equipment shall be delivered to the Indianapolis
International Airport as the primary hangar location of the Equipment and such
location shall not thereafter be changed without the written consent of Lessor.
In the event that the Equipment shall not be delivered within ninety (90) days
after the date of this Lease, Lessor shall have the option at any time
thereafter to terminate this Lease and all Lessor's obligations hereunder upon
written notice to Lessee.
5. WARRANTIES. LESSOR, NOT BEING THE MANUFACTURER OF THE EQUIPMENT
NOR THE MANUFACTURER'S AGENT, MAKE NO EXPRESS OR IMPLIED WARRANTY (OF ANY KIND
WHATSOEVER WITH RESPECT TO THE EQUIPMENT, INCLUDING BUT NOT LIMITED TO: THE
MERCHANTABILITY OF THE EQUIPMENT OR ITS FITNESS FOR ANY PARTICULAR PURPOSE;
THE DESIGN OR CONDITION OF THE EQUIPMENT; THE QUALITY OR CAPACITY OF THE
EQUIPMENT; THE WORKMANSHIP IN THE EQUIPMENT; COMPLIANCE OF THE EQUIPMENT WITH
THE REQUIREMENTS OF ANY LAW, RULE, SPECIFICATION OR CONTRACT PERTAINING
THERETO; PATENT INFRINGEMENT; OR LATENT DEFECTS. Lessee will be subrogated
to Lessor's claims, if any, against the manufacturer or supplier of the
Equipment for breach of any warranty or representation and, upon written
request from Lessee, Lessor shall take all reasonable action requested by
Lessee to enforce any such warranty, express or implied, issued on or
applicable to any of the Equipment, which is enforceable by Lessor in its own
name, provided, however, that (a) Lessee is not in default under this Lease and
(b) Lessor shall not be obligated to resort to litigation to enforce any such
warranty unless Lessee shall pay all expenses in connection therewith.
Notwithstanding the foregoing, Lessee's obligations to pay the Rent under this
Lease shall be and are absolute and unconditional. All proceeds of any such
warranty recovery from the manufacturer or supplier of the Equipment shall
first be used to repair the affected Equipment to Lessor's satisfaction.
6. USE. Lessee shall possess and use the Equipment in conformity
with all national, state, municipal, police and other laws, ordinances and
regulations relating to the possession, use or maintenance of such Equipment,
and in conformity with any insurance policies and any warranties of the
manufacturer of the Equipment.
<PAGE> 24
7. EQUIPMENT IDENTIFICATION. If at any time during the
term hereof Lessor supplies Lessee with labels, plates or other
markings stating that the Equipment is owned by Lessor, Lessee
shall affix and keep the same in a prominent place on the
Equipment.
8. LESSEE'S INSPECTION. Lessee shall inspect the Equipment
within forty-eight (48) hours after receipt and installation thereof.
Unless Lessee within said period of time gives written notice to Lessor,
specifying any defect in or other proper objection to the Equipment or its
installations Lessee agrees that it shall be conclusively presumed, as between
Lessor and Lessee, that Lessee has fully inspected and acknowledged that
the Equipment is in good condition and repair, and that Lessee is satisfied
with and has accepted the Equipment in such good condition and repair.
9. LESSOR'S INSPECTION. At any time during normal business
hours, Lessor shall have the right to enter into and upon the premises where
the Equipment may be located for the purpose of inspecting it or observing its;
use. Lessee shall give Lessor immediate notice of any attachment or other
judicial process affecting any item of Equipment.
10. MAINTENANCE AND REPAIRS. Lessee shall, at its expense,
maintain and repair each item of Equipment and shall keep it in good mechanical
condition and working order. Lessee shall not be responsible for normal wear
and tear. If the Equipment shall consist of computer or electronic devices
or machinery, or of devices related thereto, Lessee shall at its expense
maintain and upgrade such devices in accordance with the manufacturer's
suggestions and directions.
11. ALTERATIONS AND ADDITIONS. Without the prior written
consent of Lessor, Lessee shall make no alternations, additions, improvements
or attachments with respect to any item of Equipment. All alterations,
additions, attachments, improvements, accessories and repairs at any time made
or placed upon the Equipment shall become part of the Equipment and shall be
property of Lessor.
12. TITLE; SECURITY INTEREST. The Lessee shall have no right, title
or interest therein except as expressly set forth in this Lease. Lessee, at
its expense, will keep the Equipment free and clear from any and all claims,
liens, encumbrances and legal processes. Lessor assumes no liability and
makes no representation as to the treatment by Lessee of this Lease, the
Equipment or the rental payments for financial statement or tax purposes.
All items of Equipment shall at all times be and remain personal
property.
If for any purpose, this Lease shall be construed to be a financing
transaction, Lessee hereby grants, pledges and assigns Lessor a security
interest in the Equipment to secure all of Rent and other sums due or to become
due under this Lease. The interest so granted shall be in addition to any
interest granted in other property to secure the rent and shall encompass the
Lessee's interest on the Equipment as owner, co-owner, lessee, consignee,
secured party, whether now owned or existing or hereafter arising or acquired,
and wherever located, together with all substitutions, replacements, additions
and accessions therefor or thereto, all replacement and repair parts therefor,
all negotiable documents relating thereto, all products thereof and all cash
and non-cash proceeds thereof including, but not limited to, notes, drafts,
checks, instruments, insurance proceeds, indemnity proceeds, warranty and
guaranty proceeds and proceeds arising in connection with any requisition,
confiscation, condemnation, seizure or forfeiture of all or any part of the
Equipment by any governmental body, authority, bureau or agency (or any person
acting under color of governmental authority).
13. RISK OF LOSS. All risk of loss, damage, theft or destruction
to each item of equipment shall be borne by the Lessee. No such loss, damage,
theft or destruction of the Equipment, in whole or in part, shall impair the
obligations of Lessee under this Lease, all of which shall continue in full
force and effect; and Lessee, upon Lessor's approval, shall either (a) place
the affected Equipment in good repair, condition and working order or (b)
replace the same with like Equipment in repair, condition and working order or
(c) pay the Lessor an amount equal to all unpaid rent and other indebtedness
due and to become due under this Lease with respect to the affected Equipment,
together with the anticipated fair market value of the Equipment at the end
of the Lease Term and together with interest on such sum at the Prime
<PAGE> 25
Commercial Rate of The INB National Bank ("Bank") from the date of loss until
receipt of payment. As used in this Lease, "Prime Commercial Rate" shall mean
the rate established by the Bank from time to time based upon its consideration
of economic, money market, business and competitive factors, and it is not
necessarily the Bank's most favored rate, which rate shall automatically
change, without notice to Lessee, with each change in the Prime Commercial
Rate. After compliance with the foregoing to Lessor's satisfaction, and
provided Lessee is not in default under this Lease, Lessee shall be subrogated
to Lessor's rights with respect to any insurance policies or claims for
reimbursement by others with respect to such loss, damage, theft or
destruction.
14. FINANCIAL STATEMENTS AND FURTHER ASSURANCES; LESSEE'S
WARRANTIES. Unless otherwise agreed, Lessee shall deliver to the Lessor the
following: (a) within ninety (90) days of the end of Lessee's fiscal year, an
audited financial statement prepared by independent accountants satisfactory
to the Lessor, containing a balance sheet and statements of income and
surplus, together with any management letters prepared by such accountants;
and (b) at the request of Lessor, such other monthly or quarterly information
as Lessor may, from time to time, reasonably require. Lessee hereby represents
and warrants to Lessor that all credit and financial information furnished to
Lessor in connection with this Lease is true and accurate in every respect.
15. RETURN OF EQUIPMENT. Unless Lessee shall have duly exercised a
renewal or purchase option, upon the expiration or earlier termination of this
Lease, Lessee shall return the Equipment to Lessor in good repair, condition
and working order, ordinary wear and tear resulting from proper use thereof
alone excepted, by delivering the Equipment at Lessee's cost and expense to
such place as Lessor shall specify.
16. INSURANCE. Lessee shall keep the Equipment insured against all
risks of loss or damages from every cause whatsoever for not less than the
replacement value thereof as determined by Lessor and shall carry public
liability, and property damage insurance coverage the Equipment. All said
insurance shall be in form and amount, and from an insurer, suitable to Lessor,
and shall name Lessor as loss payee under physical damage coverage as its
interests may appear and as additional insured under liability coverage.
Lessee shall pay all insurance premiums and shall deliver the policies or
certificates of insurance to Lessor. Each insurer shall agree, by endorsement
upon the policy issued by it or by separate instrument furnished to Lessor,
that it will give Lessor not less than thirty (30) days written notice before
the policy shall be altered or canceled. The proceeds of such insurance, at
the option of Lessor, shall be applied (a) toward the replacement, restoration
or repair of the Equipment or (b) toward payment of, the obligations of Lessee
hereunder. Lessee hereby appoints Lessor its attorney-in-fact to make claim
for, receive payment of and execute and endorse all documents, checks or drafts
for loss or damage under any insurance policy.
17. TAXES. Lessee shall keep the Equipment free and clear of levies,
liens and encumbrances, and shall pay all license and registration fees,
assessments, charges and taxes (municipal, state and federal) which may now or
hereafter be imposed upon the ownership, leasing, renting, sales, possession
or use of the Equipment, excluding, however, all taxes on or measured by
Lessor's net income or franchise taxes of Lessor.
18. LESSOR'S PERFORMANCE OF LESSEE'S OBLIGATIONS. If Lessee shall
fail to duly and promptly perform any of its obligations under this Lease,
Lessor may perform any act or make any payment which Lessor may deem necessary
for the maintenance and preservation of the Equipment and Lessor's title
thereto, including payments for satisfaction of liens, repairs, taxes, levies
and insurance. All sums so paid or incurred by Lessor, together with interest
as provided below, and any reasonable legal fees incurred by Lessor in
connection therewith, shall be additional Rent under this Lease and payable by
Lessee to Lessor on demand. All payments received by Lessor from Lessee shall
be first applied by Lessor to the sums paid or incurred by Lessor as
additional Rent, and the balance, if any, shall be applied to the payments of
Rent. The performance of any act or any payment made by Lessor shall not be
deemed a waiver or release by Lessor of any obligation or default of Lessee.
19. LATE CHARGES. Should Lessee fail to promptly pay any Rent to be
paid to Lessor under this Lease, then Lessee shall pay interest on such Rent
from the due date at the rate of one and one-half percent (1-1/2%) per month
for each month or portion of any month that said Rent remains unpaid, if not
prohibited by law, otherwise at the highest lawful contract rate.
<PAGE> 26
20. INDEMNIFICATION. Lessee assumes liability for, and hereby agrees
to indemnify, protect and hold harmless Lessor, its agents, employees,
officers, directors, successors and assigns from any and all liabilities,
obligations, losses, damages, injuries, claims, demands, penalties, actions,
costs and expenses, including reasonable attorneys, fees, arising out of or
connected with the use, condition (including, but not limited to, latent and
other defects and whether or not discoverable by Lessee or Lessor), operation,
ownership, selection, delivery, leasing or return of any item of Equipment.
The indemnities and assumptions of liabilities and obligations herein shall
continue in full force and effect notwithstanding the expiration or earlier
termination of this Lease. Lessee is an independent contractor and nothing
contained in this Lease shall authorize Lessee or any other person to operate
any item of Equipment so as to incur or impose any liability or obligation for
or on behalf of Lessor.
21. ASSIGNMENT BY LESSEE. Neither this Lease nor any interest herein
is assignable or transferable by operation of law, including but not limited
to, the bankruptcy laws of the United States. Without the prior written consent
of Lessor, Lessee shall not (a) assign, transfer, pledge or hypothecate this
Lease, the Equipment or any part thereof, or any interest therein, (b) sublet
or lend the Equipment or any part thereof, or (c) permit the Equipment or any
part thereof to be used by anyone other than Lessee or Lessee's employees.
Consent to any of the foregoing prohibited acts applies only in the given
instance; and is not a consent to any subsequent like act by Lessee or any
other person. Subject to the foregoing, this Lease inures to the benefit of,
and is binding upon, the heirs, legatees, personal representatives,
successors and assigns of the parties hereto.
22. ASSIGNMENT BY LESSOR. Lessor may assign this Lease and/or
encumber the equipment, and said assignee may assign the same. All rights of
Lessor hereunder may be assigned, pledged, mortgaged, transferred, or otherwise
disposed of, either in whole or in part, without notice to Lessee. If Lessor
assigns this Lease or the Rent or any other interest herein, whether as
security for any of its indebtedness or otherwise, no breach or default by
Lessor hereunder or pursuant to any other agreement between Lessor and Lessee
shall excuse performance by Lessee of any provision hereof. No such assignee
shall by obligated to perform any duty, covenant or condition required to be
performed by Lessor under the terms of this Lease.
In the event Lessor shall assign the Rent payment hereunder and
written notice thereof is given to Lessee, Lessee agrees to unconditionally pay
directly to any such assignee all Rent and other sums due or to become due
under this Lease. THE RIGHTS OF ANY SUCH ASSIGNEE SHALL NOT BE SUBJECT TO ANY
DEFENSE, COUNTERCLAIM OR SET-OFF WHICH LESSEE MAY HAVE AGAINST THE LESSOR.
Notwithstanding the foregoing, any such assignment (a) shall be subject to
Lessee's right to possess and use the Equipment so long as Lessee is not in
default under this Lease and (b) shall not release any of Lessor's obligations
hereunder or any claim which Lessee has against Lessor.
23. EVENTS OF DEFAULT. Lessee shall be in default under this Lease
upon the happening of any of the following events or conditions ("Event of
Default"):
(a) Failure of Lessee to pay Rent or any other
indebtedness or obligation now or hereafter owed by
Lessee to Lessor under this Lease or any other agreement
or document and the continuance of such default for ten
consecutive days; or
(b) Failure of Lessee to perform any of the
obligations, covenants or liabilities contained in this
Lease or any other agreement or document with Lessor, and
the continuance of such default for ten consecutive days;
or
(c) Any warranty, representation or statement made
or furnished to Lessor by or on behalf of Lessee proves
to have been false in any material respect when made or
furnished; or
(d) Loss, theft, damage, destruction, or the
attempted sale or encumbrance by Lessee of any of the
Equipment, or the making of any levy, seizure or
attachment of the Equipment; or
<PAGE> 27
(e) Dissolution, termination of existence,
discontinuance of business or insolvency of Lessee, or
the appointment of a receiver, assignment for the benefit
of creditors, or commencement of any proceeding under
Title 11 of the United States Bankruptcy Code by or
against Lessee.
24. REMEDIES OF LESSOR. Upon the occurrence of any Event of
Default and at any time thereafter (subject to any applicable grace provisions)
, Lessor may without any further notice to Lessee, in its sole discretion,
exercise one or more or the following remedies:
(a) Declare all unpaid Rent and all other sums due
under this Lease to be immediately due and payable;
(b) Terminate this Lease;
(c) Take possession of any or all items of
Equipment, wherever they may be located, without any
court order other process of law, and Lessee hereby
waives all damages occasioned by such taking of
possession. Lessor's taking of possession shall not
constitute a termination of this Lease unless Lessor
expressly so notifies Lessee in writing;
(d) Cause Lessee, at its expense, to promptly return
the Equipment to Lessor;
(e) Use, hold, sell, lease or otherwise dispose of
the Equipment or any item thereof on the premises of the
Lessee;
(f) Sell or lease the Equipment or any part thereof,
at public auction or by private sale, at such time or
times and upon such terms as Lessor may determine, free
and clear of any rights of Lessee, and notice which is
required by law to be delivered by Lessor to Lessee with
respect to such sale shall be delivered at least ten (10)
days prior to the date of sales or lease and shall
constitute reasonable notice to Lessee;
(g) To sue for and recover all Rent and other sums
then accrued or thereafter accruing with respect to the
Equipment, including but not limited to any expenses paid
or incurred by Lessor in connection with the repossession,
holding, repair and subsequent sale, lease or other disposition
of the Equipment, including reasonable attorneys' fees;
(h) Offset any sums due Lessee from Lessor, including but not
limited to all deposit or transaction account balances of Lessee
with any banking entity affiliated by common ownership with Lessor,
against all unpaid Rent and all other sums due under this Lease;
(i) Exercise any and all rights accruing to a Lessor
under any applicable law upon a default by a Lessee.
No right or remedy herein conferred upon or reserved to Lessor is exclusive of
any other right or remedy provided herein or by law or in equity, and all such
remedies of Lessor are cumulative and may be exercised concurrently or
separately, so long as the exercise of such rights and remedies of Lessor are
consistent with the duty of the Lessor to mitigate its damages. No repossession
sale or lease by Lessor of any item of Equipment shall bar an action for a
deficiency as hereinafter provided and neither the bringing of an action nor
the entry of judgement against the Lessee shall bar the Lessor's right to
repossess any or all items of Equipment. In the event Lessor repossesses and
sells or releases any item of Equipment, and the proceeds of such sale or lease
exceed the amount of all indebtedness due and to become due under the terms of
this Lease, all applicable late charges, and interest on such sums from
the time of the Event of Default to the receipt of payment, then Lessor shall
be entitled to retain all proceeds of such sale or lease in full satisfaction
of the obligations of Lessee hereunder with respect to such items of Equipment.
In the event Lessor repossesses and sells or releases any item of Equipment and
the proceeds of such sale or lease are less than the amount of all indebtedness
due and to become due under the terms of this Lease, including but not limited
<PAGE> 28
to all costs of resale or release, all taxes due or to become due, and all
applicable late charges, costs or taxes due or to become due, and interest on
such sums from the time of the Event of Default to the receipt of such
proceeds, then Lessor shall be entitled to recover from the Lessee the
deficiency, together with the interest on such deficiency at the rate of one
and one-half percent (1-1/2%) per month for each month or portion of any month
that said deficiency remains unpaid, if not prohibited by law, otherwise at the
highest lawful contract rate.
25. LESSOR'S EXPENSES. Lessee shall pay to Lessor all costs and
expenses, including reasonable attorneys' fees, incurred by Lessor in
exercising any of its rights or remedies hereunder or enforcing any of the
terms, conditions or provisions of this Lease.
26. SEVERABILITY. Any provision of this Lease which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition and unenforceable without
invalidating the remaining provisions hereof. To the extent permitted by
applicable law, Lessee hereby waives any provision of Law which prohibits or
renders unenforceable any provisions hereof in any respect.
27. OFFSET. Lessee hereby waives any and all existing and further claims,
and offsets, against any Rent or the sums due hereunder; and agrees to pay the
Rent and other sums hereunder regardless of any offset or claim which may be
asserted by Lessee or on its behalf.
28. NONWAIVER. No covenant or condition of this Lease can be waived
except by the written consent of Lessor. Forbearance or indulgence by Lessor
in any regard whatsoever shall not constitute a waiver of the covenant or
condition to be performed by Lessee to which the same may apply.
29. ENTIRE AGREEMENT. This instrument and the Schedules constitute the
entire agreement between Lessor and Lessee; no term or provision of this Lease
shall be amended, altered or changed except by a written agreement signed by
the parties hereto, except that Lessor may complete any descriptions of any of
the Equipment on the appropriate Schedules after delivery thereof and Lessor
may complete the date on which the rent set forth on the Schedules shall
commence.
30. NOTICES. Service of all notices under this Agreement shall be
sufficient if given personally or mailed to the party involved at its address
stated forth herein, or at such address as such party may provide in writing
from time to time. Any such notice mailed to such address shall be effective
and deemed to be delivered when deposited in the United States mail, duly
addressed and with postage prepaid.
31. CONSTRUCTION. This Lease shall be governed by and construed in
accordance with the laws of the State of Delaware. The titles of the sections
of this Lease are for convenience of the parties and shall not define or limit
any of the terms or provisions hereof. Whenever the context of this Lease
requires, the neuter gender includes the masculine or feminine, and the
singular number includes the plural; and whenever the word "Lessor" is used
herein, it shall include all assignees of Lessor. If there is more than one
Lessee named in this Lease, the liability of each shall be joint and several.
Time is of the essence of this Lease in each and all of its provisions. The
provisions of this Lease shall be binding upon, and inure to the benefit of,
the assigns, representatives and successors of the Lessor and Lessee.
CONSECO INVESTMENT HOLDING CONSECO, INC.
COMPANY
By: /s/ MARK A. FERRUCCI By: /s/ ROLLIN M. DICK
--------------------- --------------------
President Executive Vice President
<PAGE>
<PAGE> 29
SCHEDULE A
FALCON 900B
AIRFRAME ENGINES
SERIAL NUMBER: 127 GARRETT TFE-731-5B
TIME SINCE NEW: 0 HOURS TIME SINCE NEW: 0 HOURS
TOTAL CYCLES: 0 LANDINGS TIME BETWEEN OVERHAUL: 4200 HOURS
APU MAKE: GARRETT GTCP36-15OF APU TIME: 0 HOURS
AVIONICS SYSTEMS
IRS: TRIPLE HONEYWELL LASER IRS'S WITH LASERTRACK
NAVIGATIONAL DISPLAY UNIT & CDI
AUTO PILOT: DUAL HONEYWELL SPZ 8000 FLIGHT CONTROL SYSTEM
FMS: DUAL HONEYWELL FMZ-804 FLIGHT MANAGEMENT SYSTEM
1 EA HONEYWELL DL-900 DATA LOADER
GPS: 1 EA HONEYWELL GLOBAL POSITIONING SYSTEM
AFIS: 1 EA GLOBAL WULFSBERG AIRBORNE FLIGHT INFO. SYSTEM
RADAR: 1 EA HONEYWELL PRIMUS 870 RADAR, WITH MULTI-FUNCTION
DISPLAY & SECOND CONTROLLER
LIGHTING SENSOR: 1 EA HONEYWELL LSZ-850 LIGHTNING SENSOR SYSTEM
AUDIO: DUAL BAKER M1045 FLIGHTDECK AUDIO SYSTEM
1 EA BAKER M2050C CABIN PA/ CHIME SYSTEM
COMM: DUAL COLLINS VHF-22A
NAV: DUAL COLLINS VIR-32, VOR/ILS/MARKER
ADF: DUAL COLLINS ADF-60B
DME: DUAL COLLINS DME-42
TRNS: DUAL COLLINS TDR-94D MODE S TRANSPONDER
HF: DUAL KING KHF-950
I EA COLTECH CSD-714 SELCAL DECODER
RAD ALT: 1 EA HONEYWELL AA-300 RADIO ALTIMETER SYSTEM
TCAS II: I EA COLLINS TCAS-94 WITH ARINC CONTROL
ADS: DUAL HONEYWELL AZ-810 AIR DATA SYSTEMS
CLOCK: DUAL NAVITRON DIGITAL CLOCKS
STANDBY INST.: 1 EA SMITH STANDBY MAGNETIC COMPASS
1 EA J.E.T. STANDBY HORIZON SYSTEM
1 EA SAFT - EMERGENCY POWER SYSTEM
ELT: 1 EA DORNE MARGOLIN ELT
VOICE RECORDER: 1 EA FAIRCHILD A100A COCKPIT VOICE RECORDER
FLT DATA RECORDER: 1 EA FAIRCHILD F8OO FLIGHT DATA RECORDER
GROUND PROX: 1 EA SUNDSTRAND MK-V DIGITAL GROUND PROXIMITY WARNING
SYSTEM WITH WIND SHEAR DETECTION
AOA: 1 EA TELEDYNE ANGLE OF ATTACK SYSTEM
ADDITIONAL EQUIPMENT
GLOBAL WULFSBERG FLITEFONE VI - WITH FOUR CABIN CONTROL UNITS
RACAL SATCOM SYSTEM CONNECTED TO FOUR CABIN CONTROL UNITS
RACAL FACSIMILE NEC I-300 - USE WITH SATCON
FLIGHTDECK CAMERA - AERIAL VIEW SYSTEMS
SONY AM/FM STEREO, MULTIPLE DISC CD PLAYER WITH WIRELESS REMOTE
SONY 13" COLOR MONITOR
SONY VHS VCR/TUNER
GALLEY MASTER SYSTEM
AIRSHOW 200
<PAGE>
<PAGE> 30
SCHEDULE B
Falcon 900 B Aircraft
Rent Schedule
Capitalized Cost of Aircraft $24,641,400.00
Lease Commencement Date October 6, 1993
Lease Term 120 months
Rant Paymout Dates Quarterly in Arrears
(Each Jan 6, April 6,
July 6 and Oct 6)
First Rent Date January 6, 1994
Last Rent Date October 6, 2003
Lease Expiration Date October 6. 2003
Lease Rate factor (as % of 2.5426%
capitalized aircraft cost)
Primary Hangar Location Indianapolis Int'l
Airport
<PAGE>
<PAGE> 31
CORPORATE
GUARANTY
General Electric Capital Corporation
1415 W. 22nd Street, Suite 800
Oak Brook, IL 60521
To induce you to enter into an Interim Finance Agreement and Lease, with
you as Lessor and Conseco Investment Holding Company as Borrower/Lessee, which
documents were executed by Lessee on September 29, 1993 and October 6, 1993
respectively (collectively referred to as the "Lease") and covers the equipment
described in the Lease and any schedule thereto, but without in any way binding
you to enter into the Lease, the undersigned, for good and valuable
consideration, does hereby guarantee to you, your successors and assigns, the
due, regular and punctual payment of all sums as provided in the Lease, and any
schedules thereto, whether it represents an original balance, a casualty or
stipulated loss value, a balance reduced by part payment or a deficiency after
sale of equipment or otherwise, and does hereby further guarantee that the
Lessee will faithfully perform and fulfill all agreements and obligations
provided in the Lease at the time and in the manner therein provided.
Undersigned does hereby further guarantee to pay on demand all losses, costs,
attorney's fees and expenses which may be suffered by you by reason of Lessee's
default or default of the undersigned. Undersigned waives any and all
impairment of its rights (including, but not limited to, the release of any
obligor or collateral or any part thereof (with or without substitution),
failure to perfect or maintain the perfection of any interest in any collateral
or property, or failure to have title to the leased equipment) whether
intentional or negligent, by operation of law or otherwise.
The undersigned agrees that nothing herein shall be deemed to render this
Guaranty in any way conditional, or to require you first to seek or exhaust any
remedy against Lessee, its successors or assigns, or any other person obligated
or liable under said Lease, this Guaranty or any other instrument; and it is
agreed that you may, upon default of Lessee, or at any time thereafter, make
demand upon and receive payment of any sum or performance of any covenant or
agreement hereunder guaranteed by the undersigned, with or without notice or
demand for payment or performance by Lessee, its successors or assigns, or any
other person.
Notice of acceptance of this Guaranty and of any default by the Lessee or any
other person is hereby waived. Presentment, protest and demand, and notice of
protest, demand and dishonor of the Lease, and the exercise of possessory,
collection or other remedies on the Lease, are hereby waived. Notice of adverse
change in Lessee's financial condition or of any other fact which might
materially increase the risk of the undersigned is also waived, and the
undersigned agrees that you shall not be required to first foreclose, proceed
against, or exhaust any collateral or security for any indebtedness or
obligation hereby guaranteed, before requiring the undersigned to pay the full
amount of the liability hereby created. Suit may be brought and maintained
against the undersigned, at your election, without joinder of the Lessee or
any other person as parties thereto. The extension of the time of payment or
the renewal of the Lease or the extension of the time of performance of
agreements or any other indulgence may be granted to the Lessee, its successors
or assigns, or any other person, without notice to the undersigned, and all
settlements, compromises, compositions, accounts stated and agreed balances
made in good faith between the Lessee, its successors or assigns and shall be
binding upon and shall not affect the liability of the undersigned. The
undersigned's obligations hereunder shall in no way be affected or impaired by
(i) Lessee's voluntary or involuntary bankruptcy, assignment for the benefit
of creditors, reorganization or similar proceedings affecting the Lessee or any
of its assets, and (ii) the release of Lessee from any of its agreements
contained in the Lease by operation of law or otherwise. The undersigned hereby
waives all right to trial by jury in any litigation arising herefrom or in
relation hereto, and agrees not to seek change of venue from any jurisdiction
and court in which any action, proceeding or litigation is brought. The
undersigned hereby waives exercise of possessory, collection, foreclosure or
other remedies by you against Lessee, secondary obligors or collateral under
the Lease. As used in this Guaranty, the word "person" shall include any
individual, corporation or partnership, and refers to the undersigned and to
anyone absolutely, contingently, partly or wholly liable for payment and/or
performance of the Lessee's obligations being guaranteed hereunder. Any failure
<PAGE> 32
by you to exercise your rights hereunder shall not give rise to any estoppel
against you, or excuse the undersigned from performing hereunder. Your waiver
of any right to demand performance hereunder shall not be a waiver of any
subsequent or other right to demand performance hereunder.
This Guaranty and each of its provisions may only be waived, modified,
varied, released, terminated or surrendered, in whole or in part, by a duly
authorized written instrument signed by you, but as to all obligations of the
Lessee, contingent or absolute, incurred up to the time of the receipt of such
notice, this Guaranty shall be continuing and unconditional until the same are
fully paid, performed and discharged. This Guaranty shall bind the
undersigned's successors and assigns and the benefits thereof shall extend to
and include your successors and assigns. In the event of default hereunder,
you may at any time inspect undersigned's records, or at your option,
undersigned shall furnish you with a current independent audit report.
If any provisions of this Guaranty are in conflict with any applicable
statute, rule or law, then such provisions shall be deemed null and void to
the extent that they may conflict therewith, but without invalidating any
other provisions hereof.
Each signatory on behalf of a corporate guarantor warrants that he had
authority to sign on behalf of such corporation and by so signing, to bind
said guarantor corporation hereunder.
IN WITNESS WHEREOF, this Guaranty is executed this 6th day of October, 1993.
Conseco, Inc.
------------------------------
(Name of Corporation)
Attest: /s/ LAWRENCE W. INLOW By: /s/ ROLLIN M. DICK
----------------------- ---------------------------
<PAGE>
<PAGE> 33
ASSIGNMENT AGREEMENT
THIS ASSIGNMENT AGREEMENT is made as of the 25th day of October, 1993,
between GENERAL ELECTRIC CAPITAL CORPORATION ("Assignor") and NATIONSBANC
LEASING CORPORATION ("Assignee").
Assignor has heretofore entered into that certain Aircraft Lease Agreement
dated as of October 6, 1993 (the "Lease"), between Assignor, as lessor, and
Conseco Investment Holding Company, as lessee ("Lessee"), providing for the
leasing by Assignor to Lessee of one (1) 1993 Falcon 900B aircraft, SIN 127,
FAA Registration N654CN (the "Aircraft"), together with three (3) Garrett model
TFE-731-5B engines, S/N P101172C, P101175C and P101183C (collectively, the
"Engines"). The Lease was filed for recording with the Federal Aviation
Administration ("FAA") and recorded at the FAA Aircraft Registry on the date
and assigned the conveyance number, as set forth on Schedule A hereto.
Lessee has heretofore entered into that certain Sublease Agreement dated as
of October 6, 1993 (the "Sublease"), between Lessee, as sublessor, and
Conseco, Inc., as subleases (the "Sublessee"), providing for the subleasing of
the Aircraft and the Engines from Lessee to Sublessee. All right, title and
interest of Lessee in and to the Sublease has been assigned by Lessee to
Assignor pursuant to that certain Sublease Consent Agreement dated as of
October 6, 1993 (the "Sublease Consent"), by and among Assignor, Lessee and
Sublessee. The Sublease and Sublease Consent were filed for recording with the
FAA and recorded at the FAA Aircraft Registry on the date and assigned the
conveyance number, as set forth on Schedule A hereto.
Pursuant to that certain Master Assignment Agreement No. 2 and that certain
Specification of Assigned Lease, each dated as of the date hereof, between
Assignor and Assignee, all right, title and interest of Assignor in, to and
under the Aircraft, the Engines, the Lease, the Sublease and the Sublease
Consent, have been sold, assigned and conveyed to Assignee.
The parties have executed this Assignment Agreement in connection with and
further to evidence such sale, assignment and conveyance.
NOW, THEREFORE, in consideration of the foregoing, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Effective from and after the date hereof, Assignor hereby irrevocably
and unconditionally, sells, assigns and conveys to Assignee all right, title
and interest of Assignor in, to and under the Aircraft, the Engines, the Lease,
the Amendment, the Sublease and the Sublease Consent; and Assignee accepts such
assignment.
2. This Assignment Agreement and the rights and obligations of the parties
hereunder shall in all respects be governed by, and construed in accordance
with, the internal laws of the State of Illinois (without regard to the
conflict of laws principles of such State), including all matters of
construction, validity and performance.
3. This Assignment Agreement may be executed in any number of counterparts,
each of which shall be an original, all of which when taken together shall
constitute one agreement binding on all parties, notwithstanding that all
parties are not signatories to the same counterpart.
IN WITNESS WHEREOF, the parties have caused this Assignment Agreement to be
executed on their behalf as of the date first above written.
<PAGE>
<PAGE> 34
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ STEPHEN E. WHITE
-----------------------------
Name: Stephen E. White
Title: Transaction and Syndication Sr. Mgr.
NATIONSBANC LEASING CORPORATION
By: /s/ M. RANDALL ROSS
-----------------------------
Name: M. Randall Ross
Title: Vice President
<PAGE>
<PAGE> 35
SCHEDULE A ASSIGNMENT AGREEMENT
1. Aircraft Lease Agreement and Sublease-Consent Agreement: recorded by
the FAA on October 12, 1993, and assigned Conveyance No. Y38995
2. Sublease Agreement recorded by the FAA on October 12 1993, and
assigned Conveyance No. Y38996.
<PAGE> 1
Western National Corporation
(a Delaware corporation)
27,497,500 Shares of Common Stock
(Par Value $.001 Per Share)
U.S. PURCHASE AGREEMENT
February 8, 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
LADENBURG, THALMANN & CO. INC.
as U.S. Representatives of the several U.S. Underwriters
c/o Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Dear Sirs:
Western National Corporation, a Delaware corporation
(the "Company"), Conseco Investment Holding Company, a Delaware
corporation ("CIHC"), and Conseco, Inc., an Indiana corporation
("Conseco"), confirm their agreement with Merrill Lynch & Co.,
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("Merrill
Lynch"), Dean Witter Reynolds Inc. ("Dean Witter"), Goldman,
Sachs & Co. ("Goldman Sachs"), Ladenburg, Thalmann & Co. Inc.
("Ladenburg") and each of the other underwriters named in
Schedule A hereto (collectively, the "U.S. Underwriters," which
term shall also includes any underwriter substituted as
hereinafter provided in Section 10), for whom Merrill Lynch, Dean
Witter, Goldman Sachs and Ladenburg are acting as representatives
(in such capacity, Merrill Lynch, Dean Witter, Goldman Sachs and
Ladenburg shall hereinafter be referred to as the "U.S.
Representatives"), with respect to the sale by the Company and
CIHC, acting severally and not jointly, and the purchase by the
U.S. Underwriters, acting severally and not jointly, of 1,700,000
shares and 25,797,500 shares, respectively, of the respective
number of shares of Common Stock of the Company, $.001 par value
per share (the "Common Stock"), set forth in Schedule A and with
respect to the grant by the Company and CIHC to the U.S.
Underwriters and Managers (as defined below), acting severally
and not jointly, of the option described in Section 2(b) hereof
to purchase all or any part of additional shares of Common Stock
to cover over-allotments. The aforesaid shares of Common Stock
(the "Initial U.S. Securities") to be purchased by the U.S.
Underwriters and all or any part of the shares of Common Stock
subject to the over-allotment option described in Section 2(b)
hereof (the "U.S. Option Securities") are collectively referred
to herein as the "U.S. Securities." The 4,852,500 shares of
Common Stock subject to the option described in Section 2(b)
hereof are hereinafter collectively called the "Option
Securities."
It is understood that the Company, CIHC and Conseco are
concurrently entering into an agreement dated the date hereof
(the "International Purchase Agreement") with certain Managers
outside the United States and Canada (the "Managers") for which
Merrill Lynch International Limited, Dean Witter International
Ltd., Goldman Sachs International Limited and Ladenburg are
acting as lead managers (the "Lead Managers"), providing for the
offering by the Company and CIHC of 4,852,500 shares of Common
Stock (the "Initial International Securities") and the grant by
the Company and CIHC to the Managers of an option to purchase all
<PAGE> 2
or any part of the Managers' pro rata portion of the Option
Securities (the "International Option Securities") to cover over-
allotments. The Initial International Securities and the
International Option Securities are hereinafter called the
"International Securities." It is understood that the Company
and CIHC are not obligated to sell, and the U.S. Underwriters are
not obligated to purchase, any Initial U.S. Securities unless all
of the Initial International Securities are contemporaneously
purchased by the Managers.
The U.S. Underwriters and the Managers are hereinafter
collectively called the "Underwriters," the Initial U.S.
Securities and the Initial International Securities are
hereinafter collectively called the "Initial Securities," and
U.S. Securities and the International Securities are hereinafter
collectively called the "Securities."
The Company, CIHC, Conseco and the Managers understand
that the Underwriters will concurrently enter into an
Intersyndicate Agreement of even date herewith (the
"Intersyndicate Agreement") providing for the coordination of
certain transactions among the Underwriters under the direction
of Merrill Lynch.
Prior to the purchase and public offering of the U.S.
Securities by the several U.S. Underwriters, the Company, CIHC,
Conseco and the U.S. Representatives, acting on behalf of the
several U.S. Underwriters, shall enter into an agreement
substantially in the form of Exhibit A hereto (the "U.S. Pricing
Agreement"). The U.S. Pricing Agreement may take the form of an
exchange of any standard form of written telecommunication
between the Company, CIHC, Conseco and the U.S. Representatives
and shall specify such applicable information as is indicated in
Exhibit A hereto. The offering of the U.S. Securities will be
governed by this Agreement, as supplemented by the U.S. Pricing
Agreement. From and after the date of the execution and delivery
of the U.S. Pricing Agreement, this Agreement shall be deemed to
incorporate the U.S. Pricing Agreement.
The initial public offering price and the purchase
price with respect to the International Securities shall be set
forth in a separate instrument (the "International Pricing
Agreement"), the form of which is attached to the International
Purchase Agreement.
The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on
Form S-1 (No. 33-70022) and a related preliminary prospectus for
the registration of the Securities under the Securities Act of
1933, as amended (the "1933 Act"), has filed such amendments
thereto, if any, and such amended preliminary prospectuses as may
have been required to the date hereof, and will file such
additional amendments thereto and such amended prospectuses as
may hereafter be required. (1) Such registration statement (as
amended, if applicable) and the two prospectuses constituting a
part thereof (including in each case the information, if any,
deemed to be a part thereof pursuant to Rule 430A(b) under the
rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations")), as from time to time thereafter may be
amended or supplemented pursuant to the 1933 Act or otherwise,
are hereinafter referred to as the "Registration Statement," the
"U.S. Prospectus," and the "International Prospectus"
respectively, and the U.S. and International Prospectuses are
hereinafter together called "Prospectuses" and, each
individually, a "Prospectus," respectively, except that if any
[FN]
(1) Two forms of prospectuses are to be used in connection with the offering
and sale of the Securities: one relating to the U.S. Securities (the "U.S.
Prospectus"), and one relating to the International Securities (the
"International Prospectus").
<PAGE> 3
revised prospectus shall be provided to the U.S. Underwriters or
the Managers by the Company for use in connection with the
offering of the Securities which differs from the Prospectuses on
file at the Commission at the time the Registration Statement
becomes effective (whether or not such revised prospectus is
required to be filed by the Company pursuant to Rule 424(b) under
the 1933 Act Regulations), the terms "U.S. Prospectus" and
"International Prospectus" shall refer to each such revised
prospectus from and after the time it is first provided to the
U.S. Underwriters or the Managers, as the case may be, for such
use.
The Company, CIHC and Conseco understand that the U.S.
Underwriters propose to make a public offering of the U.S.
Securities as soon as the U.S. Representatives deem advisable
after the Registration Statement becomes effective and the U.S.
Pricing Agreement has been executed and delivered. The price per
share for the International Securities to be purchased by the
Managers pursuant to the International Purchase Agreement shall
be identical to the price per share for the U.S. Securities to be
purchased by the U.S. Underwriters hereunder.
SECTION 1. Representations and Warranties.
(a) The Company, CIHC and Conseco represent and
warrant to each U.S. Underwriter as of the date hereof and as of
the date of the U.S. Pricing Agreement (such latter date being
hereinafter referred to as the "U.S. Representation Date") as
follows:
(i) At the time the Registration Statement
becomes effective and at the U.S. Representation Date,
the Registration Statement will comply in all material
respects with the requirements of the 1933 Act and the
1933 Act Regulations and will not contain an untrue
statement of a material fact or omit to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading; and the Prospectuses, at the time the
Registration Statement becomes effective (unless the
term "Prospectuses" refers to prospectuses which have
been provided to the U.S. Underwriters and the Managers
by the Company for use in connection with the offering
of the Securities which differ from the Prospectuses on
file at the Commission at the time the Registration
Statement becomes effective, in which case at the time
such Prospectuses are first provided to the U.S.
Underwriters and the Managers for such use) and at the
U.S. Representation Date and at the Closing Time
referred to in Section 2, will not include an untrue
statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that
the representations and warranties in this subsection
shall not apply to statements in or omissions from the
Registration Statement or Prospectuses made in reliance
upon and in conformity with information furnished to
the Company in writing by any U.S. Underwriter through
Merrill Lynch expressly for use in the Registration
Statement or the Prospectuses.
<PAGE>
<PAGE> 4
(ii) Coopers & Lybrand, the accountants who
certified the financial statements and supporting
schedules of the Company and Western National Life
Insurance Company, a Texas insurance company
("Western"), included in the Registration Statement,
are independent public accountants with respect to the
Company and its subsidiaries as required by the 1933
Act and the 1933 Act Regulations.
(iii) The financial statements of the Company and
Western included in the Registration Statement and the
Prospectuses present fairly the financial position of
the Company and Western as of the dates indicated and
the results of its operations for the periods
specified; except as otherwise stated in the
Registration Statement, said financial statements have
been prepared in conformity with generally accepted
accounting principles applied on a consistent basis;
and the supporting schedules included in the
Registration Statement present fairly the information
required to be included therein; and the Company's
ratios of earnings to fixed charges (actual and pro
forma) included in the Prospectuses and in Exhibit 12.1
to the Registration Statement have been calculated in
compliance, in all material respects, with Item 503(d)
of Regulation S-K of the Commission.
(iv) The statutory financial statements of
Western, from which certain ratios and other
statistical data contained in the Registration
Statement have been derived, have for each relevant
period been prepared in accordance with accounting
practices prescribed or permitted by the National
Association of Insurance Commissioners and the
insurance department of the state of Texas, and such
accounting practices have been applied on a consistent
basis throughout the periods involved, except as
disclosed therein.
(v) Since the respective dates as of which
information is given in the Registration Statement and
the Prospectuses, and except as otherwise stated or
contemplated therein, (A) there has been no material
adverse change and no development which will result in
a prospective material adverse change in the condition,
financial or otherwise, or in the earnings or business
affairs of the Company and its subsidiaries, considered
as one enterprise, whether or not arising in the
ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its
subsidiaries which are material to the Company and its
subsidiaries, considered as one enterprise, other than
those entered into in the ordinary course of business,
and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any
class of its capital stock.
(vi) The Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Delaware, with corporate
power and authority to own, lease and operate its
properties and to conduct its business as presently
conducted and as described in the Prospectuses; and the
Company is duly qualified as a foreign corporation to
transact business and is in good standing in each
jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of
property or the conduct of business, except to the
extent the failures to so qualify or be in good
standing would not have a material adverse effect on
the condition, financial or otherwise, or the earnings
or business affairs of the Company and its
subsidiaries, considered as one enterprise.
<PAGE> 5
(vii) Each of the Company's subsidiaries has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate
power and authority to own, lease and operate its
properties and to conduct its business as presently
conducted and as described in the Prospectuses; and is
duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction
in which such qualification is required, whether by
reason of the ownership or leasing of property or the
conduct of business, except where the failures to so
qualify or be in good standing would not have a
material adverse effect on the condition, financial or
otherwise, or the earnings or business affairs of the
Company and its subsidiaries, considered as one
enterprise; and the outstanding shares of capital stock
of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and all such shares are owned by the
Company or, in the case of Western, by WNL Holding
Corp., a Delaware corporation ("WNL"); and at the
Closing Time (as defined herein), WNL, Western and
Conseco Annuity Guarantee Company, a Texas corporation
("CAGC"), will be the only subsidiaries of the Company.
(viii) The Company and each of its subsidiaries
hold all material licenses, certificates and permits
from governmental authorities (including, without
limitation, insurance licenses from the insurance
departments of the various states where the
subsidiaries write insurance business (the "Insurance
Licenses")) which are necessary to the conduct of their
businesses; the Company and its subsidiaries have
fulfilled and performed all material obligations
necessary to maintain their respective Insurance
Licenses, and no event or events have occurred which
may be reasonably expected to result in the impairment,
modification, termination or revocation of such
Insurance Licenses.
(ix) The authorized, issued and outstanding
capitalization of the Company is as set forth in the
Prospectuses under "Capitalization"; all of the issued
and outstanding shares of the Common Stock (including
the Securities being sold by CIHC) have been duly
authorized and validly issued and are fully paid and
nonassessable; the Securities to be sold by the Company
have been duly authorized and, when delivered by the
Company to the U.S. Underwriters pursuant to this
Agreement and to the Managers pursuant to the
International Purchase Agreement against payment of the
consideration set forth in the U.S. Pricing Agreement
and the International Pricing Agreement, will be
validly issued and fully paid and nonassessable; the
issuance of the Securities is not subject to preemptive
or other similar rights, and the Common Stock at the
time the Registration Statement becomes effective will
be registered under the Securities Exchange Act of
1934, as amended (the "1934 Act"), and will be
authorized for listing on the New York Stock Exchange,
Inc. (the "NYSE"), upon official notice of issuance.
(x) Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any
obligation, agreement, covenant or condition contained
in any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the
Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any
of the property or assets of the Company or any of its
subsidiaries is subject, or in violation of any
applicable law, administrative regulation or
<PAGE> 6
administrative or court order or decree, which
violation or default would, singly or in the aggregate,
have a material adverse effect on the condition,
financial or otherwise, or the earnings or business
affairs of the Company and its subsidiaries, considered
as one enterprise; and the execution, delivery and
performance of this Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and the
International Pricing Agreement and the consummation of
the transactions contemplated herein and therein and
compliance by the Company with its obligations
hereunder and thereunder have been duly authorized by
all necessary corporate action and will not conflict
with or constitute a breach of, or a default under, or
result in the creation or imposition of any pledge,
lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to,
any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company or
any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the
property or assets of the Company or any of its
subsidiaries is subject, except for any conflict,
breach, default, pledge, lien, charge or encumbrance
which would not, singly and in the aggregate, have a
material adverse effect on the condition, financial or
otherwise, or the earnings or business affairs of the
Company and its subsidiaries considered as one
enterprise, nor will such action result in any
violation of the provisions of the charter or by-laws
of the Company or any of its subsidiaries or any
applicable law, administrative regulation or
administrative or court decree.
(xi) There is no action, suit or proceeding
before or by any court or governmental agency or body,
domestic or foreign (including, without limitation, any
proceeding to revoke or deny renewal of any Insurance
Licenses), now pending, or, to the best knowledge of
the Company, CIHC or Conseco, threatened, against or
affecting the Company or any of its subsidiaries which
is required to be disclosed in the Registration
Statement or the Prospectuses, or which is reasonably
likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings
or business affairs of the Company and its
subsidiaries, considered as one enterprise, or which
would be reasonably likely to materially and adversely
affect a material portion of the properties or assets
thereof or which is reasonably likely to materially and
adversely affect the consummation of the transactions
contemplated by this Agreement, the U.S. Pricing
Agreement, the International Purchase Agreement and the
International Pricing Agreement; all pending legal or
governmental proceedings to which the Company or any of
its subsidiaries is a party or of which any of their
respective property or assets is the subject which are
not described in the Registration Statement or the
Prospectuses, including ordinary routine litigation
incidental to the business of the Company or any of its
subsidiaries, are, considered in the aggregate, not
material; and there are no contracts or documents of
the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration
Statement by the 1933 Act or the 1933 Act Regulations
which have not been so filed.
(xii) No authorization, approval or consent of
any court or governmental authority or agency is
necessary in connection with the issuance and sale of
the Securities hereunder, or the consummation by the
Company, CIHC and Conseco of any other transactions
contemplated hereby, except such as have been obtained
<PAGE> 7
and made under the federal securities laws or state
insurance laws and such as may be required under state
or foreign securities laws.
(xiii) The Securities conform in all material
respects to the respective statements relating thereto
contained in the Prospectuses and the Registration
Statement.
(xiv) Except as provided in the Stockholder
Agreement among the Company, CIHC and Conseco, there
are no holders of securities of the Company or any of
its subsidiaries with registration rights to have any
securities registered as part of the Registration
Statement or included in the offering contemplated by
this Agreement or the International Purchase Agreement.
(xv) This Agreement and the International
Purchase Agreement have been, and at the U.S.
Representation Date and the International
Representation Date, the U.S. Pricing Agreement and the
International Pricing Agreement, respectively, will
have been, duly authorized, executed and delivered by
the Company, CIHC and Conseco and constitute the valid,
legal and binding obligations of the Company, CIHC and
Conseco enforceable against them in accordance with
their terms (except (1) as may be limited by
bankruptcy, insolvency, fraudulent conveyance,
reorganization or similar laws affecting creditors'
rights generally and except that the remedies of
specific performance and injunctive and other forms of
equitable relief are subject to certain equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought, and (2)
that no representation or warranty is given as to the
enforceability of the indemnity and contribution
provisions hereunder or thereunder).
(xvi) The execution and delivery of this
Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the
International Pricing Agreement, and the
consummation of the transactions herein and
therein contemplated, will not result in a breach
by CIHC or Conseco of, or constitute a default by
CIHC or Conseco under, their respective charters
or by-laws or any material indenture, deed of
trust, contract, or other material agreement or
instrument or any decree, judgment or order to
which CIHC or Conseco is a party or by which CIHC
or Conseco may be bound.
(xvii) CIHC has and will have at the Closing
Time referred to in Section 2(c) good and
marketable title to the Securities to be sold by
CIHC hereunder, free and clear of any pledge,
lien, security interest, encumbrance, claim or
equity, other than pursuant to this Agreement and
the International Purchase Agreement; CIHC has
full right, power and authority to sell, transfer
and deliver the Securities to be sold by CIHC
hereunder and under the International Purchase
Agreement; and upon delivery of the Securities to
be sold by CIHC hereunder and under the
International Purchase Agreement and payment of
the purchase price therefor as herein and therein
contemplated, each of the Underwriters will
receive good and marketable title to its ratable
share of the Securities purchased by it from CIHC,
free and clear of any pledge, lien, security
interest, encumbrance, claim or equity, except for
those created by or through the Underwriters.
<PAGE>
<PAGE> 8
(xviii) All authorizations, approvals and
consents necessary for the execution and delivery
by CIHC and Conseco of this Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement
and the sale and delivery of the Securities to be
sold by CIHC (other than, at the time of the
execution hereof, the issuance of the order of the
Commission declaring the Registration Statement
effective and such authorizations, approvals or
consents as may be necessary under state or
foreign securities laws) have been obtained and
are in full force and effect; and CIHC and Conseco
has the full right, power and authority to enter
into this Agreement, the U.S. Pricing Agreement,
the International Purchase Agreement and the
International Pricing Agreement and to sell,
transfer and deliver the Securities to be sold by
CIHC hereunder and thereunder.
(xix) None of the Company, CIHC or Conseco
has taken, or will take, directly or indirectly,
any action which is designed to or which has
constituted or which might reasonably be expected
to cause or result in stabilization or
manipulation of the price of any security of the
Company to facilitate the sale or resale of the
Securities.
(xx) Except as noted by the Company, CIHC
and Conseco in a letter previously delivered by
them to the Underwriters, none of the Company,
CIHC, Conseco or any of their respective
subsidiaries are affiliated with or a person
associated with a member of the National
Association of Securities Dealers, Inc. (the
"NASD").
(b) Any certificate signed by any officer of the
Company, CIHC or Conseco and delivered to the U.S.
Representatives or to counsel for the U.S. Underwriters shall be
deemed a representation and warranty by the Company, CIHC or
Conseco, as the case may be, to each U.S. Underwriter as to the
matters covered thereby.
SECTION 2. Sale and Delivery to U.S. Underwriters;
Closing.
(a) On the basis of the representations and warranties
herein contained and subject to the terms and conditions herein
set forth, the Company and CIHC, severally and not jointly, agree
to sell to each U.S. Underwriter, severally and not jointly, and
each U.S. Underwriter agrees, severally and not jointly, to
purchase from the Company and CIHC, at the price per share set
forth in the U.S. Pricing Agreement, that portion of the
1,700,000 shares and 25,797,500 shares being sold by the Company
and CIHC, respectively, which the number of Initial U.S.
Securities set forth in Schedule A opposite the name of such U.S.
Underwriter (except as otherwise provided in the U.S. Pricing
Agreement), plus any additional number of Initial U.S. Securities
which such U.S. Underwriter may become obligated to purchase
pursuant to the provisions of Section 10 hereof, bears to the
total number of Initial U.S. Securities (except as otherwise
provided in the U.S. Pricing Agreement), subject, in each case,
to such adjustments as the U.S. Underwriters in their discretion
shall make to eliminate any sales or purchases of fractional
shares.
(1) If the Company has elected not to rely upon Rule
430A under the 1933 Act Regulations, the initial public
offering price per Security, and the purchase price per
Security to be paid by the several U.S. Underwriters for the
Securities (collectively, the "U.S. Pricing Terms") have
each been determined and set forth in the U.S. Pricing
<PAGE> 9
Agreement, dated the date hereof, and an amendment to the
Registration Statement and the Prospectuses will be filed
before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule 430A
under the 1933 Act Regulations, the purchase price per
Security to be paid by the several U.S. Underwriters shall
be an amount equal to the initial public offering price per
Security, less an amount per Security to be determined by
agreement among the U.S. Representatives, the Company, CIHC
and Conseco. The U.S. Pricing Terms likewise shall be
determined by agreement among the U.S. Representatives, the
Company, CIHC and Conseco. The U.S. Pricing Terms, when so
determined, shall be set forth in the U.S. Pricing
Agreement. In the event that such U.S. Pricing Terms have
not been agreed upon and the U.S. Pricing Agreement has not
been executed and delivered by the parties thereto by the
close of business on the fourth business day following the
date of this Agreement, this Agreement shall terminate
forthwith, without liability of any party to any other
party, unless otherwise agreed to by the Company, CIHC,
Conseco and the U.S. Representatives.
(b) In addition, on the basis of the representations
and warranties herein contained and subject to the terms and
conditions herein set forth, the Company and CIHC hereby grant an
option to the U.S. Underwriters, severally and not jointly, to
purchase from them up to an additional 255,000 shares and
3,869,625 shares, respectively, of Common Stock at the price per
share set forth in the U.S. Pricing Agreement. The option hereby
granted will expire automatically at the close of business on the
30th calendar day after (i) the date the Registration Statement
becomes effective, if the Company has elected not to rely upon
Rule 430A under the 1933 Act Regulations, or (ii) the U.S.
Representation Date, if the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, and may be exercised in
whole or in part from time to time only for the purpose of
covering over-allotments which may be made in connection with the
offering and distribution of the Initial Securities upon notice
by the U.S. Representatives to the Company, CIHC and Conseco
setting forth the number of U.S. Option Securities as to which
the several U.S. Underwriters are then exercising the option and
the time and date of payment and delivery for such U.S. Option
Securities. Any such time and date of delivery (a "Date of
Delivery") shall be determined by the U.S. Representatives but
shall not be later than seven full business days after the
exercise of such option, nor in any event before the Closing
Time, as hereinafter defined, unless otherwise agreed upon by the
U.S. Representatives, the Company, CIHC and Conseco. If the
option is exercised as to all or any portion of the U.S. Option
Securities, each of the U.S. Underwriters, acting severally and
not jointly, will purchase that portion of the number of U.S.
Option Securities subject to the option set forth in this Section
2(b) of the Company or CIHC, as the case may be, which the number
of Initial U.S. Securities set forth in Schedule A opposite the
name of such U.S. Underwriter bears to the total number of
Initial U.S. Securities (except as otherwise provided in the U.S.
Pricing Agreement), subject in each case to such adjustments as
the U.S. Representatives in their discretion shall make to
eliminate any sales or purchases of fractional shares.
(c) Delivery of certificates for the Initial U.S.
Securities shall be made at the offices of Merrill Lynch in New
York, New York and payment of the purchase price for the Initial
U.S. Securities shall be made at the offices of Merrill Lynch in
Chicago, Illinois, or in each case at such other place as shall
be agreed upon by the U.S. Representatives, the Company, CIHC and
Conseco, at 10:00 a.m. (New York City time) on the fifth business
day after the date the Registration Statement becomes effective
(or, if the Company has elected to rely upon Rule 430A, the fifth
business day after execution of the U.S. Pricing Agreement), or
such other time not later than ten business days after such date
as shall be agreed upon by the U.S. Representatives, the Company,
CIHC and Conseco (such time and date of payment and delivery
<PAGE> 10
being herein called the "Closing Time"). In addition, if the
U.S. Underwriters purchase any or all of the U.S. Option
Securities, payment of the purchase price, and delivery of
certificates for such U.S. Option Securities shall be made at the
offices set forth above, or at such other place as shall be
agreed upon by the U.S. Representatives, the Company, CIHC and
Conseco, on each Date of Delivery as specified in the relevant
notice from the U.S. Representatives to the Company, CIHC and
Conseco. Payment for the Securities purchased by the U.S.
Underwriters shall be made to the Company and CIHC by certified
or official bank check or checks, drawn in Chicago Clearing House
funds or similar next day funds, payable to the order of the
Company or CIHC, as the case may be, against delivery to the U.S.
Representatives for the respective accounts of the U.S.
Underwriters of certificates for the Securities to be purchased
by them. Certificates for the Initial U.S. Securities and the
U.S. Option Securities shall be in such denominations and
registered in such names as the U.S. Representatives may request
in writing at least two full business days before the Closing
Time or any Date of Delivery, as the case may be. It is
understood that each U.S. Underwriter has authorized the U.S.
Representatives, for its account, to accept delivery of, receipt
for, and make payment of the purchase price for, the Initial U.S.
Securities and the U.S. Option Securities, if any, which it has
agreed to purchase. Merrill Lynch, individually and not as
representative of the U.S. Underwriters, may (but shall not be
obligated to) make payment of the purchase price for the Initial
U.S. Securities or the U.S. Option Securities, if any, to be
purchased by any U.S. Underwriter whose check has not been
received by the Closing Time or the relevant Date of Delivery, as
the case may be, but such payment shall not relieve such U.S.
Underwriter from its obligations hereunder. The certificates for
the Initial U.S. Securities and the U.S. Option Securities, if
any, will be made available for examination and packaging by the
U.S. Representatives not later than 10:00 a.m. (New York City
time) on the last business day prior to the Closing Time or the
Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company, CIHC and Conseco.
The Company covenants, and with respect to
Sections 3(l) and 3(o) below, each of the Company, CIHC and
Conseco covenants, with each U.S. Underwriter as follows:
(a) The Company will notify the U.S. Representatives
immediately and confirm the notice in writing (i) of the
effectiveness of the Registration Statement and any amendment
thereto (including any post-effective amendment) and, if Rule
430A under the 1933 Act Regulations is being relied upon, of the
filing of the amended Prospectuses pursuant to Rule 430A, (ii) of
the receipt of any comments from the Commission, (iii) of any
request by the Commission for any amendment to the Registration
Statement or any amendment or supplement to the Prospectuses or
for additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the
Registration Statement or the initiation of any proceedings for
that purpose and (v) of the issuance by any state securities
commission or other regulatory authority of any order suspending
the qualification or the exemption from qualification of the
Securities under state securities or Blue Sky laws or the
initiation of any proceedings for that purpose. The Company will
use its best efforts to prevent the issuance of any stop order
and, if any stop order is issued, to obtain the lifting thereof
at the earliest possible moment.
(b) The Company will give the U.S. Representatives
notice of its intention to file or prepare any amendment to the
Registration Statement (including any post-effective amendment)
or any amendment or supplement to the Prospectuses (including any
revised prospectus which the Company proposes for use by the U.S.
Underwriters in connection with the offering of the Securities
which differs from the prospectuses on file at the Commission at
the time the Registration Statement becomes effective, whether or
not such revised prospectuses are required to be filed pursuant
<PAGE> 11
to Rule 424(b) under the 1933 Act Regulations), will furnish the
U.S. Representatives with copies of any such amendment or
supplement a reasonable amount of time prior to such proposed
filing or use, as the case may be, and will not file any such
amendment or supplement or use any such prospectus to which the
U.S. Representatives or counsel for the U.S. Underwriters shall
reasonably object.
(c) The Company will deliver to the U.S.
Representatives five signed copies of the Registration Statement
as originally filed and of each amendment thereto (including
exhibits filed therewith) and will also deliver to the U.S.
Representatives as many conformed copies of the Registration
Statement as originally filed and of each amendment thereto
(without exhibits) as the U.S. Representatives may request.
(d) The Company will furnish to each U.S. Underwriter,
from time to time during the period when the Prospectuses are
required to be delivered under the 1933 Act such number of copies
of the Prospectuses (as amended or supplemented) as such U.S.
Underwriter may request for the purposes contemplated by the 1933
Act or the applicable 1933 Act Regulations.
(e) If any event shall occur as a result of which it
is necessary, in the reasonable opinion of counsel for the U.S.
Underwriters, to amend or supplement the Prospectuses in order to
make the U.S. Prospectus not misleading in the light of the
circumstances existing at the time it is delivered to a
purchaser, the Company will forthwith amend or supplement the
U.S. Prospectus (in form and substance reasonably satisfactory to
counsel for the U.S. Underwriters) so that, as so amended or
supplemented, the U.S. Prospectus will not include an untrue
statement of a material fact or omit to state a material fact
necessary in order to make the statements therein, in the light
of the circumstances existing at the time it is delivered to a
purchaser, not misleading, and the Company will furnish to the
U.S. Underwriters as many copies of such amendment or supplement
as the U.S. Underwriters may request.
(f) The Company will endeavor, in cooperation with the
U.S. Underwriters and their counsel, to qualify the Securities
for offering and sale under the applicable securities laws of
such states and other jurisdictions of the United States as the
U.S. Representatives may designate; provided, however, that the
Company shall not be obligated to qualify as a foreign
corporation in any jurisdiction in which it is not so qualified
or to execute a general consent as to service of process in any
jurisdiction in which it is not so subject to such service. In
each jurisdiction in which the Securities have been so qualified,
the Company will file such statements and reports as may be
required by the laws of such jurisdiction to continue such
qualification in effect for so long as may be required in
connection with the distribution of the Securities.
(g) The Company will make generally available to its
security holders as soon as practicable, but in any event not
later than 45 days after the close of the period covered thereby,
an earnings statement (in form and in a manner complying with the
provisions of Rule 158 under the 1933 Act Regulations) covering a
twelve-month period beginning not later than the first day of the
Company's fiscal quarter next following the "effective date" (as
defined in said Rule 158) of the Registration Statement.
(h) The Company will use the net proceeds received by
it from the sale of the Securities in the manner specified in the
Prospectuses under "Use of Proceeds."
(i) If, at the time that the Registration Statement
becomes effective, any information shall have been omitted
therefrom in reliance upon Rule 430A under the 1933 Act
Regulations, then promptly following the execution of the U.S.
Pricing Agreement, the Company will prepare, and file or transmit
for filing with the Commission in accordance with such Rule 430A
and Rule 424(b) under the 1933 Act Regulations, copies of amended
<PAGE> 12
Prospectuses, or, if required by such Rule 430A, a post-effective
amendment to the Registration Statement (including amended
Prospectuses), containing all information so omitted.
(j) The Company, during the period when the
Prospectuses are required to be delivered under the 1933 Act,
will promptly file all documents required to be filed with the
Commission pursuant to Section 13(a), 13(c), 14 or 15(d) of the
1934 Act, of which the U.S. Representatives shall have previously
been advised and previously furnished a copy, and with respect to
which the Company shall endeavor in good faith to provide the
U.S. Representatives or the U.S. Underwriters' counsel with an
opportunity to comment.
(k) For a period of one year after the Closing Time,
the Company will furnish to the U.S. Representatives copies of
all reports and communications delivered to the Company's
stockholders or to holders of the Securities as a class and will
also furnish copies of all reports (excluding exhibits) filed
with the Commission on Forms 8-K, 10-Q and 10-K, and all other
reports and information furnished to its stockholders generally,
not later than the time such reports are first furnished to such
holders generally.
(l) During a period commencing on the date hereof and
ending 180 days, in the case of the Company, and 365 days, in the
case of CIHC and Conseco, from the date of the Prospectuses, each
of the Company, CIHC and Conseco will not, without the prior
written consent of the U.S. Representatives, directly or
indirectly, sell, offer to sell, grant any option for the sale
of, or otherwise dispose of, or enter into any agreement to sell,
any Common Stock or any securities similar to the Securities or
any security convertible into or exchangeable or exercisable for
any Common Stock or any such similar securities or file with the
Commission a registration statement under the 1933 Act to
register any Common Stock of the Company or any securities
convertible into or exercisable for Common Stock of the Company;
provided, however, that such restriction shall not affect (i) the
ability of the Company to take any such action in connection with
any employee benefit or incentive plan of the Company or its
subsidiaries described in the Prospectuses, (ii) the ability of
CIHC to sell 150,000 shares of Common Stock of the Company to Mr.
Michael J. Poulos pursuant to the Employment Agreement dated
September 9, 1993 between Conseco and Mr. Poulos or (iii) the
ability of the Company or CIHC to take any action in connection
with the offering of the Securities made pursuant to the
Prospectuses.
(m) The Company will use its best efforts to effect
and maintain the listing of the Securities and all other shares
of Common Stock outstanding from time to time on the NYSE and to
cause the Common Stock to be registered under the 1934 Act.
(n) The Company and CIHC will indemnify and hold
harmless the U.S. Underwriters against any documentary, stamp or
similar issue tax, including any interest and penalties, on the
creation, issue and sale of the Securities and on the execution
of this Agreement.
(o) No later than the next business day following the
Closing Time, Conseco shall repay in full all indebtedness under
the Credit Agreement dated as of September 30, 1993 among
Conseco, the lenders named therein, First Union National Bank of
North Carolina, Citicorp USA, Inc. and Continental Bank, N.A., as
Agents, and Continental Bank, N.A., as Administrative Agent.
SECTION 4. Payment of Expenses.
The Company will pay all expenses incident to the
performance of the obligations of the Company, CIHC and Conseco
under this Agreement, the U.S. Pricing Agreement, the
International Purchase Agreement and the International Pricing
Agreement including, without limitation, expenses related to the
following, if incurred: (i) the preparation, delivery, printing
<PAGE> 13
and filing of the Registration Statement and Prospectuses as
originally filed and of each amendment thereto; (ii) the printing
of this Agreement, the U.S. Pricing Agreement, the International
Purchase Agreement and the International Pricing Agreement; (iii)
the preparation, issuance and delivery of the certificates for
the Securities to the U.S. Underwriters and Managers; (iv) the
fees and disbursements of the Company's counsel and accountants;
(v) the qualification of the Securities under securities laws in
accordance with the provisions of Section 3(f), including filing
fees and the fees and disbursements of counsel for the U.S.
Underwriters and Managers in connection therewith and in
connection with the preparation of the Blue Sky Survey; (vi) the
printing and delivery to the U.S. Underwriters and Managers of
copies of the Registration Statement as originally filed and of
each amendment thereto, of the preliminary prospectuses, and of
the Prospectuses and any amendments or supplements thereto; (vii)
the printing and delivery to the U.S. Underwriters and Managers
of copies of the Blue Sky Survey; (viii) any fees payable to the
NASD; (ix) any fees payable to the Commission; and (x) the fees
and expenses incurred in connection with the listing on the NYSE
of the Securities.
If this Agreement is terminated by the U.S.
Representatives in accordance with the provisions of Section 5 or
Section 9(a)(i), the Company, CIHC and Conseco shall reimburse
the U.S. Underwriters for all of their out-of-pocket expenses,
including the fees and disbursements of counsel for the U.S.
Underwriters.
SECTION 5. Conditions of U.S. Underwriters'
Obligations.
The obligations of the U.S. Underwriters hereunder are
subject to the accuracy of the representations and warranties of
the Company, CIHC and Conseco herein contained, to the
performance by the Company, CIHC and Conseco of their obligations
hereunder, and to the following further conditions:
(a) The Registration Statement shall have become
effective not later than 5:30 p.m., New York City time, on the
date hereof or, with the consent of Merrill Lynch, at a later
time and date, not later, however, than 5:30 p.m. on the first
business day after the date hereof, or at such later time and
date as may be agreed upon by the U.S. Representatives, the
Company, CIHC and Conseco, and at the Closing Time and any Date
of Delivery no stop order suspending the effectiveness of the
Registration Statement shall have been issued under the 1933 Act
or proceedings therefor initiated or threatened by the
Commission. If the Company has elected to rely upon Rule 430A
under the 1933 Act Regulations, the U.S. Pricing Terms and any
other price-related information previously omitted from the
effective Registration Statement to such Rule 430A shall have
been transmitted to the Commission for filing pursuant to Rule
424(b) under the 1933 Act Regulations within the prescribed time
period, and prior to the Closing Time, the Company shall have
provided evidence satisfactory to the U.S. Representatives of
such timely filing, or a post-effective amendment providing such
information shall have been promptly filed and declared effective
in accordance with the requirements of Rule 430A under the 1933
Act Regulations.
(b) At the Closing Time the U.S. Representatives shall
have received:
(1) The favorable opinion, dated as of the
Closing Time, of Lawrence W. Inlow, Secretary and
General Counsel to the Company, CIHC and Conseco, in
form and substance satisfactory to counsel for the U.S.
Underwriters and Managers, to the effect that:
<PAGE>
<PAGE> 14
(i) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of Delaware;
the Company has the corporate power under the laws
of the State of Delaware and under its charter to
own, lease and operate its properties and to
conduct its business as described in the
Registration Statement and the Prospectuses; and
the Company is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in which such
qualification is required, whether by reason of
the ownership or leasing of property or the
conduct of business, except where the failures to
so qualify or be in good standing would not have a
material adverse effect on the condition,
financial or otherwise, or the earnings or
business affairs or prospects of the Company and
its subsidiaries, considered as one enterprise.
(ii) The Securities delivered at the Closing
Time and all other outstanding shares of the
Common Stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform in all material respects
to the description thereof contained in the
Prospectuses; the Common Stock is registered under
the 1934 Act and the Securities at the Closing
Time have been authorized for listing on the NYSE,
upon official notice of issuance.
(iii) The issuance of the Securities is not
subject to preemptive or other similar rights
arising by law.
(iv) The U.S. Purchase Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement
have been duly authorized, executed and delivered
by the Company, CIHC and Conseco and constitute
valid and binding obligations of the Company, CIHC
and Conseco enforceable in accordance with their
terms (except (1) as may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization
or similar laws affecting creditors' rights
generally and except that the remedies of specific
performance and injunctive and other forms of
equitable relief are subject to certain equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought, and
(2) that no opinion need be given as to the
enforceability of the indemnity and contribution
provisions hereunder or thereunder).
(v) The Common Stock conforms in all
material respects to the description thereof
contained in the Prospectuses and the Registration
Statement; and the forms of certificates used to
evidence the Securities and the Common Stock
comply with all applicable statutory and NYSE
requirements.
(vi) Each subsidiary of the Company has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation and has the
corporate power and authority to own, lease and
operate its properties and to conduct its business
as presently conducted and as described in the
Registration Statement and the Prospectuses.
Nothing has come to the attention of such counsel
to lead such counsel to believe that any
subsidiary is not duly qualified as a foreign
corporation to transact business or is not in good
standing in each jurisdiction in which such
<PAGE> 15
qualification is required, except where the
failures to so qualify or be in good standing
would not have a material adverse effect on the
condition, financial or otherwise, or the earnings
or business affairs of the Company and its
subsidiaries considered as one enterprise. All of
the issued and outstanding capital stock of each
subsidiary of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable, and all such shares are owned by
the Company or, in the case of Western, by WNL,
and WNL, Western and CAGC are the only
subsidiaries of the Company.
(vii) The Registration Statement is
effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
proceedings therefor initiated, or to such
counsel's best knowledge, threatened by the
Commission.
(viii) At the time the Registration
Statement became effective and at the U.S.
Representation Date and the Closing Time, the
Registration Statement (other than the financial
statements and schedules or other financial
information or statistical data included therein,
as to which no opinion need be rendered) complied
as to form in all material respects to the
requirements of the 1933 Act and the 1933 Act
Regulations.
(ix) No authorization, approval or consent
of any court or governmental authority or agency
is necessary in connection with the issuance and
sale of the Securities hereunder or the
consummation by the Company, CIHC and Conseco of
any other transactions contemplated hereby, except
such as have been obtained and made under the
federal securities laws or state insurance laws
and such as may be required under the state or
foreign securities laws.
(x) To the best knowledge of such counsel,
there are no statutes or regulations required to
be described in the Registration Statement which
are not described as required and there are no
legal or governmental proceedings pending or
threatened which are required to be disclosed in
the Registration Statement, other than those
disclosed therein.
(xi) To the best knowledge of such counsel,
there are no contracts, indentures, mortgages,
loan agreements, notes, leases or other
instruments required to be described or referred
to in the Registration Statement or to be filed as
exhibits thereto other than those described or
referred to therein or filed as exhibits thereto;
the descriptions thereof or references thereto are
true and correct in all material respects and no
default exists in the due performance or
observance of any material obligation, agreement,
covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease
or other instrument so described, referred to or
filed, which default could have a material adverse
effect on the Company and its subsidiaries
considered as one enterprise.
<PAGE>
<PAGE> 16
(xii) The issuance and delivery of the
Securities, the execution and delivery of the U.S.
Purchase Agreement, the International Purchase
Agreement, the U.S. Pricing Agreement and the
International Purchase Agreement and the
consummation of the transactions contemplated
therein and compliance by the Company with its
obligations thereunder will not conflict with or
constitute a breach of, or default under, or
result in the creation or imposition of any
pledge, lien, charge or encumbrance upon any
property or assets of the Company or any of its
subsidiaries pursuant to, any material contract,
indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of
its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the
property or assets of the Company or any of its
subsidiaries is subject, except for any conflict,
breach, default, lien, charge or encumbrance which
would not, singly and in the aggregate, have a
material adverse effect on the condition,
financial or otherwise, or the earnings or
business affairs of the Company and its
subsidiaries considered as one enterprise nor will
such action result in any violation of the
provisions of the charter or by-laws of the
Company, or any material applicable law,
administrative regulation or administrative or
court decree.
(xiii) The Company and each of its
subsidiaries hold all material licenses,
certificates and permits from all governmental
authorities (including, without limitation, the
Insurance Licenses) which are necessary to the
conduct of their businesses; the Company and each
of its subsidiaries have fulfilled and performed
all material obligations necessary to maintain
their respective Insurance Licenses, and no event
or events have occurred which may be reasonably
expected to result in the material impairment,
modification, termination or revocation of such
Insurance Licenses.
(xiv) CIHC has full legal right, power and
authorization, and any approval required by law,
to sell, assign, transfer and deliver good and
marketable title to the Securities which CIHC has
agreed to sell pursuant to the U.S. Purchase
Agreement and the International Purchase
Agreement.
(xv) No authorization, approval, consent, or
order of any court or governmental authority or
agency is required in connection with the sale of
the Securities by CIHC to the Underwriters, except
such as may be required under the 1933 Act or the
1933 Act Regulations or state or foreign
securities laws or state insurance laws.
(xvi) When the Securities are delivered to
the Underwriters against payment therefor in
accordance with the terms of the U.S. Purchase
Agreement and the International Purchase
Agreement, each of the Underwriters will acquire
good and marketable title to the Securities
purchased by it from CIHC, free and clear of any
mortgage, pledge, lien, security interest,
encumbrance, claim or equity created by or arising
through CIHC, assuming that the Underwriters
acquire the Securities without notice of any
adverse claim as such term is used in Section
8-302 of the Uniform Commercial Code as in effect
in the State of New York.
<PAGE> 17
(xvii) Nothing has come to such counsel's
attention that causes such counsel to believe that
the Registration Statement (except for financial
statements and schedules or other financial
information or statistical data included therein,
as to which no opinion need be expressed), at the
time it became effective, contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectuses (except for
financial statements and schedules or other
financial information or statistical data included
therein, as to which no opinion need be
expressed), at the U.S. Representation Date
(unless the term "Prospectuses" refers to
prospectuses which have been provided to the U.S.
Underwriters and the Managers by the Company for
use in connection with the offering of the
Securities which differs from the Prospectuses on
file at the Commission at the time the Registra-
tion Statement becomes effective, in which case at
the time it is first provided to the U.S. Under-
writers and the Managers for such use) or at the
Closing Time, included or includes an untrue
statement of a material fact or omitted or omits
to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading.
(2) The favorable opinion, dated as of the
Closing Time, of Vinson & Elkins L.L.P., special
counsel to the Company, to the effect that:
(i) the Registration Statement and the
Prospectuses, and each amendment or supplement
thereto, as of their respective effective or issue
dates, or when amended, as appropriate, (other
than the financial statements and schedules or
other financial information or statistical data
included therein, as to which no opinion need be
expressed) complied as to form in all material
respects with the requirements of the 1933 Act and
the 1933 Act Regulations;
(ii) nothing has come to such counsel's
attention that causes such counsel to believe that
the Registration Statement (except for financial
statements and schedules or other financial
information or statistical data included therein,
as to which no opinion need be expressed), at the
time it became effective, contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectuses (except for
financial statements and schedules and other
financial information or statistical data included
therein, as to which no opinion need be
expressed), at the U.S. Representation Date
(unless the term "Prospectuses" refers to
prospectuses which have been provided to the U.S.
Underwriters and the Managers by the Company for
use in connection with the offering of the
Securities which differs from the Prospectuses on
file at the Commission at the time the Registra-
tion Statement becomes effective, in which case at
the time it is first provided to the U.S. Underwriters
and the Managers for such use) or at the Closing
Time, included or includes an untrue statement
of a material fact or omitted or omits to state
a material fact necessary in order to make the
statements therein, in the light of the circumstances
under which they were made, not misleading.
<PAGE> 18
(iii) The U.S. Purchase Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement
have been duly authorized, executed and delivered
by the Company and constitute valid and binding
obligations of the Company enforceable in
accordance with their terms (except (1) as may be
limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws
affecting creditors' rights generally and except
that the remedies of specific performance and
injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the
discretion of the court before which any proceed-
ing therefor may be brought, and (2) that no
opinion need be given as to the enforceability of
the indemnity and contribution provisions here-
under or thereunder).
(3) The favorable opinion, dated as of the
Closing Time, of Sidley & Austin, counsel for the U.S.
Underwriters, with respect to the incorporation of the
Company, the validity of the Securities, the
Registration Statement, the Prospectuses and other
related matters as you may require, and the Company,
CIHC and Conseco shall have furnished to such counsel
such documents as they request for the purpose of
enabling them to pass upon such matters.
(c) At the Closing Time, there shall not have been,
since the date hereof or since the respective dates as of which
information is given in the Registration Statement and the
Prospectuses, other than as stated or contemplated in the
Registration Statement or the Prospectuses, any material adverse
change or any development which will result in a prospective
material adverse change in the condition, financial or otherwise,
or in the earnings or business affairs of the Company and its
subsidiaries, considered as one enterprise, whether or not
arising in the ordinary course of business, and the U.S.
Representatives shall have received a certificate of the
president or a vice president of the Company, CIHC and Conseco,
respectively, and of the chief financial or chief accounting
officer of the Company, CIHC and Conseco, respectively, dated as
of the Closing Time, to the effect that (i) there has been no
such material adverse change, (ii) the representations and
warranties in Section 1 are true and correct with the same force
and effect as though expressly made at and as of the Closing
Time, (iii) the Company, CIHC and Conseco have complied with all
agreements and satisfied all conditions on their part to be
performed or satisfied at or prior to the Closing Time, and (iv)
no stop order suspending the effectiveness of the Registration
Statement has been issued and, to the best of each such officer's
knowledge and information, no proceedings for that purpose have
been initiated or threatened by the Commission.
(d) At the time of the execution of this Agreement,
the U.S. Representatives shall have received from Coopers &
Lybrand a letter, dated such date, in form and substance
satisfactory to the U.S. Representatives, to the effect that (i)
they are independent public accountants with respect to the
Company and its subsidiaries within the meaning of the 1933 Act
and the 1933 Act Regulations; (ii) it is their opinion that the
financial statements and supporting schedules included in the
Registration Statement and covered by their opinions therein
comply with the applicable accounting requirements of the 1933
Act and the 1933 Act Regulations; (iii) based upon limited
procedures set forth in detail in such letter, nothing has come
to their attention which causes them to believe that (A) the
unaudited financial information of the Company and its
subsidiaries included in the Registration Statement do not comply
as to form in all material respects with the applicable
accounting requirements of the 1933 Act and the 1933 Act
Regulations, or are not presented in conformity with generally
accepted accounting principles applied on a basis substantially
<PAGE> 19
consistent with that of the audited financial statements included
in the Registration Statement or (B) at the date of the latest
available balance sheet read by such accountants, or at a
subsequent specified date not more than five days prior to the
date of this Agreement or the International Purchase Agreement,
there was any increase in long-term debt or insurance liabilities
or any decrease in total assets, stockholder's equity or common
stock, as compared with amounts shown on the latest balance sheet
included in the Prospectuses, or (C) for the period from the
closing date of the latest income statement included in the
Prospectuses to the closing date of the latest available income
statement read by such accountants there were any decreases, as
compared with the corresponding period of the previous year and
with the period of corresponding length ended the date of the
latest income statement included in the Prospectuses, in the
amounts of total revenues, total insurance policy income, net
investment income or net income except in all cases set forth in
this clause (iii) for changes, increases or decreases which the
Prospectuses discloses have occurred or may occur or which are
described in such letter; (iv) they have examined the statutory
financial statements of each of the Company's insurance
subsidiaries, from which certain ratios and other statistical
data contained in the Registration Statement have been derived,
and in their opinion such statements, with respect to each
insurance subsidiary, have for each relevant period been prepared
in accordance with accounting practices prescribed or permitted
by the appropriate insurance department of the state of domicile
of such subsidiary, and such accounting practices have been
applied on a consistent basis throughout the periods involved,
except as disclosed therein; (v) based upon the procedures set
forth in clause (iii) above and a reading of the "Selected
Historical Financial Information," and the "Pro Forma
Consolidated Financial Statements" and the information contained
under the caption "Management" included in the Registration
Statement, nothing has come to their attention that caused them
to believe that the "Selected Historical Financial Information"
and the "Pro Forma Consolidated Financial Statements" included in
the Registration Statement do not comply in all material respects
with the applicable requirements of Regulation S-K under the 1933
Act and the 1934 Act (e.g. "Selected Financial Data" (Item 301)
and "Supplementary Financial Information" (Item 302)), or that
the information set forth therein is not fairly stated in
relation to the financial statements from which it was derived,
and nothing has come to their attention that caused them to
believe that the information under the caption "Management"
contained in the Registration Statement does not comply in all
material respects with the applicable requirements of Item 402
("Executive Compensation") of such Regulation S-K; (vi) they are
unable to and do not express any opinion on the "Pro Forma
Consolidated Financial Statements" or on the pro forma
adjustments applied to the historical amounts included in such
statements; however, for purposes of such letter they have: (A)
read the "Pro Forma Consolidated Financial Statements," (B) made
inquiries of certain officials of the Company who have
responsibility for financial and accounting matters about the
basis for their determination of the pro forma adjustments and
whether the "Pro Forma Consolidated Financial Statements" comply
in form in all material respects with the applicable accounting
requirements of Regulation S-X and (C) proved the arithmetic
accuracy of the application of the pro forma adjustments to the
historical amounts in the "Pro Forma Consolidated Financial
Statements"; and (vii) in addition to the examination referred to
in their opinions and the limited procedures referred to in
clause (iii) above, they have carried out certain specified
procedures, not constituting an audit, with respect to certain
amounts, percentages, ratios and financial information that has
been derived from the accounting and financial records of the
Company that are subject to internal accounting controls which
are included in the Registration Statement and Prospectuses and
which are specified by the U.S. Representatives, and have found
such amounts, percentages, ratios and financial information to be
in agreement with the relevant accounting and financial records
of the Company and its subsidiaries identified in such letter.
<PAGE> 20
(e) At the Closing Time, the U.S. Representatives
shall have received from Coopers & Lybrand a letter, dated as of
the Closing Time, to the effect that they reaffirm the statements
made in the letter furnished pursuant to subsection (d) of this
Section, except that the specified date referred to shall be a
date not more than five days prior to the Closing Time and, if
the Company has elected to rely on Rule 430A under the 1933 Act
Regulations, to the further effect that they have carried out
procedures as specified in clause (v) of subsection (d) of this
Section with respect to certain amounts, percentages and
financial information specified by the U.S. Representatives and
deemed to be a part of the Registration Statement pursuant to
Rule 430(A)(b) and have found such amounts, percentages and
financial information to be in agreement with the records
specified in such clause (v).
(f) At the Closing Time, the Securities shall have
been and shall remain approved for listing on the NYSE upon
notice of issuance.
(g) At the Closing Time, and at each Date of Delivery,
if any, counsel for the U.S. Underwriters shall have been
furnished with such documents and opinions as they may reasonably
require with respect to unforeseen materially changed circum-
stances since the date of this Agreement and the International
Purchase Agreement for the purpose of enabling them to pass upon
the issuance and sale of the Securities as contemplated herein
and in the International Purchase Agreement and all proceedings
taken by the Company in connection with the issuance and sale of
the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the U.S. Representatives
and counsel for the U.S. Underwriters.
(h) At the Closing Time, the U.S. Underwriters and
Managers shall receive agreements of all directors and executive
officers of the Company not to, without the prior written consent
of the U.S. Representatives, directly or indirectly, sell, offer
to sell, grant any option for the sale of, or otherwise dispose
of, or enter into any agreement to sell, any Common Stock or any
securities similar to the Securities or any security convertible
into or exchangeable or exercisable for any Common Stock or any
such similar securities during a period commencing on the date
hereto and ending 180 days from the date of the Prospectuses.
(i) In the event that the U.S. Underwriters exercise
their option provided in Section 2(b) hereof to purchase all or
any portion of the U.S. Option Securities, the representations
and warranties of the Company, CIHC and Conseco contained herein
and the statements in any certificates furnished by the Company,
CIHC and Conseco hereunder shall be true and correct as of, and
as if made on, each Date of Delivery, and, at the relevant Date
of Delivery, the U.S. Representatives shall have received:
(1) A certificate, dated such Date of Delivery,
of the president or a vice president of the Company,
CIHC and Conseco, respectively, and the chief financial
or chief accounting officer of the Company, CIHC and
Conseco, respectively, confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c)
hereof is true and correct as of, and as if made on,
such Date of Delivery.
(2) The favorable opinion of Lawrence W. Inlow,
Secretary and General Counsel for the Company, CIHC and
Conseco, in form and substance satisfactory to counsel
for the U.S. Underwriters, dated such Date of Delivery,
relating to the U.S. Option Securities and otherwise to
the same effect as the opinion required by Section
5(b)(1) hereof.
<PAGE>
<PAGE> 21
(3) The favorable opinion of Vinson & Elkins
L.L.P., special counsel for the Company, in form and
substance satisfactory to counsel for the U.S.
Underwriters, dated such Date of Delivery, relating to
the U.S. Option Securities and otherwise to the same
effect as the opinion required by Section 5(b)(2)
hereof.
(4) The favorable opinion of Sidley & Austin,
counsel for the U.S. Underwriters, dated such Date of
Delivery, relating to the U.S. Option Securities and
otherwise to the same effect as the opinion required by
Section 5(b)(3) hereof.
(5) A letter from Coopers & Lybrand in form and
substance satisfactory to the U.S. Underwriters and
dated such Date of Delivery, substantially the same in
form and substance as the letters furnished to the U.S.
Representatives pursuant to Section 5(d) hereof, except
that the "specified date" in the letter furnished
pursuant to this Section 5(i)(5) shall be a date not
more than five days prior to such Date of Delivery.
If any condition specified in this Section 5 shall not
have been fulfilled when and as required to be fulfilled, this
Agreement may be terminated by the U.S. Representatives by notice
to the Company, CIHC and Conseco at any time at or prior to the
Closing Time, and such termination shall be without liability of
any party to any other party except as provided in Section 4.
SECTION 6. Indemnification.
(a) The Company, CIHC and Conseco, jointly and
severally, agree to indemnify and hold harmless each U.S.
Underwriter and each person, if any, who controls any U.S.
Underwriter within the meaning of Section 15 of the 1933 Act as
follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out
of any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement
(or any amendment thereto), including the information
deemed to be part of the Registration Statement
pursuant to Rule 430A(b) of the 1933 Act Regulations,
if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated
therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained
in any preliminary prospectuses or the Prospectuses (or
any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light
of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the
extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is
effected with the written consent of the Company, CIHC
or Conseco, as the case may be; and
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof,
the reasonable fees and disbursements of counsel chosen
by Merrill Lynch), reasonably incurred in investi-
gating, preparing for or defending against any
<PAGE> 22
litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened,
or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that (A) the foregoing indemnity shall not
apply to any loss, liability, claim, damage or expense to the
extent arising out of any untrue statement or omission or alleged
untrue statement or omission made in reliance upon and in
conformity with written information furnished to the Company by
any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any
preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto); and (B) the foregoing indemnity agreement
with respect to any preliminary prospectuses shall not inure to
the benefit of the Underwriter from whom the person asserting any
such losses, claims, damages or liabilities purchased Securities,
or any person controlling any U.S. Underwriter, if a copy of the
Prospectuses (as then amended or supplemented, if the Company
shall have furnished any amendments or supplements thereto) was
not sent or given by or on behalf of the U.S. Underwriters to
such person if such is required by law at or prior to the written
confirmation of the sale of such Securities to such person and if
the Prospectuses (as so amended or supplemented) would have cured
the defect giving rise to such loss, claim, damage or liability.
(b) Each U.S. Underwriter severally agrees to
indemnify and hold harmless the Company, its directors, each of
its officers who signed the Registration Statement, CIHC, Conseco
and each person, if any, who controls the Company, CIHC or
Conseco within the meaning of Section 15 of the 1933 Act against
any and all loss, liability, claim, damage and expense described
in the indemnity contained in subsection (a) of this Section, as
incurred, but only with respect to untrue statements or
omissions, or alleged untrue statements or omissions, made in the
Registration Statement (or any amendment thereto) or any
preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto) in reliance upon and in conformity with
written information furnished to the Company by such U.S.
Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or such
preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto).
(c) Each indemnified party shall give notice as
promptly as reasonably practicable to each indemnifying party of
any action commenced against it in respect of which indemnity may
be sought hereunder, but the failure to so notify an indemnifying
party shall not relieve such indemnifying party from any
liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at
its own expense in the defense of any such action. If it so
elects within a reasonable time after receipt of such notice, an
indemnifying party, jointly with any other indemnifying parties
receiving such notice, may assume the defense of such action with
counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be
unreasonably withheld), unless such indemnified parties
reasonably object to such assumption on the ground that there may
be legal defenses available to them which are different from or
in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the
indemnifying parties shall not be liable for any fees and
expenses of counsel for the indemnified parties incurred
thereafter in connection with such action. In no event shall the
indemnifying parties be liable for reasonable fees and expenses
of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in
connection with any one action or separate but similar or related
actions in the same jurisdiction arising out of the same general
allegations or circumstances. An indemnifying party shall not be
liable for any settlement or any action or claim effected without
<PAGE> 23
its consent, which consent shall not unreasonably withheld. No
indemnifying party shall, without the prior written consent of
the indemnified party, effect any settlement of any pending or
threatened proceeding in respect of which any indemnified party
is or could have been a party and indemnity could have been
sought hereunder by such indemnified party, unless such
settlement includes an unconditional release of such indemnified
party from all liability on claims that are the subject matter of
such proceeding.
SECTION 7. Contribution.
In order to provide for just and equitable contribution
in circumstances in which the indemnity agreement provided for in
Section 6 is for any reason held to be unenforceable by the
indemnified parties although applicable in accordance with its
terms, the Company, CIHC, Conseco and the U.S. Underwriters shall
contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by said indemnity
agreement incurred by the Company, CIHC and Conseco and one or
more of the U.S. Underwriters, as incurred, in such proportions
that the U.S. Underwriters are responsible for that portion
represented by the percentage that the underwriting discount
appearing on the cover page of the U.S. Prospectus bears to the
initial public offering price appearing thereon and the Company,
CIHC and Conseco are jointly and severally responsible for the
balance; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who
was not guilty of such fraudulent misrepresentation. For
purposes of this Section, each person, if any, who controls an
Underwriter within the meaning of Section 15 of the 1933 Act
shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who
signed the Registration Statement and each person, if any, who
controls the Company, CIHC or Conseco within the meaning of
Section 15 of the 1933 Act shall have the same rights to
contribution as the Company, CIHC and Conseco.
SECTION 8. Representations, Warranties and Agreements
to Survive Delivery.
All representations, warranties and agreements
contained in this Agreement and the U.S. Pricing Agreement, or
contained in certificates of officers of the Company, CIHC or
Conseco submitted pursuant hereto, shall remain operative and in
full force and effect, regardless of any investigation made by or
on behalf of any U.S. Underwriter or controlling person, or by or
on behalf of the Company, CIHC and Conseco, and shall survive
delivery of the Securities to the U.S. Underwriters.
SECTION 9. Termination of Agreement.
(a) The U.S. Representatives may terminate this
Agreement and the U.S. Pricing Agreement, by notice to the
Company, CIHC and Conseco, at any time at or prior to the Closing
Time (i) if there has been, since the date of this Agreement or
since the respective dates as of which information is given in
the Registration Statement (except as otherwise stated or
contemplated therein at the date of the U.S. Pricing Agreement),
any material adverse change or any development which will result
in a prospective material adverse change in the condition,
financial or otherwise, or in the earnings or business affairs of
the Company and its subsidiaries considered as one enterprise,
whether or not arising in the ordinary course of business, or
(ii) if there has occurred any outbreak of hostilities or other
calamity or crisis, or any material worsening thereof, the effect
of which on the financial markets of the United States is such as
to make it, in the judgment of the U.S. Representatives,
impracticable to market the Securities or to enforce contracts
for the sale of the Securities, or (iii) if trading in the Common
Stock has been suspended by the Commission, or if trading
generally on either the American Stock Exchange or the NYSE has
been suspended, or minimum or maximum prices for trading have
<PAGE> 24
been fixed, or maximum ranges for prices for securities have been
required, by either of said Exchanges or by order of the
Commission or any other governmental authority, or if a banking
moratorium has been declared by Federal, New York or California
authorities.
(b) If this Agreement and the U.S. Pricing Agreement
are terminated pursuant to this Section, such termination shall
be without liability of any party to any other party except as
provided in Section 4, and provided further that Sections 6 and 7
hereof shall survive such termination.
SECTION 10. Default by One or More of the U.S.
Underwriters.
If one or more of the U.S. Underwriters shall fail at
Closing Time to purchase the Initial U.S. Securities which it or
they are obligated to purchase under this Agreement and the U.S.
Pricing Agreement (the "Defaulted Securities"), the U.S.
Representatives shall have the right, within 24 hours thereafter,
to make arrangements for one or more of the non-defaulting U.S.
Underwriters, or any other underwriters, to purchase all, but not
less than all, of the Defaulted Securities in such amounts as may
be agreed upon and upon the terms herein set forth; if, however,
the U.S. Representatives shall not have completed such
arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not
exceed 10% of the number of Initial U.S. Securities, the non-
defaulting U.S. Underwriters shall be obligated to purchase the
full amount thereof in the proportions that their respective
underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting U.S. Underwriters, or
(b) if the number of Defaulted Securities exceeds 10%
of the number of Initial U.S. Securities, this Agreement shall
terminate without liability on the part of any non-defaulting
U.S. Underwriter.
No action taken pursuant to this Section shall relieve
any defaulting U.S. Underwriter from liability in respect of its
default.
In the event of any such default which does not result
in a termination of this Agreement, either the U.S.
Representatives, the Company, CIHC or Conseco shall have the
right to postpone the Closing Time for a period not exceeding
seven days in order to effect any required changes in the
Registration Statement or Prospectuses or in any other documents
or arrangements.
The U.S. Underwriters shall also have the right to
amend Schedule A hereto by making such substitutions or
corrections as indicated in the U.S. Pricing Agreement.
SECTION 11. Notices.
All notices and other communications hereunder shall be
in writing and shall be deemed to have been duly given if mailed
or transmitted by any standard form of telecommunication.
Notices to the U.S. Underwriters shall be directed to Merrill
Lynch & Co., 5500 Sears Tower, Chicago, Illinois 60606,
Attention: Robert S. Whitelaw, Managing Director, with a copy to
Sidley & Austin, One First National Plaza, Chicago, Illinois
60603, Attention: John J. Sabl, Esq.; notices to the Company
shall be directed to it at 5555 San Felipe Road, Suite 900,
Houston Texas 77056, Attention: Richard W. Scott, Esq.; notices
to CIHC and Conseco shall be directed to them at Conseco, Inc.,
11825 North Pennsylvania Street, Carmel, Indiana 46032,
Attention: Lawrence W. Inlow, Esq.
<PAGE>
<PAGE> 25
SECTION 12. Parties.
This Agreement and the U.S. Pricing Agreement shall
each inure to the benefit of and be binding upon the U.S.
Underwriters, the Company, CIHC and Conseco and their respective
successors. Nothing expressed or mentioned in this Agreement or
the U.S. Pricing Agreement is intended or shall be construed to
give any person, firm or corporation, other than the U.S.
Underwriters, the Company, CIHC and Conseco and their respective
successors and the controlling persons and officers and directors
referred to in Sections 6 and 7 and their heirs and legal
representatives, any legal or equitable right, remedy or claim
under or in respect of this Agreement or the U.S. Pricing
Agreement or any provision herein or therein contained. This
Agreement and the U.S. Pricing Agreement and all conditions and
provisions hereof and thereof are intended to be for the sole and
exclusive benefit of the U.S. Underwriters, the Company, CIHC and
Conseco and their respective successors, and said controlling
persons and officers and directors and their heirs and legal
representatives, and for the benefit of no other person, firm or
corporation. No purchaser of Securities from any U.S.
Underwriter shall be deemed to be a successor by reason merely of
such purchase.
SECTION 13. Governing Law and Time.
This Agreement and the U.S. Pricing Agreement shall be
governed by and construed in accordance with the laws of the
State of New York applicable to agreements made and to be
performed in said State. Unless otherwise set forth herein,
specified times of day refer to New York City time.
SECTION 14. Waiver of Right to Jury Trial.
Each of the Company, CIHC and Conseco (on their own
behalf and, to the extent permitted by applicable law, on behalf
of their respective shareholders) and the U.S. Underwriters waive
all rights to trial by jury in any action, proceeding or
counterclaim (whether based upon contract, tort or otherwise)
related to or arising out of the engagement of the U.S.
Underwriters pursuant to, or the performance by the U.S.
Underwriters of the services contemplated by, this Agreement.
<PAGE>
<PAGE> 26
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement between
the U.S. Underwriters, the Company, CIHC and Conseco in
accordance with its terms.
Very truly yours,
WESTERN NATIONAL CORPORATION
By: /s/ Michael J. Poulos
-------------------------
Name: Michael J. Poulos
Title: Chairman of the Board
and President
CONSECO, INC.
By: /s/ Rollin M. Dick
---------------------------
Name: Rollin M. Dick
Title: Executive Vice President
CONSECO INVESTMENT HOLDING COMPANY
By: /s/ William T. Devanney, Jr.
----------------------------
Name: William T. Devanney, Jr.
Title: Vice President
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
LADENBURG, THALMANN & CO. INC.
For themselves and as U.S. Representatives
of the other U.S. Underwriters named in
the U.S. Purchase Agreement.
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: /s/ Robert S. Whitelaw
Name: Robert S. Whitelaw
Title: Managing Director
<PAGE>
<PAGE> 27
<TABLE>
<CAPTION>
SCHEDULE A
Number of
Initial
Name of U.S. Underwriter U.S. Securities
- - ------------------------ ----------------
<S> <C>
Merrill Lynch, Pierce, Fenner & Smith
Incorporated . . . . . . . . . . . . . 2,724,375
Dean Witter Reynolds Inc.. . . . . . . . . 2,724,375
Goldman, Sachs & Co. . . . . . . . . . . . 2,724,375
Ladenburg, Thalmann & Co. Inc. . . . . . . 2,724,375
Bear, Stearns & Co. Inc. . . . . . . . . . 400,000
CS First Boston Corporation. . . . . . . . 400,000
Alex Brown & Sons Incorporated. . . . . . 400,000
Dillon, Read & Co. Inc.. . . . . . . . . . 400,000
Donaldson, Lufkin & Jenrette Securities
Corporation . . . . . . . . . . . . . . 400,000
A.G. Edwards & Sons, Inc.. . . . . . . . . 400,000
Hambrecht & Quist Incorporated . . . . . . 400,000
Kidder, Peabody & Co. Incorporated . . . . 400,000
Lazard Freres & Co.. . . . . . . . . . . . 400,000
Lehman Brothers Inc. . . . . . . . . . . . 400,000
Montgomery Securities. . . . . . . . . . . 400,000
Morgan Stanley & Co. Incorporated. . . . . 400,000
Oppenheimer & Co. Inc. . . . . . . . . . . 400,000
PaineWebber Incorporated . . . . . . . . . 400,000
Robertson, Stephens & Company. . . . . . . 400,000
Salomon Brothers Inc . . . . . . . . . . . 400,000
Smith Barney Shearson Inc. . . . . . . . . 400,000
Wertheim Schroder & Co. Incorporated . . . 400,000
RAS Securities Corp. . . . . . . . . . . . 400,000
Sands Brothers & Co., Ltd. . . . . . . . . 400,000
Advest, Inc. . . . . . . . . . . . . . . . 200,000
Arnhold and S. Bleichroeder, Inc.. . . . . 200,000
Robert W. Baird & Co. Incorporated . . . . 200,000
J.C. Bradford & Co.. . . . . . . . . . . . 200,000
The Chicago Corporation. . . . . . . . . . 200,000
Conning & Company. . . . . . . . . . . . . 200,000
Cowen & Company. . . . . . . . . . . . . . 200,000
Dain Bosworth Incorporated . . . . . . . . 200,000
Doft & Co., Inc. . . . . . . . . . . . . . 200,000
Fahnestock & Co. Inc.. . . . . . . . . . . 200,000
First Albany Corporation . . . . . . . . . 200,000
First Manhattan Co.. . . . . . . . . . . . 200,000
First of Michigan Corporation. . . . . . . 200,000
Furman Selz Incorporated . . . . . . . . . 200,000
Gruntal & Co., Incorporated. . . . . . . . 200,000
Interstate/Johnson Lane Corporation. . . . 200,000
Janney Montgomery Scott Inc. . . . . . . . 200,000
C.J. Lawrence/Deutsche Bank Securities
Corporation . . . . . . . . . . . . . . 200,000
Legg Mason Wood Walker, Incorporated . . . 200,000
Mabon Securities Corp. . . . . . . . . . . 200,000
McDonald & Company Securities, Inc.. . . . 200,000
Morgan Keegan & Company, Inc.. . . . . . . 200,000
<PAGE>
<PAGE> 28
Needham & Company, Inc.. . . . . . . . . . 200,000
Neuberger & Berman . . . . . . . . . . . . 200,000
Piper Jaffray Inc. . . . . . . . . . . . . 200,000
The Principal/Eppler, Guerin &
Turner, Inc.. . . . . . . . . . . . . . 200,000
Ragen MacKenzie Incorporated
Rauscher Pierce Refsnes, Inc.. . . . . . . 200,000
Raymond James & Associates, Inc. . . . . . 200,000
The Robinson-Humphrey Company, Inc.. . . . 200,000
Stifel, Nicolaus & Company, Incorporated.. 200,000
Sutro & Co. Incorporated . . . . . . . . . 200,000
Tucker Anthony Incorporated. . . . . . . . 200,000
Wheat, First Securities, Inc.. . . . . . . 200,000
M.R. Beal & Company. . . . . . . . . . . . 100,000
Brean Murray, Foster Securities Inc. . . . 100,000
Crowell, Weedon & Co.. . . . . . . . . . . 100,000
Dominick & Dominick, Incorporated. . . . . 100,000
Laidlaw Equities, Inc. . . . . . . . . . . 100,000
Mesirow Financial, Inc.. . . . . . . . . . 100,000
Northington Capital Markets, Inc.. . . . . 100,000
The Ohio Company . . . . . . . . . . . . . 100,000
Parker/Hunter Incorporated . . . . . . . . 100,000
Paulsen, Dowling Securities, Inc.. . . . . 100,000
Pennsylvania Merchant Group Ltd. . . . . . 100,000
Scott & Stringfellow, Inc. . . . . . . . . 100,000
The Seidler Companies Incorporated . . . . 100,000
Muriel Siebert & Co., Inc. . . . . . . . . 100,000
Spencer Trask Securities Incorporated. . . 100,000
Traub and Company, Inc.. . . . . . . . . . 100,000
Van Kasper & Company . . . . . . . . . . . 100,000
Wedbush Morgan Securities. . . . . . . . . 100,000
__________
Total. . . . . . . . . . . . . . . . . . . 27,497,500
__________
__________
</TABLE>
<PAGE>
<PAGE> 29
Exhibit A
WESTERN NATIONAL CORPORATION
(a Delaware corporation)
27,497,500 Shares of Common Stock
PRICING AGREEMENT
_____________, 1994
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER & SMITH
INCORPORATED
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
LADENBURG, THALMANN & CO. INC.
as U.S. Representatives of the several U.S. Underwriters
named in the within-mentioned U.S. Purchase Agreement
c/o Merrill Lynch World Headquarters
North Tower
World Financial Center
New York, New York 10281-1305
Dear Sirs:
Reference is made to the U.S. Purchase Agreement dated
____________, 1994 (the "U.S. Purchase Agreement") relating to
the purchase by the several U.S. Underwriters named in Schedule A
thereto, for whom Merrill Lynch & Co., Merrill Lynch, Pierce,
Fenner & Smith Incorporated, Dean Witter Reynolds Inc., Goldman,
Sachs & Co. and Ladenburg, Thalmann & Co. Inc. are acting as
representatives (the "U.S. Representatives"), of the above shares
of Common Stock (the "Securities") of Western National
Corporation, a Delaware corporation (the "Company").
Pursuant to Section 2 of the U.S. Purchase Agreement,
the Company, Conseco Investment Holding Company, a Delaware
corporation ("CIHC"), and Conseco, Inc., an Indiana corporation
("Conseco"), agree with each U.S. Underwriter as follows:
1. The initial public offering price per share for the
Securities, determined as provided in said Section 2, shall
be $_____.
2. The purchase price per share for the Securities to
be paid by the several U.S. Underwriters shall be $_____,
being an amount equal to the initial public offering price
set forth above less $____ per share.<PAGE>
<PAGE> 30
If the foregoing is in accordance with your
understanding of our agreement, please sign and return to the
Company a counterpart hereof, whereupon this instrument, along
with all counterparts, will become a binding agreement between
the U.S. Underwriters, the Company, CIHC and Conseco in
accordance with its terms.
Very truly yours,
WESTERN NATIONAL CORPORATION
By: _____________________________
Name:
Title:
CONSECO, INC.
By: _____________________________
Name:
Title:
CONSECO INVESTMENT HOLDING COMPANY
By:________________________________
Name:
Title:
CONFIRMED AND ACCEPTED,
as of the date first above written:
MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
DEAN WITTER REYNOLDS INC.
GOLDMAN, SACHS & CO.
LADENBURG, THALMANN & CO. INC.
For themselves and as U.S. Representatives
of the other U.S. Underwriters named in
the U.S. Purchase Agreement.
By: MERRILL LYNCH & CO.
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
By: ____________________________________
Authorized Signatory
<PAGE> 1
WESTERN NATIONAL CORPORATION
(a Delaware corporation)
4,852,500 Shares of Common Stock
(Par Value $.001 Per Share)
INTERNATIONAL PURCHASE AGREEMENT
February 8, 1994
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
GOLDMAN SACHS INTERNATIONAL LIMITED
LADENBURG, THALMANN & CO. INC.
as Lead Managers of the several Managers
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9LY
England
Dear Sirs:
Western National Corporation, a United States company incorporated
in the State of Delaware (the "Company"), Conseco Investment Holding Company,
a United States company incorporated in the State of Delaware ("CIHC"), and
Conseco, Inc., a United States company incorporated in the State of Indiana
("Conseco"), confirm their agreement with Merrill Lynch International Limited
("Merrill Lynch"), Dean Witter International Ltd. ("Dean Witter"), Goldman
Sachs International Limited ("Goldman Sachs") and Ladenburg, Thalmann & Co.
Inc. ("Ladenburg") and each of the other underwriters named in Schedule A
hereto (collectively, the "Managers," which term shall also include any
underwriter substituted as hereinafter provided in Section 10), for whom
Merrill Lynch, Dean Witter, Goldman Sachs and Ladenburg are acting as lead
managers (in such capacity, the "Lead Managers"), with respect to the sale by
the Company and CIHC, acting severally and not jointly, and the purchase by the
Managers, acting severally and not jointly, of 300,000 shares and 4,552,500
shares, respectively, of the respective number of shares of Common Stock of the
Company, par value $.001 per share ("Common Stock"), set forth in Schedule A
and with respect to the grant by the Company and CIHC to the Managers and U.S.
Underwriters (as defined below), acting severally and not jointly, of the
option described in Section 2(b) hereof to purchase all or any part of
additional shares of Common Stock to cover over-allotments, in each case except
as may otherwise be provided in the International Pricing Agreement, as
hereinafter defined. The 4,852,500 shares of Common Stock (the "Initial
International Securities") and all or any part of the Managers' pro rata
portion of the 727,875 shares of Common Stock subject to the option described
in Section 2(b) hereof (the "International Option Securities") to be purchased
by the Managers are collectively hereinafter called the "International
Securities." The 4,852,500 shares of Common Stock subject to the option
described in Section 2(b) hereof are hereinafter collectively called the
"Option Securities."
It is understood that the Company, CIHC and Conseco are concurrently
entering into an agreement dated the date hereof (the "U.S. Purchase
Agreement") providing for the offering by the Company and CIHC of 27,497,500
shares of Common Stock (the "Initial U.S. Securities") through arrangements
with certain underwriters in the United States (the "U.S. Underwriters") for
which Merrill Lynch & Co., Merrill Lynch, Pierce, Fenner & Smith Incorporated,
Dean Witter Reynolds Inc., Goldman, Sachs & Co. and Ladenburg are acting as
representatives (the "U.S. Representatives") and the grant by the Company and
CIHC to the U.S. Underwriters of an option to purchase all or any part of the
U.S. Underwriters' pro rata portion of the Option Securities (the "U.S. Option
Securities") to cover over-allotments. The Initial U.S. Securities and the
U.S. Option Securities are hereinafter called the "U.S. Securities." It is
understood that the Company and CIHC are not obligated to sell, and the
<PAGE>
<PAGE> 2
Managers are not obligated to purchase, any Initial International Securities
unless all of the Initial U.S. Securities are contemporaneously purchased by
the U.S. Underwriters.
The Managers and the U.S. Underwriters are hereinafter collectively
called the "Underwriters," the Initial U.S. Securities and the Initial
International Securities are hereinafter collectively called the "Initial
Securities," and the International Securities and the U.S. Securities are
hereinafter collectively called the "Securities."
Prior to the purchase and public offering of the International
Securities by the several Managers, the Company, CIHC, Conseco and the Lead
Managers, acting on behalf of the several Managers, shall enter into an
agreement substantially in the form of Exhibit A hereto (the "International
Pricing Agreement"). The International Pricing Agreement may take the
form of an exchange of any standard form of written telecommunication between
the Company, CIHC, Conseco and the Lead Managers and shall specify such
applicable information as is indicated in Exhibit A hereto. The offering of
the International Securities will be governed by this Agreement, as
supplemented by the International Pricing Agreement. From and after the date
of the execution and delivery of the International Pricing Agreement, this
Agreement shall be deemed to incorporate the International Pricing Agreement.
The initial public offering price and the purchase price with respect to the
U.S. Securities shall be set forth in a separate instrument (the "U.S. Pricing
Agreement"), the form of which is attached to the U.S. Purchase Agreement.
The Company has filed with the United States Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No.
33-70022) and a related preliminary prospectus for the registration of the
Securities under the Securities Act of 1933, as amended (the "1933 Act"), has
filed such amendments thereto, if any, and such amended preliminary
prospectuses as may have been required to the date hereof, and
will file such additional amendments thereto and such amended prospectuses as
may hereafter be required. (1) Such registration statement (as amended, if
applicable) and the two prospectuses constituting a part thereof (including in
each case the information, if any, deemed to be part thereof pursuant to Rule
430A(b) of the rules and regulations of the Commission under the 1933 Act (the
"1933 Act Regulations")), as from time to time amended or supplemented pursuant
to the 1933 Act, are hereinafter referred to as the "Registration Statement,"
the "International Prospectus" and the "U.S. Prospectus," respectively, and the
International and U.S. Prospectuses are hereinafter together called
"Prospectuses" and, each individually, a "Prospectus," except that if any
revised prospectus shall be provided to the Managers or the U.S. Underwriters
by the Company for use in connection with the offering of the Securities which
differs from the Prospectuses on file at the Commission at the time the
Registration Statement becomes effective (whether or not such revised
prospectus is required to be filed by the Company pursuant to Rule 424(b) of
the 1933 Act Regulations), the terms "International Prospectus" and "U.S.
Prospectus" shall refer to each such revised prospectus from and after the time
it is first provided to the Managers or the U.S. Underwriters, as the case
may be, for such use.
The Company, CIHC and Conseco understand that the Managers propose
to make a public offering of the International Securities as soon as the Lead
Managers deem advisable after the Registration Statement becomes effective and
the International Pricing Agreement has been executed and delivered. The price
per share for the U.S. Securities to be purchased by the U.S. Underwriters
pursuant to the U.S. Purchase Agreement shall be identical to the price per
share for the International Securities to be purchased by the Managers
hereunder.
[FN]
1. Two forms of prospectus are to be used in connection with the
offering and sale of the Securities: one relating to the International
Securities (the "International Prospectus"), and one relating to the U.S.
Securities (the "U.S. Prospectus").
<PAGE>
<PAGE> 3
SECTION 1. Representations and Warranties.
(a) The Company, CIHC and Conseco represent and warrant to each of
the Managers as of the date hereof and as of the date of the International
Pricing Agreement (such latter date being hereinafter referred to as the
"International Representation Date") as follows:
(i) At the time the Registration Statement
becomes effective and at the International
Representation Date, the Registration Statement will
comply in all material respects with the requirements
of the 1933 Act and the 1933 Act Regulations and will
not contain an untrue statement of a material fact or
omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading; and the Prospectuses, at the time the
Registration Statement becomes effective (unless the
term "Prospectuses" refers to prospectuses which have
been provided to the U.S. Underwriters and the Managers
by the Company for use in connection with the offering
of the Securities which differ from the Prospectuses on
file at the Commission at the time the Registration
Statement becomes effective, in which case at the time
such Prospectuses are first provided to the U.S.
Underwriters and the Managers for such use) and at the
International Representation Date and at the Closing
Time referred to in Section 2, will not include an
untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements
therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that
the representations and warranties in this subsection
shall not apply to statements in or omissions from the
Registration Statement or Prospectuses made in reliance
upon and in conformity with information furnished to
the Company in writing by any Manager through Merrill
Lynch expressly for use in the Registration Statement
or the Prospectuses.
(ii) Coopers & Lybrand, the accountants who
certified the financial statements and supporting
schedules of the Company and Western National Life
Insurance Company, a Texas insurance company
("Western"), included in the Registration Statement,
are independent public accountants with respect to the
Company and its subsidiaries as required by the 1933
Act and the 1933 Act Regulations.
(iii) The financial statements of the Company and
Western included in the Registration Statement and the
Prospectuses present fairly the financial position of
the Company and Western as of the dates indicated and
the results of its operations for the periods
specified; except as otherwise stated in the
Registration Statement, said financial statements have
been prepared in conformity with generally accepted
accounting principles applied on a consistent basis;
and the supporting schedules included in the
Registration Statement present fairly the information
required to be included therein; and Company's ratios
of earnings to fixed charges (actual and pro forma)
included in the Prospectuses and in Exhibit 12.1 to the
Registration Statement have been calculated in
compliance, in all material respects, with Item 503(d)
of Regulation S-K of the Commission.
(iv) The statutory financial statements of
Western, from which certain ratios and other
statistical data contained in the Registration
Statement have been derived, have for each relevant
period been prepared in accordance with accounting
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<PAGE> 4
practices prescribed or permitted by the National
Association of Insurance Commissioners and the
insurance department of the state of Texas, and such
accounting practices have been applied on a consistent
basis throughout the periods involved, except as
disclosed therein.
(v) Since the respective dates as of which
information is given in the Registration Statement and
the Prospectuses, and except as otherwise stated or
contemplated therein, (A) there has been no material
adverse change and no development which will result in
a prospective material adverse change in the condition,
financial or otherwise, or in the earnings or business
affairs of the Company and its subsidiaries, considered
as one enterprise, whether or not arising in the
ordinary course of business, (B) there have been no
transactions entered into by the Company or any of its
subsidiaries which are material to the Company and its
subsidiaries, considered as one enterprise, other than
those entered into in the ordinary course of business,
and (C) there has been no dividend or distribution of
any kind declared, paid or made by the Company on any
class of its capital stock.
(vi) The Company has been duly incorporated and
is validly existing as a corporation in good standing
under the laws of the State of Delaware, with corporate
power and authority to own, lease and operate its
properties and to conduct its business as presently
conducted and as described in the Prospectuses; and the
Company is duly qualified as a foreign corporation to
transact business and is in good standing in each
jurisdiction in which such qualification is required,
whether by reason of the ownership or leasing of
property or the conduct of business, except to the
extent the failures to so qualify or be in good
standing would not have a material adverse effect on
the condition, financial or otherwise, or the earnings
or business affairs of the Company and its
subsidiaries, considered as one enterprise.
(vii) Each of the Company's subsidiaries has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation, has the corporate
power and authority to own, lease and operate its
properties and to conduct its business as presently
conducted and as described in the Prospectuses; and is
duly qualified as a foreign corporation to transact
business and is in good standing in each jurisdiction
in which such qualification is required, whether by
reason of the ownership or leasing of property or the
conduct of business, except where the failures to so
qualify or be in good standing would not have a
material adverse effect on the condition, financial or
otherwise, or the earnings or business affairs of the
Company and its subsidiaries, considered as one
enterprise; and the outstanding shares of capital stock
of each subsidiary of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and all such shares are owned by the
Company or, in the case of Western, by WNL Holding
Corp, a Delaware corporation ("WNL"); and at the
Closing time (as defined herein), WNL, Western and
Conseco Annuity Guarantee Company, a Texas corporation
("CAGC"), will be the only subsidiaries of the Company.
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<PAGE> 5
(viii) The Company and each of its subsidiaries
hold all material licenses, certificates and permits
from governmental authorities (including, without
limitation, insurance licenses from the insurance
departments of the various states where the
subsidiaries write insurance business (the "Insurance
Licenses")) which are necessary to the conduct of their
businesses; the Company and its subsidiaries have
fulfilled and performed all material obligations
necessary to maintain their respective Insurance
Licenses, and no event or events have occurred which
may be reasonably expected to result in the impairment,
modification, termination or revocation of such
Insurance Licenses.
(ix) The authorized, issued and outstanding
capitalization of the Company is as set forth in the
Prospectuses under "Capitalization"; all of the issued
and outstanding shares of the Common Stock (including
the Securities being sold by CIHC) have been duly
authorized and validly issued and are fully paid and
nonassessable; the Securities to be sold by the Company
have been duly authorized and, when delivered by the
Company to the Managers pursuant to this Agreement and
to the U.S. Underwriters pursuant to the U.S. Purchase
Agreement against payment of the consideration set
forth in the International Pricing Agreement and the
U.S. Pricing Agreement, will be validly issued and
fully paid and nonassessable; the issuance of the
Securities is not subject to preemptive or other
similar rights, and the Common Stock at the time the
Registration Statement becomes effective will be
registered under the Securities Exchange Act of 1934,
as amended (the "1934 Act"), and will be authorized for
listing on the New York Stock Exchange, Inc. (the
"NYSE"), upon official notice of issuance.
(x) Neither the Company nor any of its
subsidiaries is in violation of its charter or by-laws
or in default in the performance or observance of any
obligation, agreement, covenant or condition contained
in any material contract, indenture, mortgage, loan
agreement, note, lease or other instrument to which the
Company or any of its subsidiaries is a party or by
which it or any of them may be bound, or to which any
of the property or assets of the Company or any of its
subsidiaries is subject, or in violation of any
applicable law, administrative regulation or
administrative or court order or decree, which
violation or default would, singly or in the aggregate,
have a material adverse effect on the condition,
financial or otherwise, or the earnings or business
affairs of the Company and its subsidiaries, considered
as one enterprise; and the execution, delivery and
performance of this Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement and the
U.S. Pricing Agreement and the consummation of the
transactions contemplated herein and therein and
compliance by the Company with its obligations
hereunder and thereunder have been duly authorized by
all necessary corporate action and will not conflict
with or constitute a breach of, or a default under, or
result in the creation or imposition of any pledge,
lien, charge or encumbrance upon any property or assets
of the Company or any of its subsidiaries pursuant to,
any contract, indenture, mortgage, loan agreement,
note, lease or other instrument to which the Company or
any of its subsidiaries is a party or by which it or
any of them may be bound, or to which any of the
property or assets of the Company or any of its
subsidiaries is subject, except for any conflict,
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<PAGE> 6
breach, default, pledge, lien, charge or encumbrance
which would not, singly and in the aggregate, have a
material adverse effect on the condition, financial or
otherwise, or the earnings or business affairs of the
Company and its subsidiaries considered as one
enterprise, nor will such action result in any
violation of the provisions of the charter or by-laws
of the Company or any of its subsidiaries or any
applicable law, administrative regulation or
administrative or court decree.
(xi) There is no action, suit or proceeding
before or by any court or governmental agency or body,
domestic or foreign (including, without limitation, any
proceeding to revoke or deny renewal of any Insurance
Licenses), now pending, or, to the best knowledge of
the Company, CIHC or Conseco, threatened, against or
affecting the Company or any of its subsidiaries which
is required to be disclosed in the Registration
Statement or the Prospectuses, or which is reasonably
likely to result in any material adverse change in the
condition, financial or otherwise, or in the earnings
or business affairs of the Company and its
subsidiaries, considered as one enterprise, or which
would be reasonably likely to materially and adversely
affect a material portion of the properties or assets
thereof or which is reasonably likely to materially and
adversely affect the consummation of the transactions
contemplated by this Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement and the
U.S. Pricing Agreement; all pending legal or
governmental proceedings to which the Company or any of
its subsidiaries is a party or of which any of their
respective property or assets is the subject which are
not described in the Registration Statement or the
Prospectuses, including ordinary routine litigation
incidental to the business of the Company or any of its
subsidiaries, are, considered in the aggregate, not
material; and there are no contracts or documents of
the Company or any of its subsidiaries which are
required to be filed as exhibits to the Registration
Statement by the 1933 Act or the 1933 Act Regulations
which have not been so filed.
(xii) No authorization, approval or consent of
any court or governmental authority or agency is
necessary in connection with the issuance and sale of
the Securities hereunder, or the consummation by the
Company, CIHC and Conseco of any other transactions
contemplated hereby, except such as have been obtained
and made under the federal securities laws or state
insurance laws and such as may be required under state
or foreign securities laws.
(xiii) The Securities conform in all material
respects to the respective statements relating thereto
contained in the Prospectuses and the Registration
Statement.
(xiv) Except as provided in the Stockholder
Agreement among the Company, CIHC and Conseco, there
are no holders of securities of the Company or any of
its subsidiaries with registration rights to have any
securities registered as part of the Registration
Statement or included in the offering contemplated by
this Agreement or the U.S. Purchase Agreement.
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<PAGE> 7
(xv) This Agreement and the U.S. Purchase
Agreement have been, and at the International
Representation Date and the U.S. Representation Date,
the International Pricing Agreement and the U.S.
Pricing Agreement, respectively, will have been, duly
authorized, executed and delivered by the Company, CIHC
and Conseco and constitute the valid, legal and binding
obligations of the Company, CIHC and Conseco
enforceable against them in accordance with their terms
(except (1) as may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization or
similar laws affecting creditors' rights generally and
except that the remedies of specific performance and
injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the
discretion of the court before which any proceeding
therefor may be brought, and (2) that no representation
or warranty is given as to the enforceability of the
indemnity and contribution provisions hereunder or
thereunder).
(xvi) The execution and delivery of this
Agreement, the International Pricing Agreement,
the U.S. Purchase Agreement and the U.S. Pricing
Agreement, and the consummation of the
transactions herein and therein contemplated, will
not result in a breach by CIHC or Conseco of, or
constitute a default by CIHC or Conseco under,
their respective charters or by-laws or any
material indenture, deed of trust, contract, or
other material agreement or instrument or any
decree, judgment or order to which CIHC or Conseco
is a party or by which CIHC or Conseco may be
bound.
(xvii) CIHC has and will have at the Closing
Time referred to in Section 2(c) good and
marketable title to the Securities to be sold by
CIHC hereunder, free and clear of any pledge,
lien, security interest, encumbrance, claim or
equity, other than pursuant to this Agreement and
the U.S. Purchase Agreement; CIHC has full right,
power and authority to sell, transfer and deliver
the Securities to be sold by CIHC hereunder and
under the U.S. Purchase Agreement; and upon
delivery of the Securities to be sold by CIHC
hereunder and under the U.S. Purchase Agreement
and payment of the purchase price therefor as
herein and therein contemplated, each of the
Underwriters will receive good and marketable
title to its ratable share of the Securities
purchased by it from CIHC, free and clear of any
pledge, lien, security interest, encumbrance,
claim or equity, except for those created by or
through the Underwriters.
(xviii) All authorizations, approvals and
consents necessary for the execution and delivery
by CIHC and Conseco of this Agreement, the
International Pricing Agreement, the U.S. Purchase
Agreement and the U.S. Pricing Agreement and the
sale and delivery of the Securities to be sold by
CIHC (other than, at the time of the execution
hereof, the issuance of the order of the
Commission declaring the Registration Statement
effective and such authorizations, approvals or
consents as may be necessary under state or
foreign securities laws) have been obtained and
are in full force and effect; and CIHC and Conseco
have the full right, power and authority to enter
into this Agreement, the International Pricing
<PAGE>
<PAGE> 8
Agreement, the U.S. Purchase Agreement and the
U.S. Pricing Agreement and to sell, transfer and
deliver the Securities to be sold by CIHC
hereunder and thereunder.
(xix) None of the Company, CIHC or Conseco
has taken, or will take, directly or indirectly,
any action which is designed to or which has
constituted or which might reasonably be expected
to cause or result in stabilization or
manipulation of the price of any security of the
Company to facilitate the sale or resale of the
Securities.
(xx) Except as noted by the Company, CIHC
and Conseco in a letter previously delivered by
them to the Underwriters, none of the Company,
CIHC, Conseco or any of their respective
subsidiaries are affiliated with or a person
associated with a member of the National
Association of Securities Dealers, Inc. (the
"NASD").
(b) Any certificate signed by any officer of the Company, CIHC or
Conseco and delivered to the Lead Managers or to counsel for the Managers shall
be deemed a representation and warranty by the Company, CIHC or Conseco, as the
case may be, to each Manager as to the matters covered thereby.
SECTION 2. Sale and Delivery to the Managers; Closing.
(a) On the basis of the representations and warranties herein
contained and subject to the terms and conditions herein set forth, the Company
and CIHC, severally and not jointly, agree to sell to each Manager, severally
and not jointly, and each Manager, severally and not jointly, agrees to
purchase from the Company and CIHC, at the price per share set forth in the
International Pricing Agreement, that proportion of the 300,000 shares and
4,552,500 shares being sold by the Company and CIHC, respectively, which the
number of Initial International Securities set forth in Schedule A opposite the
name of such Manager (plus any additional number of Initial International
Securities which such Manager may become obligated to purchase pursuant to the
provisions of Section 10 hereof) bears to the total number of Initial
International Securities (except as otherwise provided in the International
Pricing Agreement), subject, in each case, to such adjustments as the Managers
in their discretion shall make to eliminate any sales or purchases of
fractional securities.
(1) If the Company has elected not to rely upon
Rule 430A under the 1933 Act Regulations, the public
offering price and the purchase price per share to be
paid by the several Managers for the Securities
(collectively, the "International Pricing Terms") have
each been determined and set forth in the International
Pricing Agreement, dated the date hereof, and an
amendment to the Registration Statement and the
Prospectuses containing such information will be filed
before the Registration Statement becomes effective.
(2) If the Company has elected to rely upon Rule
430A under the 1933 Act Regulations, the purchase price
per share to be paid by the Managers for the
International Securities shall be an amount equal to
the initial public offering price per share, less an
amount per share to be determined by agreement among
the Lead Managers, the Company, CIHC and Conseco. The
International Pricing Terms likewise shall be
determined by agreement among the Lead Managers, the
Company, CIHC and Conseco. The International Pricing
Terms, when so determined, shall be set forth in the
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<PAGE> 9
International Pricing Agreement. In the event that
such International Pricing Terms have not been agreed
upon and the International Pricing Agreement has not
been executed and delivered by all parties thereto by
the close of business on the fourth business day
following the date of this Agreement, this Agreement
shall terminate forthwith, without liability of any
party to any other party, unless otherwise agreed to by
the Lead Managers, the Company, CIHC and Conseco.
(b) In addition, on the basis of the representations and warranties
herein contained and subject to the terms and conditions herein set forth, the
Company and CIHC hereby grant an option to the Underwriters, severally and not
jointly, to purchase up to an additional 4,852,500 shares of Common Stock at
the price per share set forth in the International Pricing Agreement and the
U.S. Pricing Agreement, of which 4,124,625 shares shall be the pro rata portion
for the U.S. Underwriters and 727,875 shares shall be the pro rata portion for
the Managers. The option hereby granted will expire 30 days after the later
of (i) the date the Registration Statement becomes effective, if the Company
has elected not to rely on Rule 430A under the 1933 Act Regulations, or (ii)
the International Representation Date, if the Company has elected to rely upon
Rule 430A under the 1933 Act Regulations, and may be exercised in whole or in
part only for the purpose of covering over-allotments which may be made in
connection with the offering and distribution of the Initial Securities upon
notice by the Lead Managers and the U.S. Representatives to the Company, CIHC
and Conseco setting forth the number of Option Securities as to which the
Underwriters are exercising the option and the time and date of payment for
such Option Securities. Such time and date of delivery for the International
Option Securities (the "Date of Delivery") shall be determined by the Lead
Managers, but shall not be later than seven full business days after the
exercise of said option, and in no event prior to Closing Time, as hereinafter
defined. If the option is exercised as to all or any portion of the
International Option Securities, each of the Managers, acting severally and not
jointly, will purchase from the Company and CIHC that portion of the number of
International Option Securities subject to the option set forth in this Section
2(b) of the Company or CIHC, as the case may be, which the number of Initial
International Securities set forth in Schedule A opposite the name of such
Manager bears to the total number of Initial International Securities (except
as otherwise provided in the International Pricing Agreement), subject in each
case to such adjustments as the Lead Managers in their discretion shall make
to eliminate any sales or purchases of fractional shares.
(c) Payment of the purchase price for, and delivery of certificates
for, the International Securities to be purchased by the Managers shall be made
at the offices of the Lead Managers in New York, New York or at such other
place as shall be agreed upon by the Lead Managers, the Company, CIHC and
Conseco, at 10:00 a.m. (New York City time) on the fifth business day (unless
postponed in accordance with the provisions of Section 10) following the date
the Registration Statement becomes effective (or, if the Company has elected
to rely upon Rule 430A, the fifth business day after execution of the
International Pricing Agreement), or such other time not later than ten
business days after such date as shall be agreed upon by the Lead Managers, the
Company, CIHC and Conseco (such time and date of payment and delivery being
herein called "Closing Time"). In addition, in the event that any or all of
the International Option Securities are purchased by the Managers, payment of
the purchase price, and delivery of certificates, for such International Option
Securities shall be made at the above-mentioned offices of the Lead Managers,
or at such other place as shall be agreed upon by the Lead Managers, the
Company, CIHC and Conseco, on the Date of Delivery as specified in the notice
from the Lead Managers to the Company, CIHC and Conseco. Payment shall be made
to the Company and CIHC by certified or official bank check or checks drawn in
Chicago Clearing House funds or similar next day funds payable to the order of
the Company or CIHC, as the case may be, against delivery to the Lead Managers
for the respective accounts of the Managers of certificates for the
International Securities to be purchased by them. Certificates for the
International Securities hall be in such denominations and registered in such
names as the Lead Managers may request in writing at least two business
days before Closing Time or the Date of Delivery, as the case may be. It is
understood that each Manager has authorized the Lead Managers, for its account,
to accept delivery of, receipt for, and make payment of the purchase price for,
the International Securities which it has agreed to purchase. The Lead
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<PAGE> 10
Managers, individually and not as representatives of the Managers, may (but
shall not be obligated to) make payment of the purchase price for the
International Securities to be purchased by any Manager whose check has not
been received by Closing Time or the Date of Delivery, as the case may be, but
such payment shall not relieve such Manager from its obligations hereunder.
The certificates for the Initial International Securities and the International
Option Securities will be made available for examination and packaging by the
Lead Managers not later than 10:00 a.m. on the last business day prior to
Closing Time or the Date of Delivery, as the case may be.
SECTION 3. Covenants of the Company, CIHC and Conseco. The Company
covenants, and with respect to Sections 3(l) and 3(p) below, each of the
Company, CIHC and Conseco covenants, with each of the Managers as follows:
(a) The Company will notify the Lead Managers immediately and
confirm the notice in writing (i) of the effectiveness of the Registration
Statement and any amendment thereto (including any post-effective amendment)
and, if Rule 430A under the 1933 Act Regulations is being relied upon, of the
filing of the amended Prospectuses pursuant to Rule 430A, (ii) of the receipt
of any comments from the Commission, (iii) of any request by the Commission for
any amendment to the Registration Statement or any amendment or supplement to
the Prospectuses or for additional information, (iv) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement or the initiation of any proceedings for that purpose and (v) of the
issuance by any state securities commission or other regulatory authority of
any order suspending the qualification or the exemption from qualification of
the Securities under state securities or Blue Sky laws or the initiation of any
proceedings for that purpose. The Company will use its best efforts to prevent
the issuance of any stop order and, if any stop order is issued, to obtain the
lifting thereof at the earliest possible moment.
(b) The Company will give the Lead Managers notice of its intention
to file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectuses
(including any revised prospectus which the Company proposes for use by the
Managers in connection with the offering of the Securities which differs from
the prospectuses on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectuses are
required to be filed pursuant to Rule 424(b) under the 1933 Act Regulations),
will furnish the Lead Managers with copies of any such amendment or supplement
a reasonable amount of time prior to such proposed filing or use, as the case
may be, and will not file any such amendment or supplement or use any such
prospectus to which the Lead Managers or counsel for the Managers shall
reasonably object.
(c) The Company will deliver to the Lead Managers five signed copies
of the Registration Statement as originally filed and of each amendment thereto
(including exhibits filed therewith) and will also deliver to the Lead Managers
as many conformed copies of the Registration Statement as originally filed and
of each amendment thereto (without exhibits) as the Lead Managers may request.
(d) The Company will furnish to each Manager, from time to time
during the period when the Prospectuses are required to be delivered under the
1933 Act, such number of copies of the Prospectuses (as amended or
supplemented) as such Managers may request for the purposes contemplated by the
1933 Act or the applicable 1933 Act Regulations.
(e) If any event shall occur as a result of which it is necessary,
in the reasonable opinion of counsel for the Managers, to amend or supplement
the Prospectuses in order to make the International Prospectus not misleading
in the light of the circumstances existing at the time it is delivered to a
purchaser, the Company will forthwith amend or supplement the International
Prospectus (in form and substance reasonably satisfactory to counsel for the
Managers) so that, as so amended or supplemented, the International Prospectus
will not include an untrue statement of a material fact or omit to state a
material fact necessary in order to make the statements therein, in the
light of the circumstances existing at the time it is delivered to a purchaser,
not misleading, and the Company will furnish to the Managers as many copies of
such amendment or supplement as the Managers may request.
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<PAGE> 11
(f) The Company will endeavor, in cooperation with the Managers and
their counsel, to qualify the Securities for offering and sale under the
applicable securities laws of such states and other jurisdictions of the United
States as the Lead Managers may designate; provided, however, that the Company
shall not be obligated to qualify as a foreign corporation in any jurisdiction
in which it is not so qualified or to execute a general consent as to service
of process in any jurisdiction in which it is not so subject to such service.
In each jurisdiction in which the Securities have been so qualified, the
Company will file such statements and reports as may be required by the laws
of such jurisdiction to continue such qualification in effect for so long as
may be required in connection with the distribution of the Securities.
(g) The Company will make generally available to its security
holders as soon as practicable, but in any event not later than 45 days after
the close of the period covered thereby, an earnings statement (in form and in
a manner complying with the provisions of Rule 158 under the 1933 Act
Regulations) covering a twelve-month period beginning not later than the first
day of the Company's fiscal quarter next following the "effective date" (as
defined in said Rule 158) of the Registration Statement.
(h) The Company will use the net proceeds received by it from the
sale of the Securities in the manner specified in the Prospectuses under "Use
of Proceeds."
(i) If, at the time that the Registration Statement becomes
effective, any information shall have been omitted therefrom in reliance upon
Rule 430A under the 1933 Act Regulations, then promptly following the execution
of the International Pricing Agreement, the Company will prepare, and
file or transmit for filing with the Commission in accordance with such Rule
430A and Rule 424(b) under the 1933 Act Regulations, copies of amended
Prospectuses, or, if required by such Rule 430A, a post-effective amendment to
the Registration Statement (including amended Prospectuses), containing all
information so omitted.
(j) The Company, during the period when the Prospectuses are
required to be delivered under the 1933 Act, will promptly file all documents
required to be filed with the Commission pursuant to Section 13(a), 13(c), 14
or 15(d) of the 1934 Act, of which the Lead Managers shall have previously been
advised and previously furnished a copy, and with respect to which the Company
shall endeavor in good faith to provide the Lead Managers or the Managers'
counsel with an opportunity to comment.
(k) For a period of one year after the Closing Time, the Company
will furnish to the Lead Managers copies of all reports and communications
delivered to the Company's stockholders or to holders of the Securities as a
class and will also furnish copies of all reports (excluding exhibits) filed
with the Commission on Forms 8-K, 10-Q and 10-K, and all other reports and
information furnished to its stockholders generally, not later than the time
such reports are first furnished to such holders generally.
(l) During a period commencing on the date hereof and ending 180
days, in the case of the Company, and 365 days, in the case of CIHC and
Conseco, from the date of the Prospectuses, each of the Company, CIHC and
Conseco will not, without the prior written consent of the Lead Managers,
directly or indirectly, sell, offer to sell, grant any option for the sale of,
or otherwise dispose of, or enter into any agreement to sell, any Common Stock
or any securities similar to the Securities or any security convertible into
or exchangeable or exercisable for any Common Stock or any such similar
securities or file with the Commission a registration statement under the 1933
Act to register any Common Stock of the Company or any securities convertible
into or exercisable for Common Stock of the Company; provided, however, that
such restriction shall not affect (i) the ability of the Company to take any
such action in connection with any employee benefit or incentive plan of the
Company or its subsidiaries described in the Prospectuses, (ii) the ability of
CIHC to sell 150,000 shares of Common Stock of the Company to Mr. Michael J.
Poulos pursuant to the Employment Agreement dated September 9, 1993 between
Conseco and Mr. Poulos or (iii) the ability of the Company or CIHC to take any
action pursuant to the offering of the Securities made pursuant to the
Prospectuses.
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<PAGE> 12
(m) The Company will use its best efforts to effect and maintain the
listing of the Securities and all other shares of Common Stock outstanding from
time to time on the NYSE and to cause the Common Stock to be registered under
the 1934 Act.
(n) The Company agrees that no action has been or will be taken in
any jurisdiction outside the United States and Canada by it that would permit
a public offering of the Securities, or possession or distribution of the
International Prospectus, or any amendment or supplement thereto, or any
related preliminary prospectus issued in connection with the offering of the
Securities, or any other offering material, in any country or jurisdiction
where action for that purpose is required.
(o) The Company and CIHC will indemnify and hold harmless the
Managers against any documentary, stamp or similar issue tax, including any
interest and penalties, on the creation, issue and sale of the Securities and
on the execution of this Agreement.
(p) No later than the next business day following the Closing Time,
Conseco shall repay in full all indebtedness under the Credit Agreement dated
as of September 30, 1993 among Conseco, the lenders named therein, First Union
National Bank of North Carolina, Citicorp USA, Inc. and Continental Bank, N.A.,
as Agents, and Continental Bank, N.A., as Administrative Agent.
SECTION 4. Payment of Expenses.
The Company will pay all expenses incident to the performance of the
obligations of the Company, CIHC and Conseco under this Agreement, the
International Pricing Agreement, the U.S. Purchase Agreement and the U.S.
Pricing Agreement including, without limitation, expenses related to the
following, if incurred: (i) the preparation, delivery, printing and filing of
the Registration Statement and Prospectuses as originally filed and of each
amendment thereto; (ii) the printing of this Agreement, the International
Pricing Agreement, the U.S. Purchase Agreement and the U.S. Pricing Agreement;
(iii) the preparation, issuance and delivery of the certificates for the
Securities to the U.S. Underwriters and Managers; (iv) the fees and
disbursements of the Company's counsel and accountants; (v) the qualification
of the Securities under securities laws in accordance with the provisions of
Section 3(f), including filing fees and the fees and disbursements of counsel
for the U.S. Underwriters and Managers in connection therewith and in
connection with the preparation of the Blue Sky Survey; (vi) the printing and
delivery to the U.S. Underwriters and Managers of copies of the Registration
Statement as originally filed and of each amendment thereto, of the preliminary
prospectuses, and of the Prospectuses and any amendments or supplements
thereto; (vii) the printing and delivery to the U.S. Underwriters and Managers
of copies of the Blue Sky Survey; (viii) any fees payable to the NASD; (ix) any
fees payable to the Commission; and (x) the fees and expenses incurred in
connection with the listing on the NYSE of the Securities.
If this Agreement is terminated by the Lead Managers in accordance
with the provisions of Section 5 or Section 9(a)(i), the Company, CIHC and
Conseco shall reimburse the Managers for all of their out-of-pocket expenses,
including the fees and disbursements of counsel for the Managers.
SECTION 5. Conditions of Managers' Obligations.
The obligations of the Managers hereunder are subject to the accuracy
of the representations and warranties of the Company, CIHC and Conseco herein
contained, to the performance by the Company, CIHC and Conseco of their
obligations hereunder, and to the following further conditions:
(a) The Registration Statement shall have become effective not later
than 5:30 p.m., New York City time, on the date hereof or, with the consent of
Merrill Lynch, at a later time and date, not later, however, than 5:30 p.m. on
the first business day after the date hereof, or at such later time and date
as may be agreed upon by the Lead Managers, the Company, CIHC and Conseco, and
at the Closing Time and any Date of Delivery no stop order suspending the
effectiveness of the Registration Statement shall have been issued under the
1933 Act or proceedings therefor initiated or threatened by the Commission.
If the Company has elected to rely upon Rule 430A under the 1933 Act
Regulations, the International Pricing Terms and any other price-related
information previously omitted from the effective Registration Statement to
<PAGE>
<PAGE> 13
such Rule 430A shall have been transmitted to the Commission for filing
pursuant to Rule 424(b) under the 1933 Act Regulations within the prescribed
time period, and prior to the Closing Time, the Company shall have
provided evidence satisfactory to the Lead Managers of such timely filing, or
a post-effective amendment providing such information shall have been promptly
filed and declared effective in accordance with the requirements of Rule 430A
under the 1933 Act Regulations.
(b) At the Closing Time the Lead Managers shall have received:
(1) The favorable opinion, dated as of the
Closing Time, of Lawrence W. Inlow, Secretary and
General Counsel to the Company, CIHC and Conseco, in
form and substance satisfactory to counsel for the U.S.
Underwriters and Managers, to the effect that:
(i) The Company has been duly incorporated
and is validly existing as a corporation in good
standing under the laws of the State of Delaware;
the Company has the corporate power under the laws
of the State of Delaware and under its charter to
own, lease and operate its properties and to
conduct its business as described in the
Registration Statement and the Prospectuses; and
the Company is duly qualified as a foreign
corporation to transact business and is in good
standing in each jurisdiction in which such
qualification is required, whether by reason of
the ownership or leasing of property or the
conduct of business, except where the failures to
so qualify or be in good standing would not have a
material adverse effect on the condition,
financial or otherwise, or the earnings or
business affairs or prospects of the Company and
its subsidiaries, considered as one enterprise.
(ii) The Securities delivered at the Closing
Time and all other outstanding shares of the
Common Stock of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable and conform in all material respects
to the description thereof contained in the
Prospectuses; the Common Stock is registered under
the 1934 Act and the Securities at the Closing
Time have been authorized for listing on the NYSE,
upon official notice of issuance.
(iii) The issuance of the Securities is not
subject to preemptive or other similar rights
arising by law.
(iv) The U.S. Purchase Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement
have been duly authorized, executed and delivered
by the Company, CIHC and Conseco and constitute
valid and binding obligations of the Company, CIHC
and Conseco enforceable in accordance with their
terms (except (1) as may be limited by bankruptcy,
insolvency, fraudulent conveyance, reorganization
or similar laws affecting creditors' rights
generally and except that the remedies of specific
performance and injunctive and other forms of
equitable relief are subject to certain equitable
defenses and to the discretion of the court before
which any proceeding therefor may be brought, and
(2) that no opinion need be given as to the
enforceability of the indemnity and contribution
provisions hereunder or thereunder).
<PAGE>
<PAGE> 14
(v) The Common Stock conforms in all
material respects to the description thereof
contained in the Prospectuses and the Registration
Statement; and the forms of certificates used to
evidence the Securities and the Common Stock
comply with all applicable statutory and NYSE
requirements.
(vi) Each subsidiary of the Company has been
duly incorporated and is validly existing as a
corporation in good standing under the laws of the
jurisdiction of its incorporation and has the
corporate power and authority to own, lease and
operate its properties and to conduct its business
as presently conducted and as described in the
Registration Statement and the Prospectuses.
Nothing has come to the attention of such counsel
to lead such counsel to believe that any
subsidiary is not duly qualified as a foreign
corporation to transact business or is not in good
standing in each jurisdiction in which such
qualification is required, except where the
failures to so qualify or be in good standing
would not have a material adverse effect on the
condition, financial or otherwise, or the earnings
or business affairs of the Company and its
subsidiaries considered as one enterprise. All of
the issued and outstanding capital stock of each
subsidiary of the Company have been duly
authorized and validly issued, are fully paid and
nonassessable, and all such shares are owned by
the Company or, in the case of Western, by WNL,
and WNL, Western and CAGC are the only
subsidiaries of the Company.
(vii) The Registration Statement is
effective under the 1933 Act and no stop order
suspending the effectiveness of the Registration
Statement has been issued under the 1933 Act or
proceedings therefor initiated, or to such
counsel's best knowledge, threatened by the
Commission.
(viii) At the time the Registration
Statement became effective and at the
International Representation Date and the Closing
Time, the Registration Statement (other than the
financial statements and schedules or other
financial information or statistical data included
therein, as to which no opinion need be rendered)
complied as to form in all material respects to
the requirements of the 1933 Act and the 1933 Act
Regulations.
(ix) No authorization, approval or consent
of any court or governmental authority or agency
is necessary in connection with the issuance and
sale of the Securities hereunder or the
consummation by the Company, CIHC and Conseco of
any other transactions contemplated hereby, except
such as have been obtained and made under the
federal securities laws or state insurance laws
and such as may be required under the state or
foreign securities laws.
(x) To the best knowledge of such counsel,
there are no statutes or regulations required to
be described in the Registration Statement which
are not described as required and there are no
legal or governmental proceedings pending or
threatened which are required to be disclosed in
<PAGE>
<PAGE> 15
the Registration Statement, other than those
disclosed therein.
(xi) To the best knowledge of such counsel,
there are no contracts, indentures, mortgages,
loan agreements, notes, leases or other
instruments required to be described or referred
to in the Registration Statement or to be filed as
exhibits thereto other than those described or
referred to therein or filed as exhibits thereto;
the descriptions thereof or references thereto are
true and correct in all material respects and no
default exists in the due performance or
observance of any material obligation, agreement,
covenant or condition contained in any contract,
indenture, mortgage, loan agreement, note, lease
or other instrument so described, referred to or
filed, which default could have a material adverse
effect on the Company and its subsidiaries
considered as one enterprise.
(xii) The issuance and delivery of the
Securities, the execution and delivery of the U.S.
Purchase Agreement, the International Purchase
Agreement, the U.S. Pricing Agreement and the
International Purchase Agreement and the
consummation of the transactions contemplated
therein and compliance by the Company with its
obligations thereunder will not conflict with or
constitute a breach of, or default under, or
result in the creation or imposition of any
pledge, lien, charge or encumbrance upon any
property or assets of the Company or any of its
subsidiaries pursuant to, any material contract,
indenture, mortgage, loan agreement, note, lease
or other instrument to which the Company or any of
its subsidiaries is a party or by which it or any
of them may be bound, or to which any of the
property or assets of the Company or any of its
subsidiaries is subject, except for any conflict,
breach, default, lien, charge or encumbrance which
would not, singly and in the aggregate, have a
material adverse effect on the condition,
financial or otherwise, or the earnings or
business affairs of the Company and its
subsidiaries considered as one enterprise nor will
such action result in any violation of the
provisions of the charter or by-laws of the
Company, or any material applicable law,
administrative regulation or administrative or
court decree.
(xiii) The Company and each of its
subsidiaries hold all material licenses,
certificates and permits from all governmental
authorities (including, without limitation, the
Insurance Licenses) which are necessary to the
conduct of their businesses; the Company and each
of its subsidiaries have fulfilled and performed
all material obligations necessary to maintain
their respective Insurance Licenses, and no event
or events have occurred which may be reasonably
expected to result in the material impairment,
modification, termination or revocation of such
Insurance Licenses.
(xiv) CIHC has full legal right, power and
authorization, and any approval required by law,
to sell, assign, transfer and deliver good and
marketable title to the Securities which CIHC has
agreed to sell pursuant to the U.S. Purchase
<PAGE>
<PAGE> 16
Agreement and the International Purchase
Agreement.
(xv) No authorization, approval, consent, or
order of any court or governmental authority or
agency is required in connection with the sale of
the Securities by CIHC to the Underwriters, except
such as may be required under the 1933 Act or the
1933 Act Regulations or state or foreign
securities laws or state insurance laws.
(xvi) When the Securities are delivered to
the Underwriters against payment therefor in
accordance with the terms of the U.S. Purchase
Agreement and the International Purchase
Agreement, each of the Underwriters will acquire
good and marketable title to the Securities
purchased by it from CIHC, free and clear of any
mortgage, pledge, lien, security interest,
encumbrance, claim or equity created by or arising
through CIHC, assuming that the Underwriters
acquire the Securities without notice of any
adverse claim as such term is used in Section
8-302 of the Uniform Commercial Code as in effect
in the State of New York.
(xvii) Nothing has come to such counsel's
attention that causes such counsel to believe that
the Registration Statement (except for financial
statements and schedules or other financial
information or statistical data included therein,
as to which no opinion need be expressed), at the
time it became effective, contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectuses (except for
financial statements and schedules or other
financial information or statistical data included
therein, as to which no opinion need be
expressed), at the International Representation
Date (unless the term "Prospectuses" refers to
prospectuses which have been provided to the U.S.
Underwriters and the Managers by the Company for
use in connection with the offering of the
Securities which differs from the Prospectuses on
file at the Commission at the time the Registra-
tion Statement becomes effective, in which case at
the time it is first provided to the U.S. Under-
writers and the Managers for such use) or at the
Closing Time, included or includes an untrue
statement of a material fact or omitted or omits
to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading.
(2) The favorable opinion, dated as of the
Closing Time, of Vinson & Elkins L.L.P., special
counsel to the Company, to the effect that:
(i) The Registration Statement and the
Prospectuses, and each amendment or supplement
thereto, as of their respective effective or issue
dates, or when amended, as appropriate, (other
than the financial statements and schedules or
other financial information or statistical data
included therein, as to which no opinion need be
expressed) complied as to form in all material
respects with the requirements of the 1933 Act and
the 1933 Act Regulations;
<PAGE>
<PAGE> 17
(ii) Nothing has come to such counsel's
attention that causes such counsel to believe that
the Registration Statement (except for financial
statements and schedules or other financial
information or statistical data included therein,
as to which no opinion need be expressed), at the
time it became effective, contained an untrue
statement of a material fact or omitted to state a
material fact required to be stated therein or
necessary to make the statements therein not
misleading or that the Prospectuses (except for
financial statements and schedules and other
financial information or statistical data included
therein, as to which no opinion need be
expressed), at the International Representation
Date (unless the term "Prospectuses" refers to
prospectuses which have been provided to the U.S.
Underwriters and the Managers by the Company for
use in connection with the offering of the
Securities which differs from the Prospectuses on
file at the Commission at the time the Registra-
tion Statement becomes effective, in which case at
the time it is first provided to the U.S. Under-
writers and the Managers for such use) or at the
Closing Time, included or includes an untrue
statement of a material fact or omitted or omits
to state a material fact necessary in order to
make the statements therein, in the light of the
circumstances under which they were made, not
misleading.
(iii) The U.S. Purchase Agreement, the U.S.
Pricing Agreement, the International Purchase
Agreement and the International Pricing Agreement
have been duly authorized, executed and delivered
by the Company and constitute valid and binding
obligations of the Company enforceable in
accordance with their terms (except (1) as may be
limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization or similar laws
affecting creditors' rights generally and except
that the remedies of specific performance and
injunctive and other forms of equitable relief are
subject to certain equitable defenses and to the
discretion of the court before which any proceed-
ing therefor may be brought, and (2) that no
opinion need be given as to the enforceability of
the indemnity and contribution provisions here-
under or thereunder).
(3) The favorable opinion, dated as of the
Closing Time, of Sidley & Austin, counsel for the
Managers, with respect to the incorporation of the
Company, the validity of the Securities, the
Registration Statement, the Prospectuses and other
related matters as you may require, and the Company,
CIHC and Conseco shall have furnished to such counsel
such documents as they request for the purpose of
enabling them to pass upon such matters.
(c) At the Closing Time, there shall not have been, since the date
hereof or since the respective dates as of which information is given in the
Registration Statement and the Prospectuses, other than as stated or
contemplated in the Registration Statement or the Prospectuses, any material
adverse change or any development which will result in a prospective material
adverse change in the condition, financial or otherwise, or in the earnings or
business affairs of the Company and its subsidiaries, considered as one
enterprise, whether or not arising in the ordinary course of business, and the
Lead Managers shall have received a certificate of the president or a vice
president of the Company, CIHC and Conseco, respectively, and of the chief
financial or chief accounting officer of the Company, CIHC and Conseco,
respectively, dated as of the Closing Time, to the effect that (i) there has
<PAGE> 18
been no such material adverse change, (ii) the representations and warranties
in Section 1 are true and correct with the same force and effect as though
expressly made at and as of the Closing Time, (iii) the Company, CIHC and
Conseco have complied with all agreements and satisfied all conditions on their
part to be performed or satisfied at or prior to the Closing Time, and (iv) no
stop order suspending the effectiveness of the Registration Statement has been
issued and, to the best of each such officer's knowledge and information, no
proceedings for that purpose have been initiated or threatened by the
Commission.
(d) At the time of the execution of this Agreement, the Lead
Managers shall have received from Coopers & Lybrand a letter, dated such date,
in form and substance satisfactory to the Lead Managers, to the effect that (i)
they are independent public accountants with respect to the Company and its
subsidiaries within the meaning of the 1933 Act and the 1933 Act Regulations;
(ii) it is their opinion that the financial statements and supporting schedules
included in the Registration Statement and covered by their opinions therein
comply with the applicable accounting requirements of the 1933 Act and the 1933
Act Regulations; (iii) based upon limited procedures set forth in detail in
such letter, nothing has come to their attention which causes them to believe
that (A) the unaudited financial information of the Company and its
subsidiaries included in the Registration Statement do not comply as to form
in all material respects with the applicable accounting requirements of the
1933 Act and the 1933 Act Regulations, or are not presented in conformity with
generally accepted accounting principles applied on a basis substantially
consistent with that of the audited financial statements included in the
Registration Statement or (B) at the date of the latest available balance sheet
read by such accountants, or at a subsequent specified date not more than
five days prior to the date of this Agreement or the International Purchase
Agreement, there was any increase in long-term debt or insurance liabilities
or any decrease in total assets, stockholder's equity or common stock, as
compared with amounts shown on the latest balance sheet included in the
Prospectuses, or (C) for the period from the closing date of the latest income
statement included in the Prospectuses to the closing date of the latest
available income statement read by such accountants there were any decreases,
as compared with the corresponding period of the previous year and with the
period of corresponding length ended the date of the latest income statement
included in the Prospectuses, in the amounts of total revenues, total insurance
policy income, net investment income or net income except in all cases set
forth in this clause (iii) for changes, increases or decreases which the
Prospectuses discloses have occurred or may occur or which are described in
such letter; (iv) they have examined the statutory financial statements of
each of the Company's insurance subsidiaries, from which certain ratios and
other statistical data contained in the Registration Statement have been
derived, and in their opinion such statements, with respect to each insurance
subsidiary, have for each relevant period been prepared in accordance with
accounting practices prescribed or permitted by the appropriate insurance
department of the state of domicile of such subsidiary, and such accounting
practices have been applied on a consistent basis throughout the periods
involved, except as disclosed therein; (v) based upon the procedures set forth
in clause (iii) above and a reading of the "Selected Historical Financial
Information," the "Pro Forma Consolidated Financial Statements" and the
information contained under the caption "Management" included in the
Registration Statement, nothing has come to their attention that caused them
to believe that the "Selected Historical Financial Information" and the "Pro
Forma Consolidated Financial Statements" included in the Registration Statement
do not comply in all material respects with the applicable requirements of
Regulation S-K under the 1933 Act and the 1934 Act (e.g. "Selected Financial
Data" (Item 301) and "Supplementary Financial Information" (Item 302)), or that
the information set forth therein is not fairly stated in relation to the
financial statements from which it was derived, and nothing has come to their
attention that caused them to believe that the information under the caption
"Management" Contained in the Registration Statement does not comply in all
material respects with the applicable requirements of Item 402 ("Executive
Compensation") of such Regulation S-K; (vi) they are unable to and do not
express any opinion on the "Pro Forma Consolidated Financial Statements" or on
the pro forma adjustments applied to the historical amounts included in such
statements; however, for purposes of such letter they have: (A) read the "Pro
Forma Consolidated Financial Statements," (B) made inquires of certain
officials of the Company who have responsibility for financial and accounting
matters about the basis for their determination of the pro forma adjustments
and whether the "Pro Forma Consolidated Financial Statements" comply in form
in all material respects with the applicable accounting requirements of
<PAGE> 19
Regulation S-X and (C) proved the arithmetic accuracy of the application of the
pro forma adjustments to the historical amounts in the "Pro Forma Consolidated
Financial Statements"; and (vii) in addition to the examination referred to in
their opinions and the limited procedures referred to in clause (iii) above,
they have carried out certain specified procedures, not constituting an audit,
with respect to certain amounts, percentages, ratios and financial information
that has been derived from the accounting and financial records of the Company
that are subject to internal accounting controls which are included in the
Registration Statement and Prospectuses and which are specified by the Lead
Managers, and have found such amounts, percentages, ratios and financial
information to be in agreement with the relevant accounting and financial
records of the Company and its subsidiaries identified in such letter.
(e) At the Closing Time, the Lead Managers shall have received from
Coopers & Lybrand a letter, dated as of the Closing Time, to the effect that
they reaffirm the statements made in the letter furnished pursuant to
subsection (d) of this Section, except that the specified date referred to
shall be a date not more than five days prior to the Closing Time and, if the
Company has elected to rely on Rule 430A under the 1933 Act Regulations,
to the further effect that they have carried out procedures as specified in
clause (v) of subsection (d) of this Section with respect to certain amounts,
percentages and financial information specified by the Lead Managers and deemed
to be a part of the Registration Statement pursuant to Rule 430(A)(b) and have
found such amounts, percentages and financial information to be in agreement
with the records specified in such clause (v).
(f) At the Closing Time, the Securities shall have been and shall
remain approved for listing on the NYSE upon notice of issuance.
(g) At the Closing Time, and at each Date of Delivery, if any,
counsel for the Managers shall have been furnished with such documents and
opinions as they may reasonably require with respect to unforeseen materially
changed circumstances since the date of this Agreement and the U.S. Purchase
Agreement for the purpose of enabling them to pass upon the issuance and sale
of the Securities as contemplated herein and in the U.S. Purchase
Agreement and all proceedings taken by the Company in connection with the
issuance and sale of the Securities as herein contemplated shall be reasonably
satisfactory in form and substance to the Lead Managers and counsel for the
Managers.
(h) At the Closing Time, the U.S. Underwriters and Managers shall
receive agreements of all directors and executive officers of the Company not
to, without the prior written consent of the Lead Managers, directly or
indirectly, sell, offer to sell, grant any option for the sale of, or otherwise
dispose of, or enter into any agreement to sell, any Common Stock or any
securities similar to the Securities or any security convertible into or
exchangeable or exercisable for any Common Stock or any such similar securities
during a period commencing on the date hereto and ending 180 days from the date
of the Prospectuses.
(i) In the event that the Managers exercise their option provided
in Section 2(b) hereof to purchase all or any portion of the U.S. Option
Securities, the representations and warranties of the Company, CIHC and Conseco
contained herein and the statements in any certificates furnished by the
Company, CIHC and Conseco hereunder shall be true and correct as of, and as if
made on, each Date of Delivery, and, at the relevant Date of Delivery, the Lead
Managers shall have received:
(1) A certificate, dated such Date of Delivery,
of the president or a vice president of the Company,
CIHC and Conseco, respectively, and the chief financial
or chief accounting officer of the Company, CIHC and
Conseco, respectively, confirming that the certificate
delivered at the Closing Time pursuant to Section 5(c)
hereof is true and correct as of, and as if made on,
such Date of Delivery.
(2) The favorable opinion of Lawrence W. Inlow,
Secretary and General Counsel for the Company, CIHC and
Conseco, in form and substance satisfactory to counsel
for the Managers, dated such Date of Delivery, relating
to the International Option Securities and otherwise to
the same effect as the opinion required by Section
5(b)(1) hereof.
<PAGE> 20
(3) The favorable opinion of Vinson & Elkins
L.L.P., special counsel for the Company, in form and
substance satisfactory to counsel for the Managers,
dated such Date of Delivery, relating to the
International Option Securities and otherwise to the
same effect as the opinion required by Section 5(b)(2)
hereof.
(4) The favorable opinion of Sidley & Austin,
counsel for the Managers, dated such Date of Delivery,
relating to the International Option Securities and
otherwise to the same effect as the opinion required by
Section 5(b)(3) hereof.
(5) A letter from Coopers & Lybrand in form and
substance satisfactory to the Managers and dated such
Date of Delivery, substantially the same in form and
substance as the letters furnished to the Lead Managers
pursuant to Section 5(d) hereof, except that the
"specified date" in the letter furnished pursuant to
this Section 5(i)(5) shall be a date not more than five
days prior to such Date of Delivery.
If any condition specified in this Section 5 shall not have been
fulfilled when and as required to be fulfilled, this Agreement may be
terminated by the Lead Managers by notice to the Company, CIHC and Conseco at
any time at or prior to the Closing Time, and such termination shall be without
liability of any party to any other party except as provided in Section 4.
SECTION 6. Indemnification.
(a) The Company, CIHC and Conseco, jointly and severally, agree to
indemnify and hold harmless each Manager and each person, if any, who controls
any Manager within the meaning of Section 15 of the 1933 Act as follows:
(i) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, arising out
of any untrue statement or alleged untrue statement of
a material fact contained in the Registration Statement
(or any amendment thereto), including the information
deemed to be part of the Registration Statement
pursuant to Rule 430A(b) of the 1933 Act Regulations,
if applicable, or the omission or alleged omission
therefrom of a material fact required to be stated
therein or necessary to make the statements therein not
misleading or arising out of any untrue statement or
alleged untrue statement of a material fact contained
in any preliminary prospectuses or the Prospectuses (or
any amendment or supplement thereto) or the omission or
alleged omission therefrom of a material fact necessary
in order to make the statements therein, in the light
of the circumstances under which they were made, not
misleading;
(ii) against any and all loss, liability, claim,
damage and expense whatsoever, as incurred, to the
extent of the aggregate amount paid in settlement of
any litigation, or any investigation or proceeding by
any governmental agency or body, commenced or
threatened, or of any claim whatsoever based upon any
such untrue statement or omission, or any such alleged
untrue statement or omission, if such settlement is
effected with the written consent of the Company, CIHC
or Conseco, as the case may be; and
<PAGE>
<PAGE> 21
(iii) against any and all expense whatsoever, as
incurred (including, subject to Section 6(c) hereof,
the reasonable fees and disbursements of counsel chosen
by Merrill Lynch), reasonably incurred in investi-
gating, preparing for or defending against any
litigation, or any investigation or proceeding by any
governmental agency or body, commenced or threatened,
or any claim whatsoever based upon any such untrue
statement or omission, or any such alleged untrue
statement or omission, to the extent that any such
expense is not paid under (i) or (ii) above;
provided, however, that (A) the foregoing indemnity shall not apply to any
loss, liability, claim, damage or expense to the extent arising out of any
untrue statement or omission or alleged untrue statement or omission made in
reliance upon and in conformity with written information furnished to the
Company by any Underwriter through Merrill Lynch expressly for use in the
Registration Statement (or any amendment thereto) or any preliminary
prospectuses or the Prospectuses (or any amendment or supplement thereto); and
(B) the foregoing indemnity agreement with respect to any preliminary
prospectuses shall not inure to the benefit of the Underwriter from whom the
person asserting any such losses, claims, damages or liabilities purchased
Securities, or any person controlling any Manager, if a copy of the
Prospectuses (as then amended or supplemented, if the Company shall have
furnished any amendments or supplements thereto) was not sent or given by or
on behalf of the Managers to such person if such is required by law at or prior
to the written confirmation of the sale of such Securities to such person and
if the Prospectuses (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability.
(b) Each Manager severally agrees to indemnify and hold harmless the
Company, its directors, each of its officers who signed the Registration
Statement, CIHC, Conseco and each person, if any, who controls the Company,
CIHC or Conseco within the meaning of Section 15 of the 1933 Act against any
and all loss, liability, claim, damage and expense described in the
indemnity contained in subsection (a) of this Section, as incurred, but only
with respect to untrue statements or omissions, or alleged untrue statements
or omissions, made in the Registration Statement (or any amendment thereto) or
any preliminary prospectuses or the Prospectuses (or any amendment or
supplement thereto) in reliance upon and in conformity with written information
furnished to the Company by such Manager through Merrill Lynch expressly for
use in the Registration Statement (or any amendment thereto) or such
preliminary prospectuses or the Prospectuses (or any amendment or supplement
thereto).
(c) Each indemnified party shall give notice as promptly as
reasonably practicable to each indemnifying party of any action commenced
against it in respect of which indemnity may be sought hereunder, but the
failure to so notify an indemnifying party shall not relieve such indemnifying
party from any liability which it may have otherwise than on account of this
indemnity agreement. An indemnifying party may participate at its own expense
in the defense of any such action. If it so elects within a reasonable time
after receipt of such notice, an indemnifying party, jointly with any other
indemnifying parties receiving such notice, may assume the defense of such
action with counsel chosen by it and approved by the indemnified parties
defendant in such action (which approval shall not be unreasonably withheld),
unless such indemnified parties reasonably object to such assumption on the
ground that there may be legal defenses available to them which are different
from or in addition to those available to such indemnifying party. If an
indemnifying party assumes the defense of such action, the indemnifying parties
shall not be liable for any fees and expenses of counsel for the indemnified
parties incurred thereafter in connection with such action. In no event shall
the indemnifying parties be liable for reasonable fees and expenses of more
than one counsel (in addition to any local counsel) separate from their own
counsel for all indemnified parties in connection with any one action or
separate but similar or related actions in the same jurisdiction arising out
of the same general allegations or circumstances. An indemnifying party shall
not be liable for any settlement or any action or claim effected without
its consent, which consent shall not unreasonably withheld. No indemnifying
party shall, without the prior written consent of the indemnified party, effect
any settlement of any pending or threatened proceeding in respect of which any
indemnified party is or could have been a party and indemnity could have been
<PAGE>
<PAGE> 22
sought hereunder by such indemnified party, unless such settlement includes an
unconditional release of such indemnified party from all liability on claims
that are the subject matter of such proceeding.
SECTION 7. Contribution.
In order to provide for just and equitable contribution in
circumstances in which the indemnity agreement provided for in Section 6 is for
any reason held to be unenforceable by the indemnified parties although
applicable in accordance with its terms, the Company, CIHC, Conseco and the
Managers shall contribute to the aggregate losses, liabilities, claims, damages
and expenses of the nature contemplated by said indemnity agreement incurred
by the Company, CIHC and Conseco and one or more of the Managers, as incurred,
in such proportions that the Managers are responsible for that portion
represented by the percentage that the underwriting discount appearing on the
cover page of the International Prospectus bears to the initial public offering
price appearing thereon and the Company, CIHC and Conseco are jointly and
severally responsible for the balance; provided, however, that no person guilty
of fraudulent misrepresentation (within the meaning of Section 11(f) of the
1933 Act) shall be entitled to contribution from any person who was not guilty
of such fraudulent misrepresentation. For purposes of this Section, each
person, if any, who controls an Underwriter within the meaning of Section 15
of the 1933 Act shall have the same rights to contribution as such Underwriter,
and each director of the Company, each officer of the Company who signed the
Registration Statement and each person, if any, who controls the Company, CIHC
or Conseco within the meaning of Section 15 of the 1933 Act shall have the same
rights to contribution as the Company, CIHC and Conseco.
SECTION 8. Representations, Warranties and Agreements to Survive
Delivery.
All representations, warranties and agreements contained in this
Agreement and the International Pricing Agreement, or contained in certificates
of officers of the Company, CIHC or Conseco submitted pursuant hereto, shall
remain operative and in full force and effect, regardless of any investigation
made by or on behalf of any Manager or controlling person, or by or on behalf
of the Company, CIHC and Conseco, and shall survive delivery of the Securities
to the Manager.
SECTION 9. Termination of Agreement.
(a) The Lead Managers may terminate this Agreement and the
International Pricing Agreement, by notice to the Company, CIHC and Conseco,
at any time at or prior to the Closing Time (i) if there has been, since the
date of this Agreement or since the respective dates as of which information
is given in the Registration Statement (except as otherwise stated or
contemplated therein at the date of the International Pricing Agreement), any
material adverse change or any development which will result in a prospective
material adverse change in the condition, financial or otherwise, or in the
earnings or business affairs of the Company and its subsidiaries considered as
one enterprise, whether or not arising in the ordinary course of business, or
(ii) if there has occurred any outbreak of hostilities or other calamity or
crisis, or any material worsening thereof, the effect of which on the financial
markets of the United States is such as to make it, in the judgment of the Lead
Managers, impracticable to market the Securities or to enforce contracts for
the sale of the Securities, or (iii) if trading in the Common Stock has been
suspended by the Commission, or if trading generally on either the American
Stock Exchange or the NYSE has been suspended, or minimum or maximum prices for
trading have been fixed, or maximum ranges for prices for securities have been
required, by either of said Exchanges or by order of the Commission or any
other governmental authority, or if a banking moratorium has been declared by
Federal, New York or California authorities or (iv) if there has occurred any
change or development involving a prospective change in national or
international political, financial or economic controls, which in the opinion
of the Lead Managers is likely to have a material adverse effect on the market
for the Securities.
(b) If this Agreement and the International Pricing Agreement are
terminated pursuant to this Section, such termination shall be without
liability of any party to any other party except as provided in Section 4, and
provided further that Sections 6 and 7 hereof shall survive such termination.
<PAGE>
<PAGE> 23
SECTION 10. Default by One or More of the Managers.
If one or more of the Managers shall fail at Closing Time to purchase
the Initial International Securities which it or they are obligated to purchase
under this Agreement and the International Pricing Agreement (the "Defaulted
Securities"), the Lead Managers shall have the right, within 24 hours
thereafter, to make arrangements for one or more of the non-defaulting
Managers, or any other underwriters, to purchase all, but not less than all,
of the Defaulted Securities in such amounts as may be agreed upon and upon the
terms herein set forth; if, however, the Lead Managers shall not have completed
such arrangements within such 24-hour period, then:
(a) if the number of Defaulted Securities does not exceed 10% of the
number of Initial International Securities, the non-defaulting Managers shall
be obligated to purchase the full amount thereof in the proportions that their
respective underwriting obligations hereunder bear to the underwriting
obligations of all non-defaulting Managers, or
(b) if the number of Defaulted Securities exceeds 10% of the number
of Initial International Securities, this Agreement shall terminate without
liability on the part of any non-defaulting Manager.
No action taken pursuant to this Section shall relieve any defaulting
Manager from liability in respect of its default.
In the event of any such default which does not result in a
termination of this Agreement, either the Lead Managers, the Company, CIHC or
Conseco shall have the right to postpone the Closing Time for a period not
exceeding seven days in order to effect any required changes in the
Registration Statement or prospectuses or in any other documents or
arrangements.
The Managers shall also have the right to amend Schedule A hereto by
making such substitutions or corrections as indicated in the International
Pricing Agreement.
SECTION 11. Notices. All notices and other communications hereunder
shall be in writing and shall be deemed to have been duly given if mailed or
transmitted by any standard form of telecommunication. Notices to the Lead
Managers shall be directed to the Lead Managers at Merrill Lynch International
Limited, n:\Ropemaker Place, 25 Ropemaker Street, London EC2Y 9LY, England,
attention of Christine Burgess-Allen, with a copy to Sidley & Austin, One First
National Plaza, Chicago, Illinois 60603, Attention: John J. Sabl, Esq.; notices
to the Company shall be directed to it at 5555 San Felipe Road, Suite 900,
Houston, Texas 77056, Attention: Richard W. Scott, Esq.; notices to CIHC and
Conseco shall be directed to them at Conseco, Inc., 11825 North Pennsylvania
Street, Carmel, Indiana 46032, Attention: Lawrence W. Inlow, Esq.
SECTION 12. Parties. This Agreement and the International Pricing
Agreement shall each inure to the benefit of and be binding upon the Managers,
the Company, CIHC and Conseco and their respective successors, heirs and legal
representatives. Nothing expressed or mentioned in this Agreement or the
International Pricing Agreement is intended or shall be construed to give any
person, firm or corporation, other than the Managers, the Company, CIHC and
Conseco and their respective successors, heirs and legal representatives and
the controlling persons and officers and directors referred to in Sections 6
and 7 and their heirs and legal representatives, any legal or equitable right,
remedy or claim under or in respect of this Agreement or the International
Pricing Agreement or any provision herein or therein contained. This Agreement
and the International Pricing Agreement and all conditions and provisions
hereof and thereof are intended to be for the sole and exclusive benefit of the
Managers, the Company, CIHC and Conseco and their respective successors, heirs
and legal representatives, and said controlling persons and officers and
directors and their heirs and legal representatives, and for the benefit of no
other person, firm or corporation. No purchaser of International Securities
from any Manager shall be deemed to be a successor by reason merely of such
purchase.
SECTION 13. Governing Law and Time. This Agreement and the
International Pricing Agreement shall be governed by and construed in
accordance with the laws of the State of New York applicable to agreements made
and to be performed in said State. Specified times of day refer to New York
City time.
<PAGE> 24
SECTION 14. Waiver of Right to Jury Trial. Each of the Company,
CIHC and Conseco (on their own behalf and, to the extent permitted by
applicable law, on behalf of their respective shareholders) and the Managers
waive all rights to trial by jury in any action, proceeding or counterclaim
(whether based upon contract, tort or otherwise) related to or arising out of
the engagement of the Managers pursuant to, or the performance by the
Managers of the services contemplated by, this Agreement.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement among the Managers, the Company, CIHC and Conseco in accordance with
its terms.
Very truly yours,
WESTERN NATIONAL CORPORATION
By:/s/ Michael J. Poulos
--------------------------
Name: Michael J. Poulos
Title: Chairman of the Board
and President
CONSECO, INC.
By:/s/ Rollin M. Dick
----------------------
Name: Rollin M. Dick
Title: Executive Vice President
CONSECO INVESTMENT HOLDING
COMPANY
By:/s/ William T. Devanney, Jr.
---------------------------
Name: William T. Devanney, Jr.
Title: Vice President
CONFIRMED AND ACCEPTED
as of the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
GOLDMAN SACHS INTERNATIONAL LIMITED
LADENBURG, THALMANN & CO. INC.
For themselves and as Lead Managers of the other Managers named
in Schedule A hereto.
By: Merrill Lynch International Limited
By: /s/ Robert S. Whitelaw
___________________________________
(Attorney-in-Fact)
<PAGE>
<PAGE> 25
SCHEDULE A
<TABLE>
<CAPTION>
Number of
Initial
International
Securities
Name of Manager to be Purchased
<S> <C>
Merrill Lynch International Limited. . . . . 1,088,125
Dean Witter International Ltd. . . . . . . . 1,088,125
Goldman Sachs International Limited. . . . . 1,088,125
Ladenburg, Thalmann & Co. Inc. . . . . . . . 1,088.125
ABN AMRO Bank N.V. . . . . . . . . . . . . . 100,000
Credit Lyonnais Securities . . . . . . . . . 100,000
Dresdner Bank Aktiengesellschaft . . . . . . 100,000
Nomura International plc . . . . . . . . . . 100,000
N M Rothschild & Sons Limited. . . . . . . . 100,000
---------
Total. . . . . . . . . . . . . . . . . 4,852,500
---------
---------
</TABLE>
<PAGE>
<PAGE> 26
Exhibit A
WESTERN NATIONAL CORPORATION
(a Delaware corporation)
4,852,500 Shares of Common Stock
(Par Value $.001 Per Share)
INTERNATIONAL PRICING AGREEMENT
, 1994
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
GOLDMAN SACHS INTERNATIONAL LIMITED
LADENBURG, THALMANN & CO. INC.
as Lead Managers of the several Managers
named in the within-mentioned International
Purchase Agreement
c/o Merrill Lynch International Limited
Ropemaker Place
25 Ropemaker Street
London EC2Y 9lY
England
Dear Sirs:
Reference is made to the International Purchase Agreement, dated
, 1994 (the "International Purchase Agreement"), relating to the purchase
by the several Managers named in Schedule A thereto, for whom Merrill Lynch
International Limited, Dean Witter International Ltd., Goldman Sachs
International Limited and Ladenburg, Thalmann & Co. Inc. are acting as
representatives (the "Lead Managers"), of the above shares of Common Stock (the
"Initial International Securities"), of Western National Corporation (the
"Company").
Pursuant to Section 2 of the International Purchase Agreement, the
Company, Conseco Investment Holding Company, a Delaware corporation ("CIHC"),
and Conseco, Inc., an Indiana corporation ("Conseco"), agree with each Manager
as follows:
1. The initial public offering price per share for the Initial
International Securities, determined as provided in said Section 2, shall be
$ .
2. The purchase price per share for the Initial International
Securities to be paid by the several Managers shall be $ , being an amount
equal to the initial public offering price set forth above less $ per
share.
If the foregoing is in accordance with your understanding of our
agreement, please sign and return to the Company a counterpart hereof,
whereupon this instrument, along with all counterparts, will become a binding
agreement between the Managers, the Company, CIHC and Conseco in accordance
with its terms.
Very truly yours,
WESTERN NATIONAL CORPORATION
By:________________________________
Name:
Title:
<PAGE>
<PAGE> 27
CONSECO, INC.
By:
Name:
Title:
CONSECO INVESTMENT HOLDING
COMPANY
By:________________________________
Name:
Title:
CONFIRMED AND ACCEPTED
as of the date first above written:
MERRILL LYNCH INTERNATIONAL LIMITED
DEAN WITTER INTERNATIONAL LTD.
GOLDMAN SACHS INTERNATIONAL LIMITED
LADENBURG, THALMANN & CO. INC.
For themselves and as Lead Managers of the other Managers named
in Schedule A to the International Purchase Agreement.
By: Merrill Lynch International Limited
By: ___________________________________
___________________________________
(Attorney-in-Fact)
<PAGE> 1
SEPARATION AGREEMENT
by and between
CONSECO, INC.
and
WESTERN NATIONAL CORPORATION
dated as of February 8, 1994
<PAGE>
<PAGE> 2
SEPARATION AGREEMENT
THIS SEPARATION AGREEMENT (this "Agreement") is made and
entered into as of the 8th day of February, 1994, by and between
CONSECO, INC., an Indiana corporation ("Conseco"), and WESTERN
NATIONAL CORPORATION, a Delaware corporation and, as of the date
hereof, an indirect wholly owned subsidiary of Conseco ("WNC").
WHEREAS, WNC intends to make an initial public offering of
certain newly issued shares of its common stock and Conseco intends
to sell a certain number of shares of common stock of WNC through
a secondary offering made as part of such initial public offering;
and
WHEREAS, this Agreement is made in order to provide for
certain corporate transactions that will take place prior to, at or
about the time of the Public Offering and certain terms of the
continuing relationships among the parties;
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth herein, the parties hereby agree as follows:<PAGE>
<PAGE> 3
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings (such meanings to be equally applicable to both
the singular and plural forms of the terms defined):
"Action" shall mean any action, suit, arbitration, inquiry,
proceeding or investigation by or before any court, any
governmental or other regulatory or administrative agency or
commission or any arbitration tribunal.
"Affiliate" of a Person shall mean a Person that directly, or
indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, the Person
specified.
"Business Day" shall mean any day which is not a Saturday or
Sunday or a day on which banks in New York, New York are authorized
or required to close.
"CIHC" shall mean Conseco Investment Holding Company, a
Delaware Corporation and wholly owned subsidiary of Conseco.
"Closing" shall mean the closing at which the Shares sold in
the Public Offering are delivered and the underwriters in the
Public Offering deliver payment therefor.
"Closing Date" shall mean the day on which the Closing occurs.
"Code" means the Internal Revenue Code of 1986, as amended,
and shall include corresponding provisions of any subsequently
enacted federal tax laws.
"Initial Registration Statement" shall mean the registration
statement filed by WNC with the SEC in connection with the Public
Offering as contemplated by Section 2.1 hereof.
"Insurance Proceeds" shall mean those monies (i) received by
an insured from an insurance carrier or (ii) paid by an insurance
carrier on behalf of the insured, in either case net of any
applicable premium adjustments, retrospectively rated premium
adjustments, deductibles, retentions or costs paid by such insured.
"Losses" shall mean any and all losses, liabilities, claims,
damages, obligations, payments, costs and expenses, matured or
unmatured, absolute or contingent, accrued or unaccrued, liquidated
or unliquidated, known or unknown (including, without limitation,
the costs and expenses of any and all Actions, threatened Actions,
demands, assessments, judgments, settlements and compromises
relating thereto and attorneys' fees and any and all expenses
whatsoever reasonably incurred in investigating, preparing or
defending against any such Actions or threatened Actions).
"Offering Expenses" shall mean the costs and expenses of any
registration by WNC which is made in connection with the Public
Offering, including specifically the fees and expenses of counsel
and accountants; all out-of-pocket costs and expenses incident to
the preparation, printing and filing under the Securities Act of
any registration statement and all amendments and supplements
thereto; the costs of furnishing copies of preliminary
prospectuses, each final prospectus and each amendment or
supplement thereto to underwriters, dealers and other purchasers of
Shares so registered; the costs and expenses incurred in connection
with the qualification of such Shares under the "blue sky" laws of
various jurisdictions; the fees and expenses of WNC's transfer
agent; stock exchange listing fees; fees paid to the National
Association of Securities Dealers, Inc.; and similar expenses
incurred in complying with the registration provisions of this
Agreement, but excluding underwriters' discounts and commissions.
<PAGE>
<PAGE> 4
"Person" shall mean an individual, corporation, partnership,
limited liability company, association, joint venture,
unincorporated organization, trust, or other entity, including,
without limitation, employee pension, profit sharing or other
benefit plan or trust.
"Primary Offering Shares" shall mean those newly issued
Shares offered for sale for the account of WNC as part of the
Public Offering contemplated under Section 2.1 hereof.
"Public Offering" shall mean the registered offering for sale
to the public of the Primary Offering Shares and the Secondary
Offering Shares as contemplated by Section 2.1 hereof.
"SEC" shall mean the Securities and Exchange Commission.
"Secondary Offering Shares" shall mean those Shares offered
for sale for the account of Conseco or CIHC as part of the Public
Offering contemplated under Section 2.1 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended.
"Shares" means shares of common stock, par value $.001 per
share, of WNC.
"Tax Laws" means the Code, federal, state, county, local, or
foreign laws relating to Taxes and any regulations or official
administrative pronouncements released thereunder.
"Tax" means any of the Taxes.
"Taxes" means all forms of taxation, whenever created or
imposed, and whether of the United States or elsewhere, and whether
imposed by a local, municipal, governmental, state, federation or
other body, and without limiting the generality of the foregoing,
shall include income, sales, use, ad valorem, gross receipts,
license, value added, franchise, transfer, recording, withholding,
payroll, employment, excise, occupation, premium and property
taxes, together with any related interest, penalties and additions
to any such tax, or additional amounts imposed by any taxing
authority (domestic or foreign).
"Tax Benefit" means any item of loss, deduction, credit or any
other Tax Item which decreases Taxes paid or payable.
"Tax Detriment" means any item of income, gain, recapture of
credit or any other Tax Item which increases Taxes paid or payable.
"Tax Item" means any item of income, gain, loss, deduction,
credit, provisions for reserves, recapture of credit or any other
item which increases or decreases Taxes paid or payable, including
an adjustment under Code Section 481 resulting from a change in
accounting method.
"Tax Return" means any return, filing, questionnaire,
information return or other document required to be filed,
including requests for extensions of time, filings made with
estimated tax payments, claims for refund and amended returns that
may be filed, for any period with any taxing authority (whether
domestic or foreign) in connection with any Tax or Taxes (whether
or not a payment is required to be made with respect to such
filing).
"WNL" means Western National Life Insurance Company, a Texas
stock insurance corporation and, as of the date hereof, an indirect
wholly owned subsidiary of Conseco.
<PAGE>
<PAGE> 5
ARTICLE II
SECTION 2.1 Primary and Secondary Offering. (a) WNC has
filed a registration statement on Form S-1 to register under the
Securities Act for sale or distribution to the public (i) 2,000,000
newly issued Shares for the account of WNC, (ii) Shares held by
Conseco or any of its subsidiaries in such number as shall be
determined by Conseco and (iii) such number of Shares as shall be
necessary for an over-allotment option (the "Over-allotment
Option") from WNC and Conseco, pro rata, to the underwriters of 15%
of the aggregate number of Primary Offering Shares and Secondary
Offering Shares. WNC shall also include in such registration
statement 150,000 Shares to be sold by CIHC to Michael J. Poulos.
WNC shall file such amendment or amendments to the Initial
Registration Statement as shall be necessary to cause it to become
effective.
(b) Prior to the time at which the Initial Registration
Statement is declared effective, WNC and Conseco shall take all
necessary corporate action to have WNC authorize for issuance such
number of Shares as shall be necessary for purposes of the Public
Offering.
SECTION 2.2 Terms of Offering. The number of Primary
Offering Shares and Secondary Offering Shares and the price for
such Shares shall be determined by Conseco, subject to Section
2.1(a). Notwithstanding anything to the contrary contained herein,
Primary Offering Shares will have priority over Secondary Offering
Shares in determining the number of Shares to be sold in the Public
Offering.
SECTION 2.3 Expenses. All Offering Expenses incurred in
connection with the Public Offering shall be borne by WNC.
SECTION 2.4 Approvals. The consummation of the Public
Offering and the other transactions and agreements contained herein
are subject to the prior receipt by the parties of each requisite
corporate and governmental or regulatory approval or authorization.
Conseco and WNC expressly agree to use reasonable efforts and to
cooperate to obtain any and all such approvals and authorizations.
SECTION 2.5 Indemnification for Initial Registration. (a)
WNC hereby agrees to indemnify and hold harmless Conseco and the
officers (regardless of whether they serve in such capacity at the
time of the Public Offering or the Closing), directors (including
without limitation each person who (x) is named in the Initial
Registration Statement (or any amendment or supplement thereto) as
someone who is selected to be a director of WNC effective
immediately after the Closing or (y) becomes a director of WNC
effective immediately after the Closing), employees, Affiliates and
agents of Conseco and WNC, against any Losses to which any of such
Persons may be subject, under the Securities Act or otherwise,
arising out of the sale of Shares and (subject to the further
provisions of this Section 2.5 and of Section 2.6) to reimburse any
of such Persons for any legal or other expenses reasonably incurred
in connection with investigating or defending against any such
Losses, insofar as such Losses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact
contained in the Initial Registration Statement, any prospectus
(including a preliminary prospectus) contained therein, or any
amendment or supplement to the Initial Registration Statement or
any such prospectus, or the omission or alleged omission to state
therein a material fact required to be stated therein or necessary
to make the statements therein not misleading, which gives rise to
an actual or threatened claim, action or proceeding on the part of
a Person other than one who is or may be an indemnified party under
this Section 2.5(a) or (ii) an actual or alleged breach of the
terms of the underwriting agreement for the Public Offering (the
"Underwriting Agreement") which gives rise to an actual or
threatened claim, action or proceeding on the part of an
underwriter thereunder or a claim by an underwriter for
<PAGE>
<PAGE> 6
indemnification thereunder. The indemnity provided in this Section
2.5(a) shall survive and remain in full force and effect regardless
of any investigation made by or on behalf of any such indemnified
party.
(b) Conseco hereby agrees to indemnify and hold harmless the
directors, officers, employees, Affiliates and agents of WNC,
against any Losses covered by the Company's indemnification in
Section 2.5(a) above, and to reimburse any of such Persons for any
legal or other expenses reasonably incurred in connection with
investigating or defending against any such Losses, but only to the
extent that the indemnification of any such Persons by the Company
pursuant to Section 2.5(a) above is finally determined by a court
of competent jurisdiction to be unenforceable and indemnification
by Conseco is similarly determined to be enforceable. The
indemnity provided for in this Section 2.5(b) shall survive and
remain in full force and effect regardless of any investigation
made by or on behalf of any such indemnified party.
SECTION 2.6 Indemnification Procedure. Promptly after
receipt by a Person of notice of the commencement of any action or
proceeding in respect of which indemnity may be sought by such
Person pursuant to Section 2.5, such indemnified party will, if a
claim in respect thereof is to be made against an indemnifying
party under Section 2.5, notify the indemnifying party of the
commencement thereof, but the omission so to notify the indemnified
party will not relieve it from any liability which it may have to
any indemnified party under Section 2.5 or otherwise, except to the
extent the indemnifying party is prejudiced by such omission. In
case any such action or proceeding is brought against any
indemnified party and it notifies an indemnifying party of the
commencement thereof, the indemnifying party will be entitled to
participate therein and, to the extent that it may wish, to assume
the defense thereof, and if it assumes such defense it shall retain
counsel reasonably satisfactory to such indemnified party to
represent the indemnified party and any others the indemnifying
party may designate in such proceeding and shall pay the fees and
disbursements of such counsel related to such proceeding. In any
such proceeding, any indemnified party shall have the right to
retain its own counsel, but the fees and expenses of such counsel
shall be at the expense of such indemnified party unless in the
reasonable judgment of the indemnified party separate and
conflicting defenses are available to such party, in which event
the indemnified party may select one firm of separate counsel
reasonably satisfactory to the indemnifying party for purposes of
defending such action, whose fees and expenses shall be borne by
the indemnifying party; provided, however, that the indemnifying
party shall not be responsible for the fees and expenses of more
than one counsel for all such indemnified parties. After notice
from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party
will not (except as otherwise provided herein) be liable to such
indemnified party under this Section 2.6 for any legal or other
expenses subsequently incurred by such indemnified party in
connection with the defense thereof other than reasonable costs of
investigation. If the indemnifying party elects not to assume the
defense of a claim or action, it will not be obligated to pay the
fees and expenses of more than one counsel for the indemnified
parties with respect to such claim or action. No indemnifying
party shall consent to entry of any judgment or enter into any
settlement without the consent of an indemnified party which does
not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from
all liability with respect to such action or proceeding. No
indemnifying party shall be subject to any liability for any
settlement made without its consent, which consent shall not be
unreasonably withheld.
<PAGE>
<PAGE> 7
SECTION 2.7 Contribution. If the indemnity and reimbursement
obligation provided for in Section 2.5 is unavailable or
insufficient to hold harmless any indemnified party in respect of
any losses, claims, liabilities or damages covered thereby then the
indemnifying party shall contribute to the amount paid or payable
by the indemnified party as a result of such losses, claims,
damages or liabilities in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one
hand and the indemnified party on the other hand in connection with
statements or alleged statements or omissions or alleged omissions
which resulted in such losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact
relates to information supplied by the indemnifying party or the
indemnified party and the parties' relative intent, knowledge,
access to information and opportunity to correct or prevent such
untrue statement or omission. The parties hereto agree that it
would not be just and equitable if contribution pursuant to this
Section 2.7 were to be determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the first sentence of this
Section 2.7. The amount paid by an indemnified party as a result
of the losses, claims, damages or liabilities referred to in the
first sentence of this Section 2.7 shall be deemed to include,
subject to the limitations set forth in Section 2.5 and 2.6, any
legal and other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any loss,
claim, liability or damage which is the subject of this Section
2.7.
No indemnified party guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall
be entitled to contribution from an indemnifying party if such
indemnifying party was not guilty of fraudulent misrepresentation.
SECTION 2.8 Indemnification Payments. Any payment required
to be made pursuant to Section 2.5 or 2.7 shall be made by periodic
payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or losses,
damages or liabilities are incurred.
ARTICLE III
CORPORATE TRANSACTIONS
SECTION 3.1 Transfer of WNL Stock. Prior to the Closing, (a)
Conseco shall cause CIHC, the sole stockholder of WNL, to transfer
the outstanding shares of common stock of WNL to WNL Holding Corp.,
a wholly owned subsidiary of CIHC, (b) Conseco shall cause CIHC to
contribute the outstanding stock of WNL Holding Corp. to WNC, and
(c) in consideration for the contribution by CIHC of the stock of
WNL Holding Corp., WNC shall issue to CIHC 59,999,900 Shares and a
$150,000,000 principal amount 6.75% promissory note due March 31,
1996.
SECTION 3.2 Issuance of WNC Common Stock to Public. On the
Closing Date, WNC shall issue to the underwriters of the Public
Offering such number of Shares as shall be sufficient to provide
for the Primary Offering Shares. Such delivery shall be in
exchange for the proceeds due to WNC from the sale of the Primary
Offering Shares.
SECTION 3.3 Delivery by Conseco in Public Offering. On the
Closing Date, Conseco shall cause CIHC to deliver to the
underwriters of the Public Offering such number of Shares as shall
be sufficient to provide for the Secondary Offering Shares. Such
delivery shall be in exchange for the proceeds due to CIHC from the
sale of the Secondary Offering Shares.
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SECTION 3.4 Sale of WNC Common Stock to Poulos. In
connection with the Closing, Conseco shall cause CIHC to deliver to
Michael J. Poulos ("Poulos") such number of Shares as shall be
determined in accordance with the terms of his Employment Agreement
and the stock purchase agreement to be entered into between CIHC
and Poulos (the "Stock Purchase Agreement"). Such delivery shall
be in exchange for the proceeds due to CIHC from the sale of such
Shares pursuant to the terms of the Employment Agreement and the
Stock Purchase Agreement.
ARTICLE IV
FILING OF TAX RETURNS
SECTION 4.1 Manner of Filing. All Tax Returns filed after
the Closing Date shall be prepared on a basis consistent with the
consummation of the transactions as set forth in this Agreement and
shall be filed on a timely basis (including extensions) by the
party responsible for such filing under this Agreement. In the
absence of a controlling change in law or circumstances, all Tax
Returns filed after the date of this Agreement with respect to
taxable periods beginning before the Closing Date shall be prepared
on a basis consistent with the elections, accounting methods,
conventions, and principles of taxation used for the most recent
taxable periods for which Tax Returns involving similar Tax Items
have been filed, to the extent that a failure to do so would result
in a Tax Detriment to the other party hereto. Subject to the
provisions of this Agreement, all decisions relating to the
preparation of Tax Returns shall be made in the sole discretion of
the party responsible under this Agreement for such preparation.
SECTION 4.2 Pre-Public Offering Tax Returns. (a)
Consolidated Returns. The Conseco consolidated federal income Tax
Returns required to be filed for all periods beginning before the
Closing Date shall be prepared and filed by Conseco. Conseco
agrees to cooperate in good faith with WNC to determine the
appropriate amount of Tax Items attributable to WNC and WNL to be
reflected on the Conseco consolidated federal income Tax Returns.
(b) Other Tax Returns. All other Tax Returns not described
elsewhere in this Section 4.2 that are required to be filed for
periods beginning on or before the Closing Date shall be prepared
and filed by Conseco, in the case of Tax Returns that relate to
Conseco and its Affiliates other than WNC and WNL (the "Conseco
Group"), and WNC, in the case of Tax Returns that relate to WNC,
WNL Holding Corp. and WNL (the "WNC Group").
SECTION 4.3 Post-Public Offering Tax Returns. All Tax
Returns for periods beginning after the Closing Date shall be
prepared and filed by Conseco if the Tax Returns relate solely to
the Conseco Group, and shall be prepared and filed by WNC if the
Tax Returns relate solely to the WNC Group.
SECTION 4.4 Interim Annual Statement. Interim annual
statements substantially in accordance with the requirements of the
National Association of Insurance Commissioners shall be prepared
by WNC within a reasonable period after the Closing Date for the
portion of the calendar year ending on the Public Offering Date, to
the extent necessary for Conseco to prepare and file its
consolidated federal income tax return. WNC and Conseco agree to
cooperate in good faith to determine the appropriate items to be
reflected on the annual statement.
ARTICLE V
PAYMENT OF TAXES
SECTION 5.1 Allocation of Tax Liabilities With Respect to
Unfiled Returns.
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<PAGE> 9
(a) Consolidated Federal Income Tax Liabilities. Except as
otherwise provided in this Section 5.1(a), Conseco shall pay or
cause to be paid, on a timely basis, all Taxes due with respect to
the consolidated federal income tax liability for the taxable year
ending December 31, 1993 and the taxable year that includes the
Closing Date of the affiliated group of which Conseco is the common
parent. WNC on behalf of the WNC Group hereby assumes and agrees
to pay or cause to be paid the WNC Group's share of the 1993
consolidated federal income tax liability for the taxable year
ending December 31, 1993 and the period commencing on January 1,
1994 and ending on the Closing Date (the "Short Period"), which
payments shall be made directly to Conseco, in accordance with the
Consolidated Federal Income Tax Agreement dated February 21, 1989
by and among Conseco and the parties thereto, as amended (the
"Prior Agreement"), as if WNC were a party thereto; provided,
however, that if WNC generates a loss for federal income tax
purposes for the Short Period, Conseco shall pay WNC an amount
equal to 35% of such loss to the extent such loss is actually used
by the Conseco Group and is not available for carryforward by WNC
to a future year.
The WNC Group's allocable share of the consolidated federal
income tax liability for the twelve months ending December 31, 1993
and the Short Period shall be determined in accordance with the
Prior Agreement, as if WNC were a party thereto.
The calculation of the WNC's allocable share of Taxes pursuant
to this Section 5.1(a) shall be made by Conseco on a basis
consistent with the Prior Agreement.
(b) Combined Corporate Franchise and Income Taxes. Except as
otherwise provided in this Section 5.1(b), Conseco shall pay or
cause to be paid, on a timely basis, all Taxes due with respect to
the Illinois and Florida consolidated income tax liability or other
liability for corporate franchise and income taxes pursuant to a
combined return for the taxable years ended December 31, 1993 and
the taxable year that includes the Closing Date ("Combined Taxes").
WNC hereby assumes and agrees to pay or cause to be paid the WNC
Group's share of Combined Taxes for the taxable year ending
December 31, 1993 and the Short Period, which payment shall be made
by WNC to Conseco or such other Person as Conseco shall designate.
The WNC Group's share of the Combined Taxes shall be determined by
Conseco on the same basis as Federal income tax liabilities are
determined under the Prior Agreement; provided, however, that
appropriate adjustments shall be made to take into account the
differences between the calculation of liability on a federal
consolidated income tax return and a combined tax return; and
provided, further that Conseco shall only pay WNC for any Tax
Benefit generated by the WNC Group if such Tax Benefit both results
in an actual reduction of Taxes for the Conseco Group, and if not
utilized by the Conseco Group, would have resulted in a reduction
of Taxes for the WNC Group.
The calculation of the WNC Group's allocable share of Taxes
pursuant to this Section 5.1(b) shall be made by Conseco on a basis
consistent with prior years.
(c) All other Taxes not covered by Section 5.1(a) or (b) for
a taxable year beginning before the Closing Date shall be paid by
the party responsible under this Agreement for filing the Tax
Return pursuant to which such Taxes are due.
(d) Any payments required to be made pursuant to Section 5.1
(b) or (c) shall be made within 30 days of receiving written notice
from the other party stating the amount required to be paid.
<PAGE>
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SECTION 5.2 (a) Change in Filed Returns. Subject to
subsection (b) hereof, if a Final Determination has been made
regarding a Tax Return with respect to any taxable period beginning
before the Closing Date (a "Pre-Offering Return"), and as a result
thereof any Tax Benefit or Tax Detriment is changed (a "Change"),
then:
(i) Subject of subsection (b), if in connection with any such
Change, the amount of the Tax Detriments generated by or
attributable to WNL with respect to such return ("WNL Tax
Detriments") exceeds the amount of Tax Benefits generated by or
attributable to WNL with respect to such return ("WNL Tax
Benefits"), WNC hereby assumes and agrees to pay or cause to be
paid to Conseco, an amount equal to the sum of (A) the product of
(x) the amount by which WNL Tax Detriments exceed WNL Tax Benefits
and (y) the actual marginal tax rate applicable with respect to the
relevant Tax Return, with appropriate adjustment to account for Tax
credits included in such calculation, and (B) any applicable
interest or penalties, if any, which is or has been imposed by any
taxing authority with respect to such WNL Tax Detriments or any
interest which would have been imposed but for an offsetting Tax
Benefit solely attributable to the Conseco Group. In no event
shall the amount payable by WNC pursuant to Section 5.2(a)(i)(A)
exceed the amount that would be payable by including any such
Change in computing amounts payable under the Prior Agreement plus
applicable interest and penalties.
(ii) Subject to subsection (b), if in connection with any
such Change, the WNL Tax Benefits exceed the WNL Tax Detriments,
Conseco shall pay or cause to be paid to WNC the sum of (A) the
product of (x) the amount by which WNL Tax Benefits exceed WNL Tax
Detriments and (y) the actual marginal Tax rate applicable with
respect to the relevant Tax Return, with appropriate adjustment to
account for Tax credits included in such calculation, and (B) any
applicable interest that is or has been paid by the applicable
taxing authority or that would have been payable but for any
offsetting Tax Detriment solely attributable to the Conseco Group.
In no event shall the amount payable by Conseco pursuant to this
section 5.2(a)(ii)(A) exceed the greater of (x) the amount received
from the applicable tax authority attributable to the excess of WNL
Tax Benefits over WNL Tax Detriments, or (y) the amount that would
be payable by Conseco by including any such Change in computing
amounts payable under the Prior Agreement plus interest.
(iii) All calculations and determinations required to be made
pursuant to this section 5.2 shall be made by Conseco on a basis
consistent with prior years.
(c) Manner of Payment. Any payment required to be made
pursuant to this Section 5.2 with respect to any Tax Return shall
be made by the party obligated to make such payment within 15 days
of receiving written notice from the other party, which notice
shall state the amount required to be paid and explain and provide
written documentation for the Change that resulted in the payment
obligation. Interest will begin to accrue on all amounts at the
federal rate for deficiencies 30 days after receipt of the notice.
SECTION 5.3 Liability for Taxes with respect to Post-Public
Offering Periods. Unless otherwise provided in this Agreement, the
Conseco Group shall pay all Taxes and shall be entitled to receive
and retain all refunds of Taxes with respect to periods beginning
after the Closing Date that are attributable to the businesses of
members of the Conseco Group. Unless otherwise provided in this
Agreement, the WNC Group shall pay all Taxes and shall be entitled
to receive and retain all refunds of Taxes with respect to periods
beginning after the Closing Date that are attributable to WNC and
WNL.
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SECTION 5.4 Carrybacks. In the event any member of the WNC
Group carries back any Tax Item arising after the Closing Date to
a taxable period ending on or before the Closing Date (a "Prior
Period") with respect to a Tax Return which includes a member of
the Conseco Group, in determining whether WNC shall be entitled to
the benefit of the Tax Item, the Tax Item shall be deemed to be the
last Tax Item utilized in determining the amount of Taxes due or
refunds payable with respect to the Prior Period. In the event
that carryback of Tax Item by a member of the WNC Group to a Prior
Period increases the Taxes payable or decreases the refunds due to
a member of the Conseco Group in another taxable period, WNC shall
pay or cause to be paid to Conseco the lesser of (x) the amount of
such increase in Taxes or decrease in refunds, and (y) the Tax
Benefit realized by the WNC Group as a result of such carryback.
ARTICLE VI
INTERCOMPANY AGREEMENTS AND OTHER MATTERS
SECTION 6.1 Loan Servicing and Origination Agreement. WNC
agrees that it will cause WNL not to terminate that certain Loan
Servicing and Origination Agreement dated as of January 1, 1989
between WNL and Conseco Capital Management, Inc. (CCM"), as
assigned by CCM to Conseco Mortgage Capital, Inc., for a period of
10 years after the Closing Date.
SECTION 6.2 Structured Settlements. On or before the Closing
Date, Conseco and WNC shall enter into an agreement in the form
attached hereto as Exhibit "A".
ARTICLE VII
INSURANCE AND EMPLOYEE MATTERS
SECTION 7.1 Insurance Coverage. All insurance coverage
provided by Conseco to WNC and WNL insuring the properties,
employees, assets and operations of WNC and WNL (including coverage
for professional liability, auto and general liability, workers'
compensation, property, fidelity bonds, surety bonds and fiduciary
liabilities) shall continue in full force and effect through the
Closing Date and WNC or WNL shall pay or cause to be paid to
Conseco the premiums for such coverage in accordance with the past
practices established by Conseco. WNC shall be responsible for
obtaining insurance coverage for itself and WNL, at its expense,
from and after the Closing Date. If requested by WNL, Conseco,
through its subsidiary, Conseco Risk Management, Inc. ("CRM"), will
offer reasonable assistance to WNL in obtaining such insurance
coverage, provided that Conseco shall have no responsibility for
the placement of, or failure to place, such insurance. The parties
acknowledge and agree that from and after the Closing Date Conseco
shall have no responsibility whatsoever for the provision of
insurance coverage to or for WNC or WNL, except as they may
otherwise agree in writing.
SECTION 7.2 Employee Matters. For all periods after December
31, 1993, WNC shall pay or cause to be paid all costs of any kind
or nature associated with the employees working at the WNC or WNL
offices located in Houston, Texas and Amarillo, Texas.
ARTICLE VIII
INDEMNIFICATION
SECTION 8.1 Indemnification by Conseco. Except with respect
to those matters governed by Articles II, IV, V or VII of this
Agreement, Conseco shall indemnify, defend and hold harmless WNC,
each Affiliate of WNC and each of their respective directors,
officers and employees and each of the heirs, executors, successors
and assigns of any of the foregoing (the "WNC Indemnitees") from
and against any and all Losses of the WNC Indemnitees arising out
of the businesses currently conducted or to be conducted by Conseco
or any Conseco subsidiary, whether such Losses relate to events
occurring, or whether such losses are asserted, before, on or after
the Closing Date, excluding the businesses conducted (formerly or
currently) or to be conducted by WNC, WNL and any previously owned
division, subsidiary or Affiliate of WNL.
<PAGE> 12
SECTION 8.2 Indemnification by WNC. Except with respect to
those matters governed by Articles II, IV, V or VII of this
Agreement, WNC shall indemnify, defend and hold harmless Conseco,
each Affiliate of Conseco and each of their respective directors,
officers and employees and each of the heirs, executors, successors
and assigns of any of the foregoing (the "Conseco Indemnitees")
from and against any and all Losses of the Conseco Indemnitees
arising out of (i) any guarantees or obligations to third parties
of Conseco or any Conseco Affiliate with respect to any obligations
of WNC or any WNC Affiliate to third parties; or (ii) the
businesses conducted (formerly or currently) or to be conducted by
WNC, WNL and any previously owned division, subsidiary or Affiliate
of WNL, whether such Losses relate to events occurring, or whether
such Losses are asserted, before, on or after the Closing Date,
except to the extent that Conseco or a Conseco Subsidiary has
assumed liability for losses under this Agreement or any agreement
referred to herein.
SECTION 8.3 Limitations on Indemnification Obligations. The
amount which any party (an "Indemnifying Party") is or may be
required to pay to any other party (an "Indemnitee") pursuant to
Section 8.1 or Section 8.2 shall be reduced (including, without
limitation, retroactively) by any Insurance Proceeds or other
amounts actually recovered by or on behalf of such Indemnitee, in
reduction of the related Loss. If an Indemnitee shall have
received the payment required by this Agreement from an
Indemnifying Party in respect of any Loss and shall subsequently
actually receive Insurance Proceeds or other amounts in respect of
such Loss, then such indemnitee shall pay to such Indemnifying
Party a sum equal to the amount of such Insurance Proceeds or other
amounts actually received (up to but not in excess of the amount of
any indemnity payment made hereunder). An insurer who would
otherwise be obligated to pay any claim shall not be relieved of
the responsibility with respect thereto, or, solely by virtue of
the indemnification provisions hereof, have any subrogation rights
with respect thereto, it being expressly understood and agreed that
no insurer or any other third party shall be entitled to a
"windfall" (i.e., a benefit they would not be entitled to receive
in the absence of the indemnification provisions) by virtue of the
indemnification provisions hereof.
SECTION 8.4 Procedures for Indemnification of Third Party
Claims. The procedures for indemnification of Third Party Claims
shall be as follows:
(a) If an Indemnitee shall receive notice or otherwise learn
of the assertion by a Person (including, without limitation, any
governmental entity) who is not a party to this Agreement, of any
claim or of the commencement by any such Person of any Action (a
"Third Party Claim") with respect to which an Indemnifying Party
may be obligated to provide indemnification pursuant to Section 8.1
or 8.2 of this Agreement, such Indemnitee shall give such
Indemnifying Party written notice thereof promptly after becoming
aware of such Third Party Claim; provided, however, that the
failure of any Indemnitee to give notice as provided in this
Section 8.4(a) shall not relieve the related Indemnifying Party of
its obligations under this Article VIII, except to the extent that
such Indemnifying Party is prejudiced by such failure to give
notice. Such notice shall describe the Third Party Claim in
reasonable detail and, if ascertainable, shall indicate the amount
(estimated if necessary) of the Loss that has been or may be
sustained by such Indemnitee.
(b) An Indemnifying Party may elect to defend or to seek to
settle or compromise, at such Indemnifying Party's own expense and
by such Indemnifying Party's own counsel, any Third Party Claim.
Within 30 days of the receipt of notice from an Indemnitee in
accordance with Section 8.4(a) (or sooner, if the nature of such
Third Party Claim so requires), the Indemnifying Party shall notify
the Indemnitee of its election whether the Indemnifying Party will
assume responsibility for defending such Third Party Claim, which
election shall specify any reservations or exceptions. After
notice from an Indemnifying Party to an Indemnitee of its election
to assume the defense of a Third Party Claim, such Indemnifying
<PAGE> 13
Party shall not be liable to such Indemnitee under this Article
VIII for any legal or other expenses (except expenses approved in
advance by the Indemnifying Party) subsequently incurred by such
Indemnitee in connection with the defense thereof; provided,
however, that if the defendants in any such claim include both the
Indemnifying Party and one or more Indemnitees and in any
Indemnitee's reasonable judgment a conflict of interest between one
or more of such Indemnitees and such Indemnifying Party exists in
respect of such claim or if the Indemnifying Party shall have
assumed responsibility for such claim with any reservations or
exceptions, such Indemnitees shall have the right to employ
separate counsel to represent such Indemnitees and in that event
the reasonable fees and expenses of such separate counsel (but not
more than one separate counsel reasonably satisfactory to the
Indemnifying Party) shall be paid by such Indemnifying Party. If
an Indemnifying Party elects not to assume responsibility for
defending a Third Party Claim, or fails to notify an Indemnitee of
its election as provided in this Section 8.4(b), such Indemnitee
may defend or (subject to the remainder of this Section 8.4(b) and
Section 8.4(d)) seek to compromise or settle such Third Party Claim
at the expense of the Indemnifying Party. Neither an Indemnifying
Party nor an Indemnitee shall consent to entry of any judgment or
enter into any settlement of any Third Party Claim which does not
include as an unconditional term thereof the giving by the claimant
or plaintiff to such indemnitee, in the case of a consent or
settlement by an Indemnifying Party, or the Indemnifying Party, in
the case of a consent or settlement by the Indemnitee, of a written
release from all liability in respect to such Third Party Claim.
(c) If an Indemnifying Party chooses to defend or to seek
compromise or settle any Third Party Claim, the related Indemnitee
shall make available to such Indemnifying Party any personnel or
any bonds, records or other documents within its control or which
it otherwise has the ability to make available that are necessary
or appropriate for such defense, settlement of compromise, and
shall otherwise cooperate in the defense, settlement or compromise
of such Third Party Claim.
(d) Notwithstanding anything in this Section 8.4 to the
contrary, neither an Indemnifying Party nor an Indemnitee may
settle or compromise any claim over the objection of the other;
provided, however, that consent to settlement or compromise shall
not be unreasonably withheld. If an Indemnifying Party notifies
the related Indemnitee in writing of such Indemnifying Party's
desire to settle or compromise a Third Party Claim on the basis set
forth in such notice (provided that such settlement or compromise
includes as an unconditional term thereof the giving by the
claimant or plaintiff or a written release of the Indemnitee from
all liability in respect thereof) and the Indemnitee shall notify
the Indemnifying Party in writing that such Indemnitee declines to
accept any such settlement or compromise, such Indemnitee may
continue to contest such Third Party Claim, free of any
participation by such Indemnifying Party, at such Indemnitee's sole
expense. In such event, the obligation of such Indemnifying Party
to such Indemnitee with respect to such Third Party Claim shall be
equal to (i) the costs and expenses of such Indemnitee prior to the
date such Indemnifying Party notifies such Indemnitee of the offer
to settle or compromise (to the extent such costs and expenses are
otherwise indemnifiable hereunder) plus (ii) the lesser of (A) the
amount of any offer of settlement or compromise which such
Indemnitee declined to accept and (B) the actual out-of-pocket
amount such Indemnitee is obligated to pay subsequent to such date
as a result of such Indemnitee's continuing to pursue such Third
Party Claim.
(e) In the event of payment by an Indemnifying Party to any
Indemnitee in connection with any Third Party Claim, such
Indemnifying Party shall be subrogated to and shall stand in the
place of such Indemnitee as to any events or circumstances in
respect of which such Indemnitee may have any right or claim
relating to such Third Party Claim against any claimant or
plaintiff asserting such Third Party Claim or against any other
Person. Such Indemnitee shall cooperate with such Indemnifying
Party in a reasonable manner, and at the cost and expense of such
Indemnifying Party, in prosecuting any subrogated right or claim.
<PAGE> 14
SECTION 8.5 Other Procedures for Indemnification.
(a) Any claim on account of a Loss which does not result from
a Third Party Claim shall be asserted by written notice given by
the Indemnitee to the related Indemnifying Party. Such
Indemnifying Party shall have a period of 30 days after the receipt
of such notice within which to respond thereto. If such
Indemnifying Party does not respond within such 30 day period, such
Indemnifying Party shall be deemed to have refused to accept
responsibility to make payment. If such Indemnifying Party does
not respond within such 30 day period or rejects such claim in
whole or in part, such Indemnitee shall be free to pursue such
remedies as may be available to such party under this Agreement or
under applicable law.
(b) In addition to any adjustments required pursuant to
Section 8.3, if the amount of any Loss shall, at any time
subsequent to the payment required by this Agreement, be reduced by
recovery, settlement or otherwise, the amount of such reduction,
less any expenses incurred in connection therewith, shall promptly
be repaid by the Indemnitee to the Indemnifying Party.
SECTION 8.6 Remedies Cumulative. The remedies provided in
this Article VIII shall be cumulative and shall not preclude
assertion by an Indemnitee of any other rights or the seeking of
any an all other remedies against any Indemnifying Party.
SECTION 8.7 Survival of Indemnities. The obligations of each
of the parties under this Article VIII shall survive the sale or
other transfer by it of any assets or businesses or the assignment
by it of any liabilities with respect to any Loss of the other
related to such assets, businesses or liabilities.
ARTICLE IX
MISCELLANEOUS
SECTION 9.1 Complete Agreement; Construction. This Agreement
and other agreements and documents referred to herein or therein,
shall constitute the entire agreement among the parties with
respect to the subject matter hereof and shall supersede all
previous negotiations, commitments and writings with respect to
such subject matter.
SECTION 9.2 Survival. All representations, covenants and
agreements contained or provided for herein shall remain operative
and in full force and effect regardless of any investigation made
by or on behalf of the party benefiting from any such covenant or
agreement, and shall survive the execution of this Agreement and
the Closing.
SECTION 9.3 Governing Law. This Agreement shall be governed
by, and construed and interpreted in accordance with, the laws of
the State of Indiana.
SECTION 9.4 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be
deemed to have been duly given if delivered by hand, or when sent
by telex or telecopier (with receipt confirmed), provided a copy is
also sent by certified mail, postage prepaid and return receipt
requested, addressed as follows (or to such other address as a part
may designate by notice to the others) and shall be deemed given on
the date on which such notice is received:
If to Conseco:
Conseco, Inc.
11825 N. Pennsylvania St.
Carmel, Indiana 46032
Attention: General Counsel
Telecopier No.: (317) 573-6327
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If to WNC:
Western National Corporation
5555 San Felipe Road
Suite 900
Houston, Texas 77056
Attn: General Counsel
Telecopier No.: (713) 888-7894
SECTION 9.5 Amendment and Modification. The parties may by
written agreement (a) extend the time for the performance of any of
the obligations or other acts of the parties hereto, (b) waive any
inaccuracies in the documents delivered pursuant to this Agreement,
and (c) waive compliance with or modify, amend or supplement any of
the agreements contained in this Agreement or waive or modify
performance of any of the obligations of any of the parties hereto.
This Agreement may not be amended or modified except by an
instrument in writing duly signed on behalf of the parties hereto.
SECTION 9.6 Successors and Assigns. This Agreement shall be
binding upon the inure to the benefit of the parties hereto and
their respective successors and assigns, but shall not be
assignable by either party hereto without the prior written consent
of the other party.
SECTION 9.7 No Third Party Beneficiaries. Except as provided
herein with respect to certain indemnifications, this Agreement is
solely for the benefit of the parties hereto and their respective
Affiliates and shall not be deemed to confer upon third parties any
remedy, claim, reimbursement, claim of action or other right in
excess of those existing without reference to this Agreement.
SECTION 9.8 Headings. The Article and Section headings
contained in this Agreement are for reference purposes only and
shall not in any way affect the meaning or interpretation of this
Agreement.
SECTION 9.9 Enforcement; Remedies. In the event of any
breach by any party of any material term, condition or covenant
hereof which breach shall be continuing, any other party shall be
entitled to proceed to protect and enforce its rights by a suit in
equity (including a right to injunctive relief) or an action at
law. No right, power or remedy of the party entitled to remedies
hereunder shall be exclusive and each such right, power or remedy
shall be cumulative and in addition to all other rights, powers and
remedies conferred upon such party hereunder or by any security
issued by the other party, now or hereafter available at law or in
equity or by statute or otherwise.
SECTION 9.10 Severability. To the extent any provision of
this Agreement shall be invalid of unenforceable, it shall be
considered deleted herefrom and the remaining provisions of this
Agreement shall be unaffected and shall continue in full force and
effect.
SECTION 9.11 Waiver. No failure by any party to take any
action or assert any right hereunder shall be deemed to be a waiver
of such right in the event of the continuation or repetition of the
circumstances giving rise to such right, unless expressly waived in
writing as contemplated by the terms of Section 9.5 hereof.
SECTION 9.12 Termination. Notwithstanding any provision
hereof, this Agreement may be terminated and the Public Offering
abandoned at any time prior to the effective date of the
Registration Statement relating to the Public Offering. Any
termination of the Public Offering shall result in the termination
of this Agreement. In the event of such termination, no party
hereto shall have any liability to any Person by reason of this
Agreement.
<PAGE>
<PAGE> 16
SECTION 9.13 Counterparts. This Agreement may be executed in
one or more counterparts, each of which shall be deemed an
original, but all of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed as of the day and year first above written.
CONSECO, INC.
By:/s/ ROLLIN M. DICK
Printed: Rollin M. Dick
Title: Executive Vice President
"Conseco"
WESTERN NATIONAL CORPORATION
By:/s/ MICHAEL J. POULOS
Printed: Michael J. Poulos
Title: President
"WNC"
<PAGE>
<PAGE> 17
EXHIBIT A
AGREEMENT FOR ASSIGNMENT AND ASSUMPTION OF
STRUCTURED SETTLEMENT OBLIGATIONS
This Agreement for Assignment and Assumption of Structured
Settlement Obligations is made this ___ day of February, 1994, by
and among CONSECO, INC., an Indiana corporation ("Conseco"),
WESTERN NATIONAL CORPORATION, a Delaware corporation ("WNC"), and
WESTERN NATIONAL LIFE INSURANCE COMPANY, a Texas stock life
insurance corporation ("Western").
WHEREAS, Conseco and WNC have entered into a Separation
Agreement dated of even date herewith which provides, in part, for
a public offering of common stock of WNC and for the transfer to
WNC of all of the issued and outstanding capital stock of Western;
and
WHEREAS, there are presently in effect a number of agreements
which are entitled "Assignment and Assumption of Obligation to Make
Periodic Payments" or words of similar import ("Assignments"),
pursuant to which, in connection with the settlement of personal
injury claims against unrelated third parties, (a) Conseco Annuity
Guarantee Company, a wholly-owned subsidiary of Conseco ("CAGC"),
has assumed obligations to make periodic payments in respect of
settlement and release agreements ("Settlement Obligations") and
has purchased and holds single premium annuity policies issued by
Western ("Western Annuities") to satisfy CAGC's payment obligations
under certain such Assignments (the "Western Assignments"); and (b)
Western has assumed Settlement Obligations and has purchased and
holds single premium annuity policies issued by National Fidelity
Life Insurance Company, an indirect wholly-owned subsidiary of
Conseco ("NFLIC"), (the "NFLIC Annuities") to satisfy Western's
payment obligations under certain other such Assignments (the
"NFLIC Assignments"); and
WHEREAS, there are also in effect a number of agreements
entitled "Guarantee Agreement" or words of similar import
("Guarantees") pursuant to which (a) Conseco has guaranteed the
payment of certain other Western Annuities issued in structured
settlement transactions and held by third parties unrelated to
Conseco ("Conseco Guarantees") and (b) Western has guaranteed the
payment of certain other NFLIC Annuities issued in structured
settlement transactions and held by third parties unrelated to
Western ("Western Guarantees"); and
WHEREAS, in connection with the public offering of WNC common
stock, Conseco desires to sever its connection with the structured
settlement annuity business of Western by transferring ownership of
CAGC to WNC and by obtaining indemnification from WNC for all
liability under the Conseco Guarantees, and WNC desires for Western
to sever its connection with the structured settlement annuity
business of NFLIC by assigning to Conseco all of its future
obligations under the NFLIC Assignments and by obtaining
indemnification from Conseco for all liability under the Western
Guarantees;
NOW THEREFORE, in consideration of the premises and the mutual
covenants and provisions contained herein, the parties hereby agree
as follows:
1. Western hereby assigns to Conseco all of its right, title
and interest in, to and under the NFLIC Assignments and the NFLIC
Annuities. Conseco hereby accepts the assignment of the NFLIC
Assignments and the NFLIC Annuities and agrees to perform all of
the obligations of Western under the Assignments effective with the
date of this Agreement. Conseco further agrees to promptly
indemnify and hold harmless WNC and Western, and their successors
and assigns, for and against (i) the full amount of any payments
and related expenses, net of amounts for which WNC or Western shall
be reimbursed by NFLIC, which they shall make or incur or be called
upon to make or incur on or subsequent to the date hereof pursuant
to any of the NFLIC Assignments and (ii) any payments which NFLIC
or its successors shall fail to make under the NFLIC Annuities.
<PAGE> 18
The indemnity obligations of Conseco under this paragraph shall
remain in full force and effect notwithstanding the performance or
nonperformance by NFLIC or any of its successors under the NFLIC
Annuities, or any waiver by or delay of WNC or Western in seeking
indemnification hereunder.
2. Western hereby assigns to Conseco all of its obligations
under the Western Guarantees and Conseco hereby accepts such
obligations and agrees to perform such Guarantees in the same
manner and to the same extent as if Conseco had been named as the
guarantor in place of Western in the Western Guarantees. Conseco
hereby assigns to WNC all of its obligations under the Conseco
Guarantees and WNC hereby accepts such obligations and agrees to
perform the Conseco Guarantees in the same manner and to the same
extent as if WNC had been named as the guarantor in place of
Conseco in the Conseco Guarantees.
3. Conseco agrees to transfer and convey to WNC, without
recourse and free and clear of all liens and encumbrances, all of
its right, title and interest in and to CAGC by delivering to WNC
all certificates, duly endorsed for transfer, representing issued
and outstanding shares of capital stock of CAGC.
4. WNC shall cause Western to deliver to Conseco at its
offices in Carmel, Indiana, the original executed copies of the
Western Assignments and the Western Guarantees, together with the
books and records pertaining thereto and to Western's performance
of its obligations thereunder prior to the date hereof. Conseco
shall deliver to WNC at its offices in Houston, Texas, the original
executed copies of the Conseco Guarantees, together with the books
and records pertaining thereto and to Conseco's performance of its
obligations thereunder prior to the date hereof. The parties
hereto further agree to execute and deliver such further
documentation, including specific instruments of assignment, as may
be reasonably necessary to effectuate the transactions provided for
in this Agreement.
IN WITNESS WHEREOF, this Agreement has been entered into on
the date first set forth above.
CONSECO, INC.
By:
-----------------------------------------
WESTERN NATIONAL CORPORATION
By:
-----------------------------------------
WESTERN NATIONAL LIFE INSURANCE COMPANY
By:
-----------------------------------------
<PAGE> 1
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
Exhibit 11.1
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
<CAPTION>
Years ended December 31,
------------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Shares outstanding, beginning of year 24,911,148 24,676,658 20,586,196
Weighted average shares issued (acquired)
during the year:
Shares issued in public offering - - 357,306
Shares issued under employee
stock plans 1,666 15,127 17,258
Treasury stock acquired (226,116) (1,043,909) (982,542)
Exercise of stock options 512,072 1,399,224 151,514
Preferred stock conversions 161 - -
Common equivalent shares related to:
Stock options at
average market price 3,680,380 4,167,851 4,641,806
Employee stock plans 365,538 263,649 146,168
------------ ------------ ------------
Weighted average primary shares outstanding 29,244,849 29,478,600 24,917,706
------------ ------------ ------------
------------ ------------ ------------
Net income for primary earnings per share:
Net income as reported $297,016,000 $169,461,000 $116,016,000
Elimination of income as if warrants
to purchase common stock of an
affiliate and certain subsidiaries of
the Partnership were exercised - (3,962,000) (7,032,000)
------------ ------------ ------------
Adjusted net income 297,016,000 165,499,000 108,984,000
Less preferred stock dividends (20,567,000) (5,500,000) (6,830,000)
------------ ------------ ------------
Net income for primary earnings
per share $276,449,000 $159,999,000 $102,154,000
------------ ------------ ------------
------------ ------------ ------------
Net income per primary common share $9.45 $5.43 $4.10
----- ----- -----
----- ----- -----
</TABLE>
<PAGE> 1
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
Exhibit 11.2
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
<CAPTION> Years ended December 31,
----------------------------------------
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Weighted average primary shares
outstanding 29,244,849 29,478,600 24,917,706
Incremental common equivalent shares:
Related to options and employee stock plans based
on market price at end of period 53,966 124,708 497,958
Related to convertible preferred stock 4,196,370 - -
------------ ------------ ------------
Weighted average fully diluted shares outstanding 33,495,185 29,603,308 25,415,664
------------ ------------ ------------
------------ ------------ ------------
Net income for fully diluted earnings per share:
Net income as reported $297,016,000 $169,461,000 $116,016,000
Elimination of income as if warrants
to purchase common stock of an
affiliate and certain subsidiaries
of the Partnership were exercised - (3,962,000) (7,032,000)
------------ ------------ ------------
Adjusted net income 297,016,000 165,499,000 108,984,000
Less preferred stock dividends (3,178,000) (5,500,000) (6,830,000)
------------ ------------ ------------
Net income for fully diluted earnings per share $293,838,000 $159,999,000 $102,154,000
------------ ------------ ------------
------------ ------------ ------------
Net income per fully diluted common share $8.77 $5.40 $4.02
----- ----- -----
----- ----- -----
</TABLE>
<PAGE> 1
CONSECO, INC. AND SUBSIDIARIES
Exhibit 12.1
<TABLE>
Computation of Ratio of Earnings to Fixed Charges
and Preferred Dividends
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Pretax income from operations:
Net income $297.0 $169.5 $116.0
Add income tax expense 223.1 124.6 78.2
Add extraordinary charge on extinguishment of debt 11.9 5.3 5.0
Add minority interest 78.2 30.6 24.0
Less equity in undistributed earnings of CCP Insurance, Inc. (36.6) (15.8) -
Less gain on sale of stock by subsidiaries (101.5) (11.1) -
Less incentive earnings allocation from the Partnership (36.6) (9.3) -
Less equity in undistributed
earnings of Life Re - (11.3) (9.3)
----- ----- -----
Pretax income 435.5 282.5 213.9
----- ----- -----
Add fixed charges:
Interest expense on annuities and financial products 408.5 506.8 576.7
Interest expense on long-term debt, including amortization 58.0 46.2 69.9
Interest expense on investment borrowings 10.6 8.8 17.1
Other .6 .8 .4
Portion of rental(1) 3.9 2.0 1.2
----- ----- -----
Fixed charges 481.6 564.6 665.3
----- ----- -----
Adjusted earnings $917.1 $847.1 $879.2
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges 1.90X 1.50X 1.32X
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges, excluding
interest on annuities and financial products 6.96X 5.89X 3.41X
----- ----- -----
----- ----- -----
Fixed charges $481.6 $564.6 $665.3
Add dividends on preferred stock (multiplied by the rate
of pretax income to income before minority interest
and extraordinary charge) 34.6 13.1 13.9
----- ----- -----
Adjusted fixed charges 516.2 577.7 679.2
----- ----- -----
Adjusted earnings $917.1 $847.1 $879.2
----- ----- -----
----- ----- -----
Ratio of earnings to fixed
charges and preferred dividends 1.78X 1.47X 1.29X
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges and
preferred dividends, excluding interest
on annuities and financial products 4.72X 4.80X 2.95X
----- ----- -----
----- ----- -----
<FN>
(1) Interest portion of rental is assumed to be 33 percent.
</TABLE>
<PAGE>
<PAGE> 1
CONSECO, INC. AND SUBSIDIARIES
Exhibit 12.2
<TABLE>
Computation of Ratio of Earnings to Fixed Charges and Preferred Dividends
for Which Conseco is Directly Liable
for the years ended December 31, 1993, 1992 and 1991
(Dollars in millions)
<CAPTION>
1993 1992 1991
---- ---- ----
<S> <C> <C> <C>
Pretax income from operations:
Net income $297.0 $169.5 $116.0
Add income tax expense 146.6 93.0 48.1
Add extraordinary charge on extinguishment of debt 11.9 5.3 5.0
Less equity in undistributed earnings of CCP Insurance, Inc. (36.6) (15.8) -
Less equity in undistributed earnings of Bankers Life
Holding Corporation (49.4) - -
Less gain on sale of stock by subsidiaries (101.5) (11.1) -
Less incentive earnings allocation from the Partnership (36.6) (9.3) -
Less Conseco's equity in undistributed
earnings of the Partnership - (19.8) (26.6)
Less equity in undistributed earnings
of Life Re - (11.3) (9.3)
----- ----- -----
Pretax income 231.4 200.5 133.2
----- ----- -----
Add fixed charges:
Interest expense on annuities and financial products 372.0 377.0 359.6
Interest expense on long-term debt for which Conseco is
directly liable, including amortization 22.3 22.8 36.2
Interest expense on investment borrowings 6.6 7.0 11.2
Other .6 .5 1.2
Portion of rental(1) 2.0 2.0 1.2
----- ----- -----
Fixed charges 403.5 409.3 409.4
----- ----- -----
Adjusted earnings $634.9 $609.8 $542.6
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges 1.57X 1.49X 1.33X
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges, excluding
interest on annuities and financial products 8.34X 7.21X 3.67X
----- ----- -----
----- ----- -----
Fixed charges $403.5 $409.3 $409.4
Add dividends on preferred stock (multiplied by the rate of
pretax income to income before minority interest and
extraordinary charge) 30.3 8.8 10.3
----- ----- -----
Adjusted fixed charges 433.8 418.1 419.7
----- ----- -----
Adjusted earnings $634.9 $609.8 $542.6
----- ----- -----
----- ----- -----
Ratio of earnings to fixed
charges and preferred dividends 1.46X 1.46X 1.29X
----- ----- -----
----- ----- -----
Ratio of earnings to fixed charges and
preferred dividends, excluding interest
on annuities and financial products 4.25X 5.66X 3.04X
----- ----- -----
----- ----- -----
<FN>
(1) Interest portion of rental is assumed to be 33 percent.
</TABLE>
Exhibit 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
NAME(1) JURISDICTION
------- ------------
<S> <C>
Bankers National Life Insurance Company Texas
National Fidelity Life Insurance Company Missouri
Conseco Investment Holding Company Delaware
Conseco Capital Management, Inc. Delaware
Conseco Mortgage Capital, Inc. Delaware
Conseco Partnership Management, Inc. Indiana
Conseco Private Capital Group, Inc. Indiana
Conseco Risk Management, Inc. Indiana
Lincoln American Life Insurance Company Tennessee
Bankers Life Holding Corporation (2) Delaware
Bankers Life Insurance Company of Illinois (3) Illinois
Bankers Life and Casualty Company (3) Illinois
Certified Life Insurance Company (3) California
Marketing Distribution Systems Consulting Group, Inc. (4) Delaware
<FN>
(1) Except as otherwise indicated, each company is a direct or indirect, wholly owned subsidiary of Conseco, Inc.
(2) Conseco owns approximately 56 percent of the outstanding shares.
(3) Wholly owned subsidiary of Bankers Life Holding Corporation.
(4) Conseco owns approximately 95 percent of the outstanding shares.
</TABLE>
Exhibit 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration
statements of Conseco, Inc. on Form S-8 (File Nos. 33-40556, 33-58710 and
33-58712) of our report dated March 24, 1994, on our audits of the consolidated
financial statements and financial statement schedules of Conseco, Inc. as of
December 31, 1993 and 1992, and for the years ended December 31, 1993, 1992 and
1991, which report is included in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand
Indianapolis, Indiana
March 24, 1994
