<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 1-9250
Conseco, Inc.
Indiana No. 35-1468632
---------------------- ------------------------------
State of Incorporation IRS Employer Identification No.
11825 N. Pennsylvania St
Carmel, Indiana 46032 (317) 817-6100
- -------------------------------------- --------------
Address of principal executive offices Telephone
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 [ ]
Shares of common stock outstanding as of November 1, 1995: 20,237,224
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
September 30, December 31,
1995 1994
---- ----
(unaudited) (audited)
<S> <C> <C>
Investments:
Actively managed fixed maturities at fair value (amortized cost:
1995 - $12,109.7; 1994 - $7,440.5)...................................................... $12,503.3 $ 7,067.1
Equity securities at fair value (cost: 1995 - $37.5; 1994- $43.0)........................... 38.8 39.6
Mortgage loans.............................................................................. 351.9 142.6
Credit-tenant loans......................................................................... 246.1 69.0
Policy loans................................................................................ 313.2 175.1
Investment in CCP Insurance, Inc............................................................ - 195.4
Other invested assets....................................................................... 74.2 68.7
Trading account securities.................................................................. - 21.6
Short-term investments...................................................................... 205.5 295.4
Assets held in separate accounts............................................................ 216.8 84.9
--------- ---------
Total investments.................................................................. 13,949.8 8,159.4
Accrued investment income..................................................................... 220.7 126.3
Reinsurance receivables....................................................................... 83.8 45.5
Income tax asset.............................................................................. - 195.2
Cost of policies purchased.................................................................... 1,198.4 1,021.6
Cost of policies produced..................................................................... 368.0 300.7
Goodwill (net of accumulated amortization: 1995 - $41.6; 1994 - $25.3)........................ 890.8 687.7
Property and equipment (net of accumulated depreciation: 1995 - $33.9; 1994 - $27.1)......... 90.1 89.1
Securities segregated for the future redemption of redeemable preferred stock
of a subsidiary............................................................................ 38.4 36.2
Cash segregated for the retirement of subordinated debentures of a subsidiary................. 15.0 24.2
Other assets.................................................................................. 154.1 126.0
--------- ---------
Total assets....................................................................... $17,009.1 $10,811.9
========= =========
(continued on next page)
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
September 30, December 31,
1995 1994
---- ----
(unaudited) (audited)
<S> <C> <C>
Liabilities:
Insurance liabilities...................................................................... $13,335.3 $ 8,537.4
Income tax liabilities..................................................................... 28.4 -
Investment borrowings...................................................................... 181.2 -
Other liabilities.......................................................................... 383.1 318.0
Liabilities related to separate accounts................................................... 216.8 84.9
Notes payable of Conseco................................................................... 920.8 191.8
Notes payable of Partnership II entities, not direct obligations of Conseco................ 308.5 331.1
Notes payable of Bankers Life Holding Corporation, not direct obligations of Conseco....... 272.6 280.0
--------- ---------
Total liabilities.................................................................. 15,646.7 9,743.2
--------- ---------
Minority interest............................................................................. 356.7 321.7
---------- ---------
Shareholders' equity:
Preferred stock............................................................................ 283.5 283.5
Common stock and additional paid-in capital, no par value,
500,000,000 shares authorized, shares outstanding:
1995 - 20,233,840; 1994 - 22,184,850..................................................... 154.8 165.8
Unrealized appreciation (depreciation) of securities (net of applicable
deferred income taxes: 1995 - $34.9; 1994 - $(65.9))..................................... 56.7 (139.7)
Retained earnings.......................................................................... 510.7 437.4
--------- ---------
Total shareholders' equity......................................................... 1,005.7 747.0
---------- ---------
Total liabilities and shareholders' equity......................................... $17,009.1 $10,811.9
========= =========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------ ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income.................................... $373.1 $320.2 $1,103.3 $ 954.2
Investment activity:
Net investment income................................ 293.6 71.1 850.5 213.0
Net trading income (losses)............................. (3.2) (1.2) 2.8 (3.6)
Net realized gains (losses)............................. 3.3 (5.8) 77.8 (17.4)
Fee revenue................................................ 8.0 14.4 23.6 42.5
Equity in earnings of CCP Insurance, Inc................... - 5.0 - 22.2
Equity in earnings of Western National Corporation......... - 7.5 - 38.9
Restructuring income ...................................... - - - 65.3
Other income............................................... 1.9 12.7 8.1 12.9
------ ------ -------- --------
Total revenues....................................... 676.7 423.9 2,066.1 1,328.0
------ ------ -------- --------
Benefits and expenses:
Insurance policy benefits.................................. 268.7 223.8 814.8 680.1
Change in future policy benefits........................... 15.2 11.7 28.4 31.5
Interest expense on annuities and financial products....... 150.3 19.1 432.8 51.9
Interest expense on notes payable.......................... 31.5 12.2 83.9 37.4
Interest expense on investment borrowings.................. 5.7 1.3 19.2 6.2
Amortization related to operations......................... 53.8 32.8 158.3 95.3
Amortization related to realized gains and losses.......... 1.2 (1.7) 44.6 (2.6)
Other operating costs and expenses......................... 66.7 46.5 198.2 152.4
------ ------ -------- --------
Total benefits and expenses.......................... 593.1 345.7 1,780.2 1,052.2
------ ------ -------- --------
Income before income taxes, minority
interest and extraordinary charge................. 83.6 78.2 285.9 275.8
Income tax expense............................................ 21.1 26.8 34.3 85.1
------ ------ -------- --------
Income before minority interest and
extraordinary charge ............................. 62.5 51.4 251.6 190.7
Minority interest............................................. 19.0 15.6 83.8 38.2
------ ------ --------- --------
Income before extraordinary charge................... 43.5 35.8 167.8 152.5
Extraordinary charge on extinguishment of debt,
net of taxes and minority interest......................... - - - 2.4
------ ------ --------- --------
(continued on next page)
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Three months ended Nine months ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income........................................... 43.5 35.8 167.8 150.1
Less preferred stock dividends................................ 4.6 4.7 13.8 14.0
----- ----- ------ ------
Net income applicable to common stock................ $38.9 $31.1 $154.0 $136.1
===== ===== ====== ======
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding..................... 21,399,000 25,740,000 21,517,000 26,850,000
Net income before extraordinary charge.................. $1.82 $1.21 $7.16 $5.16
Extraordinary charge.................................... - - - (.09)
-------- ------- ------ ------
Net income........................................... $1.82 $1.21 $7.16 $5.07
===== ======= ====== =====
Fully diluted:
Weighted average shares outstanding..................... 25,863,000 30,249,000 26,028,000 31,360,000
Net income before extraordinary charge.................. $1.68 $1.18 $6.45 $4.87
Extraordinary charge.................................... - - - (.08)
-------- ------- ------- ------
Net income........................................... $1.68 $1.18 $6.45 $4.79
===== ===== ===== =====
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Nine months ended
September 30,
-----------------
1995 1994
---- ----
<S> <C> <C>
Preferred stock:
Balance, beginning and end of period.............................................. $ 283.5 $ 287.5
========= =======
Common stock and additional paid-in capital:
Balance, beginning of period...................................................... $ 165.8 $ 102.8
Amounts related to stock options and employee benefit plans.................... 3.8 18.6
Tax benefit related to issuance of shares under employee benefit plans......... .2 67.8
Cost of shares acquired charged to common stock and additional
paid-in capital............................................................. (15.0) (17.1)
--------- -------
Balance, end of period............................................................ $ 154.8 $ 172.1
========= =======
Unrealized appreciation (depreciation) of securities:
Balance, beginning of period...................................................... $ (139.7) $ 97.5
Change in unrealized appreciation (depreciation)............................... 196.4 (301.1)
---------- -------
Balance, end of period............................................................ $ 56.7 $(203.6)
========== =======
Retained earnings:
Balance, beginning of period...................................................... $ 437.4 $ 654.8
Net income .................................................................... 167.8 150.1
Cost of shares acquired charged to retained earnings........................... (77.4) (250.7)
Dividends on common stock...................................................... (3.3) (9.4)
Dividends on preferred stock................................................... (13.8) (14.0)
----------- -------
Balance, end of period............................................................ $ 510.7 $ 530.8
========= =======
Total shareholders' equity.................................................. $1,005.7 $ 786.8
======== =======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Nine months ended
September 30,
---------------------
1995 1994
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income ................................................................... $ 167.8 $ 150.1
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation ............................................. 209.6 98.5
Income taxes .............................................................. (66.4) (11.5)
Insurance liabilities ..................................................... (12.7) 41.1
Interest credited to insurance liabilities ................................ 432.8 51.9
Fees charged to insurance liabilities ..................................... (81.3) (26.6)
Accrual and amortization of investment income ............................. (78.5) (15.1)
Deferral of cost of policies produced ..................................... (215.1) (101.6)
Restructuring income ...................................................... -- (65.3)
Equity in undistributed earnings of Western National Corporation .......... -- (36.9)
Equity in undistributed earnings of CCP Insurance, Inc. ................... -- (21.5)
Trading account securities ................................................ -- 18.9
Minority interest ......................................................... 69.7 30.6
Extraordinary charge on extinguishment of debt ............................ -- 2.4
Realized gains (losses) and trading income (losses) ....................... (80.6) 21.0
Other ..................................................................... (3.5) (36.5)
-------- ------
Net cash provided by operating activities ........................... 341.8 99.5
-------- ------
Cash flows from investing activities:
Sales of investments ......................................................... 3,427.4 720.3
Maturities and redemptions ................................................... 319.8 96.5
Purchases of investments ..................................................... (4,351.7) (1,198.7)
Purchase of additional shares of Bankers Life Holding Corporation ............ (262.4) --
Purchase of additional shares of CCP Insurance, Inc. ......................... (281.8) --
Purchase of additional shares of subsidiaries' common stock by subsidiaries .. (70.2) (33.2)
Cash received from reinsurance recapture ..................................... -- 158.8
Purchase of American Life Group, Inc. ........................................ -- (215.3)
Cash held by CCP Insurance, Inc. before consolidation at January 1, 1995 ..... 123.0 --
Cash held by Western National Corporation before deconsolidation
and the settlement of intercompany balances ............................... -- (352.5)
Proceeds from sale of shares of Western National Corporation and related
transactions .............................................................. -- 537.9
Other ........................................................................ (5.3) (8.1)
------ ---------
Net cash used by investing activities ............................... (1,101.2) (294.3)
------- --------
Cash flows from financing activities:
Issuance of capital stock .................................................... .8 16.4
Issuance of equity interests in subsidiaries ................................. -- 67.6
Issuance of notes payable of Conseco, net .................................... 770.2 62.6
Issuance of debt of subsidiaries, net - not direct obligations of Conseco .... -- 306.3
Payments on notes payable of Conseco ......................................... (294.0) (220.3)
Payments on notes payable of subsidiaries - not direct obligations of Conseco (31.0) (66.5)
Payments to repurchase equity securities of Conseco .......................... (92.4) (267.8)
Investment borrowings ........................................................ 181.2 (55.5)
Deposits to insurance liabilities ............................................ 1,378.0 268.2
Withdrawals from insurance liabilities ....................................... (1,223.7) (134.0)
Dividends paid ............................................................... (19.6) (23.4)
-------- ---------
Net cash provided (used) by financing activities .................... 669.5 (46.4)
-------- --------
Net decrease in short-term investments .............................. (89.9) (241.2)
Short-term investments, beginning of period .................................... 295.4 666.4
------- -------
Short-term investments, end of period .......................................... $ 205.5 $ 425.2
======= =======
<FN>
The accompanying notes are an integral part of the consolidated
financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The following notes should be read in conjunction with the notes to
consolidated financial statements included in the 1994 Form 10-K of Conseco,
Inc. ("We", "Conseco" or the "Company").
BASIS OF PRESENTATION
Our unaudited consolidated financial statements as of and for the periods
ended September 30, 1995 and 1994, reflect all adjustments, consisting only of
normal recurring items, which are necessary to present fairly Conseco's
financial position and results of operations on a basis consistent with that of
our prior audited consolidated financial statements. We have reclassified
certain amounts from the prior period to conform to the 1995 presentation.
Consolidation issues. As described below under "Acquisition of CCP
Insurance, Inc," we acquired all of the common stock of CCP Insurance, Inc.
("CCP") that we did not previously own in August 1995. Accordingly, CCP is now a
wholly owned subsidiary of Conseco and its accounts are consolidated with
Conseco. The consolidated statement of operations for periods in 1995 prior to
the acquisition have been restated to reflect the operations of CCP on a
consolidated basis. Such restatement has no effect on the net income or
shareholders' equity we report.
Prior to its initial public offering ("IPO") on February 15, 1994, Western
National Corporation ("WNC") was a wholly owned subsidiary of Conseco. We sold
60 percent of our equity interest in WNC in the IPO. After the IPO, we no longer
had unilateral control of WNC and we ceased including the accounts of WNC in our
consolidated financial statements. We sold our remaining 40 percent interest in
WNC on December 23, 1994. Therefore, we had no earnings from WNC in the first
nine months of 1995 and our equity in earnings of WNC in the first nine months
of 1994 reflected: (i) all of WNC's earnings for the period through February 15,
1994; and (ii) 40 percent of WNC's earnings for the period from February 15,
1994, through September 30, 1994.
Conseco Capital Partners II, L.P. ("Partnership II") acquired American Life
Group, Inc. ("AGP," formerly the Statesman Group, Inc. prior to its name change
in August 1995) on September 29, 1994 (the "Acquisition"). After the
Acquisition, Partnership II owns 80 percent of the outstanding shares of AGP's
common stock. Because Conseco Partnership Management, Inc., a wholly owned
subsidiary of Conseco, is the sole general partner of Partnership II, Conseco
controls Partnership II and AGP, even though its ownership interest is less than
50 percent. Because of this control, Conseco's consolidated financial statements
are required to include the accounts of Partnership II and AGP. Immediately
after the Acquisition, Conseco, through its direct investment and through its
equity interests in the investments made by Bankers Life Holding Corporation
("BLH"), CCP and WNC, had a 27 percent ownership interest in AGP. At September
30, 1995, Conseco's ownership interest in AGP had increased to 34 percent as the
net result of changes in our ownership percentage in BLH and CCP, partially
offset by: (i) the sale of Conseco's 40 percent equity interest in WNC on
December 23, 1994; and (ii) the sale of a portion of CCP's investment in AGP to
an unaffiliated company. We accounted for the Acquisition of AGP using the
purchase method of accounting. Under purchase accounting, we allocated the total
purchase cost of AGP to the assets and liabilities acquired based on their fair
values, with the excess of the total purchase cost over the fair value of the
net assets acquired recorded as goodwill.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
We classify fixed maturity investments into three categories: "actively
managed" (which are carried at estimated fair value), "trading account" (which
are carried at estimated fair value) and "held to maturity" (which are carried
at amortized cost). We did not classify any fixed maturity investments in the
trading account or held to maturity categories at September 30, 1995.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Adjustments to carry actively managed fixed maturity investments at fair
value have no effect on our earnings. We record them, net of tax and other
adjustments, as an adjustment to shareholders' equity. The following table
summarizes the effect of these adjustments on Conseco's actively managed fixed
maturities as of September 30, 1995.
<TABLE>
<CAPTION>
Effect of fair value
Balance adjustment to
before actively managed Reported
adjustment fixed maturities amount
---------- ---------------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturities........................................ $12,109.7 $393.6 $12,503.3
Cost of policies purchased............................................... 1,315.1 (116.7) 1,198.4
Cost of policies produced................................................ 384.6 (16.6) 368.0
Income tax liabilities................................................... (62.9) 91.3 28.4
Minority interest........................................................ 248.0 108.7 356.7
Unrealized appreciation (depreciation) of securities..................... (3.6) 60.3 56.7
</TABLE>
ACQUISITION OF CCP INSURANCE, INC.
In August 1995, we completed the purchase of all of the shares of common
stock of CCP we did not previously own. A total of 11.8 million shares were
purchased for $273.9 million in a transaction pursuant to which CCP was merged
with Conseco, with Conseco being the surviving corporation. The merger and
related transactions are referred to herein as the "CCP Merger." Income tax
expense was reduced by $8.4 million in the third quarter of 1995 as a result of
the release of deferred income taxes previously accrued on income related to
CCP. Such deferred tax is no longer required because the CCP Merger was
completed without incurring additional tax.
We funded the CCP Merger (including the repayment of our existing $251.0
million revolving credit facility ) with available cash and borrowings from a
new $600.0 million credit facility (the "Credit Agreement"). The sources and
uses of the financing to complete the CCP Merger are summarized below (dollars
in millions):
<TABLE>
<S> <C>
Sources of funds:
Credit Agreement.................................................. $530.0
Cash on hand...................................................... 9.7
------
Total sources.................................................. $539.7
======
Uses of funds:
Purchase of all common equity interest in CCP
not owned by Conseco........................................... $273.9
Settlement of outstanding stock options of CCP.................... 5.4
Repayment of revolving credit facility of Conseco................. 251.0
Debt issuance and other transaction costs......................... 9.4
------
Total uses..................................................... $539.7
======
</TABLE>
The Credit Agreement has two tranches. One tranche permits maximum principal
borrowings of $350.0 million ("Tranche A") and the other tranche permits maximum
principal borrowings of $250.0 million ("Tranche B"). On the CCP Merger date, we
borrowed $280.0 million under Tranche A and $250.0 million under Tranche B.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Tranche A and Tranche B borrowings bear interest based on either an offshore
rate or a base rate. Offshore rates are equal to the reserve adjusted Interbank
Offered Rate plus an applicable margin based on: (i) our aggregate outstanding
bank debt; and (ii) the rating of our senior notes by Moody's and Standard &
Poor's. Such margin varies from .75 percent to 1.75 percent. Base rates are
equal to the bank's reference rate plus the offshore rate margin less 1.25
percent (provided such margin is not less than zero). The interest rate on
Tranche A and Tranche B borrowings was 7.5 percent on September 30, 1995.
The principal amounts are payable according to the following schedule
(dollars in millions):
<TABLE>
<CAPTION>
Tranche A Tranche B
--------- ---------
<S> <C> <C>
1998 $ 10.0 $ -
1999 65.0 250.0 (a)
2000 65.0 -
2001 140.0 -
------ ------
Total principal amounts $280.0 $250.0
====== ======
<FN>
(a) The repayment date can be extended for an additional year on each
extension date to the year 2001 subject to defined conditions.
</FN>
</TABLE>
Mandatory prepayments are required as follows: (i) from 50 percent of
excess cash flow (the excess of amounts that may be payable to the parent
company from subsidiaries over dividends, expenses and other cash payments of
the parent company) commencing for the year 1997; (ii) upon the sale or
disposition of any significant assets other than in the ordinary course of
business; and (iii) upon the sale or issuance of debt or equity securities of
Conseco or any of its subsidiaries. The Credit Agreement is secured by, among
other things, pledges of: (i) the capital stock of Conseco's wholly owned
subsidiaries; and (ii) the capital stock of BLH owned by Conseco.
We were required to use step-basis accounting when we acquired the shares
of CCP common stock in the CCP Merger and our previous acquisition. As a result,
the assets and liabilities of CCP included in our September 30, 1995,
consolidated balance sheet represent the following combination of values: (i)
the portion of CCP's net assets acquired by Conseco in the initial acquisitions
of CCP's subsidiaries made by Conseco Capital Partners, L.P. is valued as of
those respective acquisition dates; and (ii) the portion of CCP's net assets
acquired in the CCP Merger is valued as of August 31, 1995.
The effect of the CCP Merger on the consolidated balance sheet as of the
CCP Merger date was as follows (dollars in millions):
<TABLE>
<S> <C>
Fixed maturities........................................ $ 4,051.3
Mortgage loans.......................................... 230.6
Credit-tenant loans..................................... 155.8
Investment in CCP....................................... (266.1)
Policy loans............................................ 136.7
Short-term investments.................................. 200.1
Other investments....................................... 20.0
Accrued investment income............................... 73.2
Cost of policies purchased.............................. 312.2
Cost of policies produced............................... 62.8
Goodwill................................................ 112.4
Income taxes............................................ (80.0)
Insurance liabilities................................... (4,379.0)
Investment borrowings................................... (219.6)
Notes payable........................................... (213.7)
Minority interest....................................... 53.8
Other................................................... 31.3
---------
Cash used to acquire shares of CCP................... $ 281.8
=========
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
BANKERS LIFE HOLDING CORPORATION
On June 28, 1995, we completed the program to acquire additional shares
of BLH common stock. A total of 12.8 million shares were purchased for $262.4
million in open market and negotiated transactions during 1995. The shares
purchased represented 24 percent of the then outstanding shares of BLH common
stock increasing our ownership of BLH to 82 percent (85 percent including shares
of BLH owned by CCP) as of June 30, 1995. We funded the acquisition with
available cash, proceeds from our revolving credit agreements and a $32.0
million loan from CCP. Income tax expense was reduced by $66.5 million in the
second quarter of 1995 as a result of the release of deferred income taxes
previously accrued on income related to BLH. Such deferred tax is no longer
required since we are permitted to file a consolidated tax return with BLH and
the income this tax relates to can be distributed to Conseco without the payment
of tax. In addition, in August 1995, BLH expanded its previously announced
common share repurchase program from two million to five million shares. During
the third quarter of 1995, BLH repurchased 1.4 million shares of its common
stock under this program at a cost of $25.8 million, increasing our ownership
interest in BLH to 87 percent as of September 30, 1995.
We were required to use step-basis accounting for the acquisition of
additional shares of BLH common stock in 1995 and for previous acquisitions. As
a result, the assets and liabilities of BLH included in our September 30, 1995,
consolidated balance sheet represent the following combination of values: (i)
the portion of BLH's net assets acquired by Conseco in the November 1992
acquisition is valued as of that acquisition date; (ii) the portion of BLH's net
assets acquired in September 1993 is valued as of that date; (iii) the portion
of BLH's net assets acquired during 1995 is valued as of the date of their
purchase (for accounting convenience June 30, 1995, has been used); and (iv) the
portion of BLH's net assets owned by minority interests is valued based on a
combination of (i) and the historical bases of the net assets acquired in the
initial acquisition in 1992.
The acquisition of additional shares of BLH common stock by Conseco and
share repurchases by BLH in 1995 had the following effects on Conseco's
consolidated balance sheet accounts as of the acquisition dates (dollars in
millions):
<TABLE>
<CAPTION>
Acquisition by
--------------------
BLH Conseco Total
--- ------- -----
<S> <C> <C> <C>
Cost of policies purchased............................................... $ 9.7 $189.9 $ 199.6
Cost of policies produced .............................................. (5.4) (99.1) (104.5)
Goodwill................................................................. 6.9 76.9 83.8
Insurance liabilities.................................................... (1.4) (24.5) (25.9)
Income taxes............................................................. (1.2) (23.1) (24.3)
Other.................................................................... - (1.8) (1.8)
Minority interest ....................................................... 17.2 144.1 161.3
------ ----- -------
Cash used................................................................ $25.8 $262.4 $288.2
===== ====== ======
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA DATA
The pro forma data are presented as if the following transactions had all
occurred on January 1, 1994: (i) the CCP Merger; (ii) the acquisition of
additional shares of BLH common stock in 1995; (iii) the acquisition of AGP by
Partnership II; (iv) the IPO of WNC; and (v) the sale by Conseco of its
remaining 40 percent equity interest in WNC.
<TABLE>
<CAPTION>
Nine months ended
September 30,
---------------------
1995 1994(a)
---- ----
(Dollars in millions,
except per share data)
<S> <C> <C>
Revenues.................................................................................. $2,062.1 $1,852.2
Income before extraordinary charge........................................................ 97.4 104.3
Income before extraordinary charge per common share:
Primary............................................................................... 3.89 4.27
Fully diluted......................................................................... 3.75 4.08
<FN>
(a) Excluded from revenues, income before extraordinary charge, income before
extraordinary charge per primary common share and income before
extraordinary charge per fully diluted common share are amounts related
to the IPO of WNC of $65.3 million, $42.4 million, $2.01 and $1.65,
respectively.
</FN>
</TABLE>
CHANGES IN NOTES PAYABLE
Notes payable of Conseco
Notes payable issued to finance the CCP Merger are described above under
"Acquisition of CCP Insurance, Inc." In connection with the CCP Merger, the
senior notes of CCP due in 2004 were effectively converted into direct
obligations of Conseco. The senior notes bear interest at 10.5 percent payable
semi-annually, are unsecured and rank pari passu with all other unsecured and
unsubordinated debt of Conseco. The notes are not redeemable prior to maturity
and are publicly traded on the New York Stock Exchange.
Notes payable of Partnership II entities (not direct obligations of
Conseco).
During March 1995, AGP made a scheduled $15.0 million principal payment on
its senior term loan. The interest rates on this loan at September 30, 1995,
were 8.13 percent for the $115.0 million borrowed under Tranche A and 8.63
percent for the $40.0 million borrowed under Tranche B.
During the nine months ended September 30, 1995, $9.2 million principal
amount of AGP's debentures was converted and retired. Cash to pay holders of the
convertible debentures that remain outstanding was being held in escrow at
September 30, 1995.
Notes payable of BLH (not direct obligations of Conseco)
During April 1995, BLH made a scheduled $16.0 million principal payment on
its senior term loan. The interest rate on this loan was 8.07 percent at
September 30, 1995.
CHANGES IN CAPITAL STOCK
We repurchased 2.0 million shares of our common stock during the first nine
months of 1995 as part of our previously announced stock repurchase program. The
total cost of shares repurchased during the first nine months of 1995 of $92.4
million was allocated to shareholders' equity accounts as follows: (i) $15.0
million to common stock and additional paid-in capital (such allocation was
based on the average common stock and paid-in capital balance per share); and
(ii) $77.4 million to retained earnings. In April 1995, we terminated our common
stock repurchase program.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
During the first nine months of 1995, we issued 67,410 shares of common
stock upon the exercise of stock options. Proceeds from the exercise of options
of $.7 million and the related tax benefit of $.2 million were added to common
stock and additional paid-in capital.
During the first nine months of 1995, we issued 4,080 shares of common
stock to employee benefit plans. Additionally, we added $3.1 million to common
stock and additional paid-in capital related to employee benefit plans.
REINSURANCE
The cost of reinsurance ceded for policies containing mortality or
morbidity risks totaled $43.1 million and $17.9 million in the first nine months
of 1995 and 1994, respectively. We deducted this cost from insurance policy
income. Reinsurance recoveries netted against insurance policy benefits totaled
$40.6 million and $15.0 million in the first nine months of 1995 and 1994,
respectively.
Certain annuity policies that were sold by WNC, and subsequently ceded to
CCP through a reinsurance agreement, with an accumulated account balance of
approximately $72 million at September 30, 1995, are subject to a provision
whereby they may be recaptured by WNC. WNC informed the Company in February 1995
that it wished to exercise its option to recapture these policies. This
recapture will transpire upon the establishment of a mutually agreed upon value
for the business.
CHANGES IN MINORITY INTEREST
Changes during 1995 reflect: (i) the acquisition of 14.2 million shares of
BLH common stock directly by Conseco and through share repurchases by BLH
(described above under "Bankers Life Holding Corporation"); (ii) the CCP Merger
(described above under "Acquisition of CCP Insurance, Inc."); and (iii) the
effect of (i) and (ii) on our ownership of AGP and BLH. Minority interest at
September 30, 1995, included: (i) $77.1 million interest in the common stock of
BLH; (ii) $99.0 million interest in the redeemable preferred stock of a
subsidiary of AGP; (iii) $11.3 million interest in preferred stock of AGP; (iv)
$169.3 million interest in Partnership II and the common stock of AGP and its
subsidiaries.
Changes in minority interest during the first nine months of 1995 and 1994
are summarized below:
<TABLE>
<CAPTION>
1995 1994
---- ----
(Dollars in millions)
<S> <C> <C>
Minority interest, beginning of period........................................................... $321.7 $223.8
Consolidation of CCP, effective January 1, 1995.............................................. 191.2 -
Changes in investments made by minority shareholders:
Purchase of BLH common stock by Conseco................................................... (144.1) -
Repurchase by BLH of its common stock..................................................... (17.2) (33.2)
Repurchase by CCP of its common stock..................................................... (44.6) -
Purchase of CCP common stock by Conseco in the CCP Merger................................. (241.7) -
Conseco's additional ownership interests in BLH and AGP
as a result of the CCP Merger.......................................................... (53.8) -
Preferred stock of a subsidiary of AGP outstanding at the Acquisition date................ - 99.0
Investment in AGP PIK Preferred Stock..................................................... - 31.1
Investment in Partnership II for the acquisition of AGP................................... - 36.0
Minority interests' equity in the change in financial position of the
Company's subsidiaries:
Net income................................................................................ 83.8 38.2
Unrealized appreciation (depreciation) of securities ..................................... 275.4 (43.4)
Dividends................................................................................. (14.0) (10.5)
------ ---------
Minority interest, end of period ................................................................ $356.7 $341.0
====== ======
</TABLE>
SUBSEQUENT EVENT
On October 19, 1995, AGP announced that, due to unfavorable market
conditions, it had withdrawn the previously announced initial public offering of
15 million shares of its common stock.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
INCOME TAX
Income tax expense for the nine months ended September 30, 1995, differed
from that computed at the applicable federal statutory rate (35 percent)
primarily because income tax expense was reduced as a result of the release of
deferred income taxes as discussed above under "Acquisition of CCP Insurance,
Inc." and "Bankers Life Holding Corporation."
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion highlights material factors affecting our results
of operations and the significant changes in our balance sheet items. Changes in
1995 and 1994 balances in the consolidated financial statements are largely
affected by the transactions described in the notes to the consolidated
financial statements included herein and the notes to the consolidated financial
statements included in our 1994 Form 10-K. This discussion should be read in
conjunction with both sets of consolidated financial statements and notes.
RESULTS OF OPERATIONS
Conseco generates earnings by:
- Operating life insurance companies;
- Providing services to affiliates and non-affiliates for fees; and
- Acquiring and restructuring life insurance companies in
partnership with other investors (currently conducted through
Partnership II).
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
The following table shows the sources of Conseco's net income (after taxes
and minority interest) for the three and nine months ended September 30, 1995
and 1994:
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Operations of life insurance companies:
BLH:
Operating earnings ............................................. $23.3 $20.8 $ 54.4 $ 51.4
Net trading income (losses)..................................... (.2) - .9 (.4)
Net realized gains (losses).................................... .5 (.5) 2.1 (2.4)
------- ------ ------ ------
Net income................................................... 23.6 20.3 57.4 48.6
----- ------ ------ ------
CCP:
Operating earnings ............................................. 11.7 5.0 23.7 20.1
Net trading income (losses)..................................... (.4) - .7 -
Net realized gains (losses)..................................... (.4) (.4) .9 .5
Extraordinary charge............................................ - - - (.5)
-------- ------ ------ ------
Net income................................................... 10.9 4.6 25.3 20.1
------ ------ ------ ------
Wholly Owned Insurance Subsidiaries (excluding CCP):
Operating earnings ............................................. 3.2 5.1 11.0 15.8
Net trading losses.............................................. (.6) (.5) (1.2) (.4)
Net realized losses............................................. (.3) (1.3) (1.1) (7.0)
------ ------ ------ ------
Net income................................................... 2.3 3.3 8.7 8.4
------ ------ ------ ------
AGP:
Operating earnings.............................................. 2.9 - 7.9 -
Net trading income.............................................. - - .1 -
Net realized gains.............................................. 1.0 - 3.9 -
------ ------ ------ ------
Net income................................................... 3.9 - 11.9 -
------ ------ ------ ------
WNC:
Operating earnings ............................................. - 8.7 - 35.0
Net trading income.............................................. - - - 2.6
Net realized losses............................................. - (1.7) - (.1)
------- ------ ------ ------
Net income................................................... - 7.0 - 37.5
------- ------ ------ ------
Total from operations of life insurance companies:
Operating earnings ............................................... 41.1 39.6 97.0 122.3
Net trading income (losses)....................................... (1.2) (.5) .5 1.8
Net realized gains (losses)....................................... .8 (3.9) 5.8 (9.0)
Extraordinary charge.............................................. - - - (.5)
------- ------ ------ ------
Net income .................................................... 40.7 35.2 103.3 114.6
------ ------ ------ ------
Services provided for fees:
Services provided for fees........................................ 5.5 5.7 17.3 17.5
AGP fees related to the Acquisition............................... - 2.5 - 2.5
------- ------ ------ -------
Net income...................................................... 5.5 8.2 17.3 20.0
------- ------ ------ -------
Restructuring income.................................................. 8.4 - 74.9 42.4
------- ------ ------ -------
Corporate and other:
Interest expense on notes payable................................. (9.5) (4.4) (18.2) (13.4)
Operating expenses, net of revenues .............................. - (2.5) (6.8) (10.7)
Net trading losses................................................ (.8) (.3) (1.0) (1.2)
Net realized gains (losses)....................................... (.8) (.4) (1.7) .3
Extraordinary charge.............................................. - - - (1.9)
------ ------ ------ -------
Net loss........................................................ (11.1) (7.6) (27.7) (26.9)
------ ------ ------ -------
Consolidated earnings:
Operating earnings ............................................... 37.1 40.9 89.3 118.2
Net trading income (losses)....................................... (2.0) (.8) (.4) .6
Net realized gains (losses)....................................... - (4.3) 4.0 (8.7)
Restructuring income ............................................. 8.4 - 74.9 42.4
Extraordinary charge.............................................. - - - (2.4)
----- ----- ------ ------
Net income...................................................... $43.5 $35.8 $167.8 $150.1
===== ===== ====== ======
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
The following table shows the source of Conseco's fully diluted earnings
per share for the three and nine months ended September 30, 1995 and 1994.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
----------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Operations of life insurance companies:
BLH:
Operating earnings ............................................ $ .90 $ .69 $2.09 $ 1.63
Net trading income (losses).................................... (.01) - .04 (.01)
Net realized gains (losses).................................... .02 (.02) .08 (.07)
------ ----- ----- ------
Net income................................................... .91 .67 2.21 1.55
------ ----- ----- ------
CCP:
Operating earnings ............................................ .45 .16 .91 .64
Net trading income (losses).................................... (.02) - .02 -
Net realized gains (losses).................................... (.01) (.01) .04 .02
Extraordinary charge........................................... - - - (.02)
------- ----- ----- ------
Net income................................................... .42 .15 .97 .64
------- ----- ----- ------
Wholly Owned Insurance Subsidiaries (excluding CCP):
Operating earnings ............................................ .13 .17 .42 .50
Net trading losses............................................. (.02) (.01) (.04) -
Net realized losses............................................ (.02) (.05) (.05) (.23)
------ ----- ----- ------
Net income................................................... .09 .11 .33 .27
------ ----- ----- ------
AGP:
Operating earnings............................................. .11 - .31 -
Net trading income............................................. - - - -
Net realized gains............................................. .04 - .15 -
------ ------ ------- ------
Net income................................................... .15 - .46 -
------ ------ ------- ------
WNC:
Operating earnings ............................................ - .29 - 1.13
Net trading income............................................. - - - .07
Net realized losses............................................ - (.06) - -
------ ------ ------- ------
Net income................................................... - .23 - 1.20
------ ------- ------- ------
Total from operations of life insurance companies:
Operating earnings .............................................. 1.59 1.31 3.73 3.90
Net trading income (losses)...................................... (.05) (.01) .02 .06
Net realized gains (losses)...................................... .03 (.14) .22 (.28)
Extraordinary charge............................................. - - - (.02)
------ ------ ------- ------
Net income..................................................... 1.57 1.16 3.97 3.66
------ ------ ------- ------
Services provided for fees:
Services provided for fees....................................... .21 .19 .67 .56
AGP fees related to the Acquisition.............................. - .08 - .08
------ ------ ------- ------
Net income..................................................... .21 .27 .67 .64
------ ------ ------- ------
Restructuring income................................................. .33 - 2.88 1.35
------ ------ ------- ------
Corporate and other:
Interest expense on notes payable................................ (.37) (.15) (.70) (.43)
Operating expenses, net of revenues ............................. - (.08) (.26) (.34)
Net trading losses............................................... (.03) (.01) (.04) (.04)
Net realized gains (losses)...................................... (.03) (.01) (.07) .01
Extraordinary charge............................................. - - - (.06)
------ ------ ------- ------
Net loss ................................................... (.43) (.25) (1.07) (.86)
------ ------ ------- ------
Consolidated earnings:
Operating earnings .............................................. 1.43 1.35 3.44 3.77
Net trading income (losses)...................................... (.08) (.02) (.02) .02
Net realized gains (losses)...................................... - (.15) .15 (.27)
Restructuring income............................................. .33 - 2.88 1.35
Extraordinary charge............................................. - - - (.08)
------ ----- ------ ------
Net income..................................................... $1.68 $1.18 $6.45 $4.79
===== ===== ===== =====
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Additional Discussion of Consolidated Statement of Operations for the First
Nine Months of 1995 Compared to the First Nine Months of 1994 and the Third
Quarter of 1995 Compared to the Third Quarter of 1994:
The following tables and narratives summarize amounts reported in the
consolidated statement of operations. Many of the changes from period to period
resulted from: (i) the acquisition of AGP on September 29, 1994; and (ii)
changes in Conseco's ownership in BLH, WNC and CCP.
Operations of Life Insurance Companies:
BLH:
- ----
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
----------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income...................................... $316.5 $306.4 $937.3 $909.9
Investment activity:
Net investment income ..................................... 61.2 56.3 185.2 159.3
Net trading income (losses)................................ (.4) (.1) 2.2 (1.2)
Net realized gains (losses)................................ 1.1 (2.9) 12.0 (5.8)
Other income................................................. .6 12.7 3.3 12.7
Total revenues................................................. 379.0 372.4 1,140.0 1,074.9
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 236.4 219.3 713.6 660.9
Interest expense on annuities and financial products......... 19.0 16.3 57.0 42.0
Interest expense on notes payable............................ 7.5 7.7 23.0 22.9
Interest expense on investment borrowings ................. 1.0 1.0 4.4 5.3
Amortization related to operations........................... 31.4 31.3 92.4 90.9
Amortization related to realized gains and losses............ .1 (1.5) 6.7 (1.3)
Other operating costs and expenses .......................... 37.7 35.7 109.3 108.8
Income before taxes and minority interest...................... 45.9 62.6 133.6 145.4
Income tax expense............................................. 17.4 24.3 50.4 56.2
Income before minority interest................................ 28.5 38.3 83.2 89.2
Minority interest.............................................. 4.9 18.0 25.8 40.6
Net income..................................................... 23.6 20.3 57.4 48.6
Summarized by component, all net of applicable expenses, taxes and minority
interest:
Operating earnings .......................................... 23.3 20.8 54.4 51.4
Net trading income (losses).................................. (.2) - .9 (.4)
Net realized gains (losses).................................. .5 (.5) 2.1 (2.4)
Net income................................................... 23.6 20.3 57.4 48.6
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
General. Conseco's earnings for the 1994 periods reflected a 57 percent
ownership interest in BLH. During the last nine months of 1994, BLH acquired 1.8
million shares of its common stock at a cost of $35.7 million. During the third
quarter of 1995, BLH acquired 1.4 million shares of its common stock at a cost
of $25.8 million. During the first and second quarters of 1995, Conseco acquired
12.8 million common shares of BLH at a cost of $262.4 million. These
transactions increased Conseco's average ownership interest in BLH to 60 percent
for the first quarter of 1995, 65 percent for the second quarter of 1995 and 85
percent for the third quarter of 1995. All activities of BLH are included in
Conseco's financial statements on a consolidated basis. However, Conseco's
minority interest adjustment removes the portion of BLH's net income applicable
to other owners.
BLH participated in the investment by Partnership II in AGP. Because a
subsidiary of Conseco is the sole general partner of Partnership II, Conseco
controls AGP. Accordingly, Conseco accounts for its investment in AGP using the
consolidation method. Conseco's ownership interest in AGP through BLH is
included in the AGP segment.
At September 30, 1995, the BLH shares owned by Conseco had a net carrying
value of $906.7 million, a fair value of $837.4 million and a cost of $575.5
million.
Insurance policy income increased as a result of increases in Medicare
supplement and long-term care premiums, offset by the anticipated decrease in
comprehensive major medical product premiums due to prior steps taken to improve
the profitability of this product.
Net investment income increased 8.7 percent to $61.2 million in the third
quarter of 1995 from $56.3 million in the third quarter of 1994 on a 6.4 percent
increase in average invested assets (amortized cost basis) to $3.3 billion in
the third quarter of 1995 from $3.1 billion in the third quarter of 1994. The
percentage increase in net investment income is greater than the percentage
increase in average invested assets because the yield earned on average invested
assets increased to 7.3 percent in the 1995 period from 7.2 percent in the 1994
period. Net investment income increased 16 percent to $185.2 million in the
first nine months of 1995 from $159.3 million in the first nine months of 1994
on a 13 percent increase in average invested assets (amortized cost basis) to
$3.4 billion in the 1995 periods from $3.0 billion in the 1994 period. The
percentage increase in net investment income was greater than the percentage
increase in average invested assets because the yield earned on average invested
assets increased to 7.4 percent in the 1995 period from 7.1 percent in the 1994
period. The growth of invested assets resulted from: (i) recurring operations;
and (ii) with respect to amounts for the nine month periods, the recapture on
April 1, 1994, of a reinsurance treaty with assets totaling $371.0 million.
Net realized gains (losses) often fluctuate from period to period. BLH sold
$.7 billion of actively managed fixed maturities in the first nine months of
1995 compared to $.5 billion in the 1994 period which sales resulted in net
realized gains of $18.0 million and trading income of $2.2 million in the 1995
period compared to net realized losses of $5.8 million and trading losses of
$1.2 million in the 1994 period. Net realized gains in 1995 were net of $2.2
million writedown of certain exchange-rate linked securities as a result of
foreign currency fluctuations and a $3.8 million writedown of a corporate
security as a result of changes in conditions which caused BLH to conclude that
a decline in the fair value of the security was other than temporary.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future yields. However,
certain factors could mitigate the adverse effect of such decreases as follows:
(i) additional amortization of the cost of policies purchased and the cost of
policies produced is recognized in the same period as the gain in order to
reflect reduced future yields thereby reducing such amortization in future
periods (see amortization related to net realized gains (losses) below); (ii)
interest rates credited to some products can be reduced thereby diminishing the
effect of the yield decrease on the investment spread; and (iii) the investment
portfolio grows as a result of reinvesting the realized gains.
Other income in the 1994 periods reflects gains recognized as the result of
the resolution of several contingencies during the third quarter of 1994.
Additionally, several modifications were made to postretirement benefit plans
resulting in a curtailment gain. Other income for the nine months ended
September 30, 1994, includes $8.1 million related to these non-recurring items.
Insurance policy benefits and change in future policy benefits reflect: (i)
the higher incidence of medical provider claims in the Medicare supplement line;
and (ii) the increased amount of business in force on which benefits are
incurred.
Interest expense on annuities and financial products increased 17 percent
to $19.0 million in the third quarter of 1995 from $16.3 million in the third
quarter of 1994. Such increase reflects an increase in annuity liabilities
resulting from increased annuity deposits. This account increased 36 percent to
$57.0 million in the first nine months of 1995 from $42.0 million in the first
nine
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
months of 1994. Such increase reflects an increase in annuity liabilities
resulting from: (i) the reinsurance recapture transaction described above; and
(ii) increased annuity deposits.
Interest expense on notes payable did not change materially in the 1995
periods from the 1994 periods. Interest expense in the 1995 periods compared to
the 1994 periods reflects: (i) higher weighted average interest rates on the
senior term loan; offset by (ii) lower principal balances as a result of
scheduled payments of $11.0 million in April 1994 and $16.0 million in April
1995.
Interest expense on investment borrowings in the corresponding 1995 and
1994 periods reflects changes in investment borrowing activities and the higher
interest rates paid on such borrowings during the 1995 periods. BLH's average
investment borrowings were $106 million and $189 million during the first nine
months of 1995 and 1994, respectively.
Amortization related to operations is affected by the additional purchases
of BLH common stock and our use of the step-basis of accounting to record such
purchases. The increase in amortization in the 1995 periods from the 1994
periods is affected by: (i) the adoption of a new basis of accounting as
discussed above; and (ii) the increased amount of business in force on which
acquisition costs are capitalized.
Cost of policies produced represents the cost of producing new business
(primarily commissions and certain costs of policy issuance and underwriting)
which varies with and is primarily related to the production of new business.
Costs deferred may represent amounts paid in the period new business is written
(such as underwriting costs and first year commissions) or in periods after the
business is written (such as commissions paid in subsequent years in excess of
ultimate commissions paid).
Cost of policies purchased represents the portion of Conseco's cost to
acquire BLH that is attributable to the right to receive cash flows from
insurance contracts in force at the acquisition dates. Some costs incurred
subsequent to our purchases on policies issued prior to such dates, which
otherwise would have been deferred had it not been for our purchases (because
they vary with and are primarily related to the production of the acquired
interests in policies) are expensed. Such costs are primarily comprised of
certain commissions paid in excess of ultimate commissions which have been
expensed as operating expense. However, such amounts were considered in
determining the cost of policies purchased and its amortization.
Amortization related to net realized gains (losses) increased in the 1995
periods as a result of the increase in realized gains discussed above.
Other operating costs and expenses increased 5.6 percent to $37.7 million
in the third quarter of 1995 from $35.7 million in the third quarter of 1994,
and did not change materially in the nine month period of 1995 compared to the
nine month period of 1994. The increase in the third quarter of 1995 is
primarily due to the expensing of certain commissions on policies issued prior
to the most recent acquisition of Conseco's ownership interests. Prior to the
adoption of Conseco's most recent interest, such commissions (related to
policies issued prior to the most recent acquisition of Conseco's ownership
interests) were capitalized as costs of policies produced.
Income tax expense decreased in the 1995 periods compared to the 1994
periods primarily due to the decrease in pretax income. The effective tax rate
of 38 percent and 39 percent for the 1995 and 1994 periods, respectively,
exceeded the statutory corporate income tax rate (35 percent) primarily because
goodwill amortization is not deductible for federal income tax purposes.
Minority interest reflects the changes in Conseco's ownership interest in
BLH previously discussed.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
CCP:
- ---
<TABLE>
<CAPTION>
Three months ended September 30,
--------------------------------
1995 1994
-------- ----------------------
Included Included in
in Conseco's Total Conseco's
Accounts CCP Accounts
-------- --- --------
(Dollars in millions)
<S> <C> <C> <C>
Revenues:
Insurance policy income........................................................... $30.0 $ 30.0 $ -
Investment activity:
Net investment income........................................................... 105.8 88.8 -
Net trading losses.............................................................. (1.0) - -
Net realized losses............................................................. (5.4) (2.3) -
Equity in earnings of CCP......................................................... - - 5.0
Total revenues........................................................................ 129.4 116.5 5.0
Benefits and expenses:
Insurance policy benefits and change in future policy benefits.................... 21.7 21.7 -
Interest expense on annuities and financial products.............................. 61.2 51.4 -
Interest expense on notes payable................................................. 3.2 2.6 -
Interest expense on investment borrowings......................................... 2.3 .9 -
Amortization related to operations ............................................... 9.1 7.1 -
Amortization related to realized gains and losses................................. (1.5) (.9) -
Other operating costs and expenses................................................ 12.4 14.3 -
Income before taxes and minority interest............................................. 21.0 19.4 5.0
Income tax expense ................................................................... 6.3 6.8 .4
Income before minority interest....................................................... 14.7 12.6 4.6
Minority interest..................................................................... 3.8
Net income ......................................................................... 10.9
Summarized by component, all net of applicable expenses and taxes:
Operating earnings................................................................ 11.7 13.5 5.0
Net trading losses................................................................ (.4) - -
Net realized losses............................................................... (.4) (.9) (.4)
Net income ....................................................................... 10.9 12.6 4.6
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Nine months ended September 30,
--------------------------------
1995 1994
-------- ----------------------
Included Included in
in Conseco's Total Conseco's
Accounts CCP Accounts
-------- --- --------
(Dollars in millions)
<S> <C> <C> <C>
Revenues:
Insurance policy income........................................................ $ 84.3 $ 88.2 $ -
Investment activity:
Net investment income...................................................... 296.1 276.8 -
Net trading income......................................................... 2.7 - -
Net realized gains......................................................... 9.5 8.6 -
Equity in earnings of CCP...................................................... - - 22.2
Total revenues.................................................................... 392.6 373.6 22.2
Benefits and expenses:
Insurance policy benefits and change in future policy benefits................. 57.9 54.9 -
Interest expense on annuities and financial products........................... 167.5 156.8 -
Interest expense on notes payable.............................................. 13.7 7.7 -
Interest expense on investment borrowings...................................... 8.0 4.8 -
Amortization related to operations ............................................ 28.1 20.2 -
Amortization related to realized gains and losses.............................. 6.7 5.5 -
Other operating costs and expenses............................................. 37.6 36.5 -
Income before taxes, minority interest and extraordinary charge................... 73.1 87.2 22.2
Income tax expense ............................................................... 27.4 31.7 1.6
Income before minority interest and extraordinary charge.......................... 45.7 55.5 20.6
Minority interest................................................................. 20.4
Income before extraordinary charge................................................ 25.3
Extraordinary charge.............................................................. - 1.3 .5
Net income........................................................................ 25.3 54.2 20.1
Summarized by component, all net of applicable expenses and taxes:
Operating earnings........................................................... 23.7 54.1 20.1
Net trading income........................................................... .7 - -
Net realized gains .......................................................... .9 1.4 .5
Extraordinary charge......................................................... - 1.3 .5
Net income .................................................................. 25.3 54.2 20.1
</TABLE>
General. The CCP Companies include earnings from Benefical Standard Life
Insurance Company and Great American Reserve Life Insurance Company. As
described in the notes to the consolidated financial statements, after the CCP
Merger in August 1995, CCP became a wholly owned subsidiary of Conseco.
Conseco's consolidated statement of operations reflects a 43 percent ownership
interest for the first nine months of 1994, a 49 percent ownership interest for
the first six months of 1995 and a 66 percent average ownership interest for the
third quarter of 1995 and will reflect 100 percent ownership in future periods.
Conseco's consoldiated statement of operations for periods in 1995 prior to the
CCP Merger have been restated to reflect the earnings of CCP on a consolidated
basis. The minority interest adjustment removes from Conseco's net income the
portion applicable to other owners during the first nine months of 1995.
Insurance policy income consists of premiums received on traditional life
insuance products and policy fund and surrender charges assessed against
investment type products. This account decreased 4.4 percent to $84.3 million in
the first nine months of 1995, from $88.2 million in the first nine months of
1994. The decrease occurred as a result of a decrease in sales of policies with
mortality or morbidity risks, partially offset by an increase in surrender
charges resulting from higher annuity policy withdrawals during 1995. CCP has
experienced increases in withdrawals during 1995 primarily due to the increased
size of its annuity portfolio and increased competitiveness from alternative
higher yielding investment products.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Net investment income for the quarter ended September 30, 1995, was $105.8
million compared to $88.8 million in the same period of 1994. This account
increased to $296.1 million in the first nine months of 1995 from $276.8 million
in the first nine months of 1994. Despite lower investment portfolio yields in
the 1995 periods, net investment income increased due to: (i) increased income
generated on the funds provided by reverse repurchase agreements and dollar roll
transactions; (ii) increased capital available for investment; (iii) increased
average assets supporting annuities and finanical products (1995 insurance
liabilities increased $120 million, or 2.8 percent, over 1994), and (iv)
increased income from separate accounts assets. Investment income from separate
account assets increased to $6.8 million in the third quarter of 1995 from zero
in the same period in 1994 and increased to $10.8 million in the first nine
months of 1995 from $1.6 million in the same period of 1994. Such income is
offset by a corresponding charge to interest expense on annuities and financial
products. Although investment portfolio yields declined in the first nine months
of 1995 compared to 1994, a comparable level of profitability from investment
spreads was maintained in 1995 due to its decrease of credited interest rates on
annuities and financial products and the increase in average account balances.
Net realized gains (losses) often fluctuate from period to period. CCP sold
$.9 billion of actively managed fixed maturities in the first nine months of
1995 compared to $1.0 billion in the first nine months of 1994 which sales
resulted in net realized gains of $11.9 million and trading income of $2.7
million in the 1995 period compared to net realized gains of $8.6 million and no
trading income in the 1994 period. Net realized gains in the 1995 period
included a $.2 million writedown of an exchange-rate linked security during the
first six months of 1995 and a $2.2 million writedown of a corporate security as
a result of conditions which caused CCP to conclude that a decline in fair value
of the security was other than temporary.
Additional amortization of the cost of policies purchased and the cost of
policies produced is recognized in the same period as realized gains in order to
reflect reduced future yields thereby reducing such amortization in future
periods (see amortization related to net realized gains (losses) below).
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality or morbidity features. These benefits did not
change materially during the 1995 periods compared to the 1994 periods.
Interest expense on annuities and financial products increased to $61.2
million in the third quarter of 1995 from $51.4 million in the third quarter of
1994 and increased to $167.5 million in the first nine months of 1995 from
$156.8 million in the first nine months of 1994. Such increases reflect: (i)
increased annuity deposits (1995 insurance liabilities increased $120 million or
2.8 percent); and (ii) charges to the account related to investment income from
separate account assets as described above under net investment income. Such
increases were partially offset by slightly lower average crediting rates.
Interest expense on notes payable increased to $13.7 million in the first
nine months of 1995 from $7.7 million in the first nine months of 1994 and
increased to $3.2 million in the third quarter of 1995 from $2.6 million in the
third quarter of 1994. The increase resulted from a higher average note payable
balance and higher interest rates in the 1995 periods. The average principal
balance of notes payable during the first nine months of 1995 and 1994 was $178
and $146 million, respectively.
CCP issued $200 million 10.5 percent senior notes in December 1994. After
the CCP Merger, these notes were effectively converted into direct obligations
of Conseco. The interest expense related to the senior notes is recorded in the
"Corporate and Other" segment after the CCP Merger date.
Interest expense on investment borrowings in the corresponding 1995 and
1994 periods reflects changes in investment borrowing activities and the higher
interest rates paid on such borrowings during the 1995 periods.
Amortization related to operations is affected by the additional purchase
of CCP common stock in connection with the CCP Merger and our use of the
step-basis of accounting to record such purchase. Amortization related to
operations in periods prior to the CCP Merger is comprised of amortization of
the cost of policies purchased, cost of policies produced and goodwill based on
the previous balances and bases. Amortization related to operations after the
CCP Merger is comprised of amortization of the aforementioned account balances
reflecting a combination of our ownership interests in the previous balances and
our newly purchased interests using the step-basis of purchase accounting.
Amortization related to net realized gains (losses) increased in the 1995
periods compared to the 1994 periods as a result of the increase in realized
gains and losses discussed above.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Other operating costs and expenses did not change materially in the 1995
periods compared to the 1994 periods.
Income tax expense decreased in the 1995 periods compared to the 1994
periods primarily due to a decrease in income before income taxes.
Minority interest reflects the previously discussed changes in Conseco's
ownership interest in CCP.
Wholly Owned Insurance Subsidiaries (excluding CCP which became wholly owned in
- -----------------------------------
August 1995)
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income...................................... $12.7 $ 13.8 $38.0 $ 44.3
Investment activity:
Net investment income...................................... 19.1 18.5 53.7 57.4
Net trading losses......................................... (.8) (.6) (1.6) (.5)
Net realized losses........................................ (2.3) (2.4) (4.4) (12.1)
Total revenues................................................... 28.7 29.3 85.8 89.1
Benefits and expenses:
Insurance policy benefits and change in future policy benefits 17.5 16.2 47.3 50.7
Interest expense on annuities and financial products......... 5.2 2.7 14.0 9.9
Amortization related to operations .......................... 1.3 1.4 3.7 4.2
Amortization related to realized gains and losses............ (1.8) (.2) (2.5) (1.3)
Other operating costs and expenses........................... 2.7 1.9 8.7 10.9
Income before taxes ............................................. 3.8 7.3 15.0 14.7
Income tax expense .............................................. 1.5 4.0 6.3 6.3
Net income....................................................... 2.3 3.3 8.7 8.4
Summarized by component, all net of applicable expenses and taxes:
Operating earnings ........................................ 3.2 5.1 11.0 15.8
Net trading losses......................................... (.6) (.5) (1.2) (.4)
Net realized losses........................................ (.3) (1.3) (1.1) (7.0)
Net income ................................................ 2.3 3.3 8.7 8.4
</TABLE>
Insurance policy income relates primarily to premiums from products with
mortality and morbidity features. Recent declines resulted from decreased
emphasis on generating new premiums from these products.
Net investment income did not change materially in the 1995 periods
compared to the 1994 periods. Net investment income in the 1995 periods compared
to the 1994 periods reflects: (i) an increase in investment income related to
separate account activities; offset by (ii) a reduction in income from other
invested assets.
Net realized losses often fluctuate from period to period. The wholly owned
subsidiaries sold fixed maturity investments of $40.0 million and $32.2 million
in the third quarters of 1995 and 1994, respectively, and $74.2 million and
$183.8 million were sold in the first nine months of 1995 and 1994,
respectively. Net realized losses in the 1995 periods included a $1.5 million
writedown of corporate securities as a result of conditions which caused the
Company to conclude that a decline in the fair value of the securities was other
than temporary.
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality and morbidity features. These benefits
decreased in the nine months ended September 30, 1995, from the first nine
months of 1994, primarily as a result of a decrease in premiums from such
products, partially offset by adverse mortality experience in the second quarter
of 1995; and increased in the third quarter of 1995 compared to the third
quarter of 1994 as a result of adverse mortality experience.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Interest expense on annuities and financial products increased in the 1995
periods primarily as a result of an increase in amounts credited to separate
accounts as a result of the aforementioned increase in investment income related
to these accounts. The average rate credited on all insurance liabilities (other
than separate accounts where the credited amount is based on investment income
of the segregated investments) was approximately 7.0 percent at September 30,
1995 and 1994.
AGP:
- ----
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
-------------------------------- -----------------------------
1995 1994 1995 1994
----------- --------------- ----------- -------------
Included in Prior to Included in Prior to
Conseco's Acquisition by Conseco's Acquisition by
accounts Partnership II accounts Partnership II
-------- -------------- -------- --------------
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Insurance policy income........................... $ 13.9 $13.9 $43.7 $40.2
Investment activity:
Net investment income .......................... 105.0 86.7 312.5 250.8
Net trading income ............................. .3 - 1.1 -
Net realized gains (losses)..................... 11.1 (.1) 63.2 (16.8)
Total revenues........................................ 131.8 102.1 425.4 278.5
Benefits and expenses:
Insurance policy benefits and change
in future policy benefits....................... 8.5 9.2 24.5 26.1
Interest expense on annuities and financial
products........................................ 64.9 56.6 194.3 158.8
Interest expense on notes payable................. 7.9 2.6 25.3 6.7
Interest expense on investment borrowings......... 2.3 - 6.7 2.8
Amortization related to operations................ 11.9 10.2 33.9 29.7
Amortization related to realized gains and losses. 4.5 - 33.7 2.8
Other operating costs and expenses................ 7.6 15.6 23.7 33.0
Income before taxes and minority interest............. 24.2 7.9 83.3 18.6
Income tax expense.................................... 10.0 3.9 33.8 6.7
Income before minority interest....................... 14.2 4.0 49.5 11.9
Minority interest..................................... 10.3 2.2 37.6 6.7
Net income............................................ 3.9 1.8 11.9 5.2
Summarized by component, all net of applicable expenses, taxes, and minority
interest:
Operating earnings ............................. 2.9 1.9 7.9 17.9
Net trading income ............................ - - .1 -
Net realized gains (losses) .................... 1.0 (.1) 3.9 (12.7)
Net income ..................................... 3.9 1.8 11.9 5.2
</TABLE>
General. Conseco, through both its direct investment and its equity
interest in the investment made by BLH, had a 34 percent ownership interest in
AGP at September 30, 1995. While all activities of AGP are required to be
included in Conseco's financial statements on a consolidated basis for all
periods after September 29, 1994, 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 average ownership interest of 25 percent in
the first quarter of 1995, 26 percent in the second quarter of 1995 and 30
percent in the third quarter of 1995. The 1994 amounts relate to periods which
preceded the Acquisition and do not reflect the application of purchase
accounting.
Insurance policy income consists of premiums received on traditional life
insurance products and policy fund and surrender charges assessed against
investment type products. This account increased 9 percent to $43.7 million in
the first nine months of 1995 from $40.2 million in the first nine months of
1994. The increase occurred primarily because increased annuity policy
withdrawals resulted in higher surrender charges. Surrender charges assessed
against annuity withdrawals for the first nine months of 1995 were $11.3 million
compared to $7.6 million for the first nine months of 1994 while annuity policy
withdrawals were $566.8 million and $384.6 million for the same periods,
respectively. AGP has experienced increases in withdrawals during 1995 due to:
(i) the increased size of its annuity portfolio; and (ii) the increase in
interest rates in the second half of 1994 and the first quarter of 1995, which
caused some policyholders to surrender policies and incur a surrender charge to
invest funds in higher yielding alternative investments.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Net investment income increased 21 percent to $105.0 million in the third
quarter of 1995 from $86.7 million in the third quarter of 1994, on a 4 percent
increase in average invested assets (amortized cost basis) to $4.8 billion in
1995 compared to $4.6 billion in the third quarter of 1994. This account
increased 25 percent to $312.5 million in the first nine months of 1995 from
$250.8 million in the first nine months of 1994 on a 7 percent increase in
average invested assets to $4.7 billion in 1995 compared to $4.4 billion in
1994. The percentage increase in net investment income was greater than the
percentage increase in average invested assets during these periods because the
yield earned on average invested assets increased 124 basis points to 8.91
percent in the first nine months of 1995 from 7.67 percent in the first nine
months of 1994. The increase in yield primarily resulted from the application of
purchase accounting on the Acquisition date. Additional investment income
resulting from the redemption of fixed maturity investments prior to their
regularly scheduled maturity dates is not material in these periods.
Net realized gains (losses) often fluctuate from period to period. AGP sold
approximately $1.7 billion of investments (principally fixed maturities) in the
first nine months of 1995 compared to $.6 billion in the first nine months of
1994 which sales resulted in net realized gains of $69.2 million and trading
income of $1.1 million in the first nine months of 1995 compared to net realized
gains of $5.7 million in the first nine months of 1994. Net realized gains from
sales of investments in 1994 were offset by a loss on certain interest rate swap
contracts that no longer effectively hedged interest rate risks in the second
quarter of 1994 and were therefore recorded at fair value, resulting in a net
realized loss of $21.3 million. Substantially all of AGP's interest rate swap
contracts were terminated subsequent to the Acquisition with no additional loss.
In addition, during the first nine months of 1995 and 1994, AGP recorded
realized losses on the writedown of investments totaling $6.0 million and $1.2
million, respectively, as a result of changes in conditions which caused AGP to
conclude that a decline in fair value of the investments was other than
temporary.
The increased level of investment activity in 1995 is the result of more
active investment portfolio management since the Acquisition and planned changes
in the fixed maturity investment portfolio to reduce the portfolio's duration
and exposure to more volatile CMO investments. The declining interest rate
environment since the Acquisition date, which increased the market value of
fixed maturity investments, contributed to AGP's ability to realize gains on
investment sales in 1995.
Additional amortization of the cost of policies purchased and the cost of
policies produced is recognized in the same period as realized gains in order to
reflect reduced future yields thereby reducing such amortization in future
periods (see amortization related to realized gains below).
Interest expense on annuities and financial products increased 15 percent
to $64.9 million in the third quarter of 1995 from $56.6 million in the third
quarter of 1994, and increased 22 percent to $194.3 million in the first nine
months of 1995 from $158.8 million in the first nine months of 1994. The
increases reflect: (i) a larger block of annuity business in force in 1995; (ii)
higher crediting rates; and (iii) the expensing of the first year interest rate
bonuses of approximately $5.9 million in 1995 on policies issued prior to the
Acquisition date, as a result of the application of purchase accounting on the
Acquisition date. Prior to the Acquisition date, such first year interest rate
bonuses (related to policies issued prior to the Acquisition date) were
capitalized as a cost of policies produced. At September 30, 1995, the weighted
average crediting rate for AGP's annuity liabilities excluding interest rate
bonuses guaranteed for the first year of the annuity contract was 5.4 percent
compared to 5.3 percent at September 30, 1994.
Interest expense on notes payable increased in the 1995 periods as a result
of additional interest on debt incurred to finance the Acquisition partially
offset by reductions in interest expense resulting from: (i) the conversion and
retirement of $54.0 million principal amount of convertible subordinated
debentures; and (ii) the repayment of bank debt that had been outstanding prior
to the Acquisition.
Interest expense on investment borrowings increased to $6.7 million in the
first nine months of 1995 from $2.8 million in the first nine months of 1994 as
a result of higher balances of funds borrowed and a higher cost of funds in
1995.
Amortization related to operations increased 17 percent to $11.9 million in
the third quarter of 1995 from $10.2 million in the third quarter of 1994, and
increased 14 percent to $33.9 million in the first nine months of 1995 from
$29.7 million in the first nine months of 1994. Amortization related to
operations in 1995 is comprised of amortization of: (i) goodwill established at
the Acquisition date; (ii) cost of policies purchased for business in force at
the Acquisition date; and (iii) the cost of policies produced for business
written subsequent to the Acquisition date. Amortization related to operations
in 1994 is comprised solely of amortization of cost of policies produced.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Amortization related to realized gains increased in the 1995 period from
the 1994 period primarily as a result of the increase in realized gains
discussed above.
Income tax expense increased to $33.8 million in the first nine months of
1995 from $6.7 million in the first nine months of 1994. This increase is
partially due to the increase in pretax income to $83.3 million in the 1995
period from $18.6 million in the 1994 period. The effective tax rate for the
1995 period of 41 percent exceeded the statutory corporate federal income tax
rate (35 percent) primarily because goodwill amortization is not deductible for
federal income tax purposes. The effective tax rate for the 1994 period of 36
percent exceeded the statutory corporate tax rate because certain acquisition
and merger expenses were not deductible for federal income tax purposes,
partially offset by a reduction in the valuation allowance for net operating
loss carryforwards.
Minority interest in the 1994 periods includes dividends on preferred stock
of a subsidiary of AGP. Minority interest in the 1995 periods included such
dividends, plus: (i) dividends on preferred stock of AGP issued to finance a
portion of the Acquisition; and (ii) the portion of earnings applicable to
minority shareholders. Minority interest reflects the changes in Conseco's
ownership interests in AGP as discussed above.
WNC:
- ---
Prior to the completion of its IPO, WNC was a wholly owned subsidiary of
Conseco. Conseco sold 60 percent of WNC in the IPO. On December 23, 1994,
Conseco sold its remaining 40 percent equity interest in WNC. Amounts included
in Conseco's accounts for the first nine months of 1994, therefore include: (i)
all of WNC's earnings from January 1 through February 15, 1994, the date the IPO
was completed; and (ii) 40 percent of WNC's earnings for the period from
February 15 through September 30, 1994.
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, 1994 September 30, 1994
------------------ ------------------
(Dollars in millions)
<S> <C> <C>
Equity in earnings of WNC..................................................... $ 7.5 $38.9
Income tax ................................................................... .5 1.4
Net income.................................................................... 7.0 37.5
Summarized by component, all net of applicable expenses and taxes:
Operating earnings........................................................ 8.7 35.0
Net trading income........................................................ - 2.6
Net realized losses....................................................... (1.7) (.1)
Net income................................................................ 7.0 37.5
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Services Provided for Fees:
- ---------------------------
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Revenues:
Investment management........................................ $11.2 $ 9.0 $33.9 $ 27.6
Commissions.................................................. 3.7 5.2 9.4 14.4
Administrative services, net of directly related expenses.... 1.9 2.5 6.1 6.9
Fees for services related to Partnership II financing........ - 3.8 - 3.8
Total revenues................................................... 16.8 20.5 49.4 52.7
Less intercompany eliminations................................... (8.8) (6.1) (25.8) (10.2)
Revenues reported................................................ 8.0 14.4 23.6 42.5
Net income attributable to:
Investment management........................................ 5.1 3.8 15.6 12.5
Commissions.................................................. (.9) .2 (2.3) .5
Administrative services...................................... 1.3 1.7 4.0 4.5
Fees for services related to Partnership II financing ....... - 2.5 - 2.5
Net income....................................................... 5.5 8.2 17.3 20.0
</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; (iii) administrative fees for
policy administration, data processing, product marketing and executive
management services; and (iv) fees for financing services provided to
Partnership II. Fees earned from services provided to consolidated entities are
eliminated.
The growth in investment management revenues in the 1995 periods was the
result of fee-producing activities provided to AGP partially offset by a
reduction in the rates charged to WNC. Commission revenues decreased in the 1995
periods as a result of: (i) a decrease in commissions produced by Bankmark and
(ii) the inclusion in the 1994 periods of $4.0 million of revenues related to
the buyout of a marketing agreement by a bank.
Restructuring Activities:
- -------------------------
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Gain on sale of stock........................................ $ - $ - $ - $65.3
Income tax expense (benefit)................................. (8.4) - (74.9) 22.9
Net income................................................... 8.4 - 74.9 42.4
</TABLE>
Income tax expense was reduced by $8.4 million in the third quarter of 1995
and by $66.5 million in the second quarter of 1995 as a result of the release of
deferred income taxes previously accrued on undistributed income related to CCP
and BLH, respectively. As a result of the CCP Merger and the purchases of BLH
shares in 1995 (which increased Conseco's ownership of BLH to over 80 percent)
such deferred tax is no longer required.
The gain on sale of stock in the 1994 period related to the sale of a 60
percent common equity interest in WNC.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Corporate and Other:
- --------------------
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Net investment income............................................ $ 3.4 $ .2 $ 6.7 $ 3.4
Total revenues................................................... .9 (.8) 2.6 2.2
Interest expense on notes payable................................ 14.6 6.7 28.1 20.6
Other operating costs and expenses............................... 6.4 5.7 21.0 20.0
Income tax benefit............................................... 9.0 5.6 18.8 13.4
Loss before extraordinary charge................................. 11.1 7.6 27.7 25.0
Extraordinary charge on extinguishment of debt .................. - - - 1.9
Net loss......................................................... 11.1 7.6 27.7 26.9
</TABLE>
Corporate and other includes financing costs of notes payable for which
Conseco is directly liable and the costs associated with the holding company
operations.
Net investment income increased in the 1995 periods primarily as a result
of increased average invested assets.
Total revenues increased in the nine months ended September 30, 1995, as a
result of an increase in realized gains which often fluctuate from period to
period.
Interest expense on notes payable increased in the first nine months of
1995 as a result of: (i) an increase in borrowings under the revolving credit
facility in the second and third quarters of 1995; (ii) borrowings under the
$600 million Credit Agreement effective August 31, 1995 (part of the proceeds of
which were used to repay borrowings under the revolving credit facility); and
(iii) interest expense on the $200 million 10.5 percent senior notes for periods
after August 31, 1995, the CCP Merger date (such senior notes issued by CCP were
effectively converted to direct obligations of Conseco at the CCP Merger date).
These increases were partially offset by the repayment of: (i) a $200 million
note in February 1994; and (ii) notes payable with book values totaling $19.2
million in March 1994. The Company prepaid the aforementioned notes in 1994 with
the proceeds from the sale of shares of WNC. The prepayment resulted in an
extraordinary charge in the first quarter of 1994 of $1.9 million (net of a $1.0
million tax benefit).
SALES
In accordance with generally accepted accounting principles, insurance
policy income shown in Conseco's consolidated statement of operations 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. We recognize revenues for these products over
time in the form of investment income and surrender or other charges.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Premiums collected by BLH for the third quarter of 1995 were $357.7
million, of which $58.6 million were recorded as deposits to policy liability
accounts. This compared to $376.1 million collected and $69.6 million recorded
as deposits to policy liability accounts in the third quarter of 1994. Premiums
collected by BLH for the first nine months of 1995 were $1,143.7 million, of
which $215.4 million were recorded as deposits to policy liability accounts.
This compared to $1,131.3 million collected and $221.2 million recorded as
deposits to policy liability accounts in the first nine months of 1994.
Collected premiums by type are provided in the following table:
<TABLE>
<CAPTION>
Three months Nine months
ended ended
September 30, September 30,
------------------- -------------------
1995 1994 1995 1994
---- ---- ---- ----
(Dollars in millions)
<S> <C> <C> <C> <C>
Individual health:
Medicare supplement........................................ $135.3 $ 141.6 $ 441.2 $ 437.9
Long-term care ............................................ 39.7 33.9 116.9 97.9
Other...................................................... 21.8 28.0 71.9 90.1
------ ------ --------- -------
Total individual health.................................. 196.8 203.5 630.0 625.9
Annuities.................................................... 57.6 70.1 208.2 202.0
Individual life.............................................. 23.2 24.0 71.5 70.4
Group and other.............................................. 80.1 78.5 234.0 233.0
------ ------ -------- ---------
Total.................................................... $357.7 $376.1 $1,143.7 $1,131.3
====== ====== ======== ========
</TABLE>
Medicare supplement premiums decreased 4.4 percent in the third quarter of
1995 and increased 1.0 percent in the first nine months of 1995 compared to the
same periods in 1994. Such premiums accounted for 39 percent of total collected
premiums in both 1995 and 1994. The number of new Medicare supplement policies
sold in the first nine months of 1995 decreased 28 percent to 48,200 from the
first nine months of 1994, due to the competitive environment, changes in the
commission structure to improve the profitability of this product, and an
increased focus on other product sales. Annualized new business premiums from
such new sales totaled $43.4 million in the first nine months of 1995 compared
to $57.5 million in the corresponding period of 1994.
Long-term care premiums increased 17 percent in the third quarter of 1995
and increased 19 percent in the first nine months of 1995 compared to the same
periods in 1994. Long-term care premiums accounted for 10 percent of total
collected premiums in 1995 compared to 8.7 percent in 1994. The continued growth
in this product line reflects new product introductions, the competitiveness of
BLH's existing products, the success of agent cross-selling activities,
increased consumer awareness and demand and improved persistency on a larger
basis of renewal premiums. Annualized new business premiums were $23.1 million
in the first nine months of 1995, up 42 percent over the same period in 1994.
Annuity premiums decreased 18 percent in the third quarter of 1995 and
increased 3.1 percent in the first nine months of 1995 compared to the same
periods in 1994. The recent decrease in annuity premium collections reflects
increased competitiveness from alternative investment products.
Collected premiums for other individual health policies decreased 22
percent for the third quarter of 1995 and decreased 20 percent in the first nine
months of 1995 compared to the same periods in 1994. The decrease was
anticipated due to prior steps taken to improve the profitability of these
products.
Premiums collected by AGP in the nine months ended September 30, 1995 were
$647.0 million, of which, $625.2 million were recorded as deposits to policy
liability accounts. This compared to $846.0 million collected and $824.1 million
recorded as deposits to policy liability accounts in the nine months ended
September 30, 1994. Net premiums collected declined in the first nine months of
1995 compared to the first nine months of 1994 as a result of several factors.
New annuity sales (which account for approximately 92 percent of AGP's premiums
collected) have been negatively impacted by a reduction of AGP's primary
insurance company subsidiary's ratings to "A-" by two nationally recognized
insurance company rating organizations as a result of the Acquisition and
related financing transactions. These rating declines have directly affected the
subsidiary's competitive position in the financial institution marketplace where
many financial institutions require an insurer's ratings to be at least "A"
resulting in a loss of certain former customers and foregone opportunities for
new sales. In addition, AGP has generally maintained a less competitive
crediting rate position on new business since the Acquisition in order to manage
its asset growth relative to its capital position.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Premiums collected by CCP in the first nine months of 1995 were $557.3
million of which $503.9 million were recorded as deposits to insurance liability
accounts. This compared to $333.4 million collected and $278.2 recorded as
deposits to insurance liability accounts in the nine months ended September 30,
1994. The increase in total premiums collected was the result of increased sales
of single premium deferred annuities by: (i) professional independent producers
($280.1 million in the 1995 period versus $108.2 million in the 1994 period),
and (ii) educator market specialists ($41.5 million in the 1995 period versus
$9.0 million in the 1994 period). Total premiums collected through professional
independent producers were $327.8 million in the first nine months of 1995, a
115 percent increase compared to the first nine months of 1994, and comprised 59
percent of collected premiums in 1995. Total premiums collected through educator
market specialists were $227.4 million in the first nine months of 1995, a 28
percent increase compared to the first nine months of 1994, and comprised 41
percent of collected premiums in the 1995 period.
Premiums collected by Conseco's wholly owned insurance subsidiaries
decreased 3.5 percent to $19.3 million in the third quarter of 1995 from $20.0
million in the third quarter of 1994, and decreased 8.2 percent to $59.2 million
in the first nine months of 1995 from $64.4 million in the first nine months of
1994. Conseco's wholly owned subsidiaries are not actively marketing new
products.
LIQUIDITY AND CAPITAL RESOURCES
Changes in the consolidated balance sheet between December 31, 1994, and
September 30, 1995, reflect growth in Conseco's assets and liabilities from the
three earnings activities previously discussed, together with the notes payable,
capital stock and purchase transactions for CCP and BLH described in the
accompanying notes to the consolidated financial statements.
The increase in shareholders' equity in the first nine months of 1995
resulted from earnings and the change in unrealized appreciation (depreciation)
to reflect the increase in the estimated fair value of Conseco's investments.
The increase was partially offset by the stock repurchase program described in
the notes to the consolidated financial statements. The change in unrealized
appreciation (depreciation) of securities is recorded consistent with the
requirements of Statement of Financial Accounting Standards No. 115, Accounting
for Certain Investments in Debt and Equity Securities ("SFAS 115"). The change
in unrealized appreciation (depreciation) resulted from a decreasing interest
rate environment which generally caused the fair value of fixed maturities to
increase.
The following table summarizes certain financial ratios as of and for the
nine months ended September 30, 1995, and the year ended December 31, 1994,
calculated both: (i) excluding unrealized appreciation (depreciation) of
securities recorded consistent with the requirements of SFAS 115; and (ii) as
reported including the unrealized appreciation (depreciation) of securities
adjustment.
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
---- ----
<S> <C> <C>
Book value per common share, excluding unrealized appreciation (depreciation) $32.71 $27.10
Book value per common share, including unrealized appreciation (depreciation) $35.69 $20.89
Ratio of debt (for which the Company is directly liable) to total capital, excluding
unrealized appreciation (depreciation) .49 to 1 .18 to 1
Ratio of debt (for which the Company is directly liable) to total capital, including
unrealized appreciation (depreciation) .48 to 1 .20 to 1
Return on common equity, excluding unrealized appreciation (depreciation) 34% 19%
Return on common equity, including unrealized appreciation (depreciation) 36% 19%
</TABLE>
The increase in book value per share excluding unrealized appreciation
(depreciation) of securities was due to net income, partially offset by the
effect of repurchases of shares of the Company's common stock. The increase in
the ratio of debt to total capital increased primarily as a result of borrowings
under the Company's $600 million Credit Agreement described in the accompanying
notes to the consolidated financial statements. The return on average common
equity increased primarily because of fluctuations in net realized gains
(losses) and restructuring income during these periods and a decrease in common
shareholders' equity as the result of repurchases of shares of the Company's
common stock.
Dividends declared on common stock for the nine months ended September 30,
1995, were $.165 per share. The Company reduced its quarterly cash dividend from
$.125 per share to $.02 per share effective with the dividend paid in July 1995.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
INVESTMENTS
The amortized cost and estimated fair value of fixed maturities (all of
which were actively managed) were as follows at September 30, 1995:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized unrealized unrealized fair
cost gains losses value
---- ----- ------ -----
(Dollars in millions)
<S> <C> <C> <C> <C>
United States Treasury securities and
obligations of United States government
corporations and agencies..................................... $ 255.7 $ 11.5 $ 2.5 $ 264.7
Obligations of states and political subdivisions
and foreign government obligations............................ 91.5 3.0 1.8 92.7
Public utility securities......................................... 2,342.9 118.4 38.8 2,422.5
Other corporate securities........................................ 5,444.8 238.9 64.1 5,619.6
Mortgage-backed securities........................................ 3,974.8 171.2 42.2 4,103.8
--------- ------ ------ ---------
Total fixed maturities ..................................... $12,109.7 $543.0 $149.4 $12,503.3
========= ====== ====== =========
</TABLE>
The following table sets forth fixed maturity investments at September 30,
1995, classified by rating categories. The category assigned is the highest
rating by Standard & Poors or Moody's Investor Service, or as to $182.9 million
fair value of fixed maturities not rated by such firms, the rating assigned by
the National Association of Insurance Commissioners ("NAIC"). For purposes of
the table, NAIC Class 1 is included in the "A" rating; Class 2, "BBB-"; Class 3,
"BB-" and Classes 4 to 6, "B+ and below."
<TABLE>
<CAPTION>
Investment Percent of
rating Fixed maturities Total investments
------ ---------------- -----------------
<S> <C> <C>
AAA................................... 36% 32%
AA.................................... 9 8
A..................................... 25 23
BBB+.................................. 8 7
BBB................................... 10 9
BBB-.................................. 7 6
---- ---
Investment grade............... 95 85
--- --
BB+................................... 2 2
BB.................................... 1 1
BB-................................... 1 1
B+ and below.......................... 1 1
---- ---
Below investment grade......... 5 5
---- ---
Total fixed maturities......... 100% 90%
=== ==
</TABLE>
Fixed maturities which were below investment grade had an amortized cost of
$639.4 million and an estimated fair value of $648.1 million at September 30,
1995.
During the first nine months of 1995, the Company recorded realized losses
for investment writedowns of $15.9 million as follows: (i) a $2.4 million
writedown of certain exchange-rate linked securities as a result of foreign
currency fluctuations; and (ii) a $13.5 million writedown of a corporate
security as a result of conditions which caused the Company to conclude that a
decline was other than temporary. During the first nine months of 1994, the
Company realized $.2 million of losses related to the writedown of an
exchanged-rate linked security. At September 30, 1995, there are no other fixed
maturities about which the Company has serious doubts as to the ability of the
issuers to comply with the contractual terms of their obligations on a timely
basis.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Proceeds from the sales of invested assets were $x.x billion for the nine
months ended September 30, 1995. Such sales resulted in net realized gains of
$93.5 million. Proceeds from sales of invested assets during the first nine
months of 1994 were $.x billion. These sales resulted in net realized losses of
$17.2 million.
At September 30, 1995, fixed maturity investments included $4.1 billion (33
percent of the fixed maturity investment portfolio) of mortgage-backed
securities, of which $2.6 billion were collateralized mortgage obligations
("CMOs") and $1.5 billion were pass-through securities. CMOs are securities
backed by pools of pass-through securities and/or mortgages that are segregated
into sections or "tranches." These securities provide for sequential retirement
of principal, rather than the pro rata share of principal return which occurs
through regular monthly principal payments on pass-through securities.
The yield characteristics of mortgage-backed securities differ from those
of traditional fixed income securities. Interest and principal payments occur
more frequently, often monthly, and mortgage-backed securities are subject to
risks associated with variable prepayments. Prepayment rates are influenced by a
number of factors which cannot be predicted with certainty, including the
relative sensitivity of the underlying mortgages backing the assets to changes
in interest rates, a variety of economic, geographic and other factors and the
repayment priority of the securities in the overall securitization structures.
In general, prepayments on the underlying mortgage loans, and the
securities backed by these loans, increase when the level of prevailing interest
rates declines significantly below the interest rates on such loans.
Mortgage-backed securities purchased at a discount to par will experience an
increase in yield when the underlying mortgages prepay faster than expected.
Those securities purchased at a premium that prepay faster than expected will
incur a reduction in yield. When declines in interest rates occur, the proceeds
from the prepayment of mortgage-backed securities are likely to be reinvested at
lower rates than the Company was earning on the prepaid securities. As the level
of prevailing interest rates increases, prepayments on mortgage-backed
securities decrease, as fewer underlying mortgages are refinanced. When this
occurs, the average maturity and duration of the mortgage-backed securities
increase, which decreases the yield on mortgage-backed securities purchased at a
discount because the discount is realized as income at a slower rate and
increases the yield on those purchased at a premium as a result of a decrease in
annual amortization of the premium.
The following table sets forth the par value, amortized cost and estimated
fair value of mortgage-backed securities including CMOs at September 30, 1995,
summarized by interest rates on the underlying collateral at September 30, 1995:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent .................................................................. $1,224.1 $1,146.9 $1,162.4
7 percent - 8 percent............................................................... 2,095.9 1,941.6 2,028.3
8 percent - 9 percent............................................................... 640.8 617.7 639.4
9 percent and above................................................................. 270.7 268.6 273.7
-------- -------- --------
Total mortgage-backed securities......................................... $4,231.5 $3,974.8 $4,103.8
======== ======== ========
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
including CMOs at September 30, 1995, summarized by type of security were as
follows (dollars in millions):
<TABLE>
<CAPTION>
Estimated fair value
-------------------------
Percent
Amortized of fixed
Type cost Amount maturities
- ---- ---- ------ ----------
<S> <C> <C> <C>
Pass-throughs and sequential and targeted amortization classes............ $2,117.7 $2,175.1 18%
Support classes........................................................... 113.0 126.9 1
Accrual (Z tranche) bonds................................................. 114.4 131.5 1
Planned amortization classes and accretion directed bonds................. 1,384.5 1,408.4 11
Subordinated classes ..................................................... 245.2 261.9 2
-------- -------- ---
$3,974.8 $4,103.8 33%
======== ======== ====
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Pass-throughs and sequential and targeted amortization classes have similar
prepayment variability. Pass-throughs have historically provided the best
liquidity in the mortgage-backed securities market and the best
price/performance ratio in a highly volatile interest rate environment. This
type of security is also frequently used as collateral in the dollar roll
market. Sequential classes pay in a strict sequence with all principal payments
received by the CMO paid to the sequential tranches in order of priority.
Targeted amortization classes provide a modest amount of prepayment protection
when prepayments on the underlying collateral increase from those assumed at
pricing and thus offer slightly better call protection than sequential classes
and pass-throughs.
Support classes absorb the prepayment risk from which planned amortization
and targeted amortization classes are protected. As such, they are usually
extremely sensitive to prepayments. Most of the Company's support classes are
higher average life instruments that generally will not lengthen if interest
rates rise further and will have a tendency to shorten if interest rates
decline. However, since these bonds have current values below par values, higher
prepayments will have the effect of increasing yields.
Accrual bonds are CMOs structured such that the payment of coupon interest
is deferred until principal payments begin on these bonds. On each accrual date,
the principal balance is increased by the amount of the interest (based upon the
stated coupon rate) that otherwise would have been payable. As such, these
securities act much the same as zero coupon bonds until cash payments begin.
Cash payments typically do not commence until earlier classes in the CMO
structure have been retired, which can be significantly influenced by the
prepayment experience of the underlying mortgage loan collateral in the CMO
structure. Because of the zero coupon element of these securities and the
potential uncertainty as to the timing of cash payments, their market values and
yields are more sensitive to changing interest rates than other CMOs,
pass-through securities and coupon bonds.
Planned amortization classes and accretion directed bonds are some of the
most stable and liquid instruments in the mortgage-backed securities market.
Planned amortization class bonds adhere to a fixed schedule of principal
payments provided that the underlying mortgage collateral experiences
prepayments within a certain range. Changes in prepayment rates are first
absorbed by support classes which insulate the planned amortization classes from
the consequences of both faster prepayments (average life shortening) and slower
prepayments (average life extension).
Subordinated CMO classes have both prepayment and credit risk. The
subordinated classes are used to lend credit enhancement to the senior
securities and as such, rating agencies require that this support not
deteriorate due to the prepayment of the subordinated securities. The credit
risk of subordinated classes is derived from the negative leverage of owning a
small percentage of the underlying mortgage loan collateral while bearing a
majority of the risk of loss due to homeowners' defaults.
At September 30, 1995, the balance of mortgage loans was comprised of 97
percent commercial loans, 2 percent residual interests in collateralized
mortgage obligations and 1 percent residential loans. Less than 1 percent of
mortgage loans were noncurrent at September 30, 1995. During the nine months
ended September 30, 1995, the Company wrote down $1.4 million of mortgage loans.
There were no realized losses on mortgage loans during the nine months ended
September 30, 1994. At September 30, 1995, the Company had a loan loss reserve
of $4.7 million.
Investment borrowings averaged approximately $460 million during the first
nine months of 1995, compared to approximately $219 million during the same
period of 1994 and were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
such borrowings was 5.6 percent and 3.7 percent in the nine months ended
September 30, 1995 and 1994, respectively.
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 that are
included on a consolidated basis in these financial statements reported the
following amounts to regulatory agencies at September 30, 1995, after
appropriate eliminations of intercompany accounts among such subsidiaries
(dollars in millions):
<TABLE>
<S> <C>
Statutory capital and surplus ................................ $ 790.5
Asset valuation reserve ("AVR")............................... 116.8
Interest maintenance reserve ("IMR").......................... 217.7
Portion of surplus debenture carried as a liability .......... 77.5
--------
Total...................................................... $1,202.5
========
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
At September 30, 1995, the ratio of such consolidated statutory account
balances to consolidated statutory liabilities (excluding AVR, IMR, the portion
of surplus debentures carried as a liability, from separate account business and
short-term collateralized borrowings) was 9.3 percent, compared to a ratio of
9.1 percent at December 31, 1994. The decline in the ratio is primarily due to
$87.4 million of dividend payments made by the life insurance subsidiaries to
non-life parent companies, partially offset by statutory earnings of such life
subsidiaries.
In connection with BLH's acquisition, BLH increased the capital of one of
its life insurance subsidiaries (Bankers Life Insurance Company of Illinois
"BLI") by providing cash in exchange for a surplus debenture. The remaining
balance of the surplus debenture of $430.0 million at September 30, 1995, is
considered a part of BLI's statutory capital and surplus. 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 ("DOI") when its
Director is satisfied that the financial condition of BLI warrants that action.
Such approval may not be withheld provided the surplus of BLI exceeds, after
such payment, approximately $128.0 million. BLI's surplus at September 30, 1995,
was $323.9 million. During April 1995, BLI made a scheduled principal payment on
the surplus debenture of $30.0 million plus accrued interest.
BLI's ability to service its obligations under the surplus debenture is
dependent upon its ability to receive dividends and tax sharing payments from
its subsidiary, Bankers Life and Casualty Company ("BLC"). BLC may, upon prior
notice to the DOI, pay dividends in any twelve-month period up to the greater
of: (i) statutory income from operations for the prior year; or (ii) 10 percent
of statutory capital and surplus at the end of the prior year. Additionally, as
a condition to its 1992 acquisition, BLC agreed not to pay dividends if,
immediately after such payment, BLC's ratio of adjusted capital to risk-based
capital ("RBC") would be less than 100 percent. Calculations using the RBC
formula indicate that BLC's adjusted capital is twice its total RBC at September
30, 1995. Dividends in excess of maximum amounts prescribed by the state
statutes may not be paid without DOI approval. During the nine months ended
September 30, 1995, BLC paid regular dividends of $67.0 million. During the
remainder of 1995, BLC may pay additional dividends up to $26.4 million without
regulatory approval.
Insurance subsidiaries of CCP may pay $69.2 million of ordinary dividends
to Conseco during the remainder of 1995. Such subsidiaries did not pay dividends
to CCP during the first nine months of 1995.
As a result of the acquisitions and subsequent recapitalization
transactions of CCP's insurance subsidiaries, a CCP insurance subsidiary issued
a surplus debenture to its direct parent company. As required by the state
regulatory authorities, the debenture is classified as a part of statutory
capital and surplus of JNX to the extent that such capital and surplus equals
the level of capital and surplus required by the regulators. The balance of the
debenture in excess of such amount is carried as a liability on the statutory
balance sheet. This amount, however, would be reclassified to statutory capital
and surplus to the extent subsequently needed to meet the level of capital and
surplus required by the regulators.
During the first nine months of 1995, our wholly owned life insurance
subsidiaries paid $40.0 million of ordinary dividends to Conseco. During the
remainder of 1995, our wholly owned insurance subsidiaries may pay additional
dividends up to $8.4 million without the permission of state regulatory
authorities.
The surplus of AGP's primary life insurance subsidiary (American Life and
Casualty Insurance Company) includes a surplus note with a balance of $50.0
million at September 30, 1995. Each payment of interest or principal on the
surplus notes requires the prior approval of the Iowa Insurance Division. The
Iowa insurance law also provides that payments of dividends on capital stock and
surplus note payments may be made only out of an insurer's earned surplus. At
September 30, 1995, the subsidiary had earned surplus of $110.2 million. During
the first nine months of 1995, the subsidiary distributed surplus note payments
and dividends of $34.4 million to another subsidiary of AGP (American Life
Holding Company). During the remainder of 1995, approximately $3.7 million is
available to be transferred from American Life and Casualty Insurance Company to
American Life Holding Company in the form of dividends or surplus note payments
without prior approval of the Iowa Insurance Division.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
2.4 Agreement and Plan of Merger, dated as of May 19, 1995, by
and between CCP Insurance, Inc. and Conseco, Inc. is
incorporated by reference from the Registrant's Form 8-K
dated August 31, 1995.
4.13 Indenture dated as of December 15, 1990, between Conseco,
Inc., as successor to CCP Insurance, Inc., and LTCB Trust
Company, as Trustee, for the $200,000,000 aggregate
principal amount of 10 1/2% Senior Notes due 2004 is
incorporated herein by reference to Exhibit 4.4 of the
Form 10-K of CCP Insurance, Inc. (Commission File No.
1-11197) for the year ended December 31, 1994.
4.13.1 First Supplemental Indenture between Conseco, Inc., as
Issuer, and LTCB Trust Company as Trustee, dated as of
August 31, 1995.
4.14 Credit Agreement dated August 31, 1995 by and among
Conseco, the financial institutions who are or from time
to time become party thereto, The Chase Manhattan Bank,
N.A., First Union National Bank of North Carolina, the
Managing Banks named therein and Bank of America National
Trust and Savings Association.
4.15 Form of Borrower Shared Pledge Agreement dated as of
August 31, 1995, between Conseco, Inc. and Bank of America
National Trust and Savings Association, as Administrative
Agent.
4.16 Form of New CIHC Pledge Agreement dated as of August 31,
1995, between CIHC, Incorporated and Bank of America
National Trust and Savings Association, as Administrative
Agent.
11.1 Computation of Earnings Per Share - Primary.
11.2 Computation of Earnings Per Share - Fully Diluted.
27.0 Financial Data Schedule
b) Reports on Form 8-K.
A report on Form 8-K dated August 31, 1995, was filed with the
Commission to report under Item 2, the acquisition of all of the
common stock of CCP Insurance, Inc. not owned by Conseco, Inc.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSECO, INC.
Dated: November 13, 1995 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
<PAGE>
FIRST SUPPLEMENTAL INDENTURE
BETWEEN
CONSECO, INC. as Issuer
and LTCB TRUST COMPANY, as Trustee
Dated as of August 31, 1995
<PAGE>
FIRST SUPPLEMENTAL INDENTURE, dated as of August 31, 1995 (this
"Supplemental Indenture"), between CONSECO, INC., an Indiana corporation (the
"Company") , and LTCB TRUST COMPANY (the "Trustee").
WHEREAS, CCP Insurance, Inc., an Indiana corporation ("CCPI"), and the
Trustee have entered into an indenture (the "Indenture") dated as of December
15, 1994 to provide for the issuance of $200 million principal amount of CCPI's
10 1/2% Senior Notes Due 2004 (the "Securities"); and
WHEREAS, on August 31, 1995, CCPI merged with and into the Company (the
"Merger") , with the Company succeeding to the business of CCPI and assuming all
of the obligations of CCPI under the Securities and the Indenture; and
WHEREAS, the Company has made a request to the Trustee that the Trustee
join with it, in accordance with Section 9. 1 of the Indenture, in the execution
of this Supplemental Indenture to permit the Company to assume all the
obligations of CCPI under the Indenture;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Indenture and for other good and valuable
consideration, the receipt and sufficiency of which are herein acknowledged, the
Company and the Trustee hereby agree for the equal and ratable benefit of all
holders of the Securities as follows:
ARTICLE 1.
Definitions
Section 1.01 Definitions. For purposes of this Supplemental Indenture,
the terms defined in the recitals shall have the meanings therein specified; any
terms defined in the Indenture and not defined herein shall have the meanings
therein specified.
ARTICLE 2.
Assumption and Substitution
Section 2.01. Assumption of Obligations. The Company as the surviving
corporation of the Merger expressly acknowledges and assumes the due and
punctual payment of the principal of, and interest on, all the Securities and
the performance and observance of every covenant of the Indenture to be
performed or observed by CCPI.
Section 2.02 Substitution. On the date hereof, the Company (as the
surviving corporation of the Merger) shall, by virtue of the assumption
described in Section 2.0l and the execution and delivery of this Supplemental
Indenture, succeed to and be substituted for CCPI.
<PAGE>
ARTICLE 3.
Miscellaneous
Section 3.01 Effect of the Supplemental Indenture. This Supplemental
Indenture supplements the Indenture and shall be a part and subject to all the
terms thereof. Except as supplemented hereby, the Indenture and the Securities
issued thereunder shall continue in full force and effect.
Section 3.02. Counterparts. This Supplemental Indenture may be
executed in counterparts, each of which shall be deemed an original, but all
of which shall together constitute one and the same instrument.
Section 3.03 GOVERNING LAW. THIS SUPPLEMENTAL INDENTURE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK
(WITHOUT GIVING EFFECT TO THE CONFLICT OF LAWS PRINCIPLES THEREOF).
IN WITNESS WHEREOF, the parties hereto have caused this Supplemental
Indenture to be duly executed, all as of the date first written above.
CONSECO, INC.
By: /s/ ROLLIN M. DICK
--------------------
Name: Rollin M. Dick
Title: Executive Vice President
LTCB TRUST COMPANY, as Trustee
By: /s/ HELMUT LANGEFELD
------------------------
Name: Helmut Langefeld
Title: Executive Vice President
<PAGE>
CREDIT AGREEMENT
Dated as of August 31, 1995
among
CONSECO, INC.,
THE OTHER FINANCIAL INSTITUTIONS PARTY HERETO,
THE CHASE MANHATTAN BANK, N.A. and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA,
as Documentation Agents,
THE BANK OF NEW YORK, THE BANK OF TOKYO TRUST,
CREDIT LYONNAIS CAYMAN ISLAND BRANCH,
DEUTSCHE BANK AG, NEW YORK BRANCH,
DRESDNER BANK, ING CAPITAL CORPORATION,
THE LONG-TERM CREDIT BANK OF JAPAN, LTD., NATIONSBANK OF
GEORGIA, N.A., SHAWMUT BANK CONNECTICUT, N.A.,
and SOCIETE GENERALE,
as Managing Agents
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
Arranged By
BA SECURITIES, INC.
<PAGE>
The following Table of Contents has been inserted for convenience only and does
not constitute a part of this Agreement.
<TABLE>
<CAPTION>
TABLE OF CONTENTS
PAGE
----
<S> <C>
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS.....................................................................
1.1 Certain Defined Terms.............................................................................
1.2 Other Definitional Provisions.....................................................................
1.3 Accounting and Financial Determinations...........................................................
SECTION 2. THE COMMITMENTS AND THE LOANS.......................................................................
2.1 Commitment........................................................................................
2.2 Types of Loans....................................................................................
2.3 Procedure for Borrowing...........................................................................
2.4 Funding Reliance..................................................................................
2.5 Conversion and Continuation Elections............................................................
2.6 Repayment of Loans................................................................................
2.7 Loan Accounts; Record Keeping.....................................................................
SECTION 3. INTEREST AND FEES, ETC..............................................................................
3.1 Interest Rates....................................................................................
3.2 Default Interest Rate.............................................................................
3.3 Interest Payment Dates............................................................................
3.4 Setting and Notice of Rates.......................................................................
3.5 Computation of Fees and Interest..................................................................
3.6 Fees..............................................................................................
SECTION 4. PAYMENTS AND PREPAYMENTS............................................................................
4.1 Voluntary Termination or Reduction of
Commitments...................................................................................
4.2 Optional Prepayments..............................................................................
4.3 Mandatory Prepayments.............................................................................
4.4 Payments by the Borrower..........................................................................
4.5 Application of Prepayments........................................................................
4.6 Sharing of Payments...............................................................................
4.7 Setoff............................................................................................
4.8 Net Payments......................................................................................
4.9 Mandatory Reduction in the Commitments............................................................
SECTION 5. CHANGES IN CIRCUMSTANCES............................................................................
5.1 Increased Costs...................................................................................
5.2 Change in Rate of Return..........................................................................
5.3 Basis for Determining Interest Rate Inadequate or
Unfair........................................................................................
5.4 Changes in Law Rendering Certain Loans Unlawful...................................................
5.5 Funding Losses....................................................................................
5.6 Right of Banks to Fund Through Other Offices......................................................
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5.7 Discretion of Banks as to Manner of Funding.......................................................
5.8 Replacement of Banks..............................................................................
5.9 Conclusiveness of Statements; Survival of
Provisions....................................................................................
SECTION 6. COLLATERAL AND OTHER SECURITY.......................................................................
6.1 Collateral Documents..............................................................................
6.2 Application of Proceeds from Collateral...........................................................
6.3 Further Assurances................................................................................
6.4 Release of Shared Collateral......................................................................
SECTION 7. REPRESENTATIONS AND WARRANTIES......................................................................
7.1 Organization, etc.................................................................................
7.2 Authorization.....................................................................................
7.3 No Conflict.......................................................................................
7.4 Governmental Consents.............................................................................
7.5 Validity..........................................................................................
7.6 Financial Statements..............................................................................
7.7 Material Adverse Change...........................................................................
7.8 Litigation and Contingent Obligations.............................................................
7.9 Liens.............................................................................................
7.10 Pension and Welfare Plans........................................................................
7.11 Investment Company Act...........................................................................
7.12 Public Utility Holding Company Act...............................................................
7.13 Taxes............................................................................................
7.14 Accuracy of Information..........................................................................
7.15 Environmental Warranties.........................................................................
7.16 Proceeds.........................................................................................
7.17 Insurance........................................................................................
7.18 Securities Laws..................................................................................
7.19 Governmental Authorizations......................................................................
7.20 Business Locations; Trade Names..................................................................
7.21 Solvency.........................................................................................
7.22 Insurance Licenses...............................................................................
7.23 Compliance with Laws.............................................................................
7.24 No Default.......................................................................................
7.25 Pledged Shares...................................................................................
7.26 Mergers..........................................................................................
7.27 Margin Regulations...............................................................................
7.28 Tranche B Indebtedness...........................................................................
7.29 Conseco Corporate Structure......................................................................
7.30 Significant Subsidiaries.........................................................................
7.31 BLHC a Subsidiary................................................................................
SECTION 8. AFFIRMATIVE COVENANTS...............................................................................
8.1 Reports, Certificates and Other Information.......................................................
8.2 Corporate Existence; Foreign Qualification........................................................
8.3 Books, Records and Inspections....................................................................
8.4 Insurance.........................................................................................
8.5 Taxes and Liabilities.............................................................................
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8.6 Pension Plans and Welfare Plans...................................................................
8.7 Compliance with Laws..............................................................................
8.8 Maintenance of Permits............................................................................
8.9 Environmental Compliance..........................................................................
8.10 BLHC a Subsidiary................................................................................
SECTION 9. NEGATIVE COVENANTS..................................................................................
9.1 Limitation on Indebtedness........................................................................
9.2 Liens.............................................................................................
9.3 Consolidation, Merger, etc........................................................................
9.4 Asset Disposition, etc............................................................................
9.5 Other Agreements..................................................................................
9.6 Business Activities...............................................................................
9.7 Change of Location or Name........................................................................
9.8 Transactions with Affiliates......................................................................
9.9 Dividends, etc....................................................................................
9.10 Investments......................................................................................
9.11 Senior Notes and Senior Note Documents...........................................................
9.12 BLHC a Subsidiary................................................................................
SECTION 10. FINANCIAL COVENANTS ...............................................................................
10.1 Minimum Surplus..................................................................................
10.2 Shareholders' Equity.............................................................................
10.3 Debt to Total Capitalization.....................................................................
10.4 Risk-Based Capital...............................................................................
10.5 Cash Coverage Ratio..............................................................................
10.6 Best Rating......................................................................................
SECTION 11. CONDITIONS..........................................................................................
11.1 Initial Loans....................................................................................
11.2 All Loans........................................................................................
11.3 Tranche B Loans..................................................................................
SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT.................................................................
12.1 Events of Default................................................................................
12.2 Effect of Event of Default.......................................................................
SECTION 13. THE AGENT..........................................................................................
13.1 Authorization and Action.........................................................................
13.2 Liability of the Administrative Agent............................................................
13.3 Administrative Agent and Affiliates..............................................................
13.4 Bank Credit Decision.............................................................................
13.5 Indemnification..................................................................................
13.6 Successor Agent..................................................................................
13.7 Duties of Documentation Agents and Managing
Agents........................................................................................
SECTION 14. ASSIGNMENTS AND PARTICIPATIONS.....................................................................
14.1 Assignments......................................................................................
14.2 Participations...................................................................................
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14.3 Disclosure of Information........................................................................
14.4 Foreign Transferees..............................................................................
SECTION 15. MISCELLANEOUS......................................................................................
15.1 Waivers and Amendments...........................................................................
15.2 Failure to Consent...............................................................................
15.3 Notices..........................................................................................
15.4 Payment of Costs and Expenses....................................................................
15.5 Indemnity........................................................................................
15.6 Subsidiary References............................................................................
15.7 Captions.........................................................................................
15.8 GOVERNING LAW....................................................................................
15.9 Counterparts.....................................................................................
15.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE.....................................................
15.11 Service of Process..............................................................................
15.12 Successors and Assigns..........................................................................
15.13 WAIVER OF JURY TRIAL............................................................................
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SCHEDULES AND EXHIBITS
SCHEDULES
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SCHEDULE A Merchant Banking Investments
SCHEDULE 1.1 List of Servicing Agreements
SCHEDULE 2.1 Banks and Percentages
SCHEDULE 7.4 Governmental Consents
SCHEDULE 7.8 Litigation
SCHEDULE 7.10 ERISA
SCHEDULE 7.13 Tax Matters
SCHEDULE 7.17 Insurance
SCHEDULE 7.20 Business Locations; Trade Names
SCHEDULE 7.22 Licenses
SCHEDULE 7.26 Merger Consummation
SCHEDULE 7.30 Significant Subsidiaries
SCHEDULE 9.1 Indebtedness
SCHEDULE 9.2 Liens
SCHEDULE 9.6 Lines of Business
SCHEDULE 9.8 Transactions with Affiliates
SCHEDULE 9.10 Investments
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EXHIBITS
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EXHIBIT A Form of Tranche A Note
EXHIBIT B Form of Tranche B Note
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Continuation/Conversion Notice
EXHIBIT E-1 Form of Borrower Non-Shared Pledge Agreement
EXHIBIT E-2 Form of Borrower Shared Pledge Agreement
EXHIBIT E-3 Form of MDSCG Pledge Agreement
EXHIBIT E-4 Form of New CIHC Pledge Agreement
EXHIBIT F Form of Assignment of Servicing Agreements
EXHIBIT G Form of Compliance Certificate
EXHIBIT H Form of Opinion of Lawrence Inlow, general
counsel to the Borrower and its Subsidiaries
(including BLHC)
EXHIBIT I-1 Form of Officer's Certificate (Borrower)
EXHIBIT I-2 Form of Officer's Certificate (New CIHC)
EXHIBIT I-3 Form of Officer's Certificate (MDSCG)
EXHIBIT I-4 Form of Officer's Certificate (BNL)
EXHIBIT I-5 Form of Officer's Certificate (CCM)
EXHIBIT I-6 Form of Officer's Certificate (CMCI)
EXHIBIT J Form of Servicing Agreements
EXHIBIT K Form of Assignment Agreement
EXHIBIT L Form of Confidentiality Letter
EXHIBIT M Form of CCPI Merger Agreement
EXHIBIT N Form of Excess Cash Flow Certificate
EXHIBIT O Form of Funding Loss Formula
EXHIBIT P Form of New CIHC Assumption Agreement
EXHIBIT Q Conseco Corporate Structure (Post-Closing)
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<PAGE>
CREDIT AGREEMENT
THIS CREDIT AGREEMENT is entered into as of August 31, 1995 (the
"Effective Date"), among CONSECO, INC., an Indiana corporation (the "Borrower"),
the several financial institutions from time to time party to this Agreement
(herein, together with any Eligible Assignees thereof, collectively called the
"Banks" and each individually, a "Bank"), THE CHASE MANHATTAN BANK, N.A. and
FIRST UNION NATIONAL BANK OF NORTH CAROLINA, as documentation agents for the
Banks (herein in such capacity, together with any successors thereto in such
capacity, collectively called the "Documentation Agents" and each individually
called a "Documentation Agent"), THE BANK OF NEW YORK, THE BANK OF TOKYO TRUST
COMPANY, CREDIT LYONNAIS CAYMAN ISLAND BRANCH, DEUTSCHE BANK AG, NEW YORK
BRANCH, DRESDNER BANK, ING CAPITAL CORPORATION, THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH, NATIONSBANK OF GEORGIA, N.A., SHAWMUT BANK
CONNECTICUT, N.A. and SOCIETE GENERALE, as managing agents (herein in such
capacity together with successors thereto in such capacity, collectively called
the "Managing Agents" and each individually called a "Managing Agent"), and BANK
OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION ("BofA"), as administrative
agent for the Banks (herein in such capacity, together with any successors
thereto in such capacity, called the "Administrative Agent").
Background
WHEREAS, the Banks have agreed to make Loans (as hereinafter defined)
on a revolving basis to the Borrower upon the terms and subject to the
conditions set forth in this Agreement;
WHEREAS, the proceeds of the Loans shall be used (a) to purchase all of
the outstanding common stock of CCP Insurance, Inc., an Indiana corporation
("CCPI"), not currently owned by the Borrower or its Subsidiaries, (b) to pay
the Indebtedness to be Refinanced (as hereinafter defined), (c) to refinance
certain other Indebtedness (as hereinafter defined) of the Borrower used to
finance the acquisition of common stock of BLHC (as hereinafter defined), and
(d) for general working capital purposes;
WHEREAS, the Borrower and CCPI have entered into that certain Agreement
and Plan of Merger, dated as of May 19, 1995, in the form of Exhibit M hereto
(as the same may be amended or modified on or before the Closing Date (the "CCPI
Merger Agreement"), whereby CCPI shall be merged with and into the Borrower
concurrently with the initial Borrowing (as hereinafter defined) and the
separate corporate existence of CCPI shall cease and the Borrower shall continue
as the surviving corporation under the laws of the State of Indiana (the "CCPI
Merger");
<PAGE>
WHEREAS, prior to the initial Borrowing (a) GARCO Holding Corporation,
a Delaware corporation and a Wholly-Owned Subsidiary of CCPI ("GARCO Holding"),
will be merged with and into CCPI and the separate corporate existence of GARCO
Holding will cease and CCPI shall continue as the surviving corporation under
the laws of the State of Indiana (the "GARCO Merger"), (b) the Borrower will
contribute all of the capital stock of CIHC, Incorporated, a Delaware
corporation (f/k/a KC Acquisition Corporation) and a Wholly-Owned Subsidiary of
the Borrower (the "New CIHC"), to Old CIHC (as hereinafter defined), (c) Old
CIHC shall contribute all of its assets and liabilities (other than the capital
stock of CCPI owned by Old CIHC and the CIHC Preferred Stock (as hereinafter
defined)) to New CIHC (the "CIHC Contribution"), and (d) Old CIHC shall be
merged with and into the Borrower and the separate corporate existence of Old
CIHC shall cease and the Borrower shall continue as the surviving corporation
under the laws of the State of Indiana (the "CIHC Merger") ;
WHEREAS, concurrently with the initial Borrowing the Borrower shall
contribute to New CIHC (i) all of the capital stock of Jefferson National Life
Insurance Company of Texas, a Texas corporation ("JNL-TX"), (ii) all of the
capital stock of Bankers Life Holding Corporation, a Delaware corporation
("BLHC"), owned by the Borrower and (iii) the Surplus Debenture (as hereinafter
defined) (collectively, the "Conseco Contribution"), in each case subject to the
Lien of the Banks, and the holders of the Senior Notes, if any (as hereinafter
defined); and
WHEREAS, as security for the Loans and in consideration for the Banks'
consent to the CCPI Merger, the CIHC Merger, the CIHC Contribution and the
Conseco Contribution, (a) the Borrower shall, inter alia, pledge or cause to be
pledged to the Administrative Agent, for the benefit of the Banks and, to the
extent set forth herein, the holders of the Senior Notes, (i) all of the capital
stock of each of the Wholly-Owned Subsidiaries of the Borrower (as hereinafter
defined) to the extent not prohibited by the Applicable Insurance Code relating
to any Insurance Subsidiary (each as hereinafter defined), (ii) all of the
capital stock of BLHC owned by the Borrower and its Subsidiaries (including
BLHC) and (iii) concurrently with the CCPI Merger, all of the capital stock of
JNL-TX and GARCO Equity Sales, Inc., a Texas corporation ("GES") and the Surplus
Debenture, (b) Marketing Distribution Systems Consulting Group, Inc., a Delaware
corporation ("MDSCG") shall, inter alia, pledge to the Administrative Agent, for
the benefit of the Banks, all of the capital stock of each of its Wholly-Owned
Subsidiaries, (c) New CIHC shall assume the obligations of the Borrower under
the Borrower Shared Pledge Agreement and the Borrower Non-Shared Pledge
Agreement (each as hereinafter defined) with respect to the assets of the
Borrower constituting Collateral (as hereinafter defined) contributed to New
CIHC pursuant to the Conseco Contribution, and shall, inter alia, pledge to the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, all of the capital stock of BLHC owned by New CIHC, all of the capital
stock of BNL, all of the capital stock of JNL-TX, and all of the membership
interest of CLLC owned by New CIHC and the Surplus Debenture and (d) each of the
Borrower, Bankers National Life Insurance Company, a Texas stock insurance
corporation ("BNL"), Conseco Capital Management, Inc., a Delaware corporation
("CCM"), and Conseco Mortgage Capital, Inc., a Delaware corporation ("CMCI"),
shall grant a security interest to the Administrative Agent, for the benefit of
the Banks, in all of its right, title and interest in, to and under the
Servicing Agreements (as hereinafter defined) to which they are a party.
<PAGE>
NOW, THEREFORE, in consideration of the mutual promises herein
contained and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
SECTION 1. DEFINITIONS AND ACCOUNTING TERMS
SECTION 1.1 Certain Defined Terms. 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):
"Adjusted Capital" shall mean, as to any Insurance Subsidiary, as of
any date, the total amount shown on line 27, page 23, column 1 of the Annual
Statement of such Insurance Subsidiary, or an amount determined in a consistent
manner for any date other than one as of which an Annual Statement is prepared.
"Administrative Agent" - see Preamble.
"Administrative Agent's Office" shall mean 1455 Market Street, 12th
Floor, San Francisco, California 94103, or such other address designated by the
Administrative Agent (or any successor agent) to the Borrower and the Banks from
time to time.
"Affected Bank" - see Section 5.4.
"Affiliate" shall mean, as to any Person, any other Person which,
directly or indirectly, owns, holds, controls, is controlled by or is under
common control with such Person(including all beneficial control as a trustee,
guardian or other fiduciary). A Person shall be deemed to be "controlled by" any
other Person if such other Person possesses, directly or indirectly, power (a)
to vote 10% or more of the securities (on a fully diluted basis) having ordinary
voting power for the election of directors or managing general partners; or (b)
to direct or cause the direction of the management and policies of such Person
whether through the ownership of voting securities, membership interests, by
contract or otherwise.
<PAGE>
"Agents" shall mean, collectively, the Administrative Agent, the
Documentation Agents, and the Managing Agents.
"Agreement" shall mean this Credit Agreement, as amended or modified.
"Amounts Available for Dividends" shall mean, without duplication, (a)
the maximum amount of dividends the Insurance Subsidiaries are permitted to pay
under the Applicable Insurance Code of their respective state of domicile
without necessitating approval of the applicable Department minus (b) any
amounts required to be retained by any applicable Insurance Subsidiary to comply
with Sections 10.1 and 10.4 hereof.
"Annual Statement" shall mean, as to any Insurance Subsidiary, the
annual financial statement of such Insurance Subsidiary as required to be filed
with the applicable Department, together with all exhibits or schedules filed
therewith, prepared in conformity with SAP. References to amounts on particular
exhibits, schedules, lines, pages and columns of the Annual Statement are based
on the format promulgated by the NAIC for 1994 Life, Accident and Health
Insurance Company Annual Statements. If such format is changed in future years
so that different information is contained in such items or they no longer
exist, it is understood that the reference is to information consistent with
that reported in the referenced item in the 1994 Annual Statement of such
Insurance Subsidiary.
"Applicable Insurance Code" shall mean, as to any Insurance Subsidiary,
the insurance code of any state where such Insurance Subsidiary is domiciled or
doing insurance business and any successor statute of similar import, together
with the regulations thereunder, as amended or otherwise modified and in effect
from time to time. References to sections of the Applicable Insurance Code shall
be construed to also refer to successor sections.
"Arranger" shall mean BA Securities, Inc., a Delaware
corporation.
<PAGE>
"Assignment Agreement" - see Section 14.1.
"Assumption Agreement" shall mean the New CIHC Assumption Agreement.
"Average Life" shall mean, as of the date of determination, with
respect to any Indebtedness, the quotient obtained by dividing (a) the sum of
the products of the numbers of years from the date of determination to the dates
of each successive scheduled principal payment of such Indebtedness multiplied
by the amount of such scheduled principal payment by (b) the sum of all such
scheduled principal payments.
"Banks" or "Bank" - see Preamble.
"Bank of America $140 Million Credit Agreement" shall mean the Credit
Agreement, dated as of April 19, 1994, among the Borrower, the lenders party
thereto, Bank of America Illinois (as successor to Continental Bank N.A.), as
agent, First Union National Bank of North Carolina and Citicorp USA, Inc., as
co- agents and Bank of America Illinois, as administrative agent.
"Bank of America $110 Million Credit Agreement" shall mean the Credit
Agreement, dated as of December 9, 1994, as amended, among the Borrower, the
lenders party thereto and Bank of America Illinois, as administrative agent.
"Bank Default" shall mean (a) the refusal (which has not been
retracted) of a Bank to make available its Percentage of any Loans when required
hereunder or (b) a Bank having notified the Administrative Agent and/or the
Borrower that it does not intend to comply with its obligations under Section
2.1 to the extent required thereunder.
"Base Rate" shall mean, for any day, the higher of (a) 0.50% per annum
above the latest Federal Funds Effective Rate and (b) the rate of interest in
effect for such day as publicly announced from time to time by BofA in San
Francisco, California, as its "reference rate." The "reference rate" is a rate
set by BofA based upon various factors including BofA's costs and desired
return, general economic conditions and other factors, and is used as a
reference point for pricing some loans, which may be priced at, above, or below
such announced rate. Any change in the reference rate announced by BofA shall
take effect at the opening of business on the date specified in the public
announcement of such change.
"Base Rate Loan" shall mean a Loan that bears interest based on the
Base Rate.
<PAGE>
"Base Rate Margin" - see Section 3.1(d).
"Benefit Program" shall mean any non-qualified deferred compensation
program including, without limitation, any employee stock option program,
employee restricted stock program or other similar forms of employee benefit
programs.
"BLC" shall mean Bankers Life & Casualty Company, an Illinois insurance
corporation.
"BLHC" - see fifth recital.
"BNL" - see sixth recital.
"BofA" - see Preamble.
"Borrower" - see Preamble.
"Borrower Non-Shared Pledge Agreement" - see Section 6.1(a).
"Borrower Shared Pledge Agreement" - see Section 6.1(b).
"Borrowing" shall mean a borrowing hereunder consisting of Tranche A
Loans or Tranche B Loans of the same Type made to the Borrower on the same day
by the Banks under Section 2, and, with respect to Offshore Rate Loans, having
the same Interest Period.
"Borrowing Date" shall mean any date on which a Borrowing occurs under
Section 2.3.
"BSL" shall mean Beneficial Standard Life Insurance Company, a
California corporation.
"Business Day" shall mean any day other than a Saturday, Sunday or
other day on which commercial banks in New York City or San Francisco are
authorized or required by law to close and, if the applicable Business Day
relates to any Offshore Rate Loan, shall mean such a day on which dealings are
carried on in the applicable offshore dollar interbank market.
"Calculation Period" shall mean, with respect to any ratio or
calculation, the period for which such ratio or calculation is being calculated.
"Capital and Surplus" shall mean, as to any Insurance Subsidiary, as of
any date, the total amount shown on line 38, page 3, column 1 of the Annual
Statement of such Insurance Subsidiary, or an amount determined in a consistent
manner for any date other than one as of which an Annual Statement is prepared.
<PAGE>
"Capitalized Lease Liabilities" shall mean, with respect to any Person,
all monetary obligations of such Person under any leasing or similar arrangement
which, in accordance with GAAP, would be classified as a capitalized lease, and,
for purposes of this Agreement, the amount of such obligations shall be the
capitalized amount thereof, determined in accordance with GAAP, and the stated
maturity thereof shall be the date of the last payment of rent or any other
amount due under such lease prior to the first date upon which such lease may be
terminated by the lessee without payment of a penalty.
"Cash Collateral Account" shall mean the deposit account, account
number 72-71484 or any replacement thereof, maintained in the name of, and
subject to the sole dominion and control of, the Administrative Agent for the
benefit of the Banks and, to the extent set forth herein, the holders of the
Senior Notes, for the purpose of holding Net Proceeds from a Disposition or Sale
that the Borrower elects, in accordance with Section 4.4(a), not to immediately
apply to the Liabilities or, to the extent required under the Indentures, the
Conseco Senior Note Obligations and the CCPI Senior Note Obligations.
"Cash Coverage Ratio" shall mean, for any Calculation Period, the ratio
of (a) (i) Amounts Available for Dividends directly to the Borrower from the
Insurance Subsidiaries, plus (ii) interest paid by JNL-TX with respect to the
Surplus Debenture, plus (iii) Net Cash Available from the Non-Insurance
Subsidiaries, plus (iv) the amount of Taxes paid or accrued but unpaid to the
Borrower under the Tax Sharing Agreement, plus (v) management and other fees
received by the Borrower under the Servicing Agreements or otherwise, plus (vi)
the Borrower's Investment Income received in cash, minus (vii) the amount of
Taxes paid or accrued but unpaid by the Borrower, minus (viii) cash operating
expenses of the Borrower, minus (ix) capital expenditures of the Borrower, minus
(x) principal and interest payments made or interest accrued but unpaid on
intercompany loans by the Borrower and its Subsidiaries, minus (xi) dividends
paid, in cash, to BNL by Old CIHC on the CIHC Preferred Stock to the extent
permitted by this Agreement, minus (xii) the amount paid, in cash, for
repurchases of the Borrower's capital stock from Net Proceeds received from the
sale of Merchant Banking Investments to the extent permitted by this Agreement,
in each case for the immediately preceding four (4) consecutive Fiscal Quarters;
provided that for the Fiscal Quarters ending December 31, 1995, March 31, 1996
and June 30, 1996 the foregoing shall be calculated for the immediately
preceding one (1), two (2) and three (3) consecutive Fiscal Quarters,
respectively, to (b) Fixed Charges for the immediately preceding four (4)
consecutive Fiscal Quarters; provided that for the Fiscal Quarters ending
December 31, 1995, March 31, 1996 and June 30, 1996 the foregoing shall be
calculated for the immediately preceding one (1), two (2) and three (3)
consecutive Fiscal Quarters, respectively.
<PAGE>
"Cash Equivalents" shall mean (a) securities with maturities of one (1)
year or less from the date of determination issued or fully guaranteed or
insured by the United States Government, or any instrumentality or agency
thereof, (b) certificates of deposit, eurodollar time deposits, overnight bank
deposits, bankers' acceptances and repurchase agreements of any Bank or any
other commercial bank whose unsecured long-term debt obligations are rated at
least "BBB-" by Standard & Poor's, "Baa-3" by Moody's, "BBB-" by Duff & Phelps,
"BBB-" by Fitch Investors Services, Inc. or "NAIC 2" by the NAIC having
maturities of six (6) months or less from the date of determination and (c)
commercial paper having maturities of six (6) months or less from the date of
determination rated at least "A-2" by Standard & Poor's, "P-2" by Moody's, "D-2"
by Duff & Phelps, "F-2" by Fitch Investors Services, Inc. or "NAIC 2" by the
NAIC, or carrying an equivalent rating by a nationally recognized rating agency,
if all of the named rating agencies cease publishing ratings of investments.
"CCM" - see sixth recital.
"CCPI" shall mean CCP Insurance, Inc., an Indiana corporation.
"CCPI Indenture" shall mean the Indenture, dated as of December 15,
1994, between CCPI and LTCB Trust Company, as trustee, as the same may be
amended or modified in accordance with the terms of this Agreement.
"CCPI Merger" - see third recital.
"CCPI Merger Agreement" - see third recital.
"CCPI Merger Documents" shall mean the CCPI Merger Agreement and the
other agreements and instruments pursuant to which the CCPI Merger is
consummated, as the same may be amended or modified or supplemented in
accordance with this Agreement.
"CCPI Senior Note Obligations" shall mean the Obligations (as defined
in the CCPI Indenture) of CCPI with respect to the Securities (as defined in the
CCPI Indenture).
"CCPI Senior Notes" shall mean the 10-1/2% Senior Notes due 2004 of
CCPI to be assumed by the Borrower pursuant to the Merger, as the same may be
amended or modified in accordance with the terms of this Agreement.
<PAGE>
"CCP II" shall mean Conseco Capital Partners II, L.P., a Delaware
limited partnership.
"CCP II Partnership Agreement" shall mean the Agreement of Limited
Partnership, dated as of January 26, 1994, among CCP II, as general partner, and
the limited partners set forth on Schedule A thereto, as in effect on the date
hereof.
"CCPM" - see sixth recital.
"CERCLA" shall mean the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended.
"CERCLIS" shall mean the Comprehensive Environmental Response,
Compensation and Liability Information System List.
"Change in Control" shall be deemed to have occurred at such times as:
(a) any Person, or two or more Persons, acting in concert, directly or
indirectly acquire after the Closing Date beneficial ownership (within the
meaning of Rule 13d-3 of the Securities and Exchange commission under the
Securities Exchange Act of 1934, as amended) of 30% or more of the outstanding
shares of voting stock of the Borrower or (b) individuals who as of the
Effective Date constitute the Borrower's Board of Directors (together with any
new director whose election by the Borrower's Board of Directors or whose
nomination for election by the Borrower's stockholders was approved by a vote of
at least two-thirds of the directors then still in office who either were
directors at the beginning of such period or whose election or nomination for
election was previously so approved), for any reason, cease to constitute a
majority of the directors at any time then in office.
"Charges" - see Section 4.8.
"CIHC Contribution" - see fourth recital.
"CIHC Merger" - see fourth recital.
"CIHC Preferred Stock" shall mean $900,000,000 stated value of Old
CIHC's Preferred Stock, par value $.001 per share.
"Closing Date" shall mean the date on which all conditions precedent
set forth in Section 11 are satisfied or waived by all Banks or with respect to
the payment of any fee payable hereunder, waived by the Person entitled to
receive such payment.
<PAGE>
"CMCI" - see sixth recital.
"CMO Derivative Investments" shall mean Z bonds, floaters/inverse
floaters, PAC II, PAC III, Ioettes, support bonds, Interest Only Investments,
Principal Only Investments, residuals, inverse IO's and super floaters.
"Code" shall mean the Internal Revenue Code of 1986, as amended, and
regulations promulgated thereunder, or, as the context requires, applicable
provisions of prior laws.
"Collateral" shall mean all of the collateral security described or
provided for in Section 6 together with all property and/or rights on or in
which a Lien is now or hereafter granted by any Person to the Administrative
Agent (or to any agent, trustee or other party acting on behalf of the
Administrative Agent) for the benefit of the Banks and, to the extent set forth
in Section 6, the holders of the Senior Notes, pursuant to the Pledge
Agreements, the Service Assignment or any other instruments or documents
provided for herein or delivered hereunder or in connection herewith.
"Collateral Percentage" shall mean the percentage corresponding to the
fraction, (a) in the case of the Liabilities, the numerator of which is equal to
the Liabilities and the denominator of which is equal to the sum of the
Liabilities, the Conseco Senior Note Obligations, and the CCPI Senior Note
Obligations, (ii) in the case of the Conseco Senior Notes, the numerator of
which is equal to the Conseco Senior Note Obligations and the denominator of
which is equal to the sum of the Liabilities, the Conseco Senior Note
Obligations, and the CCPI Senior Note Obligations and (iii) in the case of the
CCPI Senior Notes, the numerator of which is equal to the CCPI Senior Note
Obligations and the denominator of which is equal to the sum of the Liabilities,
the Conseco Senior Note Obligations, and the CCPI Senior Note Obligations.
"Commitment Reduction Date" - see Section 2.6(a).
"Commitments" shall mean, collectively, the Tranche A Commitments and
the Tranche B Commitments.
"Compliance Certificate" - see Section 8.1.5.
"Conseco Contribution" - see fifth recital.
"Conseco Indenture" shall mean the Indenture, dated as of February 18,
1993, between Conseco, Inc. and Shawmut Bank Connecticut, National Association,
as trustee, as the same may be amended or modified in accordance with the terms
of this Agreement.
<PAGE>
"Conseco Preferred Stock" shall mean the $283,500,000 stated value of
the Borrower's Series D Preferred Stock, no par value.
"Conseco Senior Note Obligations" shall mean the Obligations (as
defined in the Conseco Indenture) of the Borrower with respect to the Securities
(as defined in the Conseco Indenture).
"Conseco Senior Notes" shall mean the 8-1/8% Senior Notes due 2003 of
the Borrower, as the same may be amended or modified in accordance with the
terms of this Agreement.
"Contingent Obligation" shall mean any agreement, undertaking or
arrangement by which any Person guarantees, endorses or otherwise becomes or is
contingently liable upon (by direct or indirect agreement, contingent or
otherwise, to provide funds for payment, to supply funds to, or otherwise to
invest in, a debtor, or otherwise to assure a creditor against loss) the debt,
obligation or other liability of any other Person (other than by endorsements of
instruments in the course of collection), or guarantees the payment of dividends
or other distributions upon the shares of any other Person; provided, that the
obligations of any Person under Reinsurance Agreements and Surplus Relief
Reinsurance Agreements shall not be deemed Contingent Obligations of such
Person. The amount of any Person's liability with respect to any Contingent
Obligation shall (subject to any limitation set forth therein) be deemed to be
the outstanding principal amount (or maximum outstanding principal amount, if
larger) of the debt, obligation or other liability outstanding thereunder.
"Contractual Obligation" shall mean, as to any Person, any provision of
any security issued by such Person or of any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument, document or agreement to
which such Person is a party or by which it or any of its property is bound.
"Controlled Group" shall mean all members of a controlled group of
corporations and all members of a controlled group of trades or businesses
(whether or not incorporated) under common control which, together with the
Borrower, are treated as a single employer under section 414(b) or section
414(c) of the Code or section 4001 of ERISA. For purposes of this definition,
the term the Borrower shall be deemed to include any and all Subsidiaries of the
Borrower and the term Subsidiary shall be deemed to include BLHC.
<PAGE>
"Conversion/Continuation Date" shall mean any date on which, under
Section 2.5, the Borrower (a) converts Loans of one Type to another Type, or (b)
continues as Offshore Rate Loans of the same Type, but with a new Interest
Period, Offshore Rate Loans having Interest Periods expiring on such date.
"Credit Tenant Loans" shall mean mortgage loans which are made
primarily in reliance on the credit standing of a major tenant (which is an
Investment Grade Tenant), structured with an assignment of the rental payments
to the lender with real estate property pledged as collateral in the form of a
first lien.
"Default" shall mean any condition or event which constitutes an Event
of Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Defaulting Bank(s)" shall mean any Bank(s) with respect to which a
Bank Default is in effect.
"Department" shall mean, with respect to any Insurance Subsidiary, the
Governmental Authority of such Insurance Subsidiary's state of domicile with
whom such Insurance Subsidiary is required to file its Annual Statement.
"Disposition" - see Section 4.3(a).
"Documentation Agent(s)" - see Preamble.
"Dollars" and the sign "$" shall mean lawful money of the United States
of America.
"Duff & Phelps" shall mean Duff & Phelps Credit Rating Co., Inc.
"Effective Date" shall mean the date of this Agreement as set forth in
the Preamble.
"Eligible Assignee" shall mean any bank, pension fund, mutual fund,
investment fund or other financial institution (other than an insurance company
or any Affiliate of an insurance company except those to which the Borrower
consents).
"Environmental Claims" shall mean all claims, complaints, notices or
inquiries, however asserted or made, by any Governmental Authority or other
Person alleging potential liability or responsibility for violation of any
Environmental Law, or for release or injury to the environment or threat to
public health, personal injury (including sickness, disease or death), property
damage, natural resources damage, or otherwise alleging liability or
responsibility for damages (punitive or otherwise), cleanup, removal, remedial
or response costs, restitution, civil or criminal penalties, injunctive relief,
or other type of relief, resulting from or based upon the presence, placement,
discharge, emission or release (including intentional or unintentional,
negligent or non-negligent, sudden or non- sudden, accidental or non-accidental,
placement, spills, leaks, discharges, emissions or releases) of any Hazardous
Material at, in, or from property, whether or not owned by the Borrower.
<PAGE>
"Environmental Laws" shall mean all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances, codes and
guidelines (including common law, consent decrees and administrative orders),
together with all administrative orders, directed duties, requests, licenses,
authorizations and permits of, and agreements with, any Governmental
Authorities, in each case relating to environmental, health, safety and land use
matters; including CERCLA, the Clean Air Act, the Federal Water Pollution
Control Act of 1972, the Solid Waste Disposal Act, the Federal Resource
Conservation and Recovery Act, the Toxic Substances Control Act, the Emergency
Planning and Community Right-to-Know Act and any other applicable laws of any
jurisdiction.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Eurocurrency Reserve Percentage" shall mean for any day for any
Interest Period the maximum reserve percentage (expressed as a decimal, rounded
upward to the next 1/100th of 1%) in effect on such day (whether or not
applicable to any Bank) under regulations issued from time to time by the FRB
for determining the maximum reserve required (including any emergency,
supplemental or other marginal reserve requirement) with respect to Eurocurrency
funding (currently referred to as "Eurocurrency liabilities"). Without limiting
the effect of the foregoing, the Eurocurrency Reserve Percentage shall reflect
any other reserves required to be maintained by the Administrative Agent against
(a) any category of liabilities that includes deposits by reference to which the
Offshore Rate (Reserve Adjusted) is to be determined, or (b) any category of
extensions of credit or other assets that includes Offshore Rate Loans. For
purposes of this Agreement, any Offshore Rate Loans hereunder shall be deemed to
be "Eurocurrency liabilities," as defined in Regulation D, and, as such, shall
be deemed to be subject to such reserve requirements without the benefit of, or
credit for, proration, exceptions or offsets which may be available to the
Administrative Agent from time to time under Regulation D. The Offshore Rate
(Reserve Adjusted) shall be adjusted automatically as to all Offshore Rate Loans
then outstanding as of the effective date of any change in the Eurocurrency
Reserve Percentage.
<PAGE>
"Event of Default" - see Section 12.1.
"Excess Cash Flow" shall mean, for any Calculation Period, (a) (i)
Amounts Available for Dividends directly to the Borrower from the Insurance
Subsidiaries, plus (ii) interest paid by JNL- TX with respect to the Surplus
Debenture, plus (iii) Net Cash Available from the Non-Insurance Subsidiaries,
plus (iv) the amount of Taxes paid or accrued but unpaid to the Borrower under
the Tax Sharing Agreement, plus (v) management and other fees received by the
Borrower under the Servicing Agreements or otherwise, plus (vi) the Borrower's
Investment Income received in cash, minus (vii) the amount of Taxes paid or
accrued but unpaid by the Borrower, minus (viii) cash operating expenses of the
Borrower, minus (ix) capital expenditures of the Borrower, minus (x) principal
and interest payments made or accrued but unpaid on intercompany loans by the
Borrower and its Subsidiaries, minus (xi) dividends paid, in cash, to BNL by Old
CIHC on the CIHC Preferred Stock to the extent permitted by this Agreement,
minus (b) (i) Fixed Charges, (ii) dividends paid, in cash, on the Conseco
Preferred Stock and the Borrower's common stock to the extent permitted by this
Agreement and (iii) capital calls required to be made to CCP II by the Borrower
under the CCP II Partnership Agreement.
"Existing Conseco Credit Agreements" shall mean, collectively, (a) the
Bank of America $140 Million Credit Agreement and (b) the Bank of America $110
Million Credit Agreement.
"Exiting Bank" - see definition of Tranche B Termination Date.
"Extension Date(s)" shall mean, collectively, August 31, 1996 and
August 31, 1997.
"Federal Funds Effective Rate" shall mean, for any day, the rate set
forth in the weekly statistical release designated as H.15(519), or any
successor publication, published by the Federal Reserve Bank of New York
(including any such successor, "H.15(519)") on the preceding Business Day
opposite the caption "Federal Funds (Effective)"; or, if for any relevant day
such rate is not so published on any such preceding Business Day, the rate for
such day will be the arithmetic mean as determined by the Administrative Agent
of the rates for the last transaction in overnight Federal funds arranged
prior to 9:00 a.m. (New York City time) on that day by each of three leading
brokers of Federal funds transactions in New York City selected by the
Administrative Agent.
<PAGE>
"Fee Letter" shall mean that certain letter, dated as of June 27, 1995,
between BofA and the Borrower.
"Fiscal Quarter" or "FQ" shall mean any fiscal quarter of a Fiscal Year.
"Fiscal Year" or "FY" shall mean any period of twelve consecutive
calendar months ending on December 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g., the "1994 Fiscal Year") refer to the
Fiscal Year ending on the December 31 occurring during such calendar year.
"Fixed Charges" shall mean (a) the Original Scheduled Payments for the
Calculation Period less the amount, if any, of prepayments pursuant to Sections
4.1, 4.3(a), (b) and (c) applied during the Calculation Period to reduce the
Original Scheduled Payment due during the Calculation Period, plus (b) interest
paid or, without duplication, accrued but unpaid on the Loans with respect to
such Calculation Period, plus (c) principal and interest paid or, without
duplication, accrued but unpaid on the Senior Notes during the Calculation
Period, plus (d) principal and interest paid or, without duplication, accrued
but unpaid on any Indebtedness set forth in clauses (a) and (b) of the
definition thereof during the Calculation Period.
"FRB" shall mean the Board of Governors of the Federal Reserve System,
and any Governmental Authority succeeding to any of its principal functions.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"GARCO" shall mean Great American Reserve Insurance Company,
a Texas corporation.
"GARCO Holding" - see fourth recital.
"GARCO Merger" - see fourth recital.
"GES" - see sixth recital.
"Governmental Authority" shall mean any nation or government, any state
or other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government, and any corporation or other entity owned or controlled, through
stock or capital ownership or otherwise, by any of the foregoing.
<PAGE>
"Hazardous Material" shall mean: (a) any "hazardous substance," as
defined by CERCLA; (b) any "hazardous waste," as defined by the Resource
Conservation and Recovery Act, as amended; (c) any petroleum product; or (d) any
pollutant or contaminant or hazardous, dangerous or toxic chemical, material or
substance within the meaning of any other applicable federal, state or local
law, regulation, ordinance or requirement (including consent decrees and
administrative orders) relating to or imposing liability or standards of conduct
concerning any hazardous, toxic or dangerous waste, substance or material, all
as amended or hereafter amended.
"Hedging Obligations" shall mean, with respect to the Borrower, all
liabilities of the Borrower under interest rate swap agreements, interest rate
cap agreements and interest rate collar agreements or agreements designed to
protect the Borrower against fluctuations in interest rates or currency exchange
rates.
"IBOR" shall mean the rate of interest per annum determined by the
Administrative Agent as the rate at which dollar deposits in the approximate
amount of BofA's Offshore Rate Loan for such Interest Period would be offered by
BofA's Grand Cayman Branch, Grand Cayman B.W.I. (or such other office as may be
designated for such purpose by BofA), to major banks in the offshore dollar
interbank market at their request at approximately 11:00 A.M. (New York City
time) two (2) Business Days prior to the commencement of such Interest Period.
"IMR/AVR" shall mean, as to any of the Insurance Subsidiaries at a
particular date, the interest maintenance reserve of such Insurance
Subsidiaries, computed in accordance with SAP as reported on line 11.4, page 3,
column 1 of the Annual Statement plus the asset valuation reserve of such
Insurance Subsidiary, computed in accordance with SAP as reported on line 24.1,
page 3, column 1 of the Annual Statement.
"Income Taxes" shall mean any Taxes in which the base is
measured by net income.
"Indebtedness" shall mean, with respect to any Person at any date,
without duplication: (a) all obligations of such Person for borrowed money or in
respect of loans or advances; (b) all obligations of such Person evidenced by
bonds, debentures, notes or other similar instruments; (c) all obligations in
respect of letters of credit, whether or not drawn, and bankers' acceptances
issued for the account of such Person; (d) all Capitalized Lease Liabilities of
such Person; (e) all Hedging Obligations of such Person; (f) all obligations of
such Person to pay the deferred purchase price of property or services which are
included as liabilities in accordance with GAAP, and Indebtedness secured by a
Lien on property owned or being purchased by such Person (including Indebtedness
arising under conditional sales or other title retention agreements); (g) any
Indebtedness of a partnership in which such Person is a general partner; and (h)
all Contingent Obligations of such Person in connection with the foregoing.
<PAGE>
"Indebtedness to be Refinanced" shall mean the Indebtedness of the
Borrower under the Existing Conseco Credit Agreements in an aggregate amount not
to exceed $250,000,000.
"Indemnified Parties" - see Section 15.5.
"Indentures" shall mean, collectively, the Conseco Indenture and the
CCPI Indenture.
"Insurance Subsidiary" shall mean any Subsidiary of the Borrower that
is authorized or admitted to carry on or transact one or more aspects of the
business of selling, issuing or underwriting insurance or reinsurance.
"Interest Payment Date" shall mean, as to any Loan other than a Base
Rate Loan, the last day of each Interest Period applicable to such Loan and, as
to any Base Rate Loan, the last Business Day of each calendar month and each
date such Loan is converted into another Type of Loan; provided, however, that
if any Interest Period for an Offshore Rate Loan exceeds three months, the date
that falls three months after the beginning of such Interest Period and after
each Interest Payment Date thereafter is also an Interest Payment Date.
"Interest Period" shall mean, as to any Offshore Rate Loan, the period
commencing on the Borrowing Date of such Loan or on the Conversion/Continuation
Date on which such Loan is converted into or continued as an Offshore Rate Loan,
and ending on the date one, two, three or six months thereafter as selected by
the Borrower in its Notice of Borrowing or Notice of Conversion/Continuation;
provided that:
(a) if any Interest Period would otherwise end on a
day that is not a Business Day, that Interest Period shall be
extended to the following Business Day unless the result of
such extension would be to carry such Interest Period into
another calendar month, in which event such Interest Period
shall end on the preceding Business Day;
<PAGE>
(b) any Interest Period that begins on the last
Business Day of a calendar month (or on a day for which there
is no numerically corresponding day in the calendar month at
the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest
Period; and
(c) no Interest Period for any Loan shall extend
beyond the maturity date of such Loan.
"Investment" shall mean any investment in any Person, whether by means
of share purchase, capital contribution, loan, time deposit or otherwise.
"Investment Grade Securities" shall mean (a) (i) non-equity securities
which are rated "BBB-" or better by Standard & Poor's, "Baa-3" or better by
Moody's, "BBB-" or better by Duff & Phelps, or "NAIC 2" or better by the NAIC
and (ii) municipal bonds which are rated "SP-2" or better by Standard & Poor's,
"Baa-3" or "MIG4" or better by Moody's, "BBB-" or better by Duff & Phelps or
"NAIC 2" or better by the NAIC, or, in each case, carrying an equivalent rating
by a nationally recognized rating agency, if all of the named rating agencies
cease publishing ratings of investments, and (b) direct mortgage loans which are
secured by leases from Investment Grade Tenants.
"Investment Grade Tenant" shall mean any entity which has securities
outstanding that qualify as Investment Grade Securities.
"Investment Income" shall mean, (a) as to any Person which is an
Insurance Subsidiary as of any date, the amount reported on line 4, page 4,
column 1 of the Annual Statement, or an amount determined in a consistent manner
for any date other than one as of which an Annual Statement is prepared but
exclusive of earnings of any Insurance Subsidiaries of such Person and, (b) as
to any Person which is not an Insurance Subsidiary, the amount of earnings of
such Person on Investments, net of expenses actually incurred in connection with
such Investments and taking into account realized gains and losses on such
Investments.
"JNL-TX" - see fifth recital.
"Lending Office" shall mean, with respect to any Bank, any office
designated by such Bank in its sole discretion beneath its signature hereto (or
in an Assignment Agreement) or otherwise from time to time by written notice to
the Borrower and the Administrative Agent, as a Lending Office for purposes
hereunder. A Bank may designate separate Lending Offices for the purposes of
making, maintaining or continuing Base Rate Loans or Offshore Rate Loans and,
with respect to Offshore Rate Loans, such Lending Office may be a foreign branch
or an Affiliate of such Bank or such Bank's holding company.
<PAGE>
"Liabilities" shall mean all obligations of the Borrower to the Banks,
the Administrative Agent, the Documentation Agents, the Managing Agents or the
Arranger, howsoever created, arising or evidenced, whether direct or indirect,
joint or several, absolute or contingent, or now or hereafter existing, or due
or to become due, which arise out of or in connection with this Agreement, the
Notes, if any, or the other Loan Documents.
"Licenses" - see Section 7.22; individually, a "License."
"Lien" shall mean any security interest, mortgage, pledge,
hypothecation, assignment, deposit arrangement, encumbrance, lien (statutory or
other), claim or other priority or preferential arrangement of any kind or
nature whatsoever.
"Litigation" shall mean any litigation (including, without limitation,
any governmental proceeding or arbitration proceeding), tax audit or
investigative proceeding, claim, lawsuit, and/or investigation pending or
threatened against or involving the Borrower or any of its Subsidiaries
(including BLHC) or any of its or their businesses or operations.
"Loans" shall mean, collectively, the Tranche A Loans and the Tranche B
Loans.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
if any, the Surplus Debenture, the Pledge Agreements, the Assumption Agreement,
the Service Assignment and any and all other documents or instruments furnished
or required to be furnished in connection with any of the foregoing, as the same
may be amended or modified in accordance with this Agreement.
"Managing Agent" or "Managing Agents" - see Preamble.
"Material Adverse Change" or "Material Adverse Effect" shall mean any
change, event, action, condition or effect which individually or in the
aggregate (a) impairs the validity or enforceability of this Agreement or any
other Loan Document, or (b) materially and adversely affects the consolidated
business, operations, financial prospects or condition of the Borrower and its
Subsidiaries taken as a whole, or (c) materially impairs the ability of the
Borrower, New CIHC, MDSCG, BNL, CCM or CMCI to perform its obligations under
this Agreement or any of the other Loan Documents to which it is a party, or (d)
materially adversely affects the perfection or priority of any Lien granted
under any of the Loan Documents.
<PAGE>
"Material Litigation" or "Material Litigation Development" shall mean
any Litigation, or development in any Litigation, as the case may be, (a) which
seeks to enjoin, prohibit, discontinue or otherwise impacts the validity or
enforceability of this Agreement or any of the other Loan Documents or other
transactions contemplated hereby or thereby, or (b) which could be reasonably
expected to have a Material Adverse Effect.
"MDSCG" - see fifth recital.
"MDSCG Pledge Agreement" - see Section 6.1(c).
"Merchant Banking Investments" shall mean the Investments set forth on
Schedule A hereto to the extent permitted by Section 9.10, as such schedule may
be amended or modified from time to time.
"Moody's" shall mean Moody's Investors Service, Inc. and any
successor thereto.
"Multiemployer Pension Plan" shall mean a multiemployer plan as defined
in section 4001(a)(3) of ERISA to which the Borrower or any other Controlled
Group member may have liability.
"NAIC" shall mean the National Association of Insurance
Commissioners, or any successor organization.
"Net Cash Available" shall mean, without duplication, for any direct
Non-Insurance Subsidiary of the Borrower (a) Net Income of such Subsidiary plus
(b) any non-cash expenses of such Subsidiary deducted in determining Net Income
less (c) any non-cash income of such Subsidiary included in determining such Net
Income.
"Net Income" shall mean, for any Person for any Calculation Period, the
net income (or loss) of such Person for such period as determined in accordance
with GAAP.
"Net Proceeds" shall mean, with respect to any Disposition or Sale by
any Person, the aggregate amount of cash and readily marketable Cash Equivalents
received by such Person in respect of such Disposition or Sale minus the sum of
(a) reasonable costs and expenses (including costs of discontinuance and Taxes
other than Income Taxes) incurred in connection with such Disposition or Sale
and required to be paid in cash, (b) the estimated Income Tax to be paid by such
Person in connection with such Disposition or Sale and (c) for an Insurance
Subsidiary, the Statutory Carrying Value of the assets which were the subject of
the Disposition or Sale plus any amounts which the Department will not permit
such Insurance Subsidiary to pay out as a result of such Disposition or Sale.
Upon calculation of Net Proceeds, the Borrower shall deliver to the
Administrative Agent an accounting of the items deducted from the cash or Cash
Equivalents related to such Disposition or Sale pursuant to clauses (a), (b) and
(c). For purposes of this definition, the Net Proceeds received by any Person in
respect of any Disposition or Sale shall include such cash or Cash Equivalents
as may be received ("subsequent cash proceeds") by such Person at any time or
from time to time in connection with the sale, transfer, lease or other
disposition, or otherwise in respect of, any consideration other than cash or
readily marketable Cash Equivalents received by such Person in respect of such
Disposition or Sale, less the estimated Income Tax to be paid in connection with
the receipt of such subsequent cash proceeds that were not theretofore deducted
in computing Net Proceeds.
<PAGE>
"New CIHC" - see fourth recital.
"New CIHC Assumption Agreement" shall mean the Assumption Agreement,
dated as of the date hereof, between New CIHC and the Administrative Agent,
substantially in the form of Exhibit P hereto, as the same may be amended or
modified from time to time.
"New CIHC Pledge Agreement" - see Section 6.1(f).
"Nonconsenting Bank" - see Section 15.2.
"Non-Insurance Subsidiary" shall mean any Subsidiary which is not an
Insurance Subsidiary.
"Notes" shall mean, collectively, the Tranche A Notes and the Tranche B
Notes.
"Notice of Borrowing" shall mean a notice in substantially the form of
Exhibit C hereto.
"Notice of Conversion/Continuation" shall mean a notice in
substantially the form of Exhibit D hereto.
"Offshore Rate Loans" shall mean any portion of the Loans which bears
interest at a rate determined by reference to the Offshore Rate (Reserve
Adjusted).
"Offshore Rate Margin" - see Section 3.1(c).
"Offshore Rate (Reserve Adjusted)" shall mean, for any Interest Period,
with respect to Offshore Rate Loans comprising part of the same Borrowing, the
rate of interest per annum (rounded upward to the next 1/100th of 1%) determined
by the Administrative Agent as follows:
Offshore Rate IBOR
= -------------------------------------
(Reserve Adjusted) 1.00 - Eurocurrency Reserve Percentage
<PAGE>
The Offshore Rate (Reserve Adjusted) shall be adjusted automatically as to all
Offshore Rate Loans then outstanding as of the effective date of any change in
the Eurocurrency Reserve Percentage.
"Old CIHC" shall mean, immediately prior to the CIHC Merger, Conseco
Investment Holding Company, a Delaware corporation, and, immediately after the
CIHC Merger, the Borrower.
"Original Scheduled Payments" shall mean the scheduled principal
payments required to be made on the Loans to reduce the Tranche A Loans to an
amount which does not exceed the Tranche A Commitments as reduced thereunder
under Section 2.6, without regard to any subsequent adjustment of such scheduled
payments by the Administrative Agent pursuant to the terms of this Agreement.
"Pension Plan" shall mean a Single Employer Pension Plan, or a
Multiemployer Pension Plan to which the Borrower or any other Controlled Group
member may have liability.
"Percentage" shall mean, relative to any Bank, the percentage set forth
opposite such Bank's name on Schedule 2.1 (or set forth in an Assignment
Agreement), as such Percentage may be adjusted from time to time pursuant to
Assignment Agreement(s) executed by such Bank and its Eligible Assignee and
delivered pursuant to Section 14.1.
"Permitted Liens" - see Section 9.2.
"Permitted Transactions" shall mean (a) mortgage-backed security
transactions in which an investor sells mortgage collateral, such as securities
issued by the Government National Mortgage Association and the Federal Home Loan
Mortgage Corporation for delivery in the current month while simultaneously
contracting to repurchase "substantially the same" (as determined by the Public
Securities Association and GAAP) collateral for a later settlement, (b)
transactions in which an investor lends cash to a primary dealer and the primary
dealer collateralizes the borrowing of the cash with certain securities, (c)
transactions in which an investor lends securities to a primary dealer and the
primary dealer collateralizes the borrowing of the securities with cash
collateral, and (d) transactions in which an investor makes loans of securities
to a broker dealer under an agreement requiring such loans to be continuously
secured by cash collateral or United States government securities.
<PAGE>
"Person" shall mean any individual, sole proprietorship, partnership,
limited liability company, limited liability partnership, joint venture, trust,
unincorporated organization, association, corporation, institution, public
benefit corporation, entity or government (whether federal, state, county, city,
municipal or otherwise, including, without limitation, any instrumentality,
division, agency, body or department thereof).
"Pledge Agreements" shall mean, collectively, the Borrower Non-Shared
Pledge Agreement, the Borrower Shared Pledge Agreement, the MDSCG Pledge
Agreement and the New CIHC Pledge Agreement.
"Process Agent" - see Section 15.11.
"Qualification" shall mean, with respect to any certificate covering
financial statements or any financial statements, a qualification to such
certificate or financial statements (such as a "subject to" or "except for"
statement therein) (a) resulting from a limitation on the scope of examination
of such financial statements or the underlying data, (b) as to the capability of
the Person whose financial statements are certified to continue operations as a
going concern, or (c) which could be eliminated by changes in financial
statements or notes thereto covered by such certificate (such as by the creation
of or increase in a reserve or a decrease in the carrying value of assets) and
which if so eliminated by the making of any such change and after giving effect
thereto would result in the occurrence of a Default, provided, that neither of
the following shall constitute a Qualification: (i) a consistency exception
relating to a change in accounting principles with which the independent public
accountants for the Person whose financial statements are being certified have
concurred; or (ii) a qualification relating to the outcome or disposition of
threatened Litigation, pending Litigation being contested in good faith, pending
<PAGE>
or threatened claims or contingencies which cannot be determined with sufficient
certainty to permit such financial statements to not be qualified.
"Reference Departments" shall mean, collectively, the Department of the
State of California, the State of Illinois, the State of Missouri, the State of
Tennessee and the State of Texas.
"Regulation D" shall mean Regulation D (or any successor regulation)
promulgated by the FRB as from time to time in effect.
"Reinsurance Agreements" shall mean any agreement, contract, treaty,
certificate or other arrangement (other than a Surplus Relief Reinsurance
Agreement) by which any Insurance Subsidiary agrees to transfer or cede to
another insurer all or part of the liability assumed or assets held by it under
a policy or policies of insurance or under a reinsurance agreement assumed by
it. Reinsurance Agreements shall include, but not be limited to, any agreement,
contract, treaty, certificate or other arrangement (other than a Surplus Relief
Reinsurance Agreement) which is treated as such by the applicable Department or
Reference Department.
<PAGE>
"Replaced Bank" - see Section 5.8.
"Replacement Bank" - see Section 5.8.
"Reportable Event" shall have the meaning assigned to such term in
ERISA.
"Required Banks" shall mean (a) Banks (other than a Defaulting Bank)
having at least 51% of the Commitments (excluding the Commitment of any
Defaulting Bank) or, if the Commitments have terminated or expired, 51% of the
aggregate principal amount of the Loans outstanding at such time (excluding the
Loans of any Defaulting Bank) or (b) for purposes of amending or modifying the
provisions of or waiving or curing a Default pursuant to Section 12.1.4 (as a
result of Section 9.8) or Section 12.1.9, Banks (other than a Defaulting Bank)
having at least 66-2/3% of the Commitments (excluding the Commitment of any
Defaulting Bank) or, if the Commitments have terminated or expired, 66-2/3% of
the aggregate principal amount of the Loans outstanding at such time (excluding
the Loans of any Defaulting Bank).
"Responsible Officer" shall mean, in the case of any Person, any of the
following officers of such Person: the chief executive officer; the president;
the chief financial officer; the chief operating officer; the chief investment
officer; the general counsel; the secretary; the treasurer or any vice
president. If any of the titles of the preceding officers of such corporate
Person are changed after the date hereof, the term "Responsible Officer" shall
thereafter mean any officer performing substantially the same functions as are
presently performed by one or more of the officers listed in the first sentence
of this definition.
"Risk-Based Capital" shall mean, with respect to any Insurance
Subsidiary, the ratio of Adjusted Capital of such Insurance Subsidiary to the
Company Action Level of such Insurance Company (as determined by the NAIC or the
applicable Department). In the event that there is a conflict between the
Risk-Based Capital formulas adopted by the NAIC and any applicable Department,
the calculation of the Department shall govern.
<PAGE>
"Sale" - see Section 4.3(b).
"SAP" shall mean, as to any Insurance Subsidiary, the statutory
accounting practices prescribed or permitted by the Department.
"Scheduled Principal Payments" shall mean the principal payments
required by Section 4.9 to take into account reductions in the Commitments as
required by Section 2.6 and prepayments made in accordance with Sections 4.1 and
4.3 and reflected on a schedule delivered by the Administrative Agent to the
Borrower and each Bank.
"Senior Note Documents" shall mean the Conseco Indenture, the CCPI
Indenture, the Senior Notes and the other agreements and instruments pursuant to
which the Senior Notes were issued, as the same may be amended or modified or
supplemented in accordance with this Agreement.
"Senior Notes" shall mean, collectively, the Conseco Senior Notes and
the CCPI Senior Notes.
"Service Assignment" - see Section 6.1(e).
"Servicing Agreements" shall mean, collectively, those agreements set
forth on Schedule 1.1 hereto.
"Significant Subsidiary" shall mean any Subsidiary of the Borrower
with, after the elimination of intercompany accounts, (a) assets which
constituted at least 10% of the Borrower's consolidated total assets, or (b)
revenues which constituted at least 10% of the Borrower's consolidated total
revenues, or (c) net earnings which constituted at least 10% of the Borrower's
consolidated total net earnings, all as determined as of the date of the
Borrower's most recently prepared quarterly financial statements for the
12-month period then ended.
"Single Employer Pension Plan" shall mean a pension plan as such term
is defined in section 3(2) of ERISA, other than a multiemployer plan as defined
in section 4001(a)(3) of ERISA, to which the Borrower or any other Controlled
Group member may have liability, including any liability by reason of having
been a substantial employer within the meaning of section 4063 of ERISA at any
time during the preceding five years, or by reason of being deemed to be a
contributing sponsor under section 4069 of ERISA.
<PAGE>
"Solvent", as to any Person on a particular date, shall mean that on
such date (a) the fair value of the property of such Person is greater than the
total amount of liabilities, including, without limitation, Contingent
Obligations, of such Person, (b) the present fair salable value of the assets of
such Person is not less than the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute and
matured, (c) such Person is able to realize upon its assets and pay its debts
and other liabilities, Contingent Obligations and other commitments as they
mature in the normal course of business, (d) such Person does not intend to, and
does not believe that it will, incur debts or liabilities beyond such Person's
ability to pay as such debts and liabilities mature, and (e) such Person is not
engaged in business or a transaction, and is not about to engage in business or
a transaction, for which such Person's property would constitute unreasonably
small capital after giving due consideration to the prevailing practice in the
industry in which such Person is engaged. For the purposes of this definition,
in computing the amount of any Contingent Obligation at any time, it is intended
that such Contingent Obligation will be computed at the amount which, in light
of all the facts and circumstances existing at such time, represents the amount
that can reasonably be expected to become an actual or matured liability.
"Standard & Poor's" shall mean Standard & Poor's Ratings Group and any
successor thereto.
"Statutory Carrying Value" shall mean, as to an asset of any Insurance
Subsidiary, the value of such asset to be reflected in line 24, page 2, column 1
of the Annual Statement, or an amount determined in a consistent manner for any
date other than one as of which an Annual Statement is prepared.
"Statutory Liabilities" shall mean, with respect to any Insurance
Subsidiary as of any date, the amount reported on line 28, page 3, column 1 of
the Annual Statement of such Insurance Subsidiary, less IMR/AVR and less amounts
under the Surplus Debenture constituting Statutory Liabilities on the Annual
Statement, or an amount determined in a consistent manner for any date other
than one as of which an Annual Statement is prepared.
"Subsidiary" shall mean, as to any Person, any corporation,
partnership, limited liability corporation, limited liability partnership, joint
venture, trust, association or other unincorporated organization of which or in
which such Person and such Person's Subsidiaries own directly or indirectly 50%
or more of (a) the combined voting power of all classes of stock having general
voting power under ordinary circumstances to elect a majority of the board of
directors, if it is a corporation, (b) the capital interest or partnership
interest, if it is a partnership, joint venture or similar entity, or (c) the
beneficial interest, if it is a trust, association or other unincorporated
organization; provided that, except as otherwise expressly set forth in this
Agreement, BLHC shall not be considered a Subsidiary of the Borrower for
purposes of this Agreement; and provided, further, that with respect to any
Investment made by the Borrower in any Person in the ordinary course of business
solely for investment purposes, such Person shall not be considered a Subsidiary
of the Borrower for purposes of this Agreement if such Person is not integral to
the business or operations of the Borrower or any Significant Subsidiary and
such Investment is otherwise permitted by Section 9.10.
<PAGE>
"Substitute Bank" - see Section 15.2.
"Surplus Debenture" shall mean the surplus debenture of JNL- TX dated
December 31, 1992 in the original principal amount of $283,000,000.
"Surplus Relief Reinsurance Agreements" shall mean any agreement
whereby any insurance company assumes or cedes business under a reinsurance
agreement that would be considered a "financing-type" reinsurance agreement as
determined in accordance with the Statement of Financial Accounting Standards
113 or any successor thereto.
"Tax Returns and Reports" shall mean all returns, reports and
information required to be filed with any Governmental Authority with regard to
Taxes.
"Tax Sharing Agreement" shall mean the tax sharing agreement dated
February 29, 1989 among the Borrower and certain of its Subsidiaries including
BLHC.
"Taxes" or "Tax" shall mean all taxes of any nature whatsoever and
however denominated, including, without limitation, retaliatory, income,
premium, withholding, guaranty fund and similar assessments, excise, import,
governmental fees, duties and all other charges, as well as additions to tax,
penalties and interest thereon, imposed by any Governmental Authority.
<PAGE>
"Total Capitalization" shall mean (a) principal and accrued and unpaid
interest on all Indebtedness for borrowed money of the Borrower for which the
Borrower is directly liable and which is not a Contingent Obligation (calculated
excluding Permitted Transactions) plus (b) the Total Shareholders' Equity of the
Borrower.
"Total Shareholders' Equity" shall mean the total shareholders' equity
of a Person as determined in accordance with GAAP (calculated excluding
unrealized gains (losses) of securities as determined in accordance with FAS
115).
"Tranche A Commitment" - see Section 2.1
"Tranche A Loan(s)" - see Section 2.1.
"Tranche A Note" shall mean a promissory note, substantially in the
form of Exhibit A hereto with blanks appropriately completed in conformity
herewith, evidencing the Tranche A Loans, or any promissory note or promissory
notes issued in substitution or replacement therefor.
"Tranche A Termination Date" shall mean the earliest of (a) February 1,
2001, (b) the date of termination in whole of the Commitments pursuant to
Section 4.1, 4.3 or 12.2, and (c) September 30, 1995 if the Closing Date has not
occurred.
"Tranche B Commitment" - see Section 2.1.
"Tranche B Loan(s)" - see Section 2.1.
"Tranche B Note" shall mean a promissory note, substantially in the
from of Exhibit B hereto with blanks appropriately completed in conformity
herewith, evidencing the Tranche B Loans, or any promissory note or notes issued
in substitution or replacement therefor.
"Tranche B Termination Date" shall mean the earlier of (a) August 31,
1999 (subject to extension as set forth below) or (b) the date of termination in
whole of the Commitments pursuant to Section 4.1, 4.3 or 12.2 and (c) September
30, 1995 if the Closing Date has not occurred; provided, that with respect to
clause (a) above, such date may be extended for one additional year on each
Extension Date (to August 31, 2000 and August 31, 2001, respectively) at the
option of the Borrower by giving the Administrative Agent written notice of such
election at least seventy (70) days prior to such Extension Date, unless:
(i) one or more of the Banks (each an "Exiting Bank"), after
receipt of notice from the Administrative Agent at least sixty (60)
days prior to each Extension Date, notifies the Administrative Agent at
least thirty (30) days prior to such Extension Date that such Exiting
Bank(s) shall not extend the maturity of its Tranche B Loans;
<PAGE>
(ii) an Eligible Assignee cannot be found to replace such
Exiting Bank(s) on or before the relevant Extension Date after
reasonable efforts have been made by the Administrative Agent to find
such an Eligible Assignee, and
(iii) the Borrower elects not to reduce the Commitments
pursuant to Section 4.1, effective upon the Tranche B Termination Date
(or any extension thereof), in an amount equal to such Exiting Bank(s)'
Commitment.
Any assignment by an Exiting Bank to an Eligible Assignee hereunder shall be
subject to Section 14.1; provided that the effective date of such assignment
shall occur on or before the Tranche B Termination Date (or any extension
thereof) unless a later time is consented to by such Exiting Bank.
"Transferee" - see Section 14.3.
"Types of Loan" or "Type" - see Section 2.2. The Types of Loans under
this Agreement are as follows: Base Rate Loans and Offshore Rate Loans.
"UCC" shall mean the Uniform Commercial Code or comparable statute or
any successor statutes thereto, as in effect from time to time in the relevant
jurisdiction.
"U.S. Government Securities" shall mean obligations of, or obligations
guaranteed as to principal and interest by, the United States Government or
agency or instrumentality thereof.
"Welfare Plan" shall mean a "welfare plan," as such term is defined in
section 3(1) of ERISA to which the Borrower or any other Controlled Group member
may have liability.
"Wholly-Owned Subsidiary" shall mean any Person in which (other than
directors' qualifying shares required by law) 100% of the capital stock or other
ownership interests is owned, beneficially and of record, by such Person, or by
one or more other Wholly-Owned Subsidiaries of such Person, or both.
SECTION 1.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the
above-defined meanings when used in any Loan Document, or any
certificate, report or other document made or delivered pursuant to
this Agreement, unless the context therein shall clearly otherwise
require.
<PAGE>
(b) The words "hereof," "herein," "hereunder" and similar
terms when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement.
(c) The words "amended or modified" when used in any Loan
Document shall mean with respect to such Loan Document as from time to
time, in whole or in part, amended, modified, supplemented, restated,
refinanced, refunded or renewed.
(d) In the computation of periods of time in this Agreement
from a specified date to a later specified date, the word "from" means
"from and including" and the words "to" and "until" each means "to but
excluding."
SECTION 1.3 Accounting and Financial Determinations. For purposes of
this Agreement, unless otherwise specified or the context otherwise requires,
all accounting terms used in any Loan Document shall be interpreted, all
accounting determinations and computations hereunder or thereunder shall be
made, and all financial statements required to be delivered hereunder or
thereunder shall be prepared, in accordance with GAAP.
SECTION 2. THE COMMITMENTS AND THE LOANS
Subject to the terms and conditions of this Agreement and relying on
the representations and warranties herein set forth:
SECTION 2.1 Commitment. Each of the Banks, severally and for itself
alone, agrees, on the terms and conditions set forth herein, to make:
(a) Tranche A Loans. Loans (herein collectively called the
"Tranche A Loans" and individually called a "Tranche A Loan") to the Borrower on
a revolving basis from time to time from the Closing Date until the Tranche A
Termination Date in such Bank's Percentage of the aggregate amount of such
Tranche A Loans as the Borrower may request from all Banks. The aggregate
principal amount of the Tranche A Loans which any Bank shall be committed to
have outstanding to the Borrower shall not at any one time exceed the amount set
opposite such Bank's name on Schedule 2.1 and the aggregate principal amount of
the Tranche A Loans which all Banks shall be committed to have outstanding
hereunder to the Borrower shall not at any one time exceed $350,000,000. The
foregoing commitment of each Bank is herein called its "Tranche A Commitment"
and for all Banks the "Tranche A Commitments."
<PAGE>
(b) Tranche B Loans. Loans (herein collectively called the
"Tranche B Loans" and individually called a "Tranche B Loan") to the Borrower on
a revolving basis from time to time from the Closing Date until the Tranche B
Termination Date in such Bank's Percentage of the aggregate amount of such
Tranche B Loans as the Borrower may request from all Banks. The aggregate
principal amount of the Tranche B Loans which any Bank shall be committed to
have outstanding to the Borrower shall not at any one time exceed the amount set
opposite such Bank's name on Schedule 2.1 and the aggregate principal amount of
the Tranche B Loans which all Banks shall be committed to have outstanding
hereunder to the Borrower shall not at any one time exceed $250,000,000. The
foregoing commitment of each Bank is herein called its "Tranche B Commitment"
and for all Banks the "Tranche B Commitments."
SECTION 2.2 Types of Loans. The Loans shall be denominated as Base Rate
Loans or Offshore Rate Loans (each being herein called a "Type" of Loan), as the
Borrower shall specify in the related Notice of Borrowing or the Notice of
Continuation/ Conversion pursuant to Section 2.5. Base Rate Loans and Offshore
Rate Loans may be outstanding at the same time, provided, that (a) in the case
of Offshore Rate Loans, not more than eight (8) different Interest Periods shall
be outstanding at any one time for all such Loans, and (b) the Borrower shall
specify Types of Loans and Interest Periods such that no payment or prepayment
of any principal on any Loan shall result in an interruption of any Interest
Period.
SECTION 2.3 Procedure for Borrowing.
(a) Each Borrowing shall be made upon the Borrower's
irrevocable written notice (or by telephone promptly confirmed in writing)
delivered to the Administrative Agent in the form of a Notice of Borrowing
(which notice must be received by the Administrative Agent prior to 9:00 A.M.
(San Francisco time) (i) three Business Days prior to the requested Borrowing
Date, in the case of Offshore Rate Loans, and (ii) on the requested Borrowing
Date, in the case of Base Rate Loans, specifying:
(A) the amount of such Borrowing, which
shall be in an aggregate minimum amount of $3,000,000 or any
integral multiple of $1,000,000 in excess thereof;
(B) the requested Borrowing Date, which
shall be a Business Day;
<PAGE>
(C) the Type of Loans comprising such
Borrowing; and
(D) with respect to any Borrowing comprised
of Offshore Rate Loans, the duration of the Interest Period
applicable to such Loans included in such notice. If the
Notice of Borrowing fails to specify the duration of the
Interest Period for any Borrowing comprised of Offshore Rate
Loans, such Interest Period shall be three months.
(b) The Administrative Agent will promptly notify each Bank of
its receipt of any Notice of Borrowing and of the amount of such Bank's
Percentage of that Borrowing.
(c) Each Bank will make the amount of its Percentage of each
Borrowing available to the Administrative Agent for the account of the Borrower
at the Administrative Agent's Office by 11:00 A.M. (San Francisco time) on the
Borrowing Date requested by the Borrower in funds immediately available to the
Administrative Agent. The proceeds of all such Loans will then be made available
to the Borrower by the Administrative Agent by wire transfer in accordance with
written instructions provided to the Administrative Agent by the Borrower of
like funds as received by the Administrative Agent.
(d) After giving effect to any Borrowing, there may not be
more than eight (8) different Interest Periods in effect for all Borrowings.
SECTION 2.4 Funding Reliance. Unless the Administrative Agent shall
have been notified by telephone, confirmed in writing, by any Bank by 9:30 A.M.,
San Francisco time, on the relevant Borrowing Date that such Bank will not make
available the amount which would constitute its Percentage of the related
Borrowing, the Administrative Agent may assume, subject to the satisfactory
fulfillment by the Borrower of the conditions precedent set forth in Section 11,
that such Bank shall make such amount available to the Administrative Agent and,
in reliance upon such assumption the Administrative Agent may (but shall not be
required to) make available to the Borrower a corresponding amount. If and to
the extent that such Bank shall not make such amount available to the
Administrative Agent, such Bank and the Borrower severally agree to repay the
Administrative Agent forthwith on demand such corresponding amount together with
interest thereon, for each day from the date the Administrative Agent made such
amount available to the Borrower to the date such amount is repaid to the
Administrative Agent, at the interest rate applicable at the time to the Type of
Loans comprising such Borrowing; provided that if such amount is repaid by the
Borrower and such Bank the Administrative Agent agrees to refund to the Borrower
any excess amount paid by the Borrower; and provided, further, that the
Borrower, upon the request of the Administrative Agent, agrees to return such
refund to the Administrative Agent, on demand, in the event the Administrative
Agent is legally required to return any amount received from such Bank.
<PAGE>
SECTION 2.5 Conversion and Continuation Elections.
(a) As to any Loans comprising a Borrowing, the Borrower may,
upon irrevocable written notice to the Administrative Agent in accordance with
clause (b) below:
(i) elect, as of any Business Day, in the case of
Base Rate Loans, or as of the last day of the applicable Interest
Period, in the case of Offshore Rate Loans, to convert any such Loans
(or any part thereof in an amount not less than $3,000,000, or that is
in an integral multiple of $1,000,000 in excess thereof) into any other
Type of Loans; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Offshore Rate Loans having Interest
Periods expiring on such day (or any part thereof in an amount not less
than $3,000,000, or that is in an integral multiple of $1,000,000 in
excess thereof);
provided, that if at any time the aggregate amount of Offshore Rate Loans in
respect of any Borrowing is reduced, by payment, prepayment, or conversion of
part thereof to be less than $5,000,000, such Offshore Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Borrower to continue such Loans as, and convert such Loans into, Offshore
Rate Loans, as the case may be, shall terminate.
(b) The Borrower shall deliver a Notice of
Conversion/Continuation to be received by the Administrative Agent not later
than 9:00 A.M. (San Francisco time) at least (i) three Business Days in advance
of the Conversion/Continuation Date, if the Loans are to be converted into or
continued as Offshore Rate Loans; and (ii) one Business Day in advance of the
Conversion/Continuation Date, if the Loans are to be converted into Base Rate
Loans, specifying:
(A) the proposed Conversion/Continuation
Date;
(B) the aggregate amount of Loans to be
converted or renewed;
<PAGE>
(C) the Type of Loans resulting from the
proposed conversion or continuation; and
(D) in the case of conversions into Offshore
Rate Loans, the duration of the requested Interest Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Loans, the Borrower has failed to select timely a new Interest
Period to be applicable to such Offshore Rate Loans or if any Default then
exists, the Borrower shall be deemed to have elected to convert such Offshore
Rate Loans into Base Rate Loans effective as of the expiration date of such
Interest Period.
(d) The Administrative Agent will promptly notify each Bank of
its receipt of a Notice of Conversion/Continuation, or, if no timely notice is
provided by the Borrower, the Administrative Agent will promptly notify each
Bank of the details of any automatic conversion. All conversions and
continuations shall be made ratably according to the respective outstanding
principal amounts of the Loans with respect to which the notice was given held
by each Bank.
(e) Unless the Required Banks otherwise agree, during the
existence of a Default, the Borrower may not elect to have a Loan converted into
or continued as an Offshore Rate Loan.
(f) After giving effect to any conversion or continuation of
Loans, there may not be more than eight (8) different Interest Periods in effect
for all Loans hereunder.
SECTION 2.6 Repayment of Loans.
(a) Tranche A Loans. Subject to the provisions of Sections
4.1, 4.3 and 4.5, the Tranche A Commitments shall be reduced on each date
set forth below (each a "Commitment Reduction Date"), commencing with the
Commitment Reduction Date occurring on April 1, 1997 to the Tranche A
Termination Date, in the principal amount set opposite such Commitment
Reduction Date:
<TABLE>
<CAPTION>
Commitment Reduction Date Amount
------------------------- ------
<S> <C>
April 1, 1997 $ 30,000,000
April 1, 1998 $ 50,000,000
April 1, 1999 $ 65,000,000
April 1, 2000 $ 65,000,000
February 1, 2001 $140,000,000
</TABLE>
<PAGE>
(b) Tranche B Loans. Subject to the provisions of Sections 4.1
and 4.3, the Tranche B Loans of each Bank shall be payable (and the Borrower
agrees to pay such Tranche B Loan) on the Tranche B Termination Date.
SECTION 2.7 Loan Accounts; Record Keeping.
(a) The Loans made by each Bank shall be evidenced by one or
more loan accounts or records maintained by such Bank in the ordinary course of
business and the Administrative Agent. The loan accounts or records maintained
by the Administrative Agent and each Bank shall be conclusive absent manifest
error of the amount of the Loans made by the Banks to the Borrower and the
interest and payments thereon; provided, that in the event of a conflict between
information recorded by the Administrative Agent and any Bank as to such Bank's
Loans, the records of the Administrative Agent absent manifest error shall
control. Any failure to so record or any error in doing so shall not, however,
limit or otherwise affect the obligations of the Borrower hereunder or to pay
any amount owing with respect to the Loans.
(b) Upon the request of any Bank made through the
Administrative Agent, the Tranche A Loans and the Tranche B Loans made by such
Bank may be evidenced by one or more Tranche A Notes and Tranche B Notes,
respectively, instead of loan accounts. Each such Bank shall endorse on the
schedules annexed to its Note(s) the date, amount and maturity of each Loan made
by it and the amount of each payment of principal made by the Borrower with
respect thereto. Each such Bank is irrevocably authorized by the Borrower to
endorse its Note(s) and each Bank's record shall be conclusive absent manifest
error; provided, however, that the failure of a Bank to make, or an error in
making, a notation thereon with respect to any Loan shall not limit or otherwise
affect the obligations of the Borrower hereunder or under any such Note to such
Bank.
SECTION 3. INTEREST AND FEES, ETC.
SECTION 3.1 Interest Rates. With respect to each Loan, the Borrower
hereby promises to pay interest on the unpaid principal amount thereof for the
period commencing on the date of such Loan until such Loan is paid in full, as
follows:
(a) At all times while such Loan or any portion thereof is a
Base Rate Loan, at a rate per annum equal to the Base Rate from time to
time in effect plus the Base Rate Margin (as hereinafter defined).
<PAGE>
(b) At all times while such Loan or any portion thereof is an
Offshore Rate Loan, at a rate per annum equal to the Offshore Rate
(Reserve Adjusted) from time to time in effect plus the Offshore Rate
Margin (as hereinafter defined).
(c) For purposes hereof, the Offshore Rate Margin (the
"Offshore Rate Margin") shall be determined based on the higher of the
then current rating of the Borrower's Senior Notes by Moody's and
Standard & Poor's and the aggregate principal amount of the Loans then
outstanding as follows:
<TABLE>
<CAPTION>
Aggregate Bank
Debt Outstanding Senior Notes Rating
- ---------------- --------------------
BBB/ BBB-/ BB+/ BB/
Baa2, Baa3 Ba1 Ba2
---- ---- --- ---
or
above
<S> <C> <C> <C> <C>
- -325,000,000 0.75% 1.00% 1.375% 1.50%
$325-450,000,000 1.00% 1.25% 1.50% 1.625%
>$450,000,000 1.25% 1.50% 1.625% 1.75%
</TABLE>
provided, that if the difference between the two current ratings is
three (3) or more, the higher rating shall be reduced by one (1) rating
so long as the lowest rating is BB-/Ba3 or above. If the lowest rating
is B+/B1 or lower, the higher rating shall be reduced by two (2)
ratings.
Examples: BBB-/Ba2 = BBB-
BBB-/Ba3 = BB+
BBB-/B1 = BB
Any adjustment in the Offshore Rate Margin as a result of a
change in the principal amount of the Loans outstanding shall be
effective as of the date of any payment or Borrowing by the Borrower,
and any adjustment in the Offshore Rate Margin as a result of a change
in the rating of the Borrower's Senior Notes by Moody's and/or Standard
& Poor's shall be effective as of the effective date of the change in
such rating.
<PAGE>
(d) For purposes hereof, the Base Rate Margin (the "Base Rate
Margin") shall be equal to the Offshore Rate Margin minus 1.25% per
annum; provided that in no event shall the Base Rate Margin be less
than zero (0).
SECTION 3.2 Default Interest Rate. Notwithstanding the provisions of
Section 3.1, in the event that any Default under Section 12.1.3 or any Event of
Default shall occur, the Borrower hereby promises to pay, automatically in the
case of a Default under Section 12.1.3 or upon demand therefor by the
Administrative Agent for any Event of Default, interest on the unpaid principal
amount of the Loans (and interest thereon to the extent permitted by law) for
the period commencing on the date of such Default or demand until such Loans are
paid in full or such Default or Event of Default is cured or waived in
accordance with Sections 12.2 and 15.1 at a rate per annum equal to the Base
Rate from time to time in effect (but not less than the Base Rate as at such
date of demand), plus the Base Rate Margin, plus 2% per annum.
SECTION 3.3 Interest Payment Dates. Interest on each Loan shall be paid
in arrears on each Interest Payment Date. Interest shall also be paid on the
date of any prepayment of Loans under Section 4.1 or Section 4.3 for the portion
of the Loans so prepaid and upon payment (including prepayment) in full thereof
and during the existence of any Event of Default, interest shall be paid on
demand of the Administrative Agent at the request or with the consent of the
Required Banks. After maturity, accrued interest on the Loans shall be payable
on demand.
SECTION 3.4 Setting and Notice of Rates. The applicable Offshore Rate
shall be determined by the Administrative Agent. Each determination of the
applicable Offshore Rate shall be conclusive and binding upon the parties
hereto, in the absence of demonstrable error. If the Administrative Agent is
unable to determine such a rate, the provisions of Section 5.3 shall apply. The
Administrative Agent shall, upon written request of the Borrower or any Bank,
deliver to the Borrower or such Bank a statement showing the computations used
by the Administrative Agent in determining any applicable Offshore Rate
hereunder.
SECTION 3.5 Computation of Fees and Interest. Fees and interest on
Offshore Rate Loans shall be computed for the actual number of days elapsed on
the basis of a 360-day year, and interest on Base Rate Loans shall be computed
for the actual number of days elapsed on the basis of a 365-day year. Each
determination of an interest rate by the Administrative Agent shall be
conclusive and binding on the Borrower and the Banks in the absence of manifest
error.
<PAGE>
SECTION 3.6 Fees. The Borrower agrees to pay the following fees (all
such fees being nonrefundable):
(a) The Borrower agrees to pay the fees set forth in the Fee
Letter for the sole benefit of the Arranger and the Administrative
Agent;
(b) Without duplication, the Borrower agrees to pay to the
Administrative Agent, for the benefit of the Banks (other than a
Defaulting Bank) ratably according to their respective Percentage, on
the Closing Date a non-use fee on the Commitments equal to .1875% per
annum on $550,000,000 of the outstanding Commitments from June 13, 1995
to the Closing Date;
(c) Without duplication, the Borrower agrees to pay to the
Administrative Agent, for the benefit of the Banks (other than a
Defaulting Bank) ratably according to their respective Percentage, on
the Closing Date a non-use fee on the Commitments equal to .1875% per
annum on $50,000,000 of the outstanding Commitments from August 7, 1995
to the Closing Date; and
(d) Without duplication, the Borrower agrees to pay to the
Administrative Agent, for the benefit of the Banks (other than a
Defaulting Bank) ratably according to their respective Percentage, a
non-use fee on the average daily unused Commitments, payable quarterly
in arrears on the last Business Day of each Fiscal Quarter (commencing
with the first such date occurring after the Closing Date for the
period from the Closing Date through and including such date) and on
the Tranche A Termination Date and the Tranche B Termination Date at a
rate per annum equal to an amount determined based on the higher of the
then current rating of the Senior Notes by Moody's and Standard &
Poor's as follows:
<PAGE>
<TABLE>
<CAPTION>
Senior Notes Rating
-------------------
BB+/
Ba1
BBB/ BBB-/ or
Baa2, Baa3 lower
----- ---- ----
or
above
<S> <C> <C>
0.20% 0.25% 0.375%
</TABLE>
provided, that if the difference between the two current ratings is
three (3) or more, the higher rating shall be reduced by one (1) rating
so long as the lowest rating is BB-/Ba3 or above. If the lowest rating
is B+/B1 or lower, the higher rating shall be reduced by two (2)
ratings.
Examples: BBB-/Ba2 = BBB-
BBB-/Ba3 = BB+
BBB-/B1 = BB
Any adjustment in the non-use fee set forth in this clause (c)
as a result of a change in the rating of the Borrower's Senior Notes by
Moody's and/or Standard & Poor's shall be effective as of the effective
date of the change in such rating.
SECTION 4. PAYMENTS AND PREPAYMENTS
SECTION 4.1 Voluntary Termination or Reduction of Commitments. Subject
to Section 5.5, the Borrower may, upon not less than five (5) Business Days'
irrevocable prior written notice to the Administrative Agent (which shall
promptly advise each Bank thereof), terminate the Tranche A Commitments and/or
the Tranche B Commitments or permanently reduce the Tranche A Commitments and/or
Tranche B Commitments by an aggregate minimum amount of $1,000,000 or any
integral multiple of $1,000,000 in excess thereof; unless, after giving effect
thereto and to any prepayments of Loans made on the effective date thereof, the
then outstanding principal amount of the Loans would exceed the amount of the
aggregate Tranche A Commitments or Tranche B Commitments, as applicable, then in
effect. Once reduced in accordance with this Section, the Tranche A Commitments
and the Tranche B Commitments, to the extent terminated or permanently reduced,
may not be increased. Any reduction of the Tranche A Commitments shall be
applied to each Bank's Tranche A Commitment, pro rata, according to its
Percentage. Any reduction of the Tranche B Commitments shall be applied to each
Bank's Tranche B Commitment, pro rata, according to its Percentage.
<PAGE>
SECTION 4.2 Optional Prepayments. Subject to Section 5.5, the Borrower
may, at any time or from time to time, upon not less than (a) three (3) Business
Days' irrevocable written notice with respect to Offshore Rate Loans and (b) one
(1) Business Day's irrevocable written notice with respect to Base Rate Loans,
to the Administrative Agent by 9:00 A.M. (San Francisco time), ratably prepay
the Loans in whole or in part, in minimum amounts of $5,000,000 or any integral
multiple of $1,000,000 in excess thereof. Such notice of prepayment shall
specify the date and amount of such prepayment and the Type(s) of Loans to be
prepaid. The Administrative Agent will promptly notify each Bank of its receipt
of any such notice, and of such Bank's Percentage of such prepayment. If such
notice is given by the Borrower, the Borrower shall make such prepayment and the
payment amount specified in such notice shall be due and payable on the date
specified therein, together with accrued interest to each such date on the
amount prepaid and any amounts required pursuant to Section 5.5.
SECTION 4.3 Mandatory Prepayments. The Borrower shall make mandatory
prepayments of the Loans as follows:
(a) If, on any date, the Borrower or any of its Subsidiaries
shall sell, assign, lease, transfer, contribute, convey, issue or
otherwise dispose of, or grant options, warrants or other rights with
respect to, any of its assets (any of the foregoing being a
"Disposition") consisting of (i) Collateral, (ii) any Subsidiary of the
Borrower (other than a Disposition permitted under Section 9.4) or (iii)
a block of insurance business by any Insurance Subsidiary in one or a
series of related transactions with proceeds in excess of $25,000,000,
the Borrower shall promptly notify the Administrative Agent of such
Disposition, including the amount of Net Proceeds received by the
Borrower or any of its Subsidiaries in respect of such Disposition (and
the amount and other type of consideration so received) and an amount
equal to such Net Proceeds shall be promptly applied after the receipt
from time to time of such Net Proceeds to repay first, the principal
amount of the Tranche A Loans then outstanding (together with any
interest accrued thereon) and second, the principal amount of the
Tranche B Loans then outstanding (together with any interest accrued
thereon). To the extent the Net Proceeds of any such Disposition exceed
the amount of the Loans then outstanding (together with any interest
accrued thereon), or, at the time of such Disposition, the Loans shall
have been paid in full, such Net Proceeds shall be applied to repay any
remaining Liabilities. Notwithstanding anything to the contrary
contained in this clause (a), to the extent any such Disposition relates
to the Collateral pledged under the Borrower Shared Pledge Agreement or
the Borrower Non-Shared Pledge Agreement, the Net Proceeds received by
the Borrower from such Disposition shall be applied in the order set
forth in Sections 6.2(a), (b) and (c).
<PAGE>
(b) If, on any date, the Borrower or any of its Subsidiaries
shall sell, issue or grant options, contingent interest rights, warrants
or other rights with respect to any of its equity or debt securities
(any of the foregoing being a "Sale") or related in any way to its
earnings or performance (other than (i) pursuant to a Pension Plan or
Benefit Program of the Borrower or such Subsidiary for the benefit of
their respective employees and (ii) equity or debt securities issued by
the Borrower to its Subsidiaries or such Subsidiaries to the Borrower or
to any other Subsidiary of the Borrower), the Borrower shall promptly
notify the Administrative Agent of such Sale, including the amount of
Net Proceeds received by the Borrower or any of its Subsidiaries in
respect of such Sale (and the amount and other type of consideration so
received) and an amount equal to such Net Proceeds shall be promptly
applied after the receipt from time to time of such Net Proceeds to
repay first, the principal amount of the Tranche A Loans then
outstanding (together with any interest accrued thereon) and second, the
principal amount of the Tranche B Loans then outstanding (together with
any interest accrued thereon). To the extent the Net Proceeds of any
such Sale exceed the amount of the Loans then outstanding (together with
any interest accrued thereon), or, at the time of such Sale, the Loans
shall have been paid in full, such Net Proceeds shall be applied to
repay any remaining Liabilities.
<PAGE>
(c) On or before the one hundred twentieth (120) day after the
end of each Fiscal Year of the Borrower (and with respect to the Fiscal
Year ending December 31, 2000, on February 1, 2001), beginning with the
Fiscal Year ending December 31, 1997, the Borrower shall repay or cause
to be repaid the Loans in an amount equal to (i) 50% of Excess Cash Flow
for the Fiscal Year most recently ended less (ii) any optional
prepayments made pursuant to Section 4.1 during such period, or in the
one hundred twenty (120) day period occurring immediately after such
period prior to any prepayment being due hereunder. The proceeds of such
Excess Cash Flow payment shall be applied, first to the principal amount
of the Tranche A Loans then outstanding (together with interest accrued
thereon) and, second, to the principal amount of the Tranche B Loans
then outstanding (together with interest accrued thereon). To the extent
that the amount to be repaid pursuant to this clause (c) exceeds the
amount of the Loans then outstanding (together with any unpaid interest
accrued thereon) or, at the time of such repayment, the Loans shall have
been paid in full, the proceeds of such Excess Cash Flow shall be
applied to repay any remaining Liabilities. Notwithstanding anything to
the contrary contained in this clause (c), no Excess Cash Flow payment
shall be required after the Borrower has permanently reduced the
Commitments of the Banks pursuant to Section 4.1 or Section 4.9
(resulting from mandatory prepayments required by this Section 4.3) to
an aggregate amount equal to $350,000,000 or less; provided that for
purposes of this Section 4.3(c) only, any reduction in the Commitments
pursuant to Section 2.6 shall be excluded from any reduction in the
Commitments.
SECTION 4.4 Payments by the Borrower.
(a) All payments to be made by the Borrower shall be made
without set-off, recoupment or counterclaim. Except as otherwise expressly
provided herein, all payments by the Borrower shall be made to the
Administrative Agent for the account of the Banks at the Administrative Agent's
Office, and shall be made in Dollars and in immediately available funds, no
later than 10:30 A.M. (San Francisco time) on the date specified herein.
Notwithstanding the foregoing, in connection with a prepayment required by
Section 4.3, the Borrower may elect to deposit all of the Net Proceeds from a
Disposition or Sale into the Cash Collateral Account which funds, together with
any interest accrued thereon, shall be applied to the Loans by the
Administrative Agent on the first day when such funds may be applied without the
Borrower incurring costs under Section 5.5; provided that any Net Proceeds held
in the Cash Collateral Account shall continue to accrue interest hereunder (and
the Borrower agrees to pay such interest) at the then applicable interest rate
until applied to the Loans by the Administrative Agent. The Administrative Agent
will promptly distribute to each Bank its Percentage (or other applicable share
as expressly provided herein) of such payment in like funds as received. Any
payment received by the Administrative Agent later than 10:30 A.M. (San
Francisco time) shall be deemed to have been received on the following Business
Day and any applicable interest or fee shall continue to accrue.
<PAGE>
(b) Subject to the provisions set forth in the definition of
"Interest Period" herein, whenever any payment is due on a day other than a
Business Day, such payment shall be made on the following Business Day, and such
extension of time shall in such case be included in the computation of interest
or fees, as the case may be.
(c) Unless the Administrative Agent receives notice from the
Borrower prior to the date on which any payment is due to the Banks that the
Borrower will not make such payment in full as and when required, the
Administrative Agent may assume that the Borrower has made such payment in full
to the Administrative Agent on such date in immediately available funds and the
Administrative Agent may (but shall not be so required), in reliance upon such
assumption, distribute to each Bank on such due date an amount equal to the
amount then due such Bank. If and to the extent the Borrower has not made such
payment in full to the Administrative Agent, each Bank shall repay to the
Administrative Agent on demand such amount distributed to such Bank, together
with interest thereon at the Federal Funds Effective Rate for each day from the
date such amount is distributed to such Bank until the date repaid.
SECTION 4.5 Application of Prepayments. Any prepayment of the Loans in
accordance with Section 4.2 shall be applied to the Tranche A Loans and the
Tranche B Loans in such order as the Borrower may elect. Except as otherwise set
forth in this Agreement, any reduction in the Tranche A Commitments pursuant to
Sections 4.1 and 4.9 shall be applied to a reduction of the remaining Tranche A
Commitments, on a pro rata basis, prior to making any reduction on the Tranche B
Commitments; provided that after the Borrower has permanently reduced the
Commitments of the Banks pursuant to Section 4.1 or Section 4.9 to an aggregate
amount equal to $350,000,000 or less (excluding any reduction in the Commitments
pursuant to Section 2.6) any reduction of the Commitments shall be applied, at
the Borrower's election, to a reduction of the Tranche A Commitments, on a pro
rata basis, or to a reduction of the Tranche B Commitments.
<PAGE>
SECTION 4.6 Sharing of Payments.
(a) If any Bank shall obtain any payment or other recovery
(whether voluntary, involuntary, by application of offset or otherwise)
on account of the Loans (other than pursuant to the terms of Section 5)
in excess of its pro rata share (based on its Percentage) of payments
and other recoveries obtained by all Banks of the Loans on account of
principal of and interest on the Loans, such Bank shall purchase from
the other Banks such participation in the Loans as shall be necessary to
cause such purchasing Bank to share the excess payment or other recovery
ratably with each of them; provided, however, that if all or any portion
of the excess payment or other recovery is thereafter recovered from
such purchasing Bank, the purchase shall be rescinded and each Bank
which has sold a participation to the purchasing Bank shall repay to the
purchasing Bank the purchase price to the ratable extent of such
recovery together with an amount equal to such selling Bank's ratable
share (according to the proportion of (i) the amount of such selling
Bank's required repayment to the purchasing Bank to (ii) the total
amount so recovered from the purchasing Bank) of any interest or other
amount paid or payable by the purchasing Bank in respect of the total
amount so recovered.
(b) The Borrower agrees that any Bank so purchasing a participation
from another Bank pursuant to Section 4.6(a) may, to the fullest extent
permitted by law, exercise all its rights of payment (including pursuant to
Section 4.7) with respect to such participation as fully as if such Bank
were the direct creditor of the Borrower in the amount of such
participation. If under any applicable bankruptcy, insolvency or other
similar law, any Bank receives a secured claim in lieu of a setoff to which
this Section applies, such Bank shall, to the extent practicable, exercise
its rights in respect of such secured claim in a manner consistent with the
rights of the Banks entitled under this Section 4.6(b) to share in the
benefits of any recovery of such secured claim.
<PAGE>
SECTION 4.7 Setoff. Each Bank shall, upon the occurrence of any Event of
Default under Section 12.1.1, the occurrence of a Default under Section 12.1.3,
or, with the consent of the Required Banks, upon the occurrence of any other
Event of Default, have the right to appropriate and apply to the payment of the
Liabilities owing to it (whether or not then due), and (as security for such
Liabilities) the Borrower hereby grants to each Bank a continuing security
interest in, any and all balances, credits, deposits, accounts or moneys of the
Borrower then or thereafter maintained with such Bank. Any such appropriation
and application shall be subject to the provisions of Section 4.6. Each Bank
agrees promptly to notify the Borrower and the Administrative Agent after any
such setoff and application made by such Bank; provided, however, that the
failure to give such notice shall not affect the validity of such setoff and
application. The rights of each Bank under this Section 4.7 are in addition to
other rights and remedies (including other rights of setoff under applicable law
or otherwise) which such Bank may have.
SECTION 4.8 Net Payments. All payments by the Borrower of principal of,
and interest on, the Loans and all other amounts payable hereunder shall be made
free and clear of and without deduction for any present or future income, stamp
or other Taxes, fees, duties, withholdings or other charges of any nature
whatsoever imposed by any taxing authority, other than Taxes imposed on or
measured by any Bank's net income or receipts (such non-excluded items being
called "Charges"). In the event that any withholding or deduction from any
payment to be made by the Borrower hereunder is required in respect of any
Charges pursuant to any applicable law, rule or regulation, then the Borrower
will:
(a) pay directly to the relevant authority the
full amount required to be so withheld or deducted;
(b) promptly forward to the Administrative Agent an official
receipt or other documentation satisfactory to the Administrative Agent
evidencing such payment to such authority;
(c) pay to the Administrative Agent for the account of the Banks
such additional amount or amounts as are necessary to ensure that the
net amount actually received by each Bank will equal the full amount
such Bank would have received had no such withholding or deduction been
required; and
<PAGE>
(d) if any Bank receives a refund in respect of any Taxes as to
which it has been indemnified by the Borrower or with respect to which
the Borrower (or any Person acting on behalf of the Borrower) has paid
additional amounts pursuant to this Section 4.8, it shall promptly repay
such refund (but only to the extent of indemnity payments made, or
additional amounts paid, by the Borrower (or such Person acting on
behalf of the Borrower) under this Section 4.8 with respect to the Taxes
giving rise to such refund), net of all out-of-pocket expenses of such
Bank or the Administrative Agent, as the case may be; provided, that the
Borrower, upon the request of such Bank or the Administrative Agent,
agrees to return such refund (together with any penalties, interest or
other charges due in connection therewith to the appropriate taxing
authority or other Governmental Authority) to such Bank or the
Administrative Agent in the event such Bank or the Administrative Agent
is required to pay or to return such refund to the relevant taxing
authority or other Governmental Authority.
Each Bank that is organized under the laws of a jurisdiction other than the
United States shall, prior to the due date of any payments under the Loans,
execute and deliver to the Borrower, on or about the first scheduled payment
date in each calendar year, a United States Internal Revenue Service Form 4224
or Form 1001, as may be applicable (or any successor form), appropriately
completed. Without prejudice to the survival of any other agreement of the
Borrower hereunder or any other document, the agreements of the Borrower
contained in this Section shall survive satisfaction of the Liabilities and
termination of this Agreement.
SECTION 4.9 Mandatory Reduction in the Commitments. Each repayment or
prepayment of the Tranche A Loans and the Tranche B Loans required pursuant to
Section 4.1, or 4.3 (a), (b) or (c) shall concurrently, permanently and
automatically ratably reduce the Tranche A Commitments and the Tranche B
Commitments, respectively, by the amount of such repayment or prepayment. If on
any date the aggregate principal amount of the Tranche A Loans or the Tranche B
Loans exceeds the Tranche A Commitments or the Tranche B Commitments, as the
case may be, the Borrower shall repay such Tranche A Loans and Tranche B Loans
(including interest accrued thereon) in an amount equal to such excess.
<PAGE>
SECTION 5. CHANGES IN CIRCUMSTANCES
SECTION 5.1 Increased Costs. If (a) Regulation D, or (b) after the date
hereof, the adoption of any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
governmental authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any
Lending Office of such Bank) with any request or directive (whether or not
having the force of law) of any such authority, central bank or comparable
agency,
(i) shall subject any Bank (other than a Defaulting Bank) (or
any Lending Office of such Bank) to any tax, duty or other charge with
respect to its Offshore Rate Loans, or its obligation to make Offshore
Rate Loans or shall change the basis of taxation of payments to any Bank
(other than a Defaulting Bank) of the principal of, or interest on, its
Offshore Rate Loans or any other amounts due under this Agreement in
respect of its Offshore Rate Loans or its obligation to make Offshore
Rate Loans (except for changes in the rate of Tax, other than Taxes
covered by Section 4.8, on the overall gross or net income of such Bank
or its Lending Office); or
(ii) shall impose, modify or deem applicable any reserve
(including, without limitation, any reserve imposed by the FRB, but
excluding any reserve included in the determination of interest rates
pursuant to Section 3), special deposit or similar requirement against
assets of, deposits with or for the account of, or credit extended by,
any Bank (other than a Defaulting Bank) (or any Lending Office of such
Bank); or
(iii) shall impose on any Bank (other than a Defaulting Bank)
(or its Lending Office) any other condition affecting its Offshore Rate
Loans;
<PAGE>
and the result of any of the foregoing is to increase the cost to (or in the
case of Regulation D referred to above, to impose a cost on) such Bank (or any
Lending Office of such Bank) of making or maintaining any Offshore Rate Loan or
to reduce the amount of any sum received or receivable by such Bank (or the
Lending Office of such Bank) under this Agreement or under its Loans with
respect thereto, then within thirty (30) days after demand by such Bank (which
demand shall be accompanied by a statement setting forth in reasonable detail
the basis of such demand and the calculation of such additional amount), the
Borrower shall pay directly to such Bank such additional amount or amounts as
will compensate such Bank for such increased cost or such reduction. Each Bank
shall promptly, but in no event more than ninety (90) days after it has
knowledge thereof, notify the Borrower of any event occurring after the date
hereof, which will entitle such Bank to compensation pursuant to this Section
5.1.
SECTION 5.2 Change in Rate of Return. If any change in, or the
introduction, adoption, effectiveness, interpretation, reinterpretation or
phase-in of, any law or regulation, directive, guideline, decision or request
(whether or not having the force of law) of any court, central bank, regulator
or other Governmental Authority affects or would affect the amount of capital
required or expected to be maintained by any Bank (other than a Defaulting Bank)
or any Person controlling such Bank, and such Bank reasonably determines that
the rate of return on its or such controlling Person's capital as a consequence
of the Loans made by such Bank (or any participating interest therein held by
such Bank) is reduced to a level below that which such Bank or such controlling
Person could have achieved but for the occurrence of any such circumstance,
then, in any such case the Borrower shall, within thirty (30) days after written
demand by such Bank to the Borrower, pay directly to such Bank additional
amounts sufficient to compensate such Bank or such controlling Person for such
reduction in rate of return. A statement of such Bank as to any such additional
amount or amounts (including calculations thereof in reasonable detail) shall,
in the absence of manifest error, be conclusive and binding on the Borrower. In
determining such amount, such Bank may use any method of averaging and
attribution that it shall deem reasonably applicable. Each Bank shall promptly,
but in no event more than ninety (90) days after it has knowledge thereof,
notify the Borrower of any event occurring after the date hereof, which will
entitle such Bank to compensation pursuant to this Section 5.2.
SECTION 5.3 Basis for Determining Interest Rate Inadequate
or Unfair. If with respect to any Interest Period:
<PAGE>
(a) deposits in Dollars (in the applicable amounts) are not
being offered to the Administrative Agent in the interbank eurodollar
market for such Interest Period, or the Administrative Agent otherwise
determines (which determination shall be conclusive and binding on all
parties) that by reason of circumstances affecting the interbank
eurodollar market adequate and reasonable means do not exist for
ascertaining the applicable Offshore Rate; or
(b) any Bank advises the Administrative Agent that the Offshore
Rate (Reserve Adjusted) as determined by the Administrative Agent, will
not adequately and fairly reflect the cost to such Bank of maintaining
or funding such Loan for such Interest Period, or that the making or
funding of Offshore Rate Loans has become impracticable as a result of
an event occurring after the date of this Agreement which in the opinion
of such Bank materially changes such Loans;
then, so long as such circumstances shall continue:
(i) the Administrative Agent shall promptly notify the Borrower
and the Banks thereof,
(ii) no Bank shall be under any obligation to make or convert
into Offshore Rate Loans so affected, and
(iii) on the last day of the then current Interest Period for
Offshore Rate Loans so affected, such Offshore Rate Loans shall, unless
then repaid in full, automatically convert to Base Rate Loans.
Notwithstanding the foregoing, the Administrative Agent and each Bank shall take
any reasonable actions available to it (including designation of a different
lending office), consistent with legal and regulatory restrictions, that will
avoid the need to take the steps described in this Section 5.3, which will not,
in the reasonable judgment of the Administrative Agent or such Bank, be
materially disadvantageous to the Administrative Agent or such Bank.
SECTION 5.4 Changes in Law Rendering Certain Loans Unlawful. In the
event that any change in (including the adoption of any new) applicable laws or
regulations, or any change in the interpretation of applicable laws or
regulations by any governmental or other regulatory body charged with the
administration thereof, should make it unlawful for a Bank or the Lending Office
of such Bank ("Affected Bank") to make, maintain or fund Offshore Rate Loans,
then (a) the Affected Bank shall promptly notify each of the other parties
hereto, (b) the obligation of all Banks to make or convert into Offshore Rate
Loans made unlawful for the Affected Bank shall, upon the effectiveness of such
event, be suspended for the duration of such unlawfulness, and (c) on the last
day of the current Interest Period for Offshore Rate Loans (or, in any event, if
the Affected Bank so requests, on such earlier date as may be required by the
relevant law, regulation or interpretation), the Offshore Rate Loans shall,
unless then repaid in full, automatically convert to Base Rate Loans.
Notwithstanding the foregoing, the Administrative Agent and each Bank shall take
any reasonable actions available to it (including designation of a different
Lending Office), consistent with legal and regulatory restrictions, that will
avoid the need to take the steps described in this Section 5.4, which will not,
in the reasonable judgment of the Administrative Agent or such Bank, be
materially disadvantageous to such Administrative Agent or such Bank.
<PAGE>
SECTION 5.5 Funding Losses. The Borrower hereby agrees that upon demand
by any Bank to the Administrative Agent (which demand shall be made within three
(3) Business Days after receipt of notice of any payment or proposed payment by
the Borrower under this Agreement giving rise to indemnification under this
Section 5.5 and shall be accompanied by a statement setting forth in reasonable
detail using the methodology set forth in Exhibit O hereto) the Borrower will
indemnify such Bank against any loss or expense which such Bank may sustain or
incur (including, without limitation, any loss or expense incurred by reason of
the liquidation or reemployment of deposits or other funds acquired by such Bank
to fund or maintain Offshore Rate Loans), as reasonably determined by such Bank,
as a result of (a) any payment or prepayment or conversion of any Offshore Rate
Loans of such Bank on a date other than the last day of an Interest Period for
such Offshore Rate Loan, or (b) any failure of the Borrower to borrow on the
date of any Borrowing set forth in any Notice of Borrowing or (c) any failure of
the Borrower to convert or continue any portion of the Loans on a date specified
therefor in the Notice of Continuation/Conversion delivered pursuant to this
Agreement. For this purpose, all notices to the Administrative Agent pursuant to
this Agreement shall be deemed to be irrevocable.
SECTION 5.6 Right of Banks to Fund Through Other Offices. Each Bank may,
if it so elects, fulfill its commitment as to any Offshore Rate Loans by causing
any of its Lending Offices to make such Offshore Rate Loans; provided, that in
such event for the purposes of this Agreement, such Loan shall be deemed to have
been made by such Bank and the obligation of the Borrower to repay such Offshore
Rate Loan shall nevertheless be to such Bank and shall be deemed held by it, to
the extent of such Offshore Rate Loan, for the account of such branch or
affiliate.
<PAGE>
SECTION 5.7 Discretion of Banks as to Manner of Funding. Notwithstanding
any provision of this Agreement to the contrary, each Bank shall be entitled to
fund and maintain its funding of all or any part of its Loans in any manner it
sees fit, it being understood, however, that for the purposes of this Agreement
all determinations hereunder shall be made as if such Bank had actually funded
and maintained each Offshore Rate Loan during each Interest Period for such Loan
through the purchase of deposits having a maturity corresponding to such
Interest Period and bearing an interest rate equal to the Offshore Rate, as the
case may be, for such Interest Period.
SECTION 5.8 Replacement of Banks. If any Bank shall become affected by
any of the changes or events described in Section 5.1, 5.2 or 5.4 above (any
such Bank being hereinafter referred to as a "Replaced Bank") and shall petition
the Borrower for any increased cost or amounts thereunder, then in such case,
the Borrower may, upon at least five (5) Business Days' notice to the
Administrative Agent and such Replaced Bank, designate a replacement lender (a
"Replacement Bank") acceptable to the Administrative Agent in its reasonable
discretion, to which such Replaced Bank shall, subject to its receipt (unless a
later date for the remittance thereof shall be agreed upon by the Borrower and
the Replaced Bank) of all amounts owed to such Replaced Bank under Section 5.1
or 5.2 above, assign all (but not less than all) of its rights, obligations,
Loans and Commitment hereunder; provided, that all Liabilities (except
Liabilities which by the terms hereof survive the payment in full of the Loans
and termination of this Agreement) due and payable to the Replaced Bank shall be
paid in full as of the date of such assignment. Upon any assignment by any Bank
pursuant to this Section 5.8 becoming effective, the Replacement Bank shall
thereupon be deemed to be a "Bank" for all purposes of this Agreement and such
Replaced Bank shall thereupon cease to be a "Bank" for all purposes of this
Agreement and shall have no further rights or obligations hereunder (other than
pursuant to Sections 5.1, 5.2, 15.4 and 15.5 while such Replaced Bank was a
Bank). Notwithstanding any Replaced Bank's failure or refusal to assign its
rights, obligations, Loans and Commitment under this Section 5.8, the Replaced
Bank shall cease to be a "Bank" for all purposes of this Agreement and the
Replacement Bank substituted therefor upon payment to the Replaced Bank by the
Replacement Bank of all amounts set forth in this Section 5.8 without any
further action of the Replaced Bank.
<PAGE>
SECTION 5.9 Conclusiveness of Statements; Survival of Provisions.
Determinations and statements of the Administrative Agent or any Bank pursuant
to Section 5.1 through Section 5.5 shall be conclusive absent demonstrable
error. The provisions of Sections 5.1, 5.2, 5.4, 5.5 and this Section 5.9 shall
survive termination of this Agreement.
SECTION 6. COLLATERAL AND OTHER SECURITY
SECTION 6.1 Collateral Documents. Concurrently with or prior to the
Closing Date, the Borrower shall:
(a) Borrower Non-Shared Pledge Agreement. Execute and deliver to
the Administrative Agent, for the benefit of the Banks, a pledge
agreement, substantially in the form of Exhibit E-1 hereto (herein, as
the same may be amended or modified, called the "Borrower Non-Shared
Pledge Agreement") covering, among other things, (i) all of the issued
and outstanding capital stock of BLHC owned by the Borrower and the
acquisition of which has been financed under the Existing Conseco Credit
Agreements and (ii) each indirect Wholly-Owned Subsidiary of the
Borrower not constituting a Significant Subsidiary (as defined in the
Indentures);
(b) Borrower Shared Pledge Agreement. Execute and deliver to the
Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes, a pledge agreement, substantially in the form of
Exhibit E-2 hereto (herein, as the same may be amended or modified,
called the "Borrower Shared Pledge Agreement") covering, among other
things, the issued and outstanding capital stock of each of the direct
Wholly-Owned Subsidiaries of the Borrower and each indirect Wholly-Owned
Subsidiary of the Borrower constituting a Significant Subsidiary (as
defined in the Indentures) (to the extent permitted by the Applicable
Insurance Code) and all of the issued and outstanding capital stock of
BLHC owned by the Borrower (other than the capital stock of BLHC pledged
under the Borrower Non-Shared Pledge Agreement);
(c) MDSCG Pledge Agreement. Cause MDSCG to execute and deliver
to the Administrative Agent, for the benefit of the Banks, a pledge
agreement, substantially in the form of Exhibit E-3 hereto (herein, as
the same may be amended or modified, called the "MDSCG Pledge
Agreement"), covering, among other things, all of the issued and
outstanding capital stock of each Wholly-Owned Subsidiary of MDSCG;
<PAGE>
(d) New CIHC Assumption Agreement. In consideration of the
Banks' consent to the CIHC Contribution and the Conseco Contribution,
cause New CIHC to execute and deliver to the Administrative Agent the
New CIHC Assumption Agreement;
(e) Assignment of Documents. Execute and cause each of BNL, CCM
and CMCI to execute and deliver, an Assignment of Servicing Agreements,
substantially in the form of Exhibit F hereto (herein, as the same may
be amended or modified, called the "Service Assignment") of such party
in favor of the Administrative Agent for the benefit of the Banks.
(f) New CIHC Pledge Agreement. Cause New CIHC to execute and
deliver to the Administrative Agent, for the benefit of the Banks, a
pledge agreement, substantially in the form of Exhibit E-4 hereto
(herein, as the same may be amended or modified, called the "New CIHC
Pledge Agreement"), covering, among other things, all of the issued and
outstanding capital stock of JNL-TX and BNL, all of the capital stock of
BLHC owned by New CIHC, all of the membership interests of CLLC owned by
New CIHC and the Surplus Debenture.
SECTION 6.2 Application of Proceeds from Collateral.
(a) Non-Shared Collateral. All proceeds from the sale or
disposition of any of the Collateral (and/or all cash and Cash
Equivalents held as Collateral) under the Borrower Non-Shared Pledge
Agreement shall be applied by the Administrative Agent in the following
order:
First: to the payment of all of the reasonable
costs and expenses (including attorney's fees) of the
Administrative Agent actually incurred (whether or not such
costs and expenses are incurred by the Administrative Agent on
its own behalf or on behalf of the Banks) in connection with (i)
the administration, sale or disposition of such Collateral, and
(ii) the administration and enforcement of this Agreement and
the Borrower Non- Shared Pledge Agreement, to the extent that
such costs and expenses shall not have been reimbursed to the
Administrative Agent;
<PAGE>
Second: to the payment in full of all the
Liabilities in such order as is consistent with this Agreement
(including the provisions of Section 6.2(c) of this Agreement)
and to the extent not addressed in this Agreement as the
Administrative Agent may determine from time to time in its sole
discretion such application to be made ratably among the Banks
according to the amount owing to each Bank; and
Third: the balance, if any, of such proceeds shall
be paid to the Borrower, its successors and assigns, or as a
court of competent jurisdiction may direct.
(b) Shared Collateral. All proceeds from the sale or disposition
of any Collateral (and/or all cash and Cash Equivalents held as
Collateral) (other than Collateral under the Borrower Non-Shared Pledge
Agreement) shall be applied by the Administrative Agent in the following
order:
First: to the payment of all of the reasonable
costs and expenses (including attorney's fees) of the
Administrative Agent actually incurred (whether or not such
costs and expenses are incurred by the Administrative Agent on
its own behalf or on behalf of the Banks or the holders of the
Senior Notes) in connection with (i) the administration, sale or
disposition of such Collateral, and (ii) the administration and
enforcement of this Agreement and the Borrower Shared Pledge
Agreement, to the extent that such costs and expenses shall not
have been reimbursed to the Administrative Agent;
Second: to the payment in full of all the
Liabilities, the Conseco Senior Note Obligations, and the CCPI
Senior Note Obligations, ratably, according to their respective
Collateral Percentages. In the case of the Liabilities, such
application shall be in such order as is consistent with this
Agreement (including the provisions of Section 6.2(c) of this
Agreement) and to the extent not addressed in this Agreement as
the Administrative Agent may determine from time to time in its
sole discretion, such application to be made ratably among the
Banks. In the case of the Conseco Senior Note Obligations and
the CCPI Senior Note Obligations, such application shall be
effected by delivery to the Trustee under the relevant
Indenture, of funds representing the Collateral Percentage of
the holders of the Conseco Senior Notes, on the one hand, and
the CCPI Senior Notes on the other hand; and
<PAGE>
Third: the balance, if any, of such proceeds shall
be paid to the Borrower, its successors and assigns, or as a
court of competent jurisdiction may direct.
(c) Order of Application of Collateral among Liabilities.
Notwithstanding any provision to the contrary contained in this
Agreement or any of the other Loan Documents, as among the Banks (i) no
portion of the Collateral (other than the BLHC common stock) shall be
used to satisfy any of the Liabilities relating to the Tranche B Loans
until the payment in full of the Liabilities relating to the Tranche A
Loans (including accrued and unpaid interest thereon) and (ii) no
portion of the Collateral comprising the BLHC common stock shall be used
to satisfy any of the Liabilities relating to the Tranche A Loans until
the payment in full of the Tranche B Loans (including accrued and unpaid
interest thereon).
SECTION 6.3 Further Assurances. The Borrower agrees that upon request of
the Administrative Agent (a) it shall promptly deliver or cause to be delivered
to the Administrative Agent, in due form for transfer, all chattel paper,
instruments, securities and documents of title, if any, at any time representing
all or any of the Collateral, and (b) it shall forthwith execute and deliver or
cause to be executed and delivered to the Administrative Agent, in due form for
filing or recording (and pay the cost of filing or recording the same in all
public offices deemed necessary by the Administrative Agent), such further
assignment agreements, security agreements, pledge agreements, instruments,
consents, waivers, financing statements, stock or bond powers, searches,
releases, and other documents, and do such other acts and things, all as the
Administrative Agent may from time to time reasonably request to establish and
maintain to the satisfaction of the Administrative Agent a valid perfected Lien
on all Collateral (free of all other Liens except as permitted under this
Agreement and the other Loan Documents) to secure payment of the Liabilities
and, to the extent required under the Indentures, the Senior Notes.
<PAGE>
SECTION 6.4 Release of Shared Collateral. Upon termination of the
Commitments and repayment in full of the Liabilities, the Lien of the
Administrative Agent on the Collateral shall be released by the Administrative
Agent, and such release shall automatically constitute a release of any Lien on
such Collateral in favor of the holders of the Senior Notes. Subject to Section
15.1, at the direction of the Required Banks, the Administrative Agent shall
release its Lien with respect to any of the Collateral as so directed by such
Banks, and such release shall automatically constitute a release of any Lien on
such Collateral in favor of the holders of the Senior Notes.
SECTION 7. REPRESENTATIONS AND WARRANTIES
To induce the Administrative Agent and the Banks to enter into this
Agreement and to make the Loans hereunder, the Borrower represents and warrants
to the Administrative Agent and to each of the Banks that:
SECTION 7.1 Organization, etc. The Borrower and each of its Subsidiaries
is a corporation or partnership duly organized, validly existing and in good
standing under the laws of the state of its incorporation or formation and each
of the Borrower and its Subsidiaries is duly qualified to transact business and
in good standing as a foreign corporation or partnership authorized to do
business in each jurisdiction where the nature of its business makes such
qualification necessary and failure to so qualify could reasonably be expected
to have a Material Adverse Effect.
SECTION 7.2 Authorization. Each of the Borrower, New CIHC, MDSCG, BNL,
CCM and CMCI (a) has the power to execute, deliver and perform this Agreement
and the other Loan Documents to which it is a party, and (b) has taken all
necessary action to authorize the execution, delivery and performance by it of
this Agreement and the other Loan Documents to which it is a party.
SECTION 7.3 No Conflict. The execution, delivery and performance by each
of the Borrower, New CIHC, MDSCG, BNL, CCM and CMCI of this Agreement and the
other Loan Documents to which it is a party does not and will not (a) contravene
or conflict with any provision of any law, statute, rule or regulation, (b)
contravene or conflict with, result in any breach of, or constitute a default
under, any material agreement or instrument binding on the Borrower or any of
its Subsidiaries (including, without limitation, any writ, judgment, injunction
or other similar court order), (c) result in the creation or imposition of or
the obligation to create or impose any Lien (except for Permitted Liens) upon
any of the property or assets of the Borrower or any of its Subsidiaries or (d)
contravene or conflict with any provision of the articles of incorporation or
by-laws of the Borrower, New CIHC, MDSCG, BNL, CCM or CMCI.
<PAGE>
SECTION 7.4 Governmental Consents. Except as have been obtained and as
set forth on Schedule 7.4, no material order, consent, approval, hearing or
filing, license, authorization or validation of, or filing, recording or
registration with or exemption by, any governmental or public body or authority,
or any subdivision thereof, is required in connection with the execution,
delivery and performance by the Borrower, New CIHC, MDSCG, BNL, CCM or CMCI of
this Agreement or the other Loan Documents to which it is a party.
SECTION 7.5 Validity. Each of the Borrower, New CIHC, MDSCG, BNL, CCM
and CMCI has duly executed and delivered this Agreement and the other Loan
Documents to which it is a party, and each of such documents to which it is a
party constitutes or upon execution and delivery will constitute the legal,
valid and binding obligation of the Borrower, New CIHC, MDSCG, BNL, CCM and CMCI
enforceable in accordance with its terms subject to (a) applicable bankruptcy,
insolvency, reorganization, moratorium, or similar laws affecting creditors'
rights generally and (b) general equitable principles, including without
limitation, concepts of good faith and fair dealing, materiality, fraudulent
transfer and reasonableness (regardless of whether considered in a proceeding in
equity or at law).
SECTION 7.6 Financial Statements. The Borrower's audited consolidated
financial statements for the Fiscal Year ended December 31, 1994 and its
unaudited consolidated financial statements for the Fiscal Quarter ended March
31, 1995, copies of which have been furnished to each Bank, have been prepared
in conformity with GAAP applied on a basis consistent with that of the preceding
Fiscal Year, and accurately present the financial condition of the Borrower and
its Subsidiaries at such dates and the results of operations for the periods
then ended.
SECTION 7.7 Material Adverse Change. No Material Adverse Change has
occurred since December 31, 1994.
<PAGE>
SECTION 7.8 Litigation and Contingent Obligations. No Material
Litigation is pending or, to the best of Borrower's knowledge, threatened except
as set forth (including estimates of the Dollar amounts involved) in Schedule
7.8. The Borrower and its Subsidiaries have no material Contingent Obligations
other than as provided for or disclosed on Schedule 7.8.
SECTION 7.9 Liens. None of the assets of the Borrower or any of its
Subsidiaries is subject to any Lien, except for Permitted Liens.
SECTION 7.10 Pension and Welfare Plans.
(a) Except as set forth on Schedule 7.10, during the
twelve-consecutive-month period prior to the Effective Date and prior to
the Closing Date, no steps have been taken by the Borrower or any other
Controlled Group member (i) to terminate or completely or partially
withdraw from any Pension Plan or (ii) terminate any Welfare Plan, which
termination could be reasonably expected to give rise to a liability of
the Borrower or any other Controlled Group member in excess of
$10,000,000 for any Controlled Group member (other than the Borrower) or
in excess of $50,000,000 for the Borrower, and no contribution failure
has occurred with respect to any Pension Plan sufficient to give rise to
a Lien exceeding $10,000,000 on behalf of any Controlled Group member
(other than the Borrower) or $50,000,000 on behalf of the Borrower under
section 302(f) of ERISA and no contribution failure in excess of
$10,000,000 has occurred on behalf of any Controlled Group member (other
than the Borrower) or in excess of $50,000,000 on behalf of the
Borrower;
(b) except as set forth on Schedule 7.10, to the best of the
Borrower's knowledge, no condition exists, or event or transaction has
occurred, with respect to any Pension Plan which might result in the
incurrence by the Borrower or any other member of the Controlled Group
of any liability, fine, Tax or penalty which could be reasonably
expected to have a Material Adverse Effect;
(c) except as set forth on Schedule 7.10, neither the Borrower
nor any other member of the Controlled Group has any vested or
contingent liability with respect to any post-retirement benefit under a
Welfare Plan, other than liability for continuation coverage described
in Part 6 of Title I of ERISA;
<PAGE>
(d) except as set forth on Schedule 7.10, with respect to each
Pension Plan maintained or contributed to by the Borrower or any other
Controlled Group member which is intended to qualify under section 401
of the Code, a favorable determination letter has been received from the
Internal Revenue Service stating that such Pension Plan so qualifies and
nothing has occurred since the date of issuance of such determination
letter which would cause any such Pension Plan to cease to qualify under
section 401 of the Code;
(e) no Pension Plan maintained by the Borrower or any other
member of the Controlled Group is a "multi-employer plan" as defined in
section 4001 of ERISA; and
(f) except as disclosed in Schedule 7.10, no Pension Plan
maintained by or contributed to by the Borrower or any other member of
the Controlled Group and subject to section 302 of ERISA or section 412
of the Code has incurred an accumulated funding deficiency as defined in
section 302(a)(2) of ERISA and section 412(a) of the Code in excess of
$10,000,000 on behalf of any Controlled Group member (other than the
Borrower) or in excess of $50,000,000 on behalf of the Borrower, whether
or not waived.
SECTION 7.11 Investment Company Act. Neither the Borrower nor any of its
Subsidiaries is an "investment company" or a company "controlled" by an
"investment company," within the meaning of the Investment Company Act of 1940,
as amended.
SECTION 7.12 Public Utility Holding Company Act. Neither the Borrower
nor any of its Subsidiaries is a "holding company," or a "subsidiary company" of
a "holding company," or an "affiliate" of a "holding company" or of a
"subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935, as amended.
SECTION 7.13 Taxes.
(a) Except as set forth on Schedule 7.13, the Borrower and each
of its Significant Subsidiaries have filed all material Tax Returns and
Reports required by law to have been filed by them and have paid or
provided adequate reserves for all Taxes thereby shown to be owing,
except any such Taxes which are being diligently contested in good faith
by appropriate proceedings and for which adequate reserves have been
established and are being maintained in accordance with GAAP. Except as
set forth on Schedule 7.13, there is no ongoing audit or, to the
Borrower's knowledge, other governmental investigation of the tax
liability of the Borrower or any of its Significant Subsidiaries and
there is no unresolved claim by a taxing authority concerning the
Borrower's or any of the Significant Subsidiaries' tax liability, for
any period for which returns have been filed or were due. The liability
stated for Taxes as of December 31, 1994 in the financial statements
described in Section 7.6 is sufficient in all material respects for all
Taxes as of such date.
<PAGE>
(b) All life insurance reserves shown as such on federal tax
returns (other than individual annuity contracts) of each of the
Insurance Subsidiaries qualify as life insurance reserves under section
816(b) of the Code or under former section 801(b) of the Code.
(c) All current Reinsurance Agreements among the Insurance
Subsidiaries and their respective Affiliates have, at all times, been
conducted on an arm's-length basis.
(d) Each of the Insurance Subsidiaries is a life insurance
company as defined in section 816 of the Code.
SECTION 7.14 Accuracy of Information. All factual information heretofore
or contemporaneously furnished by or on behalf of the Borrower or any of its
Subsidiaries in writing to the Administrative Agent or any Bank for purposes of
or in connection with this Agreement or any transaction contemplated hereby is,
and all other such factual information hereafter furnished by or on behalf of
the Borrower or its Subsidiaries to the Administrative Agent or any Bank will
be, true and accurate in every material respect on the date as of which such
information is dated or certified and, except as such information speaks solely
as of a particular date, such information is not, or shall not be, as the case
may be, incomplete by omitting to state any material fact necessary to make such
information not misleading.
<PAGE>
SECTION 7.15 Environmental Warranties.
(a) all facilities and property (including underlying
groundwater) owned or leased by the Borrower or any of its Subsidiaries
have been, and continue to be, owned or leased by the Borrower and its
Subsidiaries in material compliance with all Environmental Laws, except
where failure to so comply could not be reasonably expected to have a
Material Adverse Effect;
(b) there have been no past, and there are no pending or
threatened, Environmental Claims, except where such Environmental Claims
could not reasonably be expected to have a Material Adverse Effect;
(c) there have been no releases of Hazardous Materials at, on or
under any property now or previously owned or leased by the Borrower or
any of its Subsidiaries that, individually or in the aggregate, have
had, or could reasonably be expected to have, a Material Adverse Effect;
(d) the Borrower and each of its Subsidiaries have been issued
and are in material compliance with all permits, certificates,
approvals, licenses and other authorizations relating to environmental
matters and necessary or desirable for their businesses except where
failure to comply could not be reasonably expected to have a Material
Adverse Effect;
(e) no property now or previously owned or leased by the
Borrower or any of its Subsidiaries is listed or proposed for listing
(with respect to owned property only) on the National Priorities List
pursuant to CERCLA, on the CERCLIS or on any similar state list of sites
requiring investigation or clean-up;
(f) there are no underground storage tanks, active or abandoned,
including petroleum storage tanks, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries
that, individually or in the aggregate, could reasonably be expected to
have a Material Adverse Effect;
<PAGE>
(g) neither the Borrower nor any of its Subsidiaries have
directly transported or directly arranged for the transportation of any
Hazardous Material to any location which is listed or proposed for
listing on the National Priorities List pursuant to CERCLA, on the
CERCLIS or on any similar state list or which is the subject of federal,
Governmental Authority or local enforcement actions or other
investigations which may lead to material claims against the Borrower or
any of its Subsidiaries for any remedial work, damage to natural
resources or personal injury, including claims under CERCLA;
(h) there are no polychlorinated biphenyls or friable asbestos
present at any property now or previously owned or leased by the
Borrower or any of its Subsidiaries that, individually or in the
aggregate, could be reasonably expected to have a Material Adverse
Effect; and
(i) no conditions exist at, on or under any property now or
previously owned or leased by the Borrower or any of its Subsidiaries
which, with the passage of time, or the giving of notice or both, would
give rise to liability under any Environmental Law, except where such
liability could not be reasonably expected to have a Material Adverse
Effect.
SECTION 7.16 Proceeds.
(a) Tranche A Loans. The proceeds of the Tranche A Loans will be used
(i) to purchase all of the outstanding common stock of CCPI not currently owned
by the Borrower or its Subsidiaries, and (ii) for general working capital
purposes. None of the proceeds of the Tranche A Loans will be used, either
directly or indirectly, for the purpose, whether immediate, incidental or
ultimate, of "purchasing or carrying margin stock" within the meaning of
Regulations G and U of the FRB, as amended from time to time.
(b) Tranche B Loans. The proceeds of the Tranche B Loans will be used
(i) to pay the Indebtedness to be Refinanced, (ii) to refinance certain other
Indebtedness of the Borrower used to finance the acquisition of common stock of
BLHC, and (iii) for general working capital purposes.
<PAGE>
SECTION 7.17 Insurance. Schedule 7.17 hereto sets forth a true and
correct summary of all insurance carried by the Borrower. The properties and
business of the Borrower and its Subsidiaries are insured against casualties and
contingencies (other than normal life insurance risk) for its benefit under
policies issued by insurers of recognized responsibility in such amounts as is
customary in the case of similar businesses. No notice of any pending or
threatened cancellation or material premium increase has been received by the
Borrower with respect to any of such insurance policies. The Borrower is in
substantial compliance with all conditions contained in such insurance policies.
SECTION 7.18 Securities Laws. Neither the Borrower nor, to the best of
Borrower's knowledge, any of its Affiliates, nor anyone acting on behalf of any
such Person, has directly or indirectly offered any interest in the Loans or any
other Liabilities for sale to, or solicited any offer to acquire any such
interest from, or has sold any such interest to, any Person that would subject
the issuance or sale of the Loans or any other Liabilities to registration under
the Securities Act of 1933, as amended.
SECTION 7.19 Governmental Authorizations. The Borrower and each of its
Subsidiaries have all licenses, franchises, permits and other governmental
authorizations necessary for all businesses presently carried on by them
(including ownership and leasing of the real and personal property owned and
leased by them), except where failure to obtain such licenses, franchises,
permits and other governmental authorizations could not reasonably be expected
to have a Material Adverse Effect.
SECTION 7.20 Business Locations; Trade Names. Schedule 7.20 lists each
of the locations where the Borrower and each of its Significant Subsidiaries
(after giving effect to the GARCO Merger, the CCPI Merger, the CIHC Merger, the
CIHC Contribution and the Conseco Contribution) maintains an office, a place of
business or any records together with each partnership, corporate, fictitious or
trade name under or by which the Borrower or any of its Significant Subsidiaries
conducts its business.
SECTION 7.21 Solvency. On a consolidated basis, the Borrower is and,
after consummation of this Agreement and after giving effect to all Indebtedness
incurred by the Borrower in connection herewith, will be, Solvent.
<PAGE>
SECTION 7.22 Insurance Licenses. Schedule 7.22 lists all of the
jurisdictions in which each of the Insurance Subsidiaries hold licenses
(including, without limitation, licenses or certificates of authority from
applicable insurance departments), permits or authorizations to transact
insurance and reinsurance business (collectively, the "Licenses"). Except as set
forth on Schedule 7.22, to the best of Borrower's knowledge after due inquiry of
the Responsible Officers of the respective Insurance Subsidiaries, no such
License is the subject of a proceeding for suspension or revocation or any
similar proceedings, there is no sustainable basis for such a suspension or
revocation, and no such suspension or revocation is threatened by any Department
which, in either case could reasonably be expected to have a Material Adverse
Effect. Schedule 7.22 indicates that line or lines of insurance which the
Insurance Subsidiaries are permitted to be engaged in with respect to each
License therein listed. The Insurance Subsidiaries do not transact any insurance
business, directly or indirectly, in any state or jurisdiction other than those
enumerated on Schedule 7.22 hereto, where such business requires any license,
permit, governmental approval, consent or other authorization.
SECTION 7.23 Compliance with Laws. None of the Borrower or its
Subsidiaries is in violation of any law, ordinance, rule, regulation, order,
policy, guideline or other requirement of any Governmental Authority, if the
effect of such violation could reasonably be expected to have a Material Adverse
Effect and, to the best of the Borrower's knowledge, no such violation has been
alleged and each of the Borrower and each of its Subsidiaries (a) has filed in a
timely manner all reports, documents and other materials required to be filed by
it with any Governmental Authority, if such failure to so file could reasonably
be expected to have a Material Adverse Effect; and the information contained in
each of such filings is true, correct and complete in all material respects and
(b) has retained all records and documents required to be retained by it
pursuant to any law, ordinance, rule, regulation, order, policy, guideline or
other requirement of any Governmental Authority, if the failure to so retain
such records and documents could reasonably be expected to have a Material
Adverse Effect.
SECTION 7.24 No Default. None of the Borrower or its Subsidiaries is in
default under any agreement or instrument to which the Borrower or such
Subsidiary is a party or by which any of their respective properties or assets
is bound or affected, which default might reasonably be expected to have a
Material Adverse Effect.
<PAGE>
SECTION 7.25 Pledged Shares. All of the shares of capital stock pledged
to the Administrative Agent pursuant to the terms of the Pledge Agreements are
duly authorized and validly issued and are fully paid and non-assessable. The
shares of capital stock pledged by the Borrower pursuant to the Borrower Shared
Pledge Agreement and the Borrower Non-Shared Pledge Agreement represent and will
continue to represent all of the issued and outstanding capital stock of BLHC
owned by the Borrower. All of the shares of BLHC pledged to the Administrative
Agent, for the benefit of the Banks, under the Borrower Non-Shared Pledge
Agreement represent shares of BLHC which pursuant to Sections 10.7(iv) and/or
10.7(vii) of the Conseco Indenture and the CCPI Indenture have been pledged to
secure the financing of the acquisition of such shares, and the Lien of the
Administrative Agent thereon constitutes a Lien pursuant to Sections 10.7(iv)
and/or 10.7(vii) of the Conseco Indenture and the CCPI Indenture.
SECTION 7.26 Mergers. The Borrower has furnished (or will have furnished
as of the Closing Date) to each Bank a true and correct copy of the CCPI Merger
Documents and each other document or instrument executed in connection
therewith. On the Closing Date:
(a) the CCPI Merger will have been concurrently consummated in
accordance with the terms of the CCPI Merger Agreement, and each other
document and instrument executed in connection therewith without
material modification or waiver of any such terms; and
(b) except as set forth on Schedule 7.26, all consents and
approvals of, and filings and registrations with, and all other actions
in respect of, all Persons (including all governmental agencies,
authorities or instrumentalities and the holders of the Senior Notes
under the Indentures) required in order to make or consummate the CCPI
Merger will have been obtained, given, filed or taken and shall be in
full force and effect, and all required waiting periods will have
elapsed;
SECTION 7.27 Margin Regulations. Neither the Borrower nor any Subsidiary
of the Borrower is engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying
margin stock (within the meaning of Regulation G or Regulation U of the FRB).
<PAGE>
SECTION 7.28 Tranche B Indebtedness. The Indebtedness with respect to
the Tranche B Loans represents a resetting and renewal of the Indebtedness of
the Borrower to finance the acquisition by the Borrower of the shares of stock
of BLHC pledged hereunder.
SECTION 7.29 Conseco Corporate Structure. Immediately following the
consummation of the GARCO Merger, the CCPI Merger, the CIHC Merger, the CIHC
Contribution and the Conseco Contribution, the corporate structure of the
Borrower and its Subsidiaries shall be as set forth in Exhibit Q hereto.
SECTION 7.30 Significant Subsidiaries. Set forth on Schedule 7.30 hereto
is a complete and accurate list of each Significant Subsidiary (as defined in
the Indentures) of the Borrower after giving effect to the GARCO Merger, the
CCPI Merger, the CIHC Merger, the CIHC Contribution and the Conseco
Contribution.
SECTION 7.31 BLHC a Subsidiary. Notwithstanding any other provision
contained in this Agreement to the contrary, for purposes of this Section 7
(other than Sections 7.13, 7.15 7.16, 7.17 and 7.20 with respect to any
Borrowing made after the initial Borrowing) BLHC shall be deemed to be a
Subsidiary of the Borrower.
SECTION 8. AFFIRMATIVE COVENANTS
The Borrower agrees that, on and after the Closing Date until the
termination or expiration of the Commitments and for so long thereafter as any
of the Liabilities remain unpaid or outstanding (except Liabilities which by the
terms hereof survive the payment in full of the Loans and termination of this
Agreement), the Borrower will:
SECTION 8.1 Reports, Certificates and Other Information. Unless
otherwise provided herein, furnish or cause to be furnished to the
Administrative Agent and each Bank:
8.1.1 Audit Report. As soon as available, but in any event
within one hundred and twenty (120) days after the end of each Fiscal
Year of the Borrower:
(a) copies of the audited consolidated balance
sheet of the Borrower and an unaudited consolidating balance sheet of
the Borrower as at the end of such Fiscal Year and the related
statements of earnings, stockholders' equity and cash flows for such
Fiscal Year, in each case setting forth the figures for the previous
year, prepared in reasonable detail and in accordance with GAAP applied
consistently throughout the periods reflected therein (except as set
forth therein) certified, in the case of the audited financial
statements, without Qualification by Coopers & Lybrand (or such other
independent certified public accountants of recognized standing
acceptable to the Required Banks);
<PAGE>
(b) a letter or letters addressed to the Borrower
from such accountants stating in substance that such accountants have
been informed that such audited financial statements and audited reports
are being delivered to the Administrative Agent and the Banks, and
acknowledging that such financial statements and audit reports will be
part of the information that the Administrative Agent and the Banks
will use to make credit decisions with regard to this Agreement;
8.1.2 Quarterly Reports. As soon as available, but in any event
within sixty (60) days after the end of each of the first three Fiscal
Quarters of each Fiscal Year of the Borrower, copies of the condensed
unaudited consolidated and consolidating balance sheet of the Borrower
at the end of such Fiscal Quarter and the related condensed unaudited
statements of earnings, stockholders' equity and cash flows for such
Fiscal Quarter and the portion of the Fiscal Year through such Fiscal
Quarter, in each case setting forth in comparative form the figures for
the corresponding periods of the previous Fiscal Year, prepared in
reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein (except as set forth therein)
and certified by the chief financial officer or a vice-president with
responsibility for or knowledge of financial matters of the Borrower on
behalf of the Borrower as presenting fairly the financial condition and
results of operations of the Borrower (subject to normal year-end and
audit adjustments);
<PAGE>
8.1.3 Tax Returns and Reports. If requested by the Administrative
Agent or the Required Banks, copies of all federal, state, local and
foreign Tax Returns and Reports filed by any of the Borrower and any of
its Subsidiaries;
8.1.4 SAP Financial Statements.
(a) As soon as possible, but in any event within
sixty (60) days after the end of each Fiscal Year of each of the
Insurance Subsidiaries, a copy of the Annual Statement of such Insurance
Subsidiary for such Fiscal Year prepared in accordance with SAP and
accompanied by the certification of the chief financial officer or a
vice-president with responsibility for or knowledge of financial matters
of such Insurance Subsidiary that such financial statement presents
fairly, in accordance with SAP, the financial position of such Insurance
Subsidiary for the period then ended;
(b) As soon as possible, but in any event within
sixty (60) days after the end of each of the first three Fiscal Quarters
of each Fiscal Year of each of the Insurance Subsidiaries, a copy of
the quarterly statement of such Insurance Subsidiary for such Fiscal
Quarter, all prepared in accordance with SAP and accompanied by the
certification of the chief financial officer or a vice-president with
responsibility for or knowledge of financial matters of such
Insurance Subsidiary that all such financial statements present fairly
in accordance with SAP the financial position of such Insurance
Subsidiary for the periods then ended;
(c) Within fifteen (15) days after being delivered
to any of the Insurance Subsidiaries constituting a Significant
Subsidiary, any draft or final Triennial Examination Report issued by
the applicable Department or the NAIC;
(d) Within ninety (90) days after the close of
each Fiscal Year of each of the Insurance Subsidiaries, a copy of the
"Statement of Actuarial Opinion" and "Management Discussion and
Analysis" for each of the Insurance Subsidiaries which is provided to
the applicable Department (or equivalent information should such
Department no longer require such a statement) as to the adequacy of
loss reserves of such Insurance Subsidiary. Such opinion shall be in the
format prescribed by the Applicable Insurance Code of the state of
domicile of such Insurance Subsidiary;
<PAGE>
8.1.5 Compliance Certificate. Contemporaneously with the
furnishing of a copy of each set of the statements and reports provided
for in Sections 8.1.1 through 8.1.2, a duly completed certificate,
substantially in the form of Exhibit G hereto (the "Compliance
Certificate"), signed by the chief financial officer or a vice-president
with responsibility for or knowledge of financial matters of the
Borrower, containing, among other things, a computation of, and showing
compliance with, each of the applicable financial ratios and
restrictions contained in Section 10 and to the effect that as of such
date no Default has occurred and is continuing;
8.1.6 Excess Cash Flow Certificate. Within one hundred twenty
(120) days of the end of each Fiscal Year of the Borrower (commencing
with the Fiscal Year ended December 31, 1997), a duly completed
certificate, substantially in the form of Exhibit N hereto, signed by
the chief financial officer or a vice-president of the Borrower who has
sufficient information to calculate the Excess Cash Flow of the
Borrower, containing, among other things, a computation of Excess Cash
Flow for the previous Fiscal Year;
8.1.7 Auditors' Materials. Promptly upon receipt thereof by the
Borrower, copies of all material financial and management reports
regarding the Borrower or any of the Significant Subsidiaries submitted
to the Borrower or any of the Significant Subsidiaries by independent
public accountants in connection with each annual or interim audit
report made by such accountants of the books of the Borrower or any of
its Significant Subsidiaries;
<PAGE>
8.1.8 Reports to SEC and to Stockholders. Promptly upon the
filing or making thereof, copies of each filing and report made by the
Borrower or any of its Subsidiaries with or to any securities exchange
or the Securities and Exchange Commission and of each communication from
the Borrower or any of its Subsidiaries to stockholders generally;
8.1.9 Notice of Default and Litigation. Promptly upon learning
of the occurrence of any of the following, written notice thereof,
describing the same and the steps being taken by the Borrower with
respect thereto:
(a) the occurrence of a Default;
<PAGE>
(b) the institution of any Material Litigation or
the occurrence of any Material Litigation Development;
(c) the commencement of any dispute which might
reasonably be expected to lead to the material modification, transfer,
revocation, suspension or termination of any Loan Document; or
(d) any Material Adverse Change;
8.1.10 Insurance Reports. Written notification ten (10) days
prior to any cancellation or material change of any insurance policy by
the Borrower or any Significant Subsidiary within five (5) days after
receipt of any notice (whether formal or informal) of cancellation or
any material change by any of its insurers;
8.1.11 ERISA Liability. Promptly upon learning of the occurrence
of the following, written notice thereof describing the same and the
steps being taken by Borrower with respect thereto:
(a) the failure of any member of the Controlled
Group to make a required contribution to any Pension Plan if such
failure is sufficient to give rise to a Lien under section
302(f)(1) or accumulated funding deficiency under section 302 of ERISA
of at least $10,000,000, but with respect to the Borrower only if such
failure or deficiency totals $50,000,000,
<PAGE>
(b) the institution of any steps by any member of
the Controlled Group to withdraw from, or the institution of any steps
by the Borrower to terminate, any Pension Plan,
(c) the taking of any action with respect
to a Pension Plan which could result in the requirement that the
Borrower or any member of the Controlled Group furnish a bond or other
security in excess of $10,000,000 by any Controlled Group member (other
than the Borrower) or in excess of $50,000,000 by the Borrower to the
Pension Benefit Guaranty Corporation (or any successor thereto) or such
Pension Plan, or
(d) the occurrence of any event with
respect to any Pension Plan which could result in the incurrence by any
member of the Controlled Group (other than the Borrower) of any
liability, fine, Tax or penalty in excess of $10,000,000 or $50,000,000
with respect to the Borrower or any event or requirement that would
require the Borrower or any member of the Controlled Group to pay more
than $17,000,000 in benefits in any one year with respect to any
post-retirement Welfare Plan other than benefits which are required to
be provided under section 601 of ERISA;
8.1.12 Pension Plan Withdrawals. With respect to each Pension
Plan, if any, which is a "multi-employer plan," as defined in section
4001 of ERISA as to which any member of the Controlled Group may incur
any liability,
(a) no less frequently than annually, a written estimate (which
shall be based on information received from each such plan, it being
expressly understood that the Borrower shall take all reasonable steps
to obtain such information) of the withdrawal liability that would be
incurred by the Controlled Group in the event that all members of the
Controlled Group were to completely withdraw from such plan, and
<PAGE>
(b) written notice thereof, as soon as it has reason to believe
(on the basis of the most recent information available to it) that the
sum of (i) the withdrawal liability that would be incurred by the
Controlled Group if all members of the Controlled Group completely
withdrew from all multi-employer plans as to which any member of the
Controlled Group has an obligation to contribute, and (ii) the aggregate
amount of the outstanding withdrawal liability (without unaccrued
interest) incurred by the Controlled Group to multi-employer plans,
would exceed $10,000,000;
8.1.13 Environmental Liabilities. Promptly upon learning
thereof, written notice (together with copies, if available) of all
material written claims, complaints, notices or inquiries relating to
the Borrower's or any Subsidiary's (a) properties or facilities, or (b)
compliance with Environmental Laws, together with a description of the
steps being taken by the Borrower or such Subsidiary with respect
thereto;
8.1.14 Insurance Holding Company Filings. Copies of all material
Insurance Holding Company System Act filings with Governmental
Authorities by the Borrower or any of its Subsidiaries not later than
five (5) Business Days after such filings are made, including, without
limitation, filings which seek approval of Governmental Authorities with
respect to transactions between the Borrower and its Affiliates;
8.1.15 Insurance Licenses. Within five (5) Business Days of
notice, notice of actual suspension, termination or revocation of any
License or restriction thereon (material to the Insurance Subsidiaries
taken as a whole) of any of the Insurance Subsidiaries by any
Governmental Authority or of receipt of notice from any Governmental
Authority notifying any of the Insurance Subsidiaries of a hearing
(which is not withdrawn within ten (10) days) relating to such a
suspension, termination, revocation or restriction, including any
request by a Governmental Authority which commits any of the Insurance
Subsidiaries to take, or refrain from taking, any action or which
otherwise materially and adversely affects the authority of any of the
Insurance Subsidiaries to conduct its business;
<PAGE>
8.1.16 Insurance Proceedings. Within three (3) Business Days of
such notice, notice of any pending or threatened investigation or
regulatory proceeding (other than routine periodic investigations or
reviews) by any Governmental Authority concerning the business,
practices or operations of any of the Insurance Subsidiaries, including
any agent or managing general agent thereof;
8.1.17 Changes in Applicable Insurance Code. Promptly, upon
knowledge of the Borrower, to the Administrative Agent (which shall
promptly deliver such reports to the Banks), notice of any actual or
proposed material changes in any Applicable Insurance Code;
8.1.18 Reinsurance Agreements.
(a) Promptly, notice of any material change or modification to
any Reinsurance Agreements or Surplus Relief Reinsurance Agreements
whether entered into before or after the Closing Date including
Reinsurance Agreements, if any, which are in a runoff mode on the
Closing Date, which change or modification could reasonably be expected
to have a Material Adverse Effect;
(b) promptly, notice of any written notice received by any of
the Insurance Subsidiaries of any material denial of coverage,
litigation or arbitration arising out of any material Surplus Relief
Reinsurance Agreement or any material Reinsurance Agreement to which any
of the Insurance Subsidiaries is a party; and
(c) promptly, such other financial, actuarial and other
information with respect to Surplus Relief Reinsurance Agreements and
Reinsurance Agreements as the Administrative Agent may reasonably
request;
8.1.19 Investments. To the extent not provided with the
financial statements provided in Section 8.1.4, within sixty (60) days
of the end of each Fiscal Quarter, a list of the Investments of the
Borrower and its Subsidiaries including a valuation thereof prepared
from sources reasonably acceptable to the Administrative Agent;
<PAGE>
8.1.20 Revenue Agent Notices. Promptly, and in any event
within ten (10) days of receipt, any revenue agent's reports or
statutory notices of material deficiency related to the Borrower or any
of its Subsidiaries;
8.1.21 Other Tax Information. Upon request, promptly furnish to
the Administrative Agent copies of all correspondence (including without
limitation, notices, requests, explanations, determinations, schedules,
charts and lists) delivered to any Governmental Authority in connection
with any Tax claim or Taxes and any protest, petition or refund suit
filed on behalf of the Borrower or any of its Subsidiaries in connection
with any Tax claim or Taxes;
8.1.22 Rating Agency Notice. Promptly, but in any event within
three (3) Business Days of its knowledge thereof, written notice of any
change in the rating of the Borrower's Senior Notes by Moody's and/or
Standard & Poor's;
8.1.23 Financial Projections and Reconciliation. As soon as
available, but in any event:
(a) within ninety (90) days after the beginning of (i) each
Fiscal Year of the Borrower commencing on or after January 1, 1997, a
copy of the financial projections of the Borrower and its Subsidiaries
for such Fiscal Year; and
(b) within ninety (90) days after each Fiscal Year, a
reconciliation of the financial projections provided in clause (a) with
the Fiscal Year immediately preceding such Fiscal Year;
8.1.24 Risk-Based Capital Calculations. Within three (3)
Business Days after the request of the Administrative Agent or the
Required Banks, calculations of the Risk-Based Capital for all or any of
BLC, BSL, GARCO, BNL and JNL-TX; which calculation shall be made based
on the last day of the Fiscal Quarter immediately preceding such
request; and
<PAGE>
8.1.25 Other Information. From time to time, such other
information concerning the Borrower and any of its Subsidiaries as the
Administrative Agent or a Bank may reasonably request.
SECTION 8.2 Corporate Existence; Foreign Qualification. Except as
permitted by Sections 9.3 and 9.4, do and cause to be done at all times all
things necessary to (a) maintain and preserve the corporate existence of the
Borrower and each of its Wholly-Owned Subsidiaries and/or Significant
Subsidiaries, (b) be, and ensure that the Borrower and each of its Subsidiaries
are duly qualified to do business and in good standing as foreign corporations
or partnerships, as applicable, in each jurisdiction where the nature of their
business makes such qualification necessary and failure to so qualify could have
a Material Adverse Effect, and (c) comply, and cause each of its Wholly-Owned
Subsidiaries and/or Significant Subsidiaries to comply, with all material
Contractual Obligations and requirements of law binding upon such entity.
SECTION 8.3 Books, Records and Inspections.
(a) Maintain, and cause each of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries to maintain, books and records which are
complete and correct in all material respects;
(b) permit, and cause each of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries to permit, access at reasonable times by
the Administrative Agent and each Bank to its books and records;
(c) permit, and cause each of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries to permit, the Administrative Agent and
each Bank to inspect at reasonable times its properties and operations;
and
(d) permit, and cause each of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries to permit, the Administrative Agent and
each Bank to discuss its business, operations and financial condition
with its officers.
<PAGE>
SECTION 8.4 Insurance. Maintain with responsible insurance companies,
insurance with respect to its properties and business against such casualties
and contingencies and of such types and in such amounts as is customary in the
case of similar businesses.
SECTION 8.5 Taxes and Liabilities.
(a) Pay, and cause each of its Subsidiaries to pay, when due all
of their respective Taxes and other material liabilities, except as
contested in good faith and by appropriate proceedings with respect to
which reserves have been established, and are being maintained, in
accordance with GAAP; and
(b) except as permitted by Sections 9.3 and 9.4, cause each of
the Insurance Subsidiaries to continue to qualify as life insurance
companies under Section 816 of the Code.
SECTION 8.6 Pension Plans and Welfare Plans. Maintain, and cause each of
its Subsidiaries to maintain, each Pension Plan and Welfare Plan sponsored by it
or its Subsidiaries as to which it may have any liability, in compliance in all
material respects with all applicable requirements of law.
SECTION 8.7 Compliance with Laws. Comply, and cause each of its
Subsidiaries to comply, with all federal, state and local laws, rules and
regulations related to its businesses including, without limitation, the various
Applicable Insurance Codes, except where such failure to comply could not
reasonably be expected to have a Material Adverse Effect.
SECTION 8.8 Maintenance of Permits. Maintain, and cause each of its
Subsidiaries to maintain, all permits, licenses and consents as may be required
for the conduct of its business by any state, federal or local government agency
or instrumentality including, without limitation, the Licenses, except where
such failure to maintain could not reasonably be expected to have a Material
Adverse Effect.
SECTION 8.9 Environmental Compliance. Maintain, and cause each of its
Subsidiaries to maintain, (a) all necessary permits, approvals, certificates,
licenses and other authorizations relating to environmental matters in effect
and use and operate all of its facilities and properties in material compliance
with all Environmental Laws, and (b) appropriate procedures for the handling of
all Hazardous Materials in material compliance with all applicable Environmental
Laws, and comply with such procedures at all times, except where such failure to
maintain could not reasonably be expected to have a Material Adverse Effect.
<PAGE>
SECTION 8.10 BLHC a Subsidiary. Notwithstanding any other provision
contained in this Agreement to the contrary, for purposes of this Section 8
(other than Sections 8.4 and 8.5) BLHC shall be deemed to be a Subsidiary of the
Borrower.
SECTION 9. NEGATIVE COVENANTS
The Borrower agrees that, on and after the Closing Date until the
termination or expiration of the Commitments and for so long thereafter as any
of the Liabilities remain unpaid or outstanding (except Liabilities which by the
terms hereof survive the payment in full of the Loans and the termination of
this Agreement), the Borrower will:
SECTION 9.1 Limitation on Indebtedness. Not, and not permit any of its
Subsidiaries to, incur or at any time be liable with respect to any Indebtedness
except:
(a) Indebtedness outstanding under this Agreement in respect of
the Loans and other Liabilities;
(b) Indebtedness outstanding on the Closing Date described on
Schedule 9.1; provided, that Indebtedness permitted by this clause (b)
does not include any extension, renewal or refunding of any such
outstanding Indebtedness unless such extension, renewal or refunding of
such Indebtedness does not (A) increase the principal amount of or rate
of interest on such Indebtedness, (B) shorten the Average Life of such
Indebtedness, or (C) make the terms of such Indebtedness less favorable
to the Borrower or any Subsidiary of the Borrower;
(c) Indebtedness secured by a Permitted Lien;
(d) Hedging Obligations entered into in the ordinary course of
business;
<PAGE>
(e) Other Indebtedness the proceeds of which are used solely to
pay the Liabilities; provided that a permanent ratable reduction is made
with respect to the Commitments in an amount equal to such proceeds;
(f) Indebtedness in connection with Permitted Transactions;
(g) Indebtedness, or refinancings thereof, under reimbursement
obligations in respect of letters of credit incurred in the ordinary
course of business;
(h) Indebtedness of the Borrower or its Subsidiaries consisting
of deferred payment obligations resulting from the adjudication or
settlement of any claim or Litigation of the Borrower or its
Subsidiaries;
(i) Indebtedness resulting from reserves for
outstanding checks;
(j) Indebtedness of the Significant Subsidiaries resulting from
the sale or securitization of receivables so long as such receivables
constitute non-admitted assets of such Significant Subsidiaries;
provided, that Indebtedness related to any sale or securitization will
be nonrecourse to the Significant Subsidiaries;
(k) Indebtedness with respect to Contingent Obligations in an
aggregate principal amount not exceeding $15,000,000;
(l) Indebtedness of Wholly-Owned Subsidiaries of the Borrower
owing to the Borrower or another Wholly- Owned Subsidiary of the
Borrower, and Indebtedness of the Borrower owing to any of its
Wholly-Owned Subsidiaries;
(m) Indebtedness in respect of deferred Taxes reserved on the
financial statements of the Borrower in accordance with GAAP;
(n) Indebtedness of BLHC; provided that such Indebtedness is
nonrecourse to the Borrower or any of its assets or the assets of any
Subsidiary of the Borrower (other than BLHC);
<PAGE>
(o) Capitalized Lease Liabilities; provided that the aggregate
Capitalized Lease Liabilities shall not exceed $5,000,000;
(p) Indebtedness arising from deferral by employees of their
right to receive a portion of their salary or wages pursuant to any
Pension Plan;
(q) Indebtedness of a Person existing at the time such Person is
first acquired and becomes a Subsidiary of the Borrower as permitted by
this Agreement; provided that (i) such Person continues as a separate
Subsidiary of the Borrower and is not merged or consolidated with the
Borrower or any other Subsidiary of the Borrower, (ii) such Indebtedness
remains the obligation of such Person and is not assumed or guaranteed
by the Borrower or any other Subsidiary of the Borrower and (iii) such
Indebtedness was not incurred in contemplation of such acquisition; and
(r) Indebtedness, in addition to the Indebtedness permitted by
clauses(a) through (q), in a principal amount not exceeding $50,000,000.
SECTION 9.2 Liens. Not, and not permit any of its Subsidiaries to,
create, assume or suffer to exist any Lien on any asset now owned or hereafter
acquired by it, except for the following (collectively called "Permitted
Liens"):
(a) Liens in favor of the Administrative Agent for the benefit
of the Banks and the holders of the Senior Notes pursuant to this
Agreement and the other Loan Documents;
(b) Liens for current Taxes not delinquent or for Taxes being
contested in good faith and by appropriate proceedings and with respect
to which adequate reserves are being maintained in accordance with GAAP;
(c) Liens in connection with the acquisition of fixed or capital
assets after the date hereof and attaching only to the property being
acquired, provided the Indebtedness secured thereby does not exceed
$30,000,000 and that no such Lien exceeds 90% of the fair market value
of such property at the time of acquisition thereof or $30,000,000 in
the aggregate at any one time outstanding;
<PAGE>
(d) Liens shown on Schedule 9.2;
(e) Liens incurred in the ordinary course of business in
connection with worker's compensation, unemployment insurance or other
forms of governmental insurance or benefits or to secure performance of
tenders, statutory obligations, leases and contracts (other than for
borrowed money) entered into in the ordinary course of business or to
secure obligations on surety or appeal bonds;
(f) Liens of mechanics, carriers, materialmen and other like
Liens arising in the ordinary course of business in respect of
obligations which are not delinquent or which are being contested in
good faith and by appropriate proceedings and with respect to which
adequate reserves are being maintained in accordance with GAAP;
(g) Liens arising in the ordinary course of business for sums
being contested in good faith and by appropriate proceedings and with
respect to which adequate reserves are being maintained in accordance
with GAAP, or for sums not due, and in either case not involving any
deposits or advances for borrowed money or the deferred purchase price
of property or services;
(h) Liens on real estate to the extent real estate Investments
are permitted by Section 9.10(e)(iii);
(i) Liens in favor of the trustee on sums required to be
deposited with the trustee under the Indentures;
(j) Liens on Indebtedness permitted by Section 9.1(n) or (q);
(k) prior to the CCPI Merger, Liens on the capital stock of
CCPI; and
(l) Liens not otherwise permitted to be incurred pursuant to the
foregoing clauses (a) - (k) in an aggregate principal amount which, when
aggregated with the Indebtedness permitted by Section 9.1(r), shall not
exceed $65,000,000; provided that no Lien permitted by this clause (l)
shall be created, assumed or permitted to exist with respect to any
asset constituting Collateral.
<PAGE>
SECTION 9.3 Consolidation, Merger, etc. Not, and not permit any of its
Wholly-Owned Subsidiaries and/or Significant Subsidiaries to, liquidate or
dissolve, consolidate with, or merge into or with, any other Person, or purchase
or otherwise acquire all or substantially all of the capital stock or assets of
any Person (or of any division thereof) or, repurchase any of its capital stock,
except (a) any Wholly-Owned Subsidiary of the Borrower may liquidate or dissolve
voluntarily into, and may merge or consolidate with and into, or sell all or
substantially all of its capital stock or assets to, the Borrower or any other
Wholly-Owned Subsidiary of the Borrower, and (b) any Insurance Subsidiary may
acquire books of insurance business so long as the Statutory Liabilities
associated therewith does not exceed 15% of the Statutory Liabilities of all the
Insurance Subsidiaries, on a consolidated basis, immediately prior to such
acquisition.
SECTION 9.4 Asset Disposition, etc. Not, and not permit any of its
Wholly-Owned Subsidiaries and/or Significant Subsidiaries to, sell, assign,
lease, transfer, contribute, reinsure, cede, convey or otherwise dispose of, or
grant options, warrants or other rights with respect to, any of its assets
(including, without limitation, any books of business), unless a prepayment is
made pursuant to Section 4.3 or:
(a) such sale, assignment, transfer, lease, contribution,
reinsurance, cession, conveyance or other disposition is in the ordinary
course of its business including, without limitation, sales of assets in
connection with the management of the investment portfolio of the
Borrower and its Subsidiaries or as related to the sale or
securitization of receivables constituting non-admitted assets of an
Insurance Subsidiary;
(b) such sale, assignment, transfer, contribution, conveyance or
other disposition is of Credit Tenant Loans or other mortgages held by
such Person in connection with the securitization of such mortgages; or
(c) such sale, assignment, transfer, lease, contribution,
reinsurance, cession, conveyance or other disposition (i) does not
constitute a Sale the Net Proceeds of which would otherwise be required
to be applied as a mandatory prepayment pursuant to Section 4.3(a) or
(b) and is not of all or substantially all of the assets of the Borrower
or any Subsidiary of the Borrower and (ii) does not (A) in the case of
the Borrower and any of its Subsidiaries in any single or series of
related sales, assignments, transfers, leases, contributions, cessions,
conveyances or other dispositions, exceed $25,000,000 or, (B) in all
such sales, assignments, transfers, leases, contributions, cessions,
conveyances or other dispositions, in the aggregate during the term of
this Agreement, exceed $100,000,000.
<PAGE>
SECTION 9.5 Other Agreements. Not, and not permit any of its
Subsidiaries to, enter into any agreement (other than agreements with insurance
regulators) containing any provision which (a) would be violated or breached by
the performance of its obligations hereunder or under any instrument or document
delivered or to be delivered by it hereunder or in connection herewith, (b)
prohibits or restricts the ability of any Subsidiary of the Borrower to make
dividends or advances or payments to the Borrower, (c) prohibits or restricts
the ability of the Borrower or any of its Subsidiaries to amend or otherwise
modify this Agreement or any other document executed in connection herewith or
(d) constitutes an agreement to a limitation or restriction of the type
described in clauses (a) through (c) with respect to any other Indebtedness.
SECTION 9.6 Business Activities. Not, and not permit any of its
Significant Subsidiaries to fundamentally change the type of business in which
it is presently engaged as listed on Schedule 9.6.
SECTION 9.7 Change of Location or Name. Not, and not permit its
Significant Subsidiaries to, change (a) the location of its principal place of
business, chief executive office, major executive office, chief place of
business or its records concerning its business and financial affairs, or (b)
its name or the name under or by which it conducts its business, in each case
without first giving the Administrative Agent at least ten (10) days' advance
written notice thereof; provided, however, that notwithstanding the foregoing,
neither the Borrower nor any of its Significant Subsidiaries shall change the
location of its principal place of business, chief executive office, major
executive office, chief place of business or its records concerning its business
and financial affairs to any place outside the contiguous continental United
States of America.
<PAGE>
SECTION 9.8 Transactions with Affiliates. Except as set forth on
Schedule 9.8, not, and not permit any of the Insurance Subsidiaries to, enter
into, or cause, suffer or permit to exist any arrangement, Reinsurance
Agreement, Surplus Relief Reinsurance Agreement or contract with any of its
other Affiliates (other than the Borrower, another Insurance Subsidiary or a
Wholly-Owned Subsidiary of any of them) unless, in the case of material
arrangements, contracts or instruments, written notice is given to the
Administrative Agent (which shall promptly deliver copies of such notice to the
Banks) subsequent to the arrangement and, in any case, such arrangement,
contract or instrument (a) is fair and equitable to the Borrower or such
Subsidiary, (b) is of a sort which would be entered into by a prudent Person in
the position of the Borrower or such Subsidiary with a Person which is not one
of its Affiliates, and (c) is on terms which are not less favorable to the
Borrower or such Subsidiary than are obtainable from a Person which is not one
of its Affiliates.
SECTION 9.9 Dividends, etc. Except for (a) dividends paid by the
Borrower on the Conseco Preferred Stock in an amount not to exceed $3.25 per
share per annum, (b) the Borrower's repurchase of shares of its common stock
from its employees in accordance with the terms of, or otherwise in connection
with, any Pension Plan or Benefit Program, (c) intercompany dividends from the
Borrower to any Subsidiary of the Borrower or any Subsidiary of the Borrower to
the Borrower or any other Subsidiary of the Borrower, and (d) (i) the Borrower's
repurchase of shares of its capital stock or acquisition of its capital stock or
assets of any Person on an annual basis and (ii) the payment of dividends on the
common stock of the Borrower; provided that the aggregate amount of any
repurchases, acquisitions and dividends permitted by clauses (d)(i) and (ii) in
any Fiscal Year shall not exceed the greater of (1) one hundred percent (100%)
of the Net Proceeds received from the sale of Merchant Banking Investments, less
the amount originally paid for the Merchant Banking Investments set forth on
Schedule A as of the Closing Date, or (2) fifty percent (50%) of the Borrower's
Excess Cash Flow for the immediately preceding Fiscal Year plus any amounts the
Borrower would have been permitted to apply to purchases and repurchases and
common stock dividends under clauses(d)(i) and (ii) in previous Fiscal Years
which were not so applied, in each case so long as no Default has occurred and
is then continuing, not (1) declare, pay or make any dividend or distribution
(in cash, property or obligations) on any shares of any class of capital stock
(now or hereafter outstanding) of the Borrower or on any warrants, options or
other rights with respect to any shares of any class of capital stock (now or
hereafter outstanding) of the Borrower (other than dividends or distributions
payable in its common stock, preferred stock or warrants to purchase its common
stock or split-ups or reclassification of its stock into additional or other
shares of its common stock) or apply, or permit any of its Subsidiaries to
apply, any of its funds, property or assets to the purchase, redemption, sinking
fund or other retirement of any shares of any class of capital stock (now or
hereafter outstanding) of the Borrower or any option, warrant or other right to
acquire shares of the Borrower's capital stock (other than any such payment
pursuant to stock appreciation rights granted and exercised in accordance with
applicable rules and regulations of the Securities and Exchange Commission); or
(2) make any deposit for any of the foregoing purposes.
<PAGE>
Notwithstanding anything contained in this Section 9.9 to the contrary, if the
aggregate Commitments of the Banks have been permanently reduced to an aggregate
amount equal to $350,000,000 or less prior to April 1, 1997 or $320,000,000 or
less prior to December 31, 1997, the fifty percent (50%) set forth in clause (2)
of the proviso of clause (d) of this Section 9.9 shall be simultaneously
increased to one hundred percent (100%).
SECTION 9.10 Investments. Not, and not permit any of its Subsidiaries
to, make, incur, assume or suffer to exist any Investment in any other Person,
except:
(a) Investments existing on the Closing Date and identified in
Schedule 9.10;
(b) Cash Equivalents;
(c) without duplication, Investments permitted as Indebtedness
pursuant to Section 9.1;
(d) Investments by the Borrower in any of its Wholly- Owned
Subsidiaries or by any such Wholly-Owned Subsidiary in the Borrower or
any other Wholly-Owned Subsidiary of the Borrower, by way of
contributions to capital or loans or advances;
(e) other Investments by the Borrower and its Subsidiaries
which are in compliance with all of the following guidelines:
(i) All Investments made by any Insurance Subsidiary
shall be in compliance with the applicable Department of such Insurance
Subsidiary;
<PAGE>
(ii) No Investments in mortgage loans, except (A)
for existing direct mortgage loans listed on Schedule 9.10 and
refinancings thereof and (B) other Investments in direct mortgage
loans; provided, that such Investments, when aggregated with Investments
in real estate permitted by clause (iii) below, shall not exceed 8% of
the aggregate Investments of the Borrower and its Subsidiaries on a
consolidated basis;
(iii) No Investments in real estate, except for
existing Investments in real estate listed on Schedule 9.10 and
additional Investments in real estate; provided, that such Investments,
when aggregated with Investments in mortgage loans permitted by clause
(ii) above, shall not exceed 8% of the aggregate Investments of the
Borrower and its Subsidiaries on a consolidated basis;
(iv) Investments by the Borrower and its
Subsidiaries, on a consolidated basis, in equity securities (excluding
Investments in any Subsidiary of the Borrower) and non-Investment Grade
Securities shall not exceed in the aggregate 12% of the Investments of
the Borrower and its Subsidiaries on a consolidated basis; provided that
Investments of the Borrower and its Subsidiaries, on a consolidated
basis, in equity securities solely as a result of common stock received
as partnership distributions under the CCP II Partnership Agreement
shall not constitute Investments under this clause (iv);
(v) Investments by the Borrower and its
Subsidiaries, on a consolidated basis, in Investments relating to a
single issuer (other than U.S. Government Securities) shall not exceed
in the aggregate 4% of the Investments of the Borrower and its
Subsidiaries on a consolidated basis;
(vi) Investments in connection with Permitted
Transactions;
(vii) Investments in CMO Derivative Investments
in an amount not to exceed in the aggregate 4% of the Investments of the
Borrower and its Subsidiaries on a consolidated basis;
<PAGE>
(f) Credit Tenant Loans; and
(g) Investments, in addition to the Investments permitted by
clauses (a) - (f) above, which do not exceed in the aggregate 2% of the
Investments of the Borrower and its Subsidiaries on a consolidated
basis.
SECTION 9.11 Senior Notes and Senior Note Documents. Not, and not
permit any of its Subsidiaries to:
(a) make any payment (whether of principal, interest or
otherwise) on any Senior Notes on any day other than the stated
scheduled date for such payment set forth in the Senior Note Documents
as of the Closing Date;
(b) prepay, redeem, purchase, defease or transfer its
obligations under any Senior Notes, or make any deposit for any of the
foregoing; or
(c) amend or modify any Senior Note Documents if such amendment
or modification could have an adverse effect on the Banks or any
material provision of the Loan Documents.
SECTION 9.12 BLHC a Subsidiary. Notwithstanding any other provision
contained in this Agreement to the contrary, for purposes of this Section 9
(other than clause (b) of Section 9.3 and Sections 9.4, 9.5, 9.7; provided that
for purposes of Section 9.7 BLHC and its Subsidiaries shall remain located in
the continental United States, 9.9 and 9.11) BLHC shall be deemed to be a
Subsidiary of the Borrower.
SECTION 10. FINANCIAL COVENANTS
The Borrower agrees that, on and after the Closing Date until the
termination or expiration of the Commitments and for so long thereafter as any
of the Liabilities remain unpaid or outstanding, it will comply with the
following:
SECTION 10.1 Minimum Surplus. Not permit (a) Capital and Surplus plus
IMR/AVR of BLC to be less than $300,000,000 at any time, (b) Capital and Surplus
plus IMR/AVR of BSL to be less than $120,000,000 at any time or (c) Capital and
Surplus plus IMR/AVR of GARCO to be less than $160,000,000 at any time.
SECTION 10.2 Shareholders' Equity. Not permit Total Shareholders' Equity
of the Borrower to be less than $750,000,000 at any time from the Closing Date
to December 31, 1997, and $1,000,000,000 at any time thereafter.
<PAGE>
SECTION 10.3 Debt to Total Capitalization. Not permit the ratio of the
principal and accrued but unpaid interest on all Indebtedness for money borrowed
of the Borrower for which the Borrower is directly liable and which is not a
Contingent Obligation (calculated excluding Permitted Transactions) to Total
Capitalization (calculated excluding Permitted Transactions) to exceed .60:1 at
any time from the Closing Date to December 31, 1997, and .50:1 thereafter. This
ratio shall be measured at the end of each Fiscal Quarter for the Fiscal Quarter
then ended.
SECTION 10.4 Risk-Based Capital. Not permit the Risk-Based Capital of
any of BLC, BSL or GARCO to fall below 150% and not permit the Risk-Based
Capital of BNL and JNL-TX to fall below 125%. These ratios shall be measured as
of the end of each Fiscal Year for the Fiscal Year then ended.
SECTION 10.5 Cash Coverage Ratio. Not permit the Cash Coverage Ratio to
be less than 1.2:1 at any time.
SECTION 10.6 Best Rating. Cause BSL, BLC and GARCO at all times to
maintain a rating by A.M. Best & Company (or any successor thereof) of "B++" (or
its equivalent) or better.
SECTION 11. CONDITIONS
The obligation of the Banks to make the Loans is subject to the
performance by the Borrower of all of its obligations under this Agreement and
to the satisfaction of the following conditions precedent:
SECTION 11.1 Initial Loans. Prior to or concurrent with the making of
the initial Loans, the Administrative Agent shall have received all of the
following, each, except to the extent otherwise specified below, duly executed
by a Responsible Officer, dated the date of the initial Loans (or such earlier
date as shall be satisfactory to the Administrative Agent), in form and
substance satisfactory to the Administrative Agent, and each in sufficient
number of signed counterparts or copies to provide one for each Bank and the
Administrative Agent:
11.1.1 If requested by a Bank, an appropriately completed
Tranche A Note, payable to the order of such Bank evidencing such Bank's
Tranche A Commitment, if any, and an appropriately completed Tranche B
Note, payable to the order of such Bank evidencing such Bank's Tranche B
Commitment, if any;
<PAGE>
11.1.2 The Borrower Shared Pledge Agreement, the Borrower
Non-Shared Pledge Agreement, the MDSCG Pledge Agreement and the New CIHC
Pledge Agreement, together with (a) the stock certificates and the
Surplus Debenture evidencing all shares and surplus debentures pledged
under such Pledge Agreements, and (b) appropriate stock powers for such
shares endorsed in blank;
11.1.3 A favorable opinion of Lawrence Inlow, general counsel of
the Borrower and its Significant Subsidiaries (including BLHC),
substantially in the form of Exhibit H hereto, and addressing such other
legal matters as the Administrative Agent may require;
11.1.4 An officer's certificate of the Borrower New CIHC, MDSCG,
BNL, CCM and CMCI, substantially in the form of Exhibits I-1 through I-6
hereto, respectively, and dated as of the Closing Date, signed by a
Responsible Officer of the Borrower, New CIHC, MDSCG, BNL, CCM and CMCI,
as the case may be, and attested to by the secretary thereof, together
with certified copies of the Borrower's, New CIHC's, MDSCG's, BNL's,
CCM's and CMCI's articles of incorporation, by-laws and directors
resolutions;
11.1.5 Evidence of the good standing or certificates of
compliance of the Borrower, New CIHC, MDSCG, BNL, CCM and CMCI in the
jurisdiction in which such entity is incorporated;
11.1.6 Evidence that the Borrower shall have paid to the
Administrative Agent the fees and expenses provided for herein;
11.1.7 A letter from the Process Agent agreeing to receive
service of process on behalf of the Borrower pursuant to Section 15.11
hereof;
11.1.8 Certified copies of each material consent, license and
approval (including, without limitation, any insurance commission
approvals) required in connection with the execution, delivery,
performance, validity and enforceability of this Agreement and the other
Loan Documents; such consents, licenses and approvals shall be in full
force and effect, shall be satisfactory in form and substance to the
Administrative Agent and shall be all of the material consents required
to be obtained or made on or before the consummation of the financing
contemplated by this Agreement and the CCPI Merger Documents;
<PAGE>
11.1.9 A certificate of a Responsible Officer of the Borrower
that there are no material insurance regulatory proceedings pending or
threatened against any of the Insurance Subsidiaries including BLHC;
11.1.10 A certificate of a Responsible Officer of the Borrower,
dated the Closing Date, as to the matters set forth in Sections 11.2.2
through 11.2.5;
11.1.11 An officer's certificate, signed by a Responsible
Officer of the Borrower, certifying that to such officer's best
knowledge, since December 31, 1994, no event has occurred which
individually or in the aggregate could reasonably be expected to have a
Material Adverse Effect;
11.1.12 Evidence that the Cash Collateral Account has been
established;
11.1.13 Certified copies of the Servicing Agreements;
11.1.14 A payoff letter from the agent under the Existing
Conseco Credit Agreements satisfactory to the Administrative Agent
relating to the payment of the Indebtedness to be Refinanced including
evidence that all commitments have been terminated and all loans have
been paid thereunder;
11.1.15 Schedules and Exhibits satisfactory to the Admin-
istrative Agent and the Banks;
<PAGE>
11.1.16 A Federal Reserve Form U-1 for each Bank, duly executed
by a Responsible Officer of the Borrower, the statements made in which
shall be such, in the opinion of the Administrative Agent, as to permit
the transactions contemplated hereby in accordance with Regulation U
promulgated by the FRB;
11.1.17 Evidence of each filing, registration or recordation
(and payment of any necessary fee, Tax or expense relating thereto) with
respect to each document (including, without limitation, any UCC
financing statement) required by the Loan Documents, the CCPI Merger
Documents or under law or requested by the Administrative Agent to be
filed, registered or recorded in order to create, in favor of the
Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes, a perfected first priority Lien on the Collateral
(other than UCC financing statements to be filed in connection with the
Loan Documents which will be delivered for filing on the Closing Date);
11.1.18 Evidence satisfactory to the Administrative Agent that
each of the Loan Documents and the CCPI Merger Documents have been duly
executed and delivered and are in full force and effect without
modification and that concurrently with the initial Borrowing the CCPI
Merger will be consummated pursuant to the terms of the CCPI Merger
Documents;
11.1.19 The Assumption Agreement;
11.1.20 Evidence satisfactory to the Administrative Agent that
(a) the CIHC Contribution has been consummated and (b) the Conseco
Contribution will be consummated concurrently with the initial
Borrowing; and
11.1.21 Such other information and documents as may reasonably
be required by the Administrative Agent and the Administrative Agent's
counsel.
SECTION 11.2 All Loans. The obligation of the Banks to make Loans
hereunder is subject to the following further conditions precedent:
11.2.1 The Administrative Agent shall have received a duly
executed Notice of Borrowing;
11.2.2 No Default exists or will result from the making of the
Loans;
<PAGE>
11.2.3 The representations and warranties of the Borrower
contained in Section 7 and by the Borrower, MDSCG, New CIHC, BNL, CCM
and CMCI in the other Loan Documents are true and correct with the same
effect as though made on the Closing Date;
11.2.4 No Material Litigation exists except as disclosed on
Schedule 7.8; and
11.2.5 No Material Adverse Change has occurred since December
31, 1994.
SECTION 11.3 Tranche B Loans. The obligation of the Banks to make
Tranche B Loans is subject to the following further condition precedent:
11.3.1 The ratio of (a) the current market value of the common
stock of BLHC pledged to the Administrative Agent, for the benefit of
the Banks, under the Borrower Non-Shared Pledge Agreement plus the
current market value of the Collateral Percentage of the Banks of the
common stock of BLHC pledged under the Borrower Shared Pledge Agreement
to (b) the aggregate principal amount of the Tranche B Loans then
outstanding (after giving effect to the amount of the requested Tranche
B Loans) is at least 2.0 to 1.0.
SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT
SECTION 12.1 Events of Default. An "Event of Default" shall exist if any
one or more of the following events (herein collectively called "Events of
Default") shall occur and be continuing:
12.1.1 Non-Payment of Loans, etc.
(a) Default in the payment or prepayment when due
of any principal on the Loans, or
(b) Default in the payment within five (5) days of
when due of any interest on the Loans or any other amount owing by the
Borrower pursuant to this Agreement.
<PAGE>
12.1.2 Non-Payment of Other Indebtedness. Default in the payment
when due (subject to any applicable grace period), whether by
acceleration or otherwise, of any Indebtedness of the Borrower or any of
its Significant Subsidiaries (including BLHC) (other than Indebtedness
in respect of this Agreement) in an amount in excess of $20,000,000; or
default in the performance or observance of any obligation or condition
with respect to any such Indebtedness if the effect of such default is
to accelerate or could result in the acceleration of the maturity of any
such Indebtedness or to permit the holder or holders thereof, or any
trustee or agent for such holders, to cause such Indebtedness to become
due and payable prior to its expressed maturity. For purposes of this
Section 12.1.2, Indebtedness shall refer only to Indebtedness included
in clauses (a) through (d) of the definition of Indebtedness.
12.1.3 Bankruptcy, Insolvency, etc. The Borrower or any of its
Wholly-Owned and/or Significant Subsidiaries (including BLHC) becomes
insolvent or generally fails to pay, or admits in writing its inability
to pay, debts as they become due; or the applicable Department places
the Borrower or any of its Wholly-Owned Subsidiaries and/or Significant
Subsidiaries (in each case including BLHC) under supervision or
conservation; or the Borrower or any of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries (in each case including BLHC) applies
for, consents to, or acquiesces in the appointment of, a trustee,
receiver or other custodian for the Borrower or such Wholly-Owned
Subsidiary and/or Significant Subsidiary (in each case including BLHC)
or any property thereof, or makes a general assignment for the benefit
of creditors; or, in the absence of such application, consent or
acquiescence, a trustee, receiver or other custodian is appointed for
the Borrower or any of its Wholly-Owned Subsidiaries and/or Significant
Subsidiaries (in each case including BLHC) or for a substantial part of
the property of any thereof and is not discharged within sixty (60)
days; or any bankruptcy, reorganization, debt arrangement, or other case
or proceeding under any bankruptcy or insolvency law, or any dissolution
or liquidation proceeding (except the voluntary dissolution, not under
any bankruptcy or insolvency law, of a Subsidiary (including BLHC)), is
commenced in respect of the Borrower or any of its Wholly-Owned
Subsidiaries and/or Significant Subsidiaries (in each case including
BLHC) and if such case or proceeding is not commenced by the Borrower or
such Wholly-Owned Subsidiary and/or Significant Subsidiary, it is
consented to or acquiesced in by the Borrower or such Wholly-Owned
Subsidiary and/or Significant Subsidiary or remains for sixty (60) days
undismissed; or the Borrower or any of its Wholly-Owned Subsidiaries
and/or Significant Subsidiaries (in each case including BLHC) takes any
corporate action to authorize, or in furtherance of, any of the
foregoing.
<PAGE>
12.1.4 Defaults Under this Agreement. Failure by the Borrower to
comply with or perform any of the covenants or agreements of the
Borrower set forth in Sections 9.1, 9.2, 9.3, 9.4, 9.8 and 10.
12.1.5 Other Noncompliance with this Agreement. Failure by the
Borrower or any of its Subsidiaries (including BLHC) to comply with or
perform any other provision of this Agreement or the other Loan
Documents applicable to it (other than those listed in Section 12.1.4 or
those constituting an Event of Default under any of the other provisions
of this Section 12) and continuance of such failure for thirty (30) days
after notice thereof to the Borrower from the Administrative Agent.
12.1.6 Representations and Warranties. Any representation or
warranty made by the Borrower, MDSCG, New CIHC, BNL, CCM or CMCI in any
of the Loan Documents is false or misleading in any material respect as
of the date hereof or as of the date hereafter certified, or any
schedule, certificate, financial statement, report, notice, or other
writing furnished by the Borrower to the Administrative Agent or any
Bank is false or misleading in any material respect on the date as of
which the facts therein set forth are stated or certified.
<PAGE>
12.1.7 Pension Plans and Welfare Plans. With respect to any
Single Employer Pension Plan as to which the Borrower or any other
Controlled Group member may have any liability, there shall exist a
deficiency of more than $10,000,000 as to any Controlled Group member
(other than the Borrower) or $50,000,000 as to the Borrower in the
Pension Plan assets available to satisfy the benefits guaranteeable
under ERISA with respect to such Pension Plan, and steps are undertaken
to terminate such plan or such Pension Plan is terminated or the
Borrower or any other Controlled Group member withdraws from or
institutes steps to withdraw from such Pension Plan, or the Borrower has
knowledge that steps have been taken to terminate any Multiemployer
Pension Plan and such termination may result in liability to any
Controlled Group member (other than the Borrower) in excess of
$10,000,000 or $50,000,000 as to the Borrower or any Reportable Event
with respect to such Pension Plan has occurred which could result in the
incurrence of liability by any Controlled Group member (other than the
Borrower) in excess of $10,000,000 or $50,000,000 as to the Borrower or
steps are taken to terminate any Multiemployer Pension Plan and such
termination may result in any liability of any Controlled Group member
(other than the Borrower) in excess of $10,000,000 or $50,000,000 as to
the Borrower shall occur.
12.1.8 Adverse Judgment. One or more final judgments or decrees
shall be entered against the Borrower or any of its Wholly-Owned
Subsidiaries and/or Significant Subsidiaries (in each case including
BLHC) involving, individually or in the aggregate, a liability (other
than a liability of an Insurance Subsidiary (including BLHC) in the
ordinary course of business) (not covered by collectible insurance) of
$20,000,000 or more, and all such judgments or decrees shall not have
been vacated, satisfied, discharged or stayed or bonded pending appeal
within thirty (30) consecutive days from the entry thereof.
12.1.9 Change in Control. The occurrence of a Change in Control
<PAGE>
12.1.10 Material Adverse Change. The occurrence of any event
which, in the reasonable judgment of the Required Banks, constitutes
a Material Adverse Change.
12.1.11 BLHC Market Value. The ratio of (a) the current market
value of the common stock of BLHC pledged to the Administrative Agent,
for the benefit of the Banks, under the Borrower Non-Shared Pledge
Agreement plus the current market value of the Collateral Percentage of
the Banks of the common stock of BLHC pledged under the Borrower Shared
Pledge Agreement to (b) the aggregate principal amount of the Tranche B
Loans then outstanding is less than 1.5 to 1.0.
12.1.12 Failure to Consummate CCPI Merger. The Borrower and CCPI
shall fail (for any reason whatsoever) to consummate the CCPI Merger
concurrently with the initial Borrowing hereunder pursuant to the terms
of the CCPI Merger Agreement and the other CCPI Merger Documents.
SECTION 12.2 Effect of Event of Default. If any Event of Defaultdescribed in
Section 12.1.3 shall occur and be continuing, the Commitments (if they have not
theretofore terminated) shall immediately terminate and all Liabilities shall
become immediately due and payable, all without notice of any kind; and, in the
case of any other Event of Default, the Administrative Agent may (or shall
upon the written request of the Required Banks) declare the Commitments (if
they have not theretofore terminated) to be terminated and all Liabilities to
be due and payable, whereupon the Commitments (if they have not theretofore
terminated) shall immediately terminate and all Liabilities shall become
immediately due and payable, all without presentment, demand, protest or notice
of any kind. The Administrative Agent shall promptly advise the Borrower and
each Bank of any such declaration, but failure to do so shall not impair the
effect of such declaration. Notwithstanding the foregoing or any provision of
Section 15.1, the effect as an Event of Default of any event described in
Section 12.1.3 may be waived by the written concurrence of the Banks holding
100% of the aggregate unpaid principal amount of the Loans, and the effect as an
Event of Default of any other event described in this Section 12 may be waived
as provided in Section 15.1.
<PAGE>
SECTION 13. THE AGENT
SECTION 13.1 Authorization and Action. Each Bank hereby appoints and
authorizes the Administrative Agent to take such action as administrative agent
on its behalf and to exercise such powers to the extent provided herein or in
any document or instrument delivered hereunder or in connection herewith,
together with such other action as may be reasonably incidental thereto. As to
matters not expressly provided for by this Agreement (including, without
limitation, enforcement or collection of this Agreement or any other Loan
Document) the Administrative Agent shall not be required to exercise any
discretion, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Banks and such instructions shall be binding upon all Banks and,
with respect to the Collateral, the holders of the Senior Notes. Under no
circumstances shall the Administrative Agent have any fiduciary duties to any
Bank or be required to take any action which exposes the Administrative Agent to
personal liability or which is contrary to this Agreement or to the other Loan
Documents or applicable law.
SECTION 13.2 Liability of the Administrative Agent. None of the
Administrative Agent or any of its directors, officers, agents or employees
shall be liable for any action taken or omitted to be taken by it or them under
or in connection with this Agreement and the other Loan Documents, except for
its own gross negligence or willful misconduct. Without limiting the generality
of the foregoing, the Administrative Agent (a) may treat a Bank as such until
the Administrative Agent receives an executed Assignment Agreement entered into
between a Bank and an Eligible Assignee pursuant to Section 14.1 hereof; (b) may
consult with legal counsel (including counsel for the Borrower), independent
public accountants and other experts or consultants selected by it; (c) shall
not be liable for any action taken or omitted to be taken in good faith by the
Administrative Agent in accordance with the advice of counsel, accountants,
consultants or experts; (d) shall make no warranty or representation to any Bank
and shall not be responsible to any Bank for any recitals, statements,
warranties or representations, whether written or oral, made in or in connection
with this Agreement or the other Loan Documents; (e) shall not have any duty to
ascertain or to inquire as to the performance or observance of any of the terms,
obligations, covenants or conditions of this Agreement on the part of the
Borrower or to inspect the property (including, without limitation, any books
and records) of the Borrower; (f) shall not be responsible to any Bank for the
due execution, legality, validity, enforceability, genuineness, sufficiency or
value of this Agreement or any other Loan Document or other support or security
(including the validity, priority or perfection of any Lien), or any other
document furnished in connection with any of the foregoing; and (g) shall incur
no liability under or in respect of this Agreement or any other Loan Document by
action upon any written notice, statement, certificate, order, telephone
message, facsimile or other document which the Administrative Agent believes in
good faith to be genuine and correct and to have been signed, sent or made by
the proper Person.
<PAGE>
SECTION 13.3 Administrative Agent and Affiliates. With respect to the
Loans made by it, BofA shall have the same rights and powers under this
Agreement and the other Loan Documents as any other Bank and may exercise the
same as though it were not the Administrative Agent; and the term "Bank" or
"Banks" shall, unless otherwise expressly indicated, include BofA in its
individual capacity. BofA and its Affiliates may accept deposits from, lend
money to, act as trustee under indentures of, and generally engage in any kind
of business with, the Borrower and any of its Subsidiaries (including BLHC) and
any Person who may do business with or own securities of the Borrower or any
such Subsidiary, all as if BofA was not the Administrative Agent and without any
duty to account therefor to the Banks.
SECTION 13.4 Bank Credit Decision. Each Bank acknowledges that it has,
independently and without reliance upon the Administrative Agent or any other
Bank and based on the financial statements referred to in Section 7.6 and such
other documents and information as it has deemed appropriate, made its own
credit analysis and decision to enter into this Agreement. Each Bank also
acknowledges that it will, independently and without reliance upon the
Administrative Agent or any other Bank and based on such documents and
information as it shall deem appropriate at the time, continue to make its own
credit decisions in taking or not taking action under this Agreement.
SECTION 13.5 Indemnification. The Banks agree to indemnify the
Administrative Agent (to the extent not reimbursed by the Borrower), ratably
according to their Percentages, from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses or disbursements of any kind or nature whatsoever which may be imposed
on, incurred by, or assessed against the Administrative Agent in any way
relating to or arising out of this Agreement or the other Loan Documents, or any
action taken or omitted by the Administrative Agent under this Agreement or the
other Loan Documents; provided, that no Bank shall be liable for any portion of
such liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, costs, expenses or disbursements resulting from the Administrative
Agent's gross negligence or willful misconduct. Without limiting any of the
foregoing, each Bank agrees to reimburse the Administrative Agent promptly upon
demand for their Percentage of any expenses (including reasonable counsel fees)
incurred by the Administrative Agent (in its individual capacity as agent or in
its capacity as representative of the Banks) in connection with the preparation,
execution, delivery, administration, modification, amendment, waiver or
enforcement (whether through negotiations, legal proceedings or otherwise) of,
or legal advice in respect of rights or responsibilities under this Agreement or
the other Loan Documents to the extent that the Administrative Agent is not
reimbursed for such expenses by the Borrower. All obligations provided for in
this Section 13.5 shall survive termination of this Agreement.
<PAGE>
SECTION 13.6 Successor Agent. The Administrative Agent may, and at the
request of the Required Banks shall, resign as Administrative Agent upon 30
days' notice to the Banks. If the Administrative Agent resigns under this
Agreement, the Required Banks shall appoint from among the Banks a successor
agent for the Banks which successor agent shall be approved by the Borrower
(which consent shall not be unreasonably withheld). If no successor agent is
appointed prior to the effective date of the resignation of the Administrative
Agent, the Administrative Agent may appoint, after consulting with the Banks and
the Borrower, a successor agent from among the Banks. Upon the acceptance of its
appointment as successor agent hereunder, such successor agent shall succeed to
all the rights, powers and duties of the retiring Administrative Agent and the
term "Administrative Agent" shall mean such successor agent and the retiring
Administrative Agent's appointment, powers and duties as Administrative Agent
shall be terminated. After any retiring Administrative Agent's resignation
hereunder as Administrative Agent, the provisions of this Section 13 shall inure
to its benefit as to any actions taken or omitted to be taken by it while it was
Administrative Agent under this Agreement. If no successor agent has accepted
appointment as Administrative Agent by the date which is 30 days following a
retiring Administrative Agent's notice of resignation, the retiring
Administrative Agent's resignation shall nevertheless thereupon become effective
and the Banks shall perform all of the duties of the Administrative Agent
hereunder until such time, if any, as the Required Banks appoint a successor
agent as provided for above.
SECTION 13.7 Duties of Documentation Agents and Managing Agents.
Notwithstanding any other provision contained in this Agreement to the contrary,
the Documentation Agents and the Managing Agents shall have no duties or
obligations with respect to this Agreement or the other Loan Documents.
<PAGE>
SECTION 14. ASSIGNMENTS AND PARTICIPATIONS
SECTION 14.1 Assignments.
(a) Each Bank shall have the right at any time to assign with
the consent of the Borrower and the Administrative Agent (which consent,
in each case, will not unreasonably be withheld), to any Eligible
Assignee, all or any part of such Bank's rights and obligations under
this Agreement and each other Loan Document including its rights in
respect of its Loans and Notes. Any such assignment shall be pursuant to
an assignment agreement, substantially in the form of Exhibit K hereto
(an "Assignment Agreement"), duly executed by such Bank and the Eligible
Assignee, and acknowledged by the Administrative Agent and the Borrower.
Notwithstanding the foregoing, each Bank may make assignments to its
Affiliates or to any Federal Reserve Bank without obtaining consent of
the Borrower or the Administrative Agent.
(b) Each assignment shall be pro rata with respect to all rights
and obligations of the assigning Bank including the Commitments, the
Loans and the Notes, if any (i.e., such assignment shall consist of the
same percentage interest of each of such Bank's Tranche A Commitment and
Tranche B Commitment). Each assignment shall be in an amount equal to or
in excess of $10,000,000 (except for assignments of the entire unpaid
balance, if less than $10,000,000, of the Loans of a Bank or assignments
to existing Banks). In the case of any such assignment, upon the
fulfillment of the conditions in Section 14.1(c), this Agreement shall
be deemed to be amended to the extent, and only to the extent, necessary
to reflect the addition of such Eligible Assignee, and such Eligible
Assignee shall for all purposes be a Bank party hereto and shall have,
to the extent of such assignment, the same rights and obligations as a
Bank hereunder.
(c) An assignment shall become effective hereunder when all of
the following shall have occurred:
<PAGE>
(i) the Assignment Agreement shall have been
executed by the parties thereto,
(ii) the Assignment Agreement shall have been
acknowledged by the Administrative Agent and by the Borrower,
(iii) either the assigning Bank or the
Eligible Assignee shall have paid a processing fee of $2,500 to the
Administrative Agent for its own account; provided that the Eligible
Assignee shall be solely responsible for such processing fee with
respect to any assignment pursuant to Section 5.8 and 15.2, and in
connection with the replacement of an Exiting Bank(s) on the Tranche B
Termination Date (or any extension thereof), and
(iv) the assigning Bank and the
Administrative Agent shall have agreed upon a date upon which such
assignment shall become effective. Upon such assignment becoming
effective, the Administrative Agent shall forward all payments of
interest, principal, fees and other amounts that would have been made to
the assigning Bank, in proportion to the percentage of the assigning
Bank's rights transferred, to the Eligible Assignee.
(d) Upon the effectiveness of any assignment, the assigning Bank
shall be relieved from its obligations hereunder to the extent of the
obligations so assigned (except to the extent, if any, that the
Borrower, any other Bank or the Administrative Agent have rights against
such assigning Bank as a result of any default by such Bank under this
Agreement). Promptly following the effectiveness of each assignment, the
Administrative Agent shall furnish to the Borrower and each Bank a
revised Schedule 2.1, revised to reflect such assignment.
SECTION 14.2 Participations.
(a) Each Bank may grant participations in all or any part of its
Loans, Commitments and, if applicable, the Notes to any commercial bank
or other financial institution (other than insurance companies and
Affiliates thereof unless consented to by the Borrower). A participant
shall not have any rights under this Agreement or any other document
delivered in connection herewith (the participant's rights against such
Bank in respect of such participation to be those set forth in the
agreement executed by such Bank in favor of the participant relating
thereto, which agreement with respect to such participation shall not
restrict such Bank's ability to make any modification, amendment or
waiver to this Agreement without the consent of the participant except
that the consent of such participant may be required in connection with
matters requiring the consent of all of the Banks under Section 15.1).
Notwithstanding the foregoing, each participant shall have the rights of
a Bank pursuant to Section 4.7. All amounts payable by the Borrower
under this Agreement shall be determined as if the Bank had not sold
such participation. In the event of any such sale by a Bank of
participating interests to a participant, such Bank's obligations under
this Agreement shall remain unchanged, such Bank shall remain solely
responsible for the performance thereof, such Bank shall remain the
holder of any obligation for all purposes under this Agreement, and the
Borrower and the Administrative Agent shall continue to deal solely and
directly with such Bank in connection with such Bank's rights and
obligations under this Agreement.
<PAGE>
(b) Limititation of Rights of any Participant. Notwithstanding
anything in the foregoing to the contrary,
(i) no participant shall have any direct rights
hereunder,
(ii) the Borrower, the Administrative Agent and
the Banks, other than selling Bank, shall deal solely with the selling
Bank and shall not be obligated to extend any rights or make any payment to, or
seek any consent of, the participant,
(iii) no participation shall relieve the selling
Bank of any of its other obligations hereunder and such Bank shall remain solely
responsible for the performance thereof, and
<PAGE>
(iv) no participant, other than an affiliate of
the selling Bank, shall be entitled to require such Bank to take or omit to take
any action hereunder, except that such Bank may agree with such
participant that such Bank will not, without participant's consent,
take any action which requires the consent of all of the Banks under
Section 15.1.
SECTION 14.3 Disclosure of Information. The Borrower authorizes each
Bank to disclose to any participant, assignee or Eligible Assignee (each, a
"Transferee") and any prospective Transferee any and all financial and other
information in such Bank's possession concerning the Borrower and its
Subsidiaries (including BLHC) which has been delivered to such Bank by the
Borrower in connection with such Bank's credit evaluation of the Borrower prior
to entering into this Agreement or which has been delivered to such Bank by the
Borrower pursuant to this Agreement; provided, however, that each Bank,
participant, assignee and Eligible Assignee shall execute a confidentiality
agreement substantially in the form of Exhibit L hereto in which it agrees that
it shall hold all non-public, confidential and proprietary information obtained
pursuant to the requirements of this Agreement in accordance with safe and sound
banking and business practices and may make disclosure reasonably required by
any bona fide participant, assignee or Eligible Assignee in connection with the
contemplated transfer of any portion of the Loans or as required or requested by
any Governmental Authority or representative thereof or pursuant to legal
process. For the purposes of this Section 14.3, by execution of this Agreement
each of the Banks shall be deemed to have agreed to and executed the
confidentiality agreement contained in Exhibit L hereto.
SECTION 14.4 Foreign Transferees. If, pursuant to this Section 14, any
interest in this Agreement or any Loans or the Note is transferred to any
Transferee which is organized under the laws of any jurisdiction other than the
United States or any state thereof or upon the request of the Administrative
Agent, the transferor Bank shall cause such Transferee (other than any
participant), and may cause any participant, concurrently with the effectiveness
of such transfer,
(a) to represent to the transferor Bank (for the benefit of the
transferor Bank, the Administrative Agent and the Borrower) that under
applicable law and treaties no Taxes will be required to be withheld by
the Administrative Agent,
<PAGE>
(b) to represent to the Borrower or the transferor Bank that
under applicable law and treaties no Taxes will be required to be
withheld with respect to any payments to be made to such Transferee in
respect of the Loans or, if applicable, the Notes,
(c) to furnish to the transferor Bank, the Administrative Agent
and the Borrower either U.S. Internal Revenue Service Form 4224 or U.S.
Internal Revenue Service Form 1001 (wherein such Transferee claims
entitlement to complete exemption from U.S. federal withholding tax on all
interest payments hereunder), and
(d) to agree (for the benefit of the transferor Bank, the
Administrative Agent and the Borrower) to provide the transferor Bank,
the Administrative Agent and the Borrower a new Form 4224 or Form 1001
upon the obsolescence of any previously delivered form and comparable
statements in accordance with applicable U.S. laws and regulations and
amendments duly executed and completed by such Transferee, and to comply
from time to time with all applicable U.S. laws and regulations with
regard to such withholding tax exemption.
SECTION 15. MISCELLANEOUS
SECTION 15.1 Waivers and Amendments. The provisions of this Agreement
and of each other Loan Document may from time to time be amended, modified or
waived, if such amendment, modification or waiver is in writing and consented to
by the Borrower and the Required Banks; provided, that no such amendment,
modification or waiver:
(a) which would modify any requirement hereunder that any
particular action be taken by all Banks or by the Required Banks, shall
be effective without the consent of each Bank;
(b) which would modify this Section 15.1, change the definition
of "Required Banks," change any Percentage for any Bank (except pursuant
to an Assignment Agreement), reduce any fees, extend the maturity date
of any Loan, reduce any rate of interest payable on the Loans or subject
any Bank to any additional obligations, shall be effective without the
consent of each Bank;
<PAGE>
(c) which would permit the release of all or any material portion of
the Collateral shall be effective without the consent of each Bank;
(d) which would extend the due date for, or reduce the amount
of, any payment or prepayment of principal of or interest on the Loans,
shall be effective without the consent of each Bank; or
(e) which would affect adversely the interests, rights or
obligations of the Administrative Agent (in such capacity) other than
removal in accordance with Section 13.6, shall be effective without
consent of the Administrative Agent.
SECTION 15.2 Failure to Consent. If any Bank shall fail to consent to any
amendment, modification or waiver described in Section 15.1 (any such Bank being
hereinafter referred to as a "Nonconsenting Bank") then in such case, the
Borrower may, upon at least five (5) Business Days' written notice to the
Administrative Agent and such Nonconsenting Bank, designate a substitute lender
(a "Substitute Bank") acceptable to the Administrative Agent in its sole
discretion, to which such Nonconsenting Bank shall assign all (but not less than
all) of its rights and obligations under the Loans and Commitment hereunder.
Upon any assignment by any Bank pursuant to this Section 15.2 becoming
effective, the Substitute Bank shall thereupon be deemed to be a "Bank" for all
purposes of this Agreement and the Assigning Bank shall thereupon cease to be a
"Bank" for all purposes of this Agreement and shall have no further rights or
obligations hereunder (other than pursuant to Sections 5.1, 5.2, 15.4 and 15.5
while such Non-Consenting Bank was a Bank); provided, that all Liabilities
(except Liabilities which by the terms hereof survive the payment in full of the
Loans and termination of this Agreement) due and payable to the Nonconsenting
Bank shall be paid in full as of the date of such assignment. Notwithstanding
the foregoing, in the event that in connection with any amendment, modification
or waiver more than one Bank is a Nonconsenting Bank, the Borrower may not
require one Bank to assign its rights and obligations to a Substitute Bank
unless all Nonconsenting Banks are required to make such an assignment.
Notwithstanding any Nonconsenting Bank's failure or refusal to assign its
rights, obligations, Loans and Commitment under this Section 15.2, the
Nonconsenting Bank shall cease to be a "Bank" for all purposes of this Agreement
and the Substitute Bank substituted therefor upon payment to the Nonconsenting
Bank by the Substitute Bank of all amounts set forth in this Section 15.2
without any further action of the Nonconsenting Bank.
<PAGE>
SECTION 15.3 Notices. All notices, requests and other communications to
any party hereunder shall be in writing (including bank wire, telex, facsimile
or similar writing) and shall be given to such party at its address, facsimile
or telex number set forth on the signature or acknowledgement pages hereof or
such other address, facsimile or telex number as such party may hereafter
specify for the purpose by written notice to the Administrative Agent and the
Borrower. Each such notice, request or other communication shall be effective
(a) if given by facsimile or telex, when such facsimile or telex is transmitted
to the facsimile or telex number specified in this Section and, in the case of
telex, the appropriate answerback is received, (b) if given by mail, seventy-two
(72) hours after such communication is deposited in the mails with first class
postage prepaid, addressed as aforesaid or (c) if given by any other means, when
delivered at the address specified in this Section, provided, that notices to
the Administrative Agent under Sections 3, 4 and 12 shall not be effective until
received by the Administrative Agent.
SECTION 15.4 Payment of Costs and Expenses. The Borrower agrees to pay
on demand all reasonable expenses of the Administrative Agent (including the
non-duplicative fees and reasonable expenses of counsel (including expenses of
in-house counsel) and of local counsel, if any, who may be retained by such
counsel) in connection with:
(a) the negotiation, preparation, execution, syndication and
delivery of this Agreement and the other Loan Documents, including
schedules and exhibits, and any amendments, waivers, consents,
supplements or other modifications to this Agreement or the other Loan
Documents as may from time to time hereafter be required, whether or not
the transactions contemplated hereby or thereby are consummated; and
(b) the preparation and/or review of the form of any document or
instrument relevant to this Agreement or any other Loan Document. The
Borrower further agrees to pay, and to save the Administrative Agent and the
Banks harmless from all liability for, any stamp or other Taxes (other than
income taxes of the Administrative Agent or the Banks) which may be payable in
connection with the execution or delivery of this Agreement, the borrowing
hereunder, or the issuance of the Notes or any other Loan Document. The Borrower
also agrees to reimburse the Administrative Agent, the Agents and each Bank upon
demand for all reasonable expenses (including attorneys' fees and legal
expenses) incurred by the Administrative Agent or such Bank in connection with
the enforcement of any Liabilities and the consideration of legal issues
relevant hereto and thereto whether or not such expenses are incurred by the
Administrative Agent on its own behalf or on behalf of the Banks. All
obligations of the Borrower provided for in this Section 15.4 shall survive
termination of this Agreement. Notwithstanding the foregoing, the Administrative
Agent, the Agents or a Bank shall not have the right to reimbursement under this
Section 15.4 for amounts determined by a court of competent jurisdiction to have
arisen from the gross negligence or willful misconduct of the Administrative
Agent or a Bank.
<PAGE>
SECTION 15.5 Indemnity. The Borrower agrees to indemnify each Bank and
each Bank's respective directors, officers, employees, persons controlling or
controlled by any of them or their respective agents, consultants, attorneys and
advisors (the "Indemnified Parties") and hold each Indemnified Party harmless
from and against any and all liabilities, losses, claims, damages, costs and
expenses of any kind to which any of the Indemnified Parties may become subject,
whether directly or indirectly (including, without limitation, the reasonable
fees and disbursements of counsel for any Indemnified Party), relating to or
arising out of this Agreement, the other Loan Documents, the CCPI Merger or any
actual or proposed use of the proceeds of the Loans hereunder; provided, that no
Indemnified Party shall have the right to be indemnified hereunder for its own
gross negligence or willful misconduct as determined by a court of competent
jurisdiction. All obligations of the Borrower provided for in this Section 15.5
shall survive termination of this Agreement.
SECTION 15.6 Subsidiary References. The provisions of this Agreement
relating to Subsidiaries shall apply only during such times as a Person
referenced in such a provision has one or more Subsidiaries.
SECTION 15.7 Captions. Section captions used in this Agreement are for
convenience only, and shall not affect the construction of this Agreement.
<PAGE>
SECTION 15.8 GOVERNING LAW. THIS AGREEMENT, THE NOTES AND THE LOANS
SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES. ALL OBLIGATIONS OF THE
BORROWER AND RIGHTS OF THE ADMINISTRATIVE AGENT AND THE BANKS IN RESPECT OF THE
LIABILITIES EXPRESSED HEREIN OR IN THE OTHER LOAN DOCUMENTS SHALL BE IN ADDITION
TO AND NOT IN LIMITATION OF THOSE PROVIDED BY APPLICABLE LAW.
SECTION 15.9 Counterparts. This Agreement may be executed in any number
of counterparts and by the different parties on separate counterparts and each
such counterpart shall be deemed to be an original, but all such counterparts
shall together constitute but one and the same agreement. When counterparts
executed by all the parties shall have been lodged with the Administrative Agent
(or, in the case of any Bank as to which an executed counterpart shall not have
been so lodged, the Administrative Agent shall have received telegraphic,
facsimile, telex or other written confirmation from such Bank of execution of a
counterpart hereof by such Bank), this Agreement shall become effective as of
the Effective Date hereof, and at such time the Administrative Agent shall
notify the Borrower and each Bank.
SECTION 15.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE. THE
ADMINISTRATIVE AGENT, EACH AGENT, EACH BANK AND THE BORROWER (A) HEREBY
IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY ILLINOIS STATE OR FEDERAL COURT
SITTING IN THE NORTHERN DISTRICT OF ILLINOIS OVER ANY ACTION OR PROCEEDING
ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND
THE ADMINISTRATIVE AGENT, EACH AGENT, EACH BANK AND THE BORROWER HEREBY
IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING MAY BE
HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL COURT, AND (B) AGREE NOT
TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST ANOTHER PARTY OR THE
DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY OF ANY THEREOF, ARISING OUT
OF OR RELATING TO THIS AGREEMENT, IN ANY COURT OTHER THAN AS HEREINABOVE
SPECIFIED IN THIS SECTION 15.10. THE ADMINISTRATIVE AGENT, EACH AGENT, EACH BANK
AND THE BORROWER HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT PERMITTED BY
LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE IN ANY
ACTION OR PROCEEDING (WHETHER BROUGHT BY THE BORROWER, THE ADMINISTRATIVE AGENT,
ANY AGENT, ANY BANK, OR OTHERWISE) IN ANY COURT HEREINABOVE SPECIFIED IN THIS
SECTION 15.10 AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER HAVE TO REMOVE ANY
SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT ON THE GROUNDS OF
FORUM NON CONVENIENS OR OTHERWISE. THE ADMINISTRATIVE AGENT, EACH AGENT, EACH
BANK AND THE BORROWER AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
<PAGE>
SECTION 15.11 Service of Process. The Borrower hereby irrevocably
appoints C.T. Corporation (the "Process Agent"), with an office on the date
hereof at 208 South LaSalle Street, Chicago, Illinois 60604, United States, as
its agent to receive on behalf of the Borrower and its Subsidiaries (including
BLHC) and their property service of copies of the summons and complaint and any
other process which may be served in any such action or proceeding, provided,
that a copy of such process is also mailed by express two-day delivery, postage
prepaid, to the Borrower at its address specified pursuant to Section 15.3. Such
service may be made by delivering by express two-day delivery or hand delivering
a copy of such process to the Borrower in care of the Process Agent at the
Process Agent's above address, and the Borrower hereby irrevocably authorizes
and directs the Process Agent to accept such service on its behalf. The Borrower
agrees to indemnify such Process Agent in connection with all matters relating
to its appointment as agent of the Borrower for such purposes, to enter into any
agreement relating to such appointment which such Process Agent may customarily
require, and to pay such Process Agent's customary fees upon demand. As an
alternative method of service, the Borrower for itself and its Subsidiaries
(including BLHC) also irrevocably consents to the service of any and all process
in any such action or proceeding by the mailing of copies of such process to the
Borrower at its address specified pursuant to Section 15.3. Nothing in this
Section 15.11 shall affect the right of the Administrative Agent or any Bank to
serve legal process in any other manner permitted by law.
SECTION 15.12 Successors and Assigns. This Agreement shall be binding
upon and shall inure to the benefit of the parties hereto and their respective
successors and assigns; provided, however, that: the Borrower may not assign or
transfer its rights or obligations under this Agreement or any other Loan
Document without the prior written consent of all Banks, and the rights of the
Banks to make assignments or grant participations are subject to the provisions
of Section 14.
SECTION 15.13 WAIVER OF JURY TRIAL. THE BORROWER, THE ADMINISTRATIVE
AGENT AND EACH BANK HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVE ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
ANY RIGHTS UNDER THIS AGREEMENT, ANY OTHER LOAN DOCUMENT OR ANY OTHER DOCUMENT
OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION
HEREWITH OR THEREWITH, OR ARISING FROM ANY BANKING RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
* * *
<PAGE>
Executed as of the day and year first above written at Chicago,
Illinois.
CONSECO, INC.
By: /s/ LAWRENCE W. INLOW
---------------------------
Name: Lawrence W. Inlow
Title: Executive Vice President
Notice Address
Address: 11825 N. Pennsylvania St.
Carmel, Indiana 46032
Attention: Lawrence W. Inlow
Telephone: (317) 573-6163
Facsimile: (317) 573-6327
<PAGE>
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION, as
Administrative Agent
By: /s/ DAVID M. TERRANCE
---------------------------
Name: David M. Terrance
Title: Vice President
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION
By: /s/ RONALD DRUBNY
---------------------------
Name: Ronald Drubny
Title: Vice President
Lending Office (Base Rate Loans)
Address: 231 S. LaSalle Street
Chicago, IL 60697
Attention: Debra Lacy
Telephone: (312) 828-1784
Facsimile: (312) 974-9626
Lending Office (Offshore Rate Loans)
Address: 231 S. LaSalle Street
Chicago, IL 60697
Attention: Debra Lacy
Telephone: (312) 828-1784
Facsimile: (312) 974-9626
Notice Address:
Address: 231 S. LaSalle Street
Chicago, IL 60697
Attention: Ron Drobny
Telephone: (312) 828-3014
Facsimile: (312) 828-0889
<PAGE>
BANK OF MONTREAL
By: /s/ K. DANIEL STREIFF
---------------------
Name: K. Daniel Streiff
Title: Director
Lending Office (Base Rate Loans)
Address: 115 South LaSalle Street
Chicago, IL 60603
Attention: K. Daniel Streiff
Telephone: (312) 750-3775
Facsimile: (312) 750-4314
Lending Office (Offshore Rate Loans)
Address: 115 South LaSalle Street
Chicago, IL 60603
Attention: K. Daniel Streiff
Telephone: (312) 750-3775
Facsimile: (312) 750-4314
Notice Address
Address: 115 South LaSalle Street
Chicago, IL 60603
Attention: K. Daniel Streiff
Telephone: (312) 750-3775
Facsimile: (312) 750-4314
<PAGE>
THE BANK OF NEW YORK
By: /s/ FREDERICK E. BALL II
-------------------------
Name: Frederick E. Ball II
Title: Vice President
Lending Office (Base Rate Loans)
Address: One Wall Street
New York, NY 10286
Attention: Michael Barry
Telephone: (212) 635-6460
Facsimile: (212) 809-9520
Lending Office (Offshore Rate Loans)
Address: One Wall Street
New York, NY 10286
Attention: Michael Barry
Telephone: (212) 635-6460
Facsimile: (212) 809-9520
Notice Address
Address: One Wall Street
New York, NY 10286
Attention: Michael Barry
Telephone: (212) 635-6460
Facsimile: (212) 809-9520
<PAGE>
THE BANK OF TOKYO TRUST COMPANY
By: /s/ M. SHERIDAN SUNIER
-----------------------
Name: M. Sheridan Sunier
Title: Vice President
Lending Office (Base Rate Loans)
Address: 1251 Avenue of the Americas
New York, New York 10116-3138
Attention: Daniel Holmes
Telephone: (212) 782-4354
Facsimile: (212) 782-6442
Lending Office (Offshore Rate Loans)
Address: 1251 Avenue of the Americas
New York, New York 10116-3138
Attention: Daniel Holmes
Telephone: (212) 782-4354
Facsimile: (212) 782-6442
Notice Address
Address: 1251 Avenue of the Americas
New York, New York 10116-3138
Attention: Daniel Holmes
Telephone: (212) 782-4354
Facsimile: (212) 782-6442
<PAGE>
BANK ONE TEXAS, N.A.
By: /s/ JIM V. MILLER
---------------------
Name: Jim V. Miller
Title: Vice President
Lending Office (Base Rate Loans)
Address: 1717 Main Street
Dallas, TX 75201
Attention: Jim V. Miller
Telephone: (214) 290-2309
Facsimile: (214) 290-2332
Lending Office (Offshore Rate Loans)
Address: 1717 Main Street
Dallas, TX 75201
Attention: Jim V. Miller
Telephone: (214) 290-2309
Facsimile: (214) 290-2332
Notice Address
Address: 1717 Main Street
Dallas, TX 75201
Attention: Jim V. Miller
Telephone: (214) 290-2309
Facsimile: (214) 290-2332
<PAGE>
BANQUE NATIONALE DE PARIS
By: /s/ PHIL TRUESDALE/ /s/ JOHN S. MCGILL
----------------------------------------
Name: Phil Truesdale John S. McGill
Title: Vice President Vice President
Lending Office (Base Rate Loans)
Address: 499 Park Avenue
New York, New York 10022
Attention: John McGill
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
Lending Office (Offshore Rate Loans)
Address: 499 Park Avenue
New York, New York 10022
Attention: John McGill
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
Notice Address
Address: 499 Park Avenue
New York, New York 10022
Attention: John McGill
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
<PAGE>
BANQUE PARIBAS
By: /s/ STEVEN M. HEINEN
--------------------------
Name: Steven M. Heinen
Title: Vice President
By: /s/ ALBERT A. YOUNG JR.
---------------------------
Name: Albert A. Young Jr.
Title: Vice President
Lending Office (Base Rate Loans)
Address: 227 West Monroe Street
Suite 3300
Chicago, IL 60606
Attention: Steve Heinen
Telephone: (312) 853-6036
Facsimile: (312) 853-6020
Lending Office (Offshore Rate Loans)
Address: 227 West Monroe Street
Suite 3300
Chicago, IL 60606
Attention: Steve Heinen
Telephone: (312) 853-6036
Facsimile: (312) 853-6020
Notice Address
Address: 227 West Monroe Street
Suite 3300
Chicago, IL 60606
Attention: Steve Heinen
Telephone: (312) 853-6036
Facsimile: (312) 853-6020
<PAGE>
THE CHASE MANHATTAN BANK, N.A.
By: /s/ BRYAN J. REITE
---------------------
Name: Bryan J. Reite
Title: Vice President
Lending Office (Base Rate Loans)
Address: One Chase Manhattan Plaza
4th Floor
New York, NY 10081
Attention: Isolde O'Hanlon
Telephone: (212) 552-7663
Facsimile: (212) 552-3651
Lending Office (Offshore Rate Loans)
Address: One Chase Manhattan Plaza
4th Floor
New York, NY 10081
Attention: Isolde O'Hanlon
Telephone: (212) 552-7663
Facsimile: (212) 552-3651
Notice Address
Address: One Chase Manhattan Plaza
4th Floor
New York, NY 10081
Attention: Isolde O'Hanlon
Telephone: (212) 552-7663
Facsimile: (212) 552-3651
<PAGE>
COMERICA BANK
By: /s/ PHILLIP A. COOSAIA
--------------------------
Name: Phillip A. Coosaia
Title: Assistant Vice President
Lending Office (Base Rate Loans)
Address: 500 Woodward Avenue
Detroit, MI 48226
Attention: Phil Coosaia
Telephone: (313) 222-7044
Facsimile: (313) 222-3330
Lending Office (Offshore Rate Loans)
Address: 500 Woodward Avenue
Detroit, MI 48226
Attention: Phil Coosaia
Telephone: (313) 222-7044
Facsimile: (313) 222-3330
Notice Address
Address: 500 Woodward Avenue
Detroit, MI 48226
Attention: Phil Coosaia
Telephone: (313) 222-7044
Facsimile: (313) 222-3330
<PAGE>
CORESTATES BANK, NA
By: /s/ JAMES F. MADDEN
-----------------------
Name: James F. Madden
Title: Commercial Officer
Lending Office (Base Rate Loans)
Address: 1339 Chestnut Street
FC 1-8-8-4
Philadelphia, PA 19107
Attention: James Madden
Telephone: (215) 973-1027
Facsimile: (215) 786-4116
Lending Office (Offshore Rate Loans)
Address: 1339 Chestnut Street
FC 1-8-8-4
Philadelphia, PA 19107
Attention: James Madden
Telephone: (215) 973-1027
Facsimile: (215) 786-4116
Notice Address
Address: 1339 Chestnut Street
FC 1-8-8-4
Philadelphia, PA 19107
Attention: James Madden
Telephone: (215) 973-1027
Facsimile: (215) 786-4116
<PAGE>
CREDIT LYONNAIS CAYMAN ISLAND BRANCH
By: /s/ W. MICHAEL GEORGE
------------------------
Name: W. Michael George
Title:
Lending Office (Base Rate Loans)
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey Kravis
Telephone: (212) 261-7273
Facsimile: (212) 459-3401
Lending Office (Offshore Rate Loans)
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey Kravis
Telephone: (212) 261-7273
Facsimile: (212) 459-3401
Notice Address
Address: 1301 Avenue of the Americas
New York, New York 10019
Attention: Jeffrey Kravis
Telephone: (212) 261-7273
Facsimile: (212) 459-3401
<PAGE>
THE DAIWA BANK LIMITED
By: /s/ JOSEPH D. BRAY
---------------------------
Name: Joseph D. Bray
Title: Vice President
By: /s/ HERBERT W. REDDING
----------------------------
Name: Herbert W. Redding
Title: Vice President & Manager
Lending Office (Base Rate Loans)
Address: 233 South Wacker Drive
Chicago, IL 60606
Attention: Joseph Bray
Telephone: (312) 993-6258
Facsimile: (312) 993-6255
Lending Office (Offshore Rate Loans)
Address: 233 South Wacker Drive
Chicago, IL 60606
Attention: Joseph Bray
Telephone: (312) 993-6258
Facsimile: (312) 993-6255
Notice Address
Address: 233 South Wacker Drive
Chicago, IL 60606
Attention: Joseph Bray
Telephone: (312) 993-6258
Facsimile: (312) 993-6255
<PAGE>
DEUTSCHE BANK AG,
NEW YORK AND/OR
CAYMAN ISLAND BRANCH
By: /s/ ANTHONY C. VALENCOURT
---------------------------
Name: Anthony C. Valencourt
Title: Vice President
By: /s/ LLOYD C. STEVENS
---------------------------
Name: Lloyd C. Stevens
Title: Assistant Treasurer
Lending Office (Base Rate Loans)
Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108
Lending Office (Offshore Rate Loans)
Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108
Notice Address
Address: 31 West 52nd Street
New York, NY 10019
Attention: Susan Maros
Telephone: (212) 474-8104
Facsimile: (212) 474-8108
<PAGE>
DRESDNER BANK AG, NEW YORK BRANCH
By: /s/LOUIS CALTANUTURO
------------------------
Name: Louis Caltanuturo
Title: Associate
By: /s/ CYNTHIA A. GAVENDA
-------------------------
Name: Cynthia A. Gavenda
Title: Associate
Lending Office (Base Rate Loans)
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 574-0286
Facsimile: (212) 574-0130
Lending Office (Offshore Rate Loans)
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 574-0286
Facsimile: (212) 574-0130
Notice Address
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 574-0286
Facsimile: (212) 574-0130
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ JULIA BOUHAYS
--------------------
Name: Julia Bouhays
Title: Senior Vice President
Lending Office (Base Rate Loans)
Address: One First Union Center, TW-19
Charlotte, NC 28288-0735
Attention: Robert Mayer, Jr.
Telephone: (704) 374-6628
Facsimile: (704) 383-9144
Lending Office (Offshore Rate Loans)
Address: One First Union Center, TW-19
Charlotte, NC 28288-0735
Attention: Robert Mayer, Jr.
Telephone: (704) 374-6628
Facsimile: (704) 383-9144
Notice Address
Address: One First Union Center, TW-19
Charlotte, NC 28288-0735
Attention: Robert Mayer, Jr.
Telephone: (704) 374-6628
Facsimile: (704) 383-9144
<PAGE>
THE FUJI BANK LIMITED
By: /s/ PETER L. CHINNICI
----------------------
Name: Peter L. Chinnici
Title: Joint General Manager
Lending Office (Base Rate Loans)
Address: 225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: Mark McCracken
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
Lending Office (Offshore Rate Loans)
Address: 225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: Mark McCracken
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
Notice Address
Address: 225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: Mark McCracken
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
<PAGE>
ING CAPITAL CORPORATION
By: /s/ JONATHAN BANKS
------------------
Name: Jonathan Banks
Title: Vice President
Lending Office (Base Rate Loans)
Address: 135 East 57th Street
New York, NY 10022-2101
Attention: Eileen Lynch
Telephone: (212) 446-1518
Facsimile: (212) 750-8934
Lending Office (Offshore Rate Loans)
Address: 135 East 57th Street
New York, NY 10022-2101
Attention: Eileen Lynch
Telephone: (212) 446-1518
Facsimile: (212) 750-8934
Notice Address
Address: 135 East 57th Street
New York, NY 10022-2101
Attention: Jonathan Banks
Telephone: (212) 446-0969
Facsimile: (212) 593-3362
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By: /s/ BRADY S. SADEK
----------------------
Name: Brady S. Sadek
Title: Vice President & Deputy General Manager
Lending Office (Base Rate Loans)
Address: 190 South LaSalle Street
8th Fl
Chicago, IL 60606
Attention: Kenneth Loveless
Telephone: (312) 704-1700
Facsimile: (312) 704-8505
Lending Office (Offshore Rate Loans)
Address: 190 South LaSalle Street
8th Fl
Chicago, IL 60606
Attention: Kenneth Loveless
Telephone: (312) 704-1700
Facsimile: (312) 704-8505
Notice Address
Address: 190 South LaSalle Street
8th Fl
Chicago, IL 60606
Attention: Kenneth Loveless
Telephone: (312) 704-1700
Facsimile: (312) 704-8505
<PAGE>
THE MITSUBISHI TRUST & BANKING CORP.
By: /s/ AKIRA SUZUKI
---------------------
Name: Akira Suzuki
Title: Deputy General Manager
Lending Office (Base Rate Loans)
Address: 311 South Wacker Drive
Suite 6300
Chicago, IL 60606
Attention: John Page, Jr.
Telephone: (312) 408-6004
Facsimile: (312) 663-0863
Lending Office (Offshore Rate Loans)
Address: 311 South Wacker Drive
Suite 6300
Chicago, IL 60606
Attention: John Page, Jr.
Telephone: (312) 408-6004
Facsimile: (312) 663-0863
Notice Address
Address: 311 South Wacker Drive
Suite 6300
Chicago, IL 60606
Attention: John Page, Jr.
Telephone: (312) 408-6004
Facsimile: (312) 663-0863
<PAGE>
NATIONSBANK OF GEORGIA, N.A.
By: /s/ JEFFREY L. SEAVEY
-----------------------
Name: Jeffrey L. Seavey
Title: Vice President
Lending Office (Base Rate Loans)
Address: 600 Peachtree Street NE
21st FL
Atlanta, GA 30308-2213
Attention: Jeffrey Seavey
Telephone: (404) 607-4063
Facsimile: (404) 607-6318
Lending Office (Offshore Rate Loans)
Address: 600 Peachtree Street NE
Atlanta, GA 30308-2213
Attention: Chris Chaffee
Telephone: (404) 388-1043
Facsimile: (404) 386-8694
Notice Address
Address: 600 Peachtree Street NE
21st FL
Atlanta, GA 30308-2213
Attention: Jeffrey Seavey
Telephone: (404) 607-4063
Facsimile: (404) 607-6318
<PAGE>
ROYAL BANK OF SCOTLAND
By: /s/ DEREK BONNER
--------------------
Name: Derek Bonner
Title: Vice President
Lending Office (Base Rate Loans)
Address: 88 Pine Street, 26th FL
New York, New York 10005
Attention: David Dougan
Telephone: (212) 269-0938
Facsimile: (212) 269-8929
Lending Office (Offshore Rate Loans)
Address: 88 Pine Street, 26th FL
New York, New York 10005
Attention: David Dougan
Telephone: (212) 269-0938
Facsimile: (212) 269-8929
Notice Address
Address: 88 Pine Street, 26th FL
New York, New York 10005
Attention: David Dougan
Telephone: (212) 269-0938
Facsimile: (212) 269-8929
<PAGE>
SANWA BANK
By: /s/ RICHARD M. AULT
----------------------
Name: Richard M. Ault
Title: Vice President
Lending Office (Base Rate Loans)
Address: 10 South Wacker Drive
31st Floor
Chicago, IL 60606
Attention: Richard Ault
Telephone: (312) 368-3011
Facsimile: (312) 346-6677
Lending Office (Offshore Rate Loans)
Address: 10 South Wacker Drive
31st Floor
Chicago, IL 60606
Attention: Richard Ault
Telephone: (312) 368-3011
Facsimile: (312) 346-6677
Notice Address
Address: 10 South Wacker Drive
31st Floor
Chicago, IL 60606
Attention: Richard Ault
Telephone: (312) 368-3011
Facsimile: (312) 346-6677
<PAGE>
SHAWMUT BANK CONNECTICUT, N.A.
By: /s/ R. JAY KANE
---------------------
Name: R. Jay Kane
Title: Vice President
Lending Office (Base Rate Loans)
Address: 777 Main Street
Ins. Ind. Dept. MSN367
Hartford, CT 06115
Attention: R. Jay Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264
Lending Office (Offshore Rate Loans)
Address: 777 Main Street
Ins. Ind. Dept. MSN367
Hartford, CT 06115
Attention: R. Jay Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264
Notice Address
Address: 777 Main Street
Ins. Ind. Dept. MSN367
Hartford, CT 06115
Attention: R. Jay Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264
<PAGE>
SOCIETE GENERALE
By: /s/ LAURA A. HOPE
--------------------
Name: Laura A. Hope
Title: Vice President
Lending Office (Base Rate Loans)
Address: 1221 Avenue of the Americas
New York, NY 10020
Attention: Laura Hope
Telephone: (212) 278-7154
Facsimile: (212) 278-7153
Lending Office (Offshore Rate Loans)
Address: 1221 Avenue of the Americas
New York, NY 10020
Attention: Laura Hope
Telephone: (212) 278-7154
Facsimile: (212) 278-7153
Notice Address
Address: 1221 Avenue of the Americas
New York, NY 10020
Attention: Laura Hope
Telephone: (212) 278-7154
Facsimile: (212) 278-7153
<PAGE>
STAR BANK, N.A.
By: /s/ NANCY J. CRACOLICE
---------------------------
Name: Nancy J. Cracolice
Title: Vice President
Lending Office (Base Rate Loans)
Address: 425 Walnut Street
Mail Location 9150
Cincinnati, OH 45201
Attention: Cathy Siegel
Telephone: (513) 632-4032
Facsimile: (513) 632-2536
Lending Office (Offshore Rate Loans)
Address: 425 Walnut Street
Mail Location 9150
Cincinnati, OH 45201
Attention: Cathy Siegel
Telephone: (513) 632-4032
Facsimile: (513) 632-2536
Notice Address
Address: 425 Walnut Street
Mail Location 8160
Cincinnati, OH 45201
Attention: Nancy Cracolice
Telephone: (513) 632-4010
Facsimile: (513) 632-2068
<PAGE>
VAN KAMPEN MERRITT PRIME RATE
INCOME TRUST
By: /s/ JEFFREY W. MAILLET
------------------------
Name: Jeffrey W. Maillet
Title: Senior Vice President and Portolio Manager
Lending Office (Base Rate Loans)
Address: One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
Telephone: (708) 684-6438
Facsimile: (708) 684-6740
Lending Office (Offshore Rate Loans)
Address: One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
Telephone: (708) 684-6438
Facsimile: (708) 684-6740
Notice Address
Address: One Parkview Plaza
Oakbrook Terrace, IL 60181
Attention: Jeffrey Maillet
Telephone: (708) 684-6438
Facsimile: (708) 684-6740
<PAGE>
THE YASUDA TRUST & BANKING CO., LTD.
By: /s/ JOSEPH C. MEEK
----------------------
Name: Joseph C. Meek
Title: First Vice President & Manager
Lending Office (Base Rate Loans)
Address: 181 West Madison Street
Suite 4500
Chicago, IL 60602
Attention: Charles Hagel
Telephone: (312) 683-3844
Facsimile: (312) 683-3899
Lending Office (Offshore Rate Loans)
Address: 181 West Madison Street
Suite 4500
Chicago, IL 60602
Attention: Charles Hagel
Telephone: (312) 683-3844
Facsimile: (312) 683-3899
Notice Address
Address: 181 West Madison Street
Suite 4500
Chicago, IL 60602
Attention: Charles Hagel
Telephone: (312) 683-3844
Facsimile: (312) 683-3899
<PAGE>
<PAGE>
FORM OF BORROWER SHARED PLEDGE AGREEMENT
dated as of August 31, 1995
between
CONSECO, INC.
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
<PAGE>
BORROWER SHARED PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of August
31, 1995, is made between Conseco, Inc., an Indiana corporation (herein, called
the "Pledgor"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Administrative Agent for the Banks (each as hereinafter defined) and the holders
of the Senior Notes (as hereinafter defined) (the "Administrative Agent"). This
is the Borrower Shared Pledge Agreement referred to in that certain Credit
Agreement (as from time to time, in whole or in part, amended, modified,
supplemented, restated, refinanced, refunded or renewed, the "Credit
Agreement"), dated as of August 31, 1995, among the Pledgor, the financial
institutions who are or from time to time become party thereto (the "Banks"),
The Chase Manhattan Bank, N.A. and First Union National Bank of North Carolina,
as Documentation Agents for the Banks, The Bank of New York, The Bank of Tokyo
Trust Company, Credit Lyonnais Cayman Island Branch, Deutsche Bank AG, New York
Branch, Dresdner Bank, ING Capital Corporation, The Long-Term Credit Bank of
Japan, Ltd., Chicago Branch, NationsBank of Georgia, N.A., Shawmut Bank
Connecticut, N.A. and Societe Generale, as Managing Agents for the Banks, and
Bank of America National Trust and Savings Association, as Administrative Agent
for the Banks.
BACKGROUND:
1. Pursuant to the terms of the Credit Agreement, the Banks
have agreed to make certain Loans (as hereinafter defined) to the Pledgor which
shall be used by the Pledgor as provided in the Credit Agreement.
2. As security for the Loans and as a condition precedent to
the making thereof, the Banks have required that the Pledgor execute and deliver
this Agreement.
3. Pursuant to the Section 10.7 of (a) the Indenture dated as
of February 18, 1993 between the Pledgor and Shawmut Bank Connecticut, National
Association, as trustee (as the same may be amended or modified, the "Conseco
Indenture"), and (b) the Indenture dated as of December 15, 1994 between CCP
Insurance, Inc. ("CCPI") and LTCB Trust Company, as trustee (as the same may be
amended of modified, the "CCPI Indenture", and together with the Conseco
Indenture, collectively called, the "Indentures"), subject to certain
exceptions, neither the Pledgor nor any Significant Subsidiary (as defined in
the Indentures) may incur, issue, assume or guarantee any indebtedness secured
by a lien on any property or assets of the Pledgor or any Significant
Subsidiary, or any shares of capital stock of any Significant Subsidiary,
without providing that the Senior Notes (the "Senior Notes") issued pursuant to
the Indentures shall be secured equally and ratably with (or prior to) such
indebtedness.
<PAGE>
NOW, THEREFORE, in consideration of any Loan or other
financial accommodation heretofore or hereafter at any time made or granted by
the Banks to the Pledgor and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor agrees
with the Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes, that:
SECTION 1 Definitions. Capitalized terms used herein, unless
otherwise specified, shall have the meanings assigned thereto in the Credit
Agreement; provided that such definitions shall survive any termination of the
Credit Agreement. In addition, when used herein the following terms shall have
the following meanings:
"BLHC" shall mean Bankers Life Holding Corporation, a Delaware
corporation.
"CCPI" - see Preamble.
"CCPI Indenture" - see Preamble.
"Collateral" - see Section 2.
"Conseco Indenture" - see Preamble.
"Indemnified Liabilities" - see Section 7(b)(vi).
"Indentures" - see Preamble.
"Issuer" shall mean each Wholly-Owned Subsidiary, BLHC and any
other Person which is the issuer of any capital stock or Securities or
other Collateral pledged hereunder.
"JNL-TX" shall mean Jefferson National Life Insurance Company
of Texas, a Texas corporation.
"Permitted Actions" - see Section 5(b).
"Pledged Shares" - see Section 2.
"Pledged Surplus Debentures" - see Section 2.
<PAGE>
"Secured Obligations" shall mean (a) the CCPI Senior Note
Obligations (as defined in the Credit Agreement), (b) the Conseco
Senior Note Obligations (as defined in the Credit Agreement), and (c)
the Liabilities.
"Secured Obligee" shall mean, collectively, (a) with respect
to the CCPI Senior Note Obligations, the holders of the Senior Notes
under the CCPI Indenture (or their representative), (b) with respect to
the Conseco Senior Note Obligations, the holders of the Senior Notes
under the Conseco Indenture (or their representative), and (c) with
respect to the Liabilities, the Banks or Administrative Agent.
"Securities" shall mean securities (whether debt or equity)
issued by each Issuer (to the extent permitted by the Applicable
Insurance Code and other than obligations of each Issuer pursuant to
the Servicing Agreements and insurance policies or other insurance
products which may constitute securities) including, without
limitation, the common and preferred stock, partnership units and
participations, notes, bonds, debentures, trust receipts and other
obligations or instruments, including debt instruments and tax-exempt
securities of each Issuer (including, without limitation, warrants,
rights tied to earnings, put and call options and other options
relating thereto or any combination thereof), or any instruments
convertible into any of the foregoing.
"Uniform Commercial Code" shall mean the Uniform Commercial
Code as in effect from time to time in the State of Illinois.
"Wholly-Owned Subsidiaries" shall mean, collectively, each
Person listed on Schedule 1 hereto and any other Person in which (other
than directors' qualifying shares required by law) 100% of the capital
stock or other ownership interests is owned, beneficially and of
record, by such Person, or by one or more of other Wholly-Owned
Subsidiaries, or both; provided that such Person, if not a direct
wholly-owned subsidiary of the Pledgor, is a Significant Subsidiary of
the Pledgor.
SECTION 2 Pledge. To secure the prompt and complete payment
and performance of the Secured Obligations, the Pledgor hereby grants, pledges,
hypothecates, assigns, transfers, sets over and delivers unto the Administrative
Agent, for the benefit of the Banks and the holders of the Senior Notes, a Lien
on the following (herein collectively called the "Collateral"):
<PAGE>
(a) the shares of capital stock of each Issuer and all other
Securities, if any, described in Schedule 2 hereto, whether in
certificated form or otherwise, including the certificates representing
or evidencing such shares of capital stock or other Securities (herein
called the "Pledged Shares"), together with all cash, securities,
interests, dividends, rights, notes, instruments and other property
from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such Pledged Shares;
(b) all additional shares of capital stock of each Issuer and
other Securities from time to time acquired by the Pledgor in any
manner including, without limitation, any uncertificated Securities
(which additional shares of capital stock and Securities shall
constitute a part of, and be, "Pledged Shares"), and, in the case of
certificated Securities, the certificates representing or evidencing
such additional shares, together with all cash, securities, interest,
dividends, rights, notes, instruments and other property at any time
and from time to time received, receivable or otherwise distributed in
respect of or in exchange for any or all of such additional shares;
(c) the Surplus Debenture in respect of indebtedness to the
Pledgor issued by JNL-TX and listed in Schedule 3 hereto (herein called
the "Pledged Surplus Debentures") together with all cash, securities,
interests, rights, debentures, notes, instruments and other property at
any time and from time to time received, receivable or otherwise
distributed in respect of or in exchange for any or all of the Pledged
Surplus Debentures;
(d) all additional surplus debentures acquired from time to
time by the Pledgor, directly or indirectly, in any manner and issued
by any Insurance Subsidiary (which additional surplus debentures shall
constitute a part of, and each being a, "Pledged Surplus Debenture"),
together with all cash, securities, interests, rights, debentures,
notes, instruments and other property at any time and from time to time
received, receivable or otherwise distributed in respect of or in
exchange for any and all of such additional surplus debentures;
<PAGE>
(e) all other property hereafter delivered to the
Administrative Agent in substitution for or in addition to any of the
foregoing, and all certificates and instruments representing or
evidencing such other property, together with all cash, securities,
interest, dividends, rights and other property at any time and from
time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all thereof; and
(f) all proceeds, rents, issues, profits and returns of and
from all of the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests,
privileges and preferences appertaining or incidental thereto, unto the
Administrative Agent, its successors and assigns, for the benefit of the Banks
and the holders of the Senior Notes, forever; subject, however, to the terms,
covenants and conditions hereafter set forth.
Notwithstanding any provision herein to the contrary, neither
the Pledged Shares nor any of the other Collateral pledged hereunder shall
include any stock or other Securities, to the extent the acquisition of such
stock or other Securities is financed under the Credit Agreement or the Existing
Conseco Credit Agreements permitted by Section 10.7 of the Indentures or such
stock or other Securities are otherwise excepted or exempted from the provisions
of Section 10.7 of the Indentures, all of which such stock or other Securities
are expressly excluded from the Lien of the Administrative Agent created
hereunder.
The Pledgor agrees to deliver to the Administrative Agent,
promptly upon receipt and in the case of the Pledged Shares in due form for
transfer (i.e., endorsed in blank accompanied by undated stock or bond powers
executed in blank or registered on the books of the applicable Issuer) and,
subject to the provisions of Section 6 hereof, any Collateral which may at any
time or from time to time be in or come into possession or control of the
Pledgor; and prior to the delivery thereof to the Administrative Agent, such
Collateral shall be held by the Pledgor separate and apart from its other
property and in express trust for the Administrative Agent, for the benefit of
the Banks and the holders of the Senior Notes.
<PAGE>
SECTION 3 Representations, Warranties and Covenants.
(a) The Pledgor represents and warrants to the Administrative
Agent, for the benefit of the Banks and the holders of the Senior Notes, that:
(i) the authorized and outstanding capital stock of, and the information as to,
each Issuer set forth in Schedule 4 is true and accurate in all respects, (ii)
except for Liens, claims and rights of third parties arising solely through acts
of the Administrative Agent, the Administrative Agent has and will continue to
have at all times as security for the Secured Obligations, for the benefit of
the Banks and the holders of the Senior Notes, a valid, first priority perfected
Lien on the Collateral and the proceeds thereof free of all Liens (except for
the Lien granted hereunder), claims and rights of third parties whatsoever;
(iii) all of the Pledged Shares and other Securities representing shares of
stock pledged under this Agreement are evidenced by certificates, and the
Pledgor has delivered to the Administrative Agent for the benefit of the Banks
and the holders of the Senior Notes for pledge under this Agreement on the date
hereof all of the certificates representing all such Pledged Shares and other
Securities; (iv) the Pledged Shares represent and will continue to represent all
of the issued and outstanding capital stock and other Securities of each of the
Wholly-Owned Subsidiaries and all of the issued and outstanding capital stock of
BLHC owned by the Pledgor (other than the capital stock of BLHC pledged under
the Borrower Non-Shared Pledge Agreement); (v) the Pledged Shares of BLHC
represent and will continue to represent all of the shares of BLHC owned by the
Pledgor, the acquisition of which has been financed neither under the Credit
Agreement nor the Existing Conseco Credit Agreements; and (vi) the Pledgor will,
at all times, keep pledged to the Administrative Agent, for the benefit of the
Banks and the holders of the Senior Notes, pursuant hereto all of the capital
stock, surplus debentures and other Securities of (A) each of the Wholly-Owned
Subsidiaries, and (B) BLHC (which capital stock, surplus debentures and other
Securities (other than the capital stock of BLHC pledged under the Borrower Non-
Shared Pledge Agreement) are owned by the Pledgor). The Pledgor agrees to
endorse and deliver to the Administrative Agent for pledge hereunder, promptly
upon its obtaining any thereof, any additional Collateral and to hold such
Collateral, pending such delivery, in trust for the Administrative Agent, for
the benefit of the Banks and the holders of the Senior Notes, separate and
distinct from any other property of the Pledgor. As of the date of any such
delivery of additional Securities, surplus debentures, certificates or
instruments to the Administrative Agent, for the benefit of the Banks and the
holders of the Senior Notes, the Pledgor represents and warrants that (1) it
will own such Securities, surplus debentures, certificates and instruments free
and clear of any rights of any other Person (other than the rights created in
the Administrative Agent hereunder), (2) it will have good and marketable title
to said Securities, surplus debentures, certificates and instruments and have
the right to pledge such Securities, surplus debentures, certificates and
instruments to the Administrative Agent, for the benefit of the Banks and the
holders of the Senior Notes, pursuant to this Agreement, (3) it will have
pledged to the Administrative Agent, for the benefit of the Banks and the
holders of the Senior Notes, as at such date, all of the capital stock, surplus
debentures and other Securities of (A) each of the Wholly-Owned Subsidiaries and
(B) BLHC (which capital stock, surplus debentures and other Securities are owned
by the Pledgor, other than shares of BLHC which pursuant to Sections 10.7(iv)
and/or 10.7(vii) of the Indentures have been pledged to secure the financing of
the acquisition of such shares), and (4) the Administrative Agent, for the
benefit of the Banks and the holders of the Senior Notes, has a valid, first
priority perfected Lien on said Securities, certificates or instruments and the
proceeds thereof free of all Liens, claims and rights of third parties
whatsoever. All documentary, stamp and other taxes and fees owing in connection
with the issuance, transfer and/or pledge of the Pledged Shares, the Pledged
Surplus Debentures and other Securities, certificates or instruments pledged
hereunder have been paid and will hereafter be paid by the Pledgor as such
become due and payable.
<PAGE>
(b) The Pledgor further represents and warrants to the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, that it is the lawful owner of the Collateral, free of all Liens, other
than the Lien granted hereunder, with full right to deliver, pledge, assign and
transfer such Collateral to the Administrative Agent, for the benefit of the
Banks and the holders of the Senior Notes, as Collateral hereunder. The pledge
of the Collateral effected by this Agreement is effective to vest in the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, the rights of the Administrative Agent in the Collateral set forth
herein.
(c) The Pledgor further represents and warrants to the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, that the Pledged Surplus Debentures constitute and will continue to
constitute all of the surplus debentures issued by JNL-TX and/or any other
Insurance Subsidiary (other than those existing on the date hereof and listed on
Schedule 5).
(d) The Pledgor additionally represents and warrants to the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, that (i) each of the Pledgor and its Subsidiaries is a corporation or
partnership duly organized or formed, validly existing and in good standing
under the laws of its state of incorporation or formation, (ii) the execution
and delivery of this Agreement and the performance by the Pledgor of its
obligations hereunder are within its corporate powers, have been duly authorized
by all necessary corporate action (including, without limitation, shareholder
approval if required), (iii) each of the Pledgor and its Subsidiaries has
received all material governmental consents and approvals (if any shall be
required) necessary for such execution, delivery and performance (except
governmental consents required by any Applicable Insurance Code to foreclose on
the Pledged Shares or Pledged Surplus Debentures), and such execution, delivery
and performance do not and will not contravene or conflict with, result in any
breach of, or constitute a default under, any material agreement or instrument
binding on it or result in the creation or imposition of or the obligation to
create or impose any Lien (except for the Lien permitted hereunder) and (iv)
this Agreement is the legal, valid and binding obligation of the Pledgor,
enforceable against the Pledgor in accordance with its terms, except to the
extent such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent transfer or other similar laws affecting
the enforcement of creditors' rights generally and by the effect of general
principles of equity (regardless of whether enforceability is considered in a
proceeding in equity (including, without limitation, good faith, materiality and
reasonableness) or at law).
<PAGE>
(e) The Pledgor additionally covenants and agrees with the
Administrative Agent that, until the expiration or termination of the
Commitments and thereafter so long as any of the Liabilities remain outstanding,
the Pledgor will, unless the Administrative Agent and the Required Banks, for
the benefit of the Banks and the holders of the Senior Notes, shall otherwise
consent in writing:
(i) at the Pledgor's sole expense, promptly deliver to the
Administrative Agent, from time to time upon request of the
Administrative Agent or the Required Banks, such stock powers and other
documents (including UCC financing statements), satisfactory in form
and substance to the Administrative Agent, with respect to the
Collateral as the Administrative Agent or the Required Banks may
reasonably request, to perfect, preserve and protect the Lien created
hereby, and to enable the Administrative Agent to enforce its rights
and remedies hereunder;
<PAGE>
(ii) not permit any of the Collateral to be evidenced by
uncertificated Securities; provided, however, that should for
whatsoever reason any of the Collateral become evidenced by
uncertificated Securities, the Pledgor shall automatically, without
request by the Administrative Agent, forthwith (A) notify the
Administrative Agent thereof, (B) cause the books and records of the
Issuer of such Securities to contain a notation of the Lien of the
Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes, thereon, and (C) take such other action as the
Administrative Agent shall reasonably request so that the
Administrative Agent shall have at all times as security for the
Secured Obligations, for the benefit of the Banks and the holders of
the Senior Notes, a valid, first priority perfected Lien on the
Collateral and the proceeds thereof free of all Liens (except for the
Lien granted hereunder), claims and rights of third parties whatsoever;
and
(iii) except as otherwise may be permitted by the Credit
Agreement and the Indentures, (A) not sell, assign, exchange, pledge or
otherwise dispose of or transfer any of its rights to any of the
Collateral, (B) not create or suffer to exist any Lien on or with
respect to any of the Collateral except for the Lien created hereby,
(C) not make or consent to any amendment or other modification or
waiver with respect to any of the Collateral, or enter into any
agreement or permit to exist any restriction with respect to any of the
Collateral other than pursuant hereto, and (D) not take or fail to take
any action which would in any manner impair the enforceability of the
Administrative Agent's Lien, for the benefit of the Banks and the
holders of the Senior Notes, on any of the Collateral.
(f) Notwithstanding anything contained in this Section 3 to
the contrary, the Borrower agrees and acknowledges that it shall fully comply
with its duties and obligations under the terms of the Indentures, and nothing
contained in the foregoing shall be deemed to be a waiver or amendment of any
provision contained therein.
SECTION 4 Care of Collateral. The Administrative Agent shall
exercise reasonable care in the custody and preservation of the Collateral. In
addition, the Administrative Agent shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral if it takes such action
for that purpose as the Pledgor requests in writing, but failure of the
Administrative Agent to comply with any such request shall not of itself be
deemed a failure to exercise reasonable care, and no failure of the
Administrative Agent to preserve or protect any rights with respect to the
Collateral against prior or other parties, or to do any act with respect to
preservation of the Collateral not so requested by the Pledgor, shall be deemed
a failure to exercise reasonable care in the custody or preservation of the
Collateral.
<PAGE>
SECTION 5 Certain Rights Regarding Collateral and Secured
Obligations.
(a) Subject to Sections 5(c) and 6 hereof the Administrative
Agent may, and upon the request of the Required Banks shall, from time to time,
after the occurrence and during the continuance of a Default pursuant to Section
12.1.3 of the Credit Agreement as to the Pledgor or an Event of Default, without
notice to the Pledgor, (i) transfer all or any part of the Collateral into the
name of the Administrative Agent or its nominee or sub-agent, with or without
disclosing that such Collateral is subject to the Lien hereunder, (ii) notify
any Person obligated on any of the Collateral to make payment to the
Administrative Agent of any amounts due or to become due thereunder, and (iii)
enforce collection of any of the Collateral by suit or otherwise.
(b) If at any time any Secured Obligee takes any or all of the
Permitted Actions (as hereinafter defined) whether such actions are taken before
or after any of the Secured Obligations shall be due and payable and without
notice to the Pledgor, such actions shall not affect the enforceability of this
Agreement. A Secured Obligee shall have taken a "Permitted Action" if it shall
(to the extent permitted by the Credit Agreement and the other Loan Documents):
(i) retain or obtain a Lien upon any property to secure payment and performance
of any of the Secured Obligations of such Secured Obligee or any obligation
hereunder, (ii) retain, obtain or release the primary or secondary obligation of
any Person, in addition to the Pledgor, with respect to one or more of the
Secured Obligations of such Secured Obligee, (iii) create, extend or renew for
any periods (whether or not longer than the original period) or alter or
exchange any of the Secured Obligations of such Secured Obligee, or release or
compromise any obligation of any nature of any Person with respect to any of the
Secured Obligations of such Secured Obligee, (iv) release or fail to perfect its
Lien upon, or impair, surrender, release or permit any substitution or exchange
for, all or any part of any property securing any of the Secured Obligations of
such Secured Obligee or any obligation hereunder, or create, extend or renew for
one or more periods (whether or not longer than the original period) or release,
compromise, alter or exchange any obligations of any nature of any Person with
respect to any such property or (v) resort to the Collateral for payment of any
of the Secured Obligations whether or not the Administrative Agent (A) shall
have resorted to any other property securing any of the Secured Obligations or
any obligation hereunder or (B) shall have proceeded against any Person
primarily or secondarily obligated with respect to any of the Secured
Obligations (all of the actions referred to in preceding clauses (A) and (B)
being hereby expressly waived by the Pledgor).
<PAGE>
(c) The Administrative Agent shall have no right to vote the
Pledged Shares or other Collateral or give consents, waivers or ratifications in
respect thereof prior to the occurrence and during the continuance of a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default. After the occurrence and during the continuance of a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default, the Pledgor shall have the right to vote any and all of the Pledged
Shares and other Collateral and give consents, waivers and ratifications in
respect thereof unless and until it receives notice from the Administrative
Agent that such right has been terminated. The Pledgor agrees to deliver
(properly endorsed when required) to the Administrative Agent, after a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default shall have occurred and shall be continuing, promptly upon request of
the Administrative Agent, such proxies and other documents as may be necessary
for the Administrative Agent to exercise the voting power with respect to the
Pledged Shares and other Collateral then or previously owned by the Pledgor.
SECTION 6 Dividends, etc.
(a) So long as no Default pursuant to Section 12.1.3 of the
Credit Agreement as to the Pledgor or an Event of Default shall have occurred
and shall be continuing:
(i) Subject to the provisions of the Credit Agreement and
notwithstanding the provisions of Section 2(a) of this Agreement, the
Pledgor shall be entitled to receive any and all cash dividends and
payments on the Collateral which it is otherwise entitled to receive,
but any and all Securities and/or liquidating dividends, payments,
distributions in property, returns of capital made on or in respect of
the Collateral, whether resulting from a subdivision, combination,
reclassification or conversion of the outstanding capital stock or
other Securities of any or all of the Issuers or received in exchange
for the Collateral or any part thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which any or
all of the Issuers may be a party or otherwise, and any and all cash
and other property received in exchange for any Collateral shall be and
become part of the Collateral pledged hereunder and, if received by the
Pledgor, shall forthwith be delivered to the Administrative Agent or
its designated nominee (accompanied, if appropriate, by proper
instruments of assignment and/or stock powers executed by the Pledgor
in accordance with the Administrative Agent's instructions) to be held
subject to the terms of this Agreement, and, until delivery to the
Administrative Agent, such Collateral shall be held by the Pledgor
separate and apart from its other property in trust for the
Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes.
<PAGE>
(ii) If the Collateral or any part thereof shall have been
registered in the name of the Administrative Agent or its sub-agent,
the Administrative Agent shall execute and deliver (or cause to be
executed and delivered) to the Pledgor all such dividend orders and
other instruments as the Pledgor may request for the purpose of
enabling the Pledgor to receive the dividends or other payments which
it is authorized to receive and retain pursuant to Section 6(a)(i)
above.
(b) Upon the occurrence and during the continuance of a
Default pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or
an Event of Default, all rights of the Pledgor pursuant to Section 6(a)(i)
hereof shall cease and the Administrative Agent shall have the sole and
exclusive right and authority to receive and retain the dividends and other
payments in respect of the Collateral which the Pledgor would otherwise be
authorized to retain. All such dividends and payments, and all other
distributions made on or in respect of the Collateral which may at any time and
from time to time be held by the Pledgor, shall, until delivery to the
Administrative Agent, be held by the Pledgor separate and apart from its other
property in trust for the Administrative Agent, for the benefit of the Banks and
the holders of the Senior Notes. Any and all money and other property paid over
to or received by the Administrative Agent pursuant to the provisions of this
paragraph (b) shall be retained by the Administrative Agent as additional
Collateral hereunder and be applied in accordance with the provisions hereof.
<PAGE>
SECTION 7 Default.
(a) Upon the occurrence and during the continuance of a
Default pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or
an Event of Default, the Administrative Agent may exercise from time to time any
rights and remedies available to it under the Credit Agreement, the Uniform
Commercial Code or the other Loan Documents or otherwise available to it,
including, without limitation, sale, assignment, or other disposal of the
Collateral in exchange for cash or credit. If any notification of intended
disposition of any of the Collateral is required by law, such notification, if
mailed, shall be deemed reasonably and properly given if mailed to the Pledgor
at least ten (10) days before such disposition as provided in Section 15.3 of
the Credit Agreement. Any proceeds of any disposition of Collateral shall be
applied as provided in Section 8 hereof. No rights and remedies of the
Administrative Agent expressed hereunder are intended to be exclusive of any
other right or remedy, but every such right or remedy shall be cumulative and
shall be in addition to all other rights and remedies herein conferred, or
conferred upon the Administrative Agent under any other agreement or instrument
relating to any of the Secured Obligations or security therefor or now or
hereafter existing at law or in equity or by statute. No delay on the part of
the Administrative Agent in the exercise of any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by the Administrative Agent
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy.
(b)(i) The Pledgor agrees that in any sale of any of the
Collateral, the Administrative Agent is authorized to comply with any limitation
or restriction in connection with such sale as counsel may advise the
Administrative Agent is necessary in order to avoid any violation of applicable
law (including, without limitation, compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral), or in order to obtain
any required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the Administrative
Agent or any Secured Obligee be liable or accountable to the Pledgor for any
discount allowed by reason of the fact that such Collateral is sold in
compliance with any such limitation or restriction.
<PAGE>
(ii) Without limiting the rights of the Administrative Agent
under any other provision of this Agreement, and in addition thereto, the
Pledgor agrees that, to the maximum extent permitted by law, after a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default shall have occurred and shall be continuing, upon written request
from the Administrative Agent, the Pledgor shall or shall cause any or all of
the Issuers, as the case may be, to prepare, file and cause to become effective
promptly, registration statements complying with the Securities Act of 1933, as
amended, for the public sale of such of the Collateral as the Administrative
Agent may elect, and to take comparable action to permit such sales under the
securities laws of such jurisdictions as the Administrative Agent may designate.
The Pledgor further agrees to cause any or all of the Issuers, as the case may
be, to enter into and perform its obligations under one or more underwriting
agreements in connection therewith, containing customary representations,
warranties, covenants and indemnities and contribution provisions if requested
by the Administrative Agent. If such registration statements are filed, the
Pledgor agrees to cause any or all of the Issuers, (A) to keep any such
registration statement and related prospectus current and in compliance with
applicable federal and state securities laws so long as required to satisfy
applicable prospectus delivery requirements and (B) at the request of the
Administrative Agent at any time after the effective date of any such
registration statement, to use reasonable efforts to file post-effective
amendments to such registration statement so that the Administrative Agent's
sales of Pledged Shares or other Collateral will be covered by a current
prospectus and can be made in compliance with all applicable federal and state
securities laws.
(iii) The Pledgor further agrees, after a Default pursuant to
Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event of Default
shall have occurred and shall be continuing, and upon written request from the
Administrative Agent, to (A) deliver, and cause any or all of the Issuers to
deliver, to the Administrative Agent such information as the Administrative
Agent shall reasonably request for inclusion in any registration statement,
prospectus or offering memorandum or in any preliminary prospectus or
preliminary offering memorandum or any amendment or supplement to any thereof or
in any other writing prepared in connection with the offer, sale or resale of
all or any portion of the Pledged Shares or other Collateral, which information
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated or necessary to make such information not
misleading, and (B) do or cause to be done all such other acts and things as may
be necessary to make such offer, sale or resale of all or any portion of the
Pledged Shares or other Collateral valid and binding and in compliance with any
and all applicable laws, regulations, orders, writs, injunctions, decrees or
awards of any and all courts, arbitrators or governmental agencies or
instrumentalities, domestic or foreign, having jurisdiction over any such offer,
sale or resale.
<PAGE>
Without limiting the foregoing paragraph, if the
Administrative Agent decides to exercise its right to sell all or any of the
Pledged Shares or other Collateral, upon written request, the Pledgor shall
furnish or cause to be furnished to the Administrative Agent all such
information as the Administrative Agent may request in order to qualify such
Pledged Shares or other Collateral as exempt securities, or the sale or resale
of such Pledged Shares or other Collateral as exempt transactions, under federal
and state securities laws. The Pledgor agrees to allow, and to cause any or all
of the Issuers to allow, upon request by the Administrative Agent, the
Administrative Agent and any underwriter access at reasonable times and places
to the books, records and premises of any or all of the Issuers; the Pledgor
further agrees to assist, and cause the Issuers to assist, the Administrative
Agent, any underwriter, any agent of any thereof, and any counsel, accountant or
other expert for any thereof, in inspection, evaluation, and any other "due
diligence" action of or with respect to any such books, records and premises;
and the Pledgor further agrees to cause any independent public accountant for
any or all of the Issuers to furnish a letter to the Administrative Agent and
the underwriters in customary form and covering matters of the type customarily
covered by letters of accountants for issuers to underwriters.
(iv) The Pledgor, upon the occurrence and during the
continuance of a Default under Section 12.1.3 of the Credit Agreement as to the
Pledgor or an Event of Default, further agrees that the Administrative Agent
shall have the right, for and in the name, place and stead of the Pledgor to
execute endorsements, assignments, stock powers and other instruments of
conveyance or transfer with respect to all or any of the Collateral, and may,
without demand, presentment or notice of any kind appropriate and apply toward
the payment of the Secured Obligations in order of application set forth in
Section 8 any balances, credits, deposits, accounts or monies of the Pledgor
held by the Administrative Agent.
<PAGE>
(v) Without limiting the foregoing paragraph, upon the
occurrence and during the continuance of a Default pursuant to Section 12.1.3 of
the Credit Agreement as to the Pledgor or an Event of Default, the
Administrative Agent may, to the fullest extent permitted by applicable law,
without notice, advertisement, hearing or process of law of any kind, (A) sell
any or all of the Collateral, free of all rights and claims of the Pledgor
therein and thereto at any public or private sale or brokers' board, and (B) bid
for and purchase any or all of the Collateral at any such public sale free from
rights of redemption, stay or appraisal of the Pledgor.
(vi) The Pledgor further agrees to indemnify and hold harmless
the Administrative Agent, the holders of the Senior Notes and the Banks and each
of their respective officers, directors, employees, agents, successors and
assigns, and any Person in control of any thereof, from and against any loss,
liability, claim, damage and expense, including, without limitation, reasonable
attorneys' fees actually incurred (in this paragraph collectively called the
"Indemnified Liabilities"), under federal and state securities laws or otherwise
insofar as such loss, liability, claim, damage or expense was caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement, any preliminary prospectus or the prospectus, or was
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities were
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Administrative Agent furnished
to the Pledgor in writing by the Administrative Agent expressly for use therein,
such indemnification to remain operative regardless of any investigation made by
or on behalf of the Administrative Agent or any successors thereof, or any
Person in control of any thereof. In connection with a public sale or other
distribution, the Pledgor will provide customary indemnification to any
underwriters, their respective successors and assigns, their respective officers
and directors and each Person who controls any such underwriter (within the
meaning of the Securities Act of 1933, as amended). If and to the extent that
the foregoing undertakings in this paragraph may be unenforceable for any
reason, the Pledgor agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The obligations of the Pledgor under this Section 7(b)(vi) shall
survive any termination of this Agreement.
<PAGE>
(vii) The Pledgor and the Administrative Agent acknowledge
that the commissioners or departments of insurance of various states under all
applicable insurance laws, rules and regulations may have to consent to or
approve any such sale, transfer or other disposition of the Collateral and the
terms and conditions thereof. The Pledgor hereby waives and agrees not to assert
against the Administrative Agent or any Secured Obligee any claim that any such
sale, transfer or other disposition hereunder, or the terms or conditions
thereof, were not commercially reasonable because of any provision of any such
insurance law, rule or regulation or any matter related thereto.
SECTION 8 Application of Proceeds. All of the proceeds from
the sale or disposition of any item of the Collateral pursuant to the terms of
Section 7 hereof and/or, after a Default pursuant to Section 12.1.3 of the
Credit Agreement as to the Pledgor or an Event of Default, the cash held as
Collateral hereunder, shall be applied by the Administrative Agent pursuant to
Section 6.2(b) of the Credit Agreement.
SECTION 9 Authority of the Administrative Agent. The
Administrative Agent shall have, and be entitled to exercise, all such powers
hereunder (to the extent permitted by the Credit Agreement) as are specifically
delegated to the Administrative Agent by the terms hereof, together with such
powers as are incidental thereto, for the benefit of the Banks and the holders
of the Senior Notes. As to matters not expressly provided for by this Pledge
Agreement (including, without limitation, enforcement or collection of this
Pledge Agreement) the Administrative Agent shall not be required to exercise any
discretion, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Banks (without instructions from the holders of the Senior Notes or
any representative thereof) and such instructions shall be binding upon all
Banks and all holders of the Senior Notes and their representatives. The
Administrative Agent may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the reasonable advice of such counsel concerning all matters
pertaining to its duties hereunder. Neither the Administrative Agent, the
holders of the Senior Notes, the Banks nor any director, officer or employee
thereof shall be liable for any action taken or omitted to be taken by it
hereunder or in connection herewith, except for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing, the
Administrative Agent shall not be responsible to any Bank or any holder of a
Senior Note for the due execution, legality, validity, enforceability,
genuineness, sufficiency or value of this Pledge Agreement or any other Loan
Document or other support or security (including the validity, priority or
perfection of any Lien), or any other document furnished in connection with any
of the foregoing; provided that notwithstanding the foregoing, the
Administrative Agent shall comply with Section 4. The Pledgor agrees to
reimburse the Administrative Agent, on demand, for all reasonable costs and
expenses actually incurred by the Administrative Agent in connection with the
administration and enforcement of this Agreement and for all costs and expenses
of the enforcement of this Agreement (including, without limitation, reasonable
costs and expenses actually incurred by any agent employed by the Administrative
Agent) and agrees to indemnify (which indemnification shall survive any
termination of this Agreement) and hold harmless the Administrative Agent, the
holders of the Senior Notes and the Banks (and any such agent) from and against
any and all liability incurred by the Administrative Agent, any holder of a
Senior Note or any Bank or any such agent thereof hereunder or in connection
herewith, unless such liability shall be due to gross negligence or willful
misconduct on the part of the Administrative Agent, any holder of a Senior Note
or any Bank or such agent, as the case may be.
<PAGE>
SECTION 10 Termination. The Pledgor agrees that its pledge
hereunder shall (notwithstanding, without limitation, that at any time or from
time to time all Liabilities may have been paid in full) terminate only (a) when
all Liabilities (except Liabilities which by the terms of the Credit Agreement
survive the payment in full of the Loans and the termination of this Agreement)
(including, without limitation, any extensions or renewals of any thereof) and
all expenses (including, without limitation, reasonable attorneys' fees and
legal expenses) paid or actually incurred by the Administrative Agent in
endeavoring to enforce this Agreement, the Credit Agreement and the other Loan
Documents to which the Administrative Agent is a party or of which it is a
beneficiary shall have been finally paid in full and all other obligations of
the Pledgor hereunder and thereunder have been fully performed, and all
Commitments under the Credit Agreement have been terminated, or (b) pursuant to
the express provisions of Section 6.4 of the Credit Agreement. The release of
the Collateral pledged hereunder shall be subject to the provisions of Section
6.4 of the Credit Agreement; at which time the Administrative Agent shall
reassign and redeliver (or cause to be reassigned and redelivered) to the
Pledgor, or to such Person or Persons as the Pledgor shall designate, such of
the Collateral (if any) as shall not have been sold or otherwise applied by the
Administrative Agent pursuant to the terms hereof and shall still be held by it
hereunder, together with appropriate instruments of reassignment and release.
Any such reassignment shall be without recourse upon, or representation or
warranty by, the Administrative Agent or any Bank and at the sole cost and
expense of the Pledgor.
<PAGE>
SECTION 11 Miscellaneous.
(a) All notices or other communications hereunder shall be
given in the manner specified under Section 15.3 of the Credit Agreement,
whether or not then in effect, and such notices shall be delivered to each
Secured Obligee.
(b) This Agreement, and the terms, covenants and conditions
hereof, shall be binding upon and inure to the benefit of the parties hereto,
and their respective successors and assigns, except the Pledgor shall not be
permitted to assign this Agreement nor any interest herein nor in the
Collateral, nor any part thereof, nor otherwise pledge, encumber or grant any
option with respect to the Collateral, nor any part thereof, except in
accordance with the terms of the Credit Agreement.
(c) SUBMISSION TO JURISDICTION; WAIVER OF VENUE. EACH OF THE
PLEDGOR AND THE ADMINISTRATIVE AGENT (I) HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY ILLINOIS STATE OR FEDERAL COURT SITTING IN THE NORTHERN
DISTRICT OF ILLINOIS OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS, AND EACH OF THE PLEDGOR AND THE
ADMINISTRATIVE AGENT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF
SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR
FEDERAL COURT, AND (II) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING
AGAINST THE OTHER PARTY HERETO OR THE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR
PROPERTY OF ANY THEREOF, ARISING OUT OF OR RELATING TO THIS AGREEMENT, IN ANY
COURT OTHER THAN AS HEREINABOVE SPECIFIED IN THIS SECTION 11(c). EACH OF THE
PLEDGOR AND THE ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT PERMITTED BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE
LAYING OF VENUE IN ANY ACTION OR PROCEEDING (WHETHER BROUGHT BY THE PLEDGOR, ANY
OF ITS SUBSIDIARIES, THE ADMINISTRATIVE AGENT, ANY BANK OR OTHERWISE) IN ANY
COURT HEREINABOVE SPECIFIED IN THIS SECTION 11(c) AS WELL AS ANY RIGHT IT MAY
NOW OR HEREAFTER HAVE TO REMOVE ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED,
TO ANOTHER COURT ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE. EACH OF
THE PLEDGOR AND THE ADMINISTRATIVE AGENT AGREES THAT A FINAL JUDGMENT IN ANY
SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER
JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
(d) At the option of the Administrative Agent, this Agreement,
or a carbon, photographic or other reproduction of this Agreement or of any
Uniform Commercial Code financing statement covering the Collateral or any
portion thereof, shall be sufficient as a Uniform Commercial Code financing
statement and may be filed as such.
<PAGE>
(e) Subject to Section 15.1 of the Credit Agreement, the
provisions of this Agreement or the Credit Agreement (to the extent applicable
hereto) may from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Pledgor and by the
Administrative Agent (at the request of the Required Banks), provided, however,
that no such amendment, modification or waiver which would adversely affect the
holders of the Senior Notes, shall in any event be effective unless the same
shall also be consented to by the holders of the Senior Notes (but only to the
extent, if any, required under the Indentures), or the Banks are similarly
adversely affected. Any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(f) The section headings in this Agreement are inserted for
convenience of reference and shall not be considered a part of this Agreement or
used in its interpretation.
(g) The Pledgor hereby expressly waives: (i) notice of the
acceptance by the Administrative Agent of this Agreement, (ii) notice of the
existence or creation or non-payment of all or any of the Secured Obligations,
(iii) presentment, demand, notice of dishonor, protest, and all other notices
whatsoever (except as otherwise required herein), and (iv) all diligence in
collection or protection of or realization upon the Secured Obligations, or any
security for or guaranty of any of the foregoing.
(h) Any Secured Obligee may, from time to time, without notice
to the Pledgor, assign or transfer any or all of the Secured Obligations of such
Secured Obligee or any interest therein; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Secured Obligations shall be and remain Secured Obligations for the purposes of
this Agreement, and each and every immediate and successive assignee or
transferee of any of the Secured Obligations of such Secured Obligee or of any
interest therein shall, to the extent of the interest of such assignee or
transferee in such Secured Obligations, be entitled to the benefits of this
Agreement to the same extent as if such assignee or transferee were the
Administrative Agent; provided, however, that, unless the Administrative Agent
shall otherwise consent in writing, the Administrative Agent shall have an
unimpaired right, prior and superior to that of any such assignee or transferee,
to enforce this Agreement.
<PAGE>
(i) The Pledgor agrees that, if at any time all or any part of
any payment theretofore applied by the Administrative Agent, any Bank or any
holder of Senior Notes to any of the Secured Obligations is or must be rescinded
or returned by the Administrative Agent, any Bank or any holder of Senior Notes
for any reason whatsoever (including, without limitation, the insolvency,
bankruptcy or reorganization of any of the Issuers), such Secured Obligations
shall, for the purposes of this Agreement, to the extent that such payment is or
must be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by the Administrative Agent, and the pledge by
the Pledgor hereunder shall continue to be effective or be reinstated, as the
case may be, as to such Secured Obligations, all as though such application by
the Administrative Agent, such Bank or such holder had not been made.
(j) No action of the Administrative Agent permitted hereunder
shall in any way affect or impair the rights of the Administrative Agent and the
obligations of the Pledgor under this Agreement. The Pledgor hereby acknowledges
that there are no conditions to the effectiveness of this Agreement.
(k) All obligations of the Pledgor and rights of the
Administrative Agent or obligation expressed in this Agreement shall be in
addition to and not in limitation of those provided in applicable law or in any
other written instrument or agreement relating to any of the Secured
Obligations.
(l) GOVERNING LAW. THIS AGREEMENT SHALL BE A
CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(m) This Agreement may be executed in any number of
counterparts, each of which shall for all purposes be deemed an original, but
all such counterparts shall constitute but one and the same agreement. The
Pledgor hereby acknowledges receipt of a true, correct and complete counterpart
of this Agreement.
(n) The Administrative Agent acts herein as agent for itself,
the Banks, the holders of the Senior Notes and any and all future holders of the
Secured Obligations.
(o) The Administrative Agent hereby acknowledges that its
exercise of any rights or remedies hereunder shall be subject to any Applicable
Insurance Code and agrees to first comply with any Applicable Insurance Code in
exercising its rights hereunder.
(p) WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE
ADMINISTRATIVE AGENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING
ANY RIGHTS UNDER THIS AGREEMENT AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR
COUNTERCLAIM SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION
IS A MATERIAL INDUCEMENT FOR THE PARTIES ENTERING INTO THIS AGREEMENT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the date first above written.
CONSECO, INC.
By: /s/ LAWRENCE W. INLOW
-------------------------
Name: Lawrence W. Inlow
Its: Executive Vice President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/ DAVID M. TERRANCE
--------------------------
Name: David M. Terrance
Its: Vice President
<PAGE>
SCHEDULE 1
WHOLLY-OWNED SUBSIDIARIES
Beneficial Standard Life Insurance Company
Conseco Capital Management, Inc.
Great American Reserve Insurance Company
Conseco Partnership Management, Inc.
Lincoln American Life Insurance Company
CIHC, Incorporated
Marketing Distribution Systems Consulting Group, Inc.
Conseco Risk Management, Inc.
Conseco Mortgage Capital, Inc.
Conseco Private Capital Group, Inc.
CNC Real Estate, Inc.
Conseco Entertainment, Inc.
GARCO Equity Sales, Inc.
<PAGE>
SCHEDULE 2
<TABLE>
<CAPTION>
LISTING OF STOCK PLEDGED
STATE OF COMMON OWNERSHIP/
ENTITY INCORPORATION SHARES PLEDGED PERCENTAGE
- ------ ------------- -------------- ----------
<S> <C> <C> <C>
Conseco Partnership IN 100 Conseco, Inc.
Management, Inc. 100%
Lincoln American Life TN 2,000,000 Conseco, Inc.
Insurance Company 100%
CIHC, Incorporated DE 1,000 Conseco, Inc.
100%
Jefferson National Life TX 700,000 CIHC, Incorporated
Insurance Company of Texas 100%
Conseco Capital Management, DE 100 Conseco, Inc.
Inc. 100%
Conseco Risk Management, Inc. IN 100 Conseco, Inc.
100%
Conseco Mortgage Capital, Inc. DE 100 Conseco, Inc.
100%
Conseco Private Capital Group, IN 100 Conseco, Inc.
Inc. 100%
Conseco Entertainment, Inc. IN 100 Conseco, Inc.
100%
CNC Real Estate, Inc. DE 100 Conseco, Inc.
100%
GARCO Equity Sales, Inc. TX 10,000 Conseco, Inc.
100%
Marketing Distribution DE 3,000 Conseco, Inc.
Systems 100%
Consulting Group, Inc.
Bankers Life Holding DE 2,150,009 Conseco, Inc.
Corporation 4.1%
Conseco L.L.C. DE Uncertificated Conseco, Inc.
10%
</TABLE>
<PAGE>
SCHEDULE 3
LISTING OF SURPLUS DEBENTURES PLEDGED
Surplus Debenture, No. 003, of Jefferson National Life Insurance Company of
Texas in the aggregate principal amount of $283,000,000.00
<PAGE>
SCHEDULE 4
<TABLE>
<CAPTION>
LISTING OF STOCK
ISSUED AND
AUTHORIZED OUTSTANDING
ENTITY COMMON SHARES COMMON SHARES
------ ------------- -------------
<S> <C> <C>
Conseco Partnership 10,000 100
Management, Inc.
Lincoln American Life 5,000,000 2,000,000
Insurance Company
CIHC, Incorporated 1,000 1,000
Jefferson National Life 1,400,000 700,000
Insurance Company of Texas
Conseco Capital Management, 1,000 100
Inc.
Conseco Risk Management, Inc. 10,000 100
Conseco Mortgage Capital, Inc. 100 100
Conseco Private Capital Group, 10,000 100
Inc.
Conseco Entertainment, Inc. 10,000 100
CNC Real Estate, Inc. 1,000 100
GARCO Equity Sales, Inc. 1,000,000 10,000
Marketing Distribution 10,000 3,000
Systems
Consulting Group, Inc.
Bankers Life Holding 500,000,000 51,975,316
Corporation
</TABLE>
<PAGE>
SCHEDULE 5
LISTING OF OUTSTANDING SURPLUS DEBENTURES AND SURPLUS NOTES
None
FORM OF NEW CIHC PLEDGE AGREEMENT
dated as of August 31, 1995
between
CIHC, INCORPORATED
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
<PAGE>
NEW CIHC PLEDGE AGREEMENT
THIS PLEDGE AGREEMENT (this "Agreement"), dated as of August 31, 1995,
is made between CIHC, INCORPORATED, a Delaware corporation (herein, called the
"Pledgor"), and BANK OF AMERICA NATIONAL TRUST AND SAVINGS ASSOCIATION, as
Administrative Agent for the Banks (each as hereinafter defined) and the holders
of the Senior Notes (as hereinafter defined) (the "Administrative Agent"). This
is the New CIHC Pledge Agreement referred to in that certain Credit Agreement
(as from time to time, in whole or in part, amended, modified, supplemented,
restated, refinanced, refunded or renewed, the "Credit Agreement"), dated as of
August 31, 1995, among Conseco, Inc (the "Borrower"), the financial institutions
who are or from time to time become party thereto (the "Banks"), The Chase
Manhattan Bank, N.A. and First Union National Bank of North Carolina, as
Documentation Agents for the Banks, The Bank of New York, The Bank of Tokyo
Trust Company, Credit Lyonnais Cayman Island Branch, Deutsche Bank AG, New York
Branch, Dresdner Bank, ING Capital Corporation, The Long-Term Credit Bank of
Japan, Ltd., Chicago Branch, NationsBank of Georgia, N.A., Shawmut Bank
Connecticut, N.A. and Societe Generale, as Managing Agents for the Banks, and
Bank of America National Trust and Savings Association, as Administrative Agent
for the Banks.
BACKGROUND:
1. Pursuant to the terms of the Credit Agreement, the Banks have agreed
to make certain Loans (as hereinafter defined) to the Borrower which shall be
used by the Borrower as provided in the Credit Agreement.
2. As security for the Loans and as a condition precedent to the making
thereof, the Banks have required that the Pledgor execute and deliver this
Agreement.
3. Pursuant to the Section 10.7 of (a) the Indenture dated as of
February 18, 1993 between the Borrower and Shawmut Bank Connecticut, National
Association, as trustee (as the same may be amended or modified, the "Conseco
Indenture"), and (b) the Indenture dated as of December 15, 1994 between CCP
Insurance, Inc. ("CCPI") and LTCB Trust Company, as trustee (as the same may be
amended of modified, the "CCPI Indenture", and together with the Conseco
Indenture, collectively called, the "Indentures"), subject to certain
exceptions, neither the Borrower nor any Significant Subsidiary (as defined in
the Indentures) may incur, issue, assume or guarantee any indebtedness secured
by a lien on
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<PAGE>
any property or assets of the Borrower or any Significant Subsidiary, or any
shares of capital stock of any Significant subsidiary, without providing that
the Senior Notes (the "Senior Notes") issued pursuant to the Indentures shall be
secured equally and ratably with (or prior to) such indebtedness.
NOW, THEREFORE, in consideration of any Loan or other
financial accommodation heretofore or hereafter at any time made or granted by
the Banks to the Borrower and for other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Pledgor agrees
with the Administrative Agent, for the benefit of the Banks and the holders of
the Senior Notes, that:
SECTION 1 Definitions. Capitalized terms used herein, unless
otherwise specified, shall have the meanings assigned thereto in the Credit
Agreement; provided that such definitions shall survive any termination of the
Credit Agreement. In addition, when used herein the following terms shall have
the following meanings:
"BLHC" shall mean Bankers Life Holding Corporation, a Delaware
corporation.
"CCPI" - see Preamble.
"CCPI Indenture" - see Preamble.
"CLLC" shall mean Conseco L.L.C., a Delaware limited liability company.
"Collateral" - see Section 2.
"Conseco Indenture" - see Preamble.
"Indemnified Liabilities" - see Section 7(b)(vi).
"Indentures" - see Preamble.
"Issuer" shall mean each Wholly-Owned Subsidiary, BLHC, CLLC and any
other Person which is the issuer of any capital stock or Securities or other
Collateral pledged hereunder.
"Permitted Actions" - see Section 5(b).
"Pledged Shares" - see Section -2.
-2 -
25605\091\10EXE4MB.001
<PAGE>
"Secured Obligations" shall mean (a) the CCPI Senior Note Obligations
(as defined in the Credit Agreement), (b) the Conseco Senior Note Obligations
(as defined in the Credit Agreement), and (c) the Liabilities.
"Secured Obligee" shall mean, collectively, (a) with respect to the
CCPI Senior Note Obligations, the holders of the Senior Notes under the CCPI
Indenture (or their representative), (b) with respect to the Conseco Senior Note
Obligations, the holders of the Senior Notes under the Conseco Indenture (or
their representative), and (c) with respect to the Liabilities, the Banks or
Administrative Agent.
"Securities" shall mean securities (whether debt or equity) issued by
each Issuer (to the extent permitted by the Applicable Insurance Code and other
than obligations of each Issuer pursuant to the Servicing Agreements and
insurance policies or other insurance products which may constitute securities)
including, without limitation, the common and preferred stock, partnership units
and participations, notes, bonds, debentures, trust receipts and other
obligations or instruments, including debt instruments and tax-exempt securities
of each Issuer (including, without limitation, warrants, rights tied to
earnings, put and call options and other options relating thereto or any
combination thereof), or any instruments convertible into any of the foregoing.
"Uniform Commercial Code" shall mean the Uniform Commercial Code as in
effect from time to time in the State of Illinois.
"Wholly-Owned Subsidiaries" shall mean, collectively, each Person
listed on Schedule 1 hereto and any other Person in which (other than directors,
qualifying shares required by law) 100% of the capital stock or other ownership
interests is owned, beneficially and of record, by such Person, or by one or
more of other Wholly-owned Subsidiaries, or both; provided that such Person is a
Significant Subsidiary of the Borrower.
SECTION 2 Pledge. To secure the prompt and complete payment and
performance of the Secured Obligations, the Pledgor hereby grants, pledges,
hypothecates, assigns, transfers, sets over and delivers unto the Administrative
Agent, for the benefit
-3 -
25605\091\10EXE4MB.001
<PAGE>
of the Banks and the holders of the Senior Notes, a Lien on the following
(herein collectively called the "Collateral"):
(a) the shares of capital stock of each Issuer and all other
Securities, if any, described in Schedule 2 hereto, whether in certificated form
or otherwise, including the certificates representing or evidencing such shares
of capital stock or other Securities (herein called the "Pledged Shares"),
together with all cash, securities, interests, dividends, rights, notes,
instruments and other property from time to time received, receivable or
otherwise distributed in respect of or in exchange for any or all of such
Pledged Shares;
(b) all additional shares of capital stock of each Issuer and other
Securities from time to time acquired by the Pledgor in any manner including,
without limitation, any uncertificated Securities (which additional shares of
capital stock and Securities shall constitute a part of, and be, "Pledged
Shares"), and, in the case of certificated Securities, the certificates
representing or evidencing such additional shares, together with all cash,
securities, interest, dividends, rights, notes, instruments and other property
at any time and from time to time received, receivable or otherwise distributed
in respect of or in exchange for any or all of such additional shares;
(c) all other property hereafter delivered to the Administrative Agent
in substitution for or in addition to any of the foregoing, and all certificates
and instruments representing or evidencing such other property, together with
all cash, securities, interest, dividends, rights and other property at any time
and from time to time received, receivable or otherwise distributed in respect
of or in exchange for any or all thereof; and
(d) all proceeds, rents, issues, profits and returns of and from all of
the foregoing;
TO HAVE AND TO HOLD the Collateral, together with all rights, titles,
interests, privileges and preferences appertaining or incidental thereto, unto
the Administrative Agent, its successors and assigns, for the benefit of the
Banks and the holders of the Senior Notes, forever; subject, however, to the
terms, covenants and conditions hereafter set forth.
-4-
25605\091\10EXE4MB.001
<PAGE>
The Pledgor agrees to deliver to the Administrative Agent, promptly
upon receipt and in the case of the Pledged Shares in due form for transfer
(i.e., endorsed in blank accompanied by undated stock or bond powers executed in
blank or registered on the books of the applicable Issuer) and, subject to the
provisions of Section 6 hereof, any Collateral which may at any time or from
time to time be in or come into possession or control of the Pledgor; and prior
to the delivery thereof to the Administrative Agent, such Collateral shall be
held by the Pledgor separate and apart from its other property and in express
trust for the Administrative Agent, for the benefit of the Banks and the holders
of the Senior Notes.
SECTION 3 Representations, Warranties and Covenants.
(a) The Pledgor represents and warrants to the Administrative Agent,
for the benefit of the Banks and the holders of the Senior Notes, that: (i) the
authorized and outstanding capital stock of, and the information as to, each
Issuer set forth in Schedule 3 is true and accurate in all respects, (ii) except
for Liens, claims and rights of third parties arising solely through acts of the
Administrative Agent, the Administrative Agent has and will continue to have at
all times as security for the Secured Obligations, for the benefit of the Banks
and the holders of the Senior Notes, a valid, first priority perfected Lien on
the Collateral and the proceeds thereof free of all Liens (except for the Lien
granted hereunder), claims and rights of third parties whatsoever; (iii) all of
the Pledged Shares and other Securities representing shares of stock pledged
under this Agreement (other than with respect to CLLC) are evidenced by
certificates, and the Pledgor has delivered to the Administrative Agent for the
benefit of the Banks and the holders of the Senior Notes for pledge under this
Agreement on the date hereof all of the certificates representing all such
Pledged Shares and other Securities; (iv) the Pledged Shares represent and will
continue to represent all of the issued and outstanding capital stock and other
Securities of each of the Wholly- Owned Subsidiaries and all of the issued and
outstanding capital stock of BLHC owned by the Pledgor; and (v) the Pledgor
will, at all times, keep pledged to the Administrative Agent, for the benefit of
the Banks and the holders of the Senior Notes, pursuant hereto all of the
capital stock and other Securities of (A) each of the Wholly-Owned Subsidiaries,
and (B) BLHC (which capital stock, surplus debentures and other Securities
(other than the capital stock of BLHC pledged under the Borrower Non-Shared
Pledge Agreement are owned by the Pledgor). The Pledgor agrees to endorse and
deliver to the Administrative Agent for pledge hereunder, promptly upon its
obtaining any thereof, any additional Collateral and to hold such Collateral,
pending such delivery,
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in trust for the Administrative Agent, for the benefit of the Banks and the
holders of the Senior Notes, separate and distinct from any other property of
the Pledgor. As of the date of any such delivery of additional Securities,
certificates or instruments to the Administrative Agent, for the benefit of the
Banks and the holders of the Senior Notes, the Pledgor represents and warrants
that (1) it will own such Securities, certificates and instruments free and
clear of any rights of any other Person (other than the rights created in the
Administrative Agent hereunder), (2) it will have good and marketable title to
said Securities, certificates and instruments and have the right to pledge such
Securities, certificates and instruments to the Administrative Agent, for the
benefit of the Banks and the holders of the Senior Notes, pursuant to this
Agreement, (3) it will have pledged to the Administrative Agent, for the benefit
of the Banks and the holders of the Senior Notes, as at such date, all of the
capital stock and other Securities of (A) each of the Wholly-Owned Subsidiaries
and (B) BLHC (which capital stock, surplus debentures and other Securities are
owned by the Pledgor, other than shares of BLHC which pursuant to Sections
10.7(iv) - and/or 10.7(vii) of the Indentures have been pledged to secure the
financing of the acquisition of such shares), and (4) the Administrative Agent,
for the benefit of the Banks and the holders of the Senior Notes, has a valid,
first priority perfected Lien on said Securities, certificates and instruments
and the proceeds thereof free of all Liens, claims and rights of third parties
whatsoever. All documentary, stamp and other taxes and fees owing in connection
with the issuance, transfer and/or pledge of the Pledged Shares and any other
Securities, certificates or instruments pledged hereunder have been paid and
will hereafter be paid by the Pledgor as such become due and payable.
(b) The Pledgor further represents and warrants to the Administrative
Agent, for the benefit of the Banks and the holders of the Senior Notes, that it
is the lawful owner of the Collateral, free of all Liens, other than the Lien
granted hereunder, with full right to deliver, pledge, assign and transfer such
Collateral to the Administrative Agent, for the benefit of the Banks and the
holders of the Senior Notes, as Collateral hereunder. The pledge of the
Collateral effected by this Agreement is effective to vest in the Administrative
Agent, for the benefit of the Banks and the holders of the Senior Notes, the
rights of the Administrative Agent in the Collateral set forth herein.
(d) The Pledgor additionally represents and warrants to the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes, that (i) each of the Pledgor
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and its Subsidiaries is a corporation or partnership duly organized or formed,
validly existing and in good standing under the laws of its state of
incorporation or formation, (ii) the execution and delivery of this Agreement
and the performance by the Pledgor of its obligations hereunder are within its
corporate powers, have been duly authorized by all necessary corporate action
(including, without limitation, shareholder approval if required), (iii) each of
the Pledgor and its Subsidiaries has received all material governmental consents
and approvals (if any shall be required) necessary for such execution, delivery
and performance (except governmental consents required by any Applicable
Insurance Code to foreclose on the Pledged Shares or Pledged Surplus
Debentures), and such execution, delivery and performance do not and will not
contravene or conflict with, result in any breach of, or constitute a default
under, any material agreement or instrument binding on it or result in the
creation or imposition of or the obligation to create or impose any Lien (except
for the Lien permitted hereunder) and (iv) this Agreement is the legal, valid
and binding obligation of the Pledgor, enforceable against the Pledgor in
accordance with its terms, except to the extent such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent transfer or other similar laws affecting the enforcement of
creditors, rights generally and by the effect of general principles of equity
(regardless of whether enforceability is considered in a proceeding in equity
(including, without limitation, good faith, materiality and reasonableness) or
at law).
(e) The Pledgor additionally covenants and agrees with the
Administrative Agent that, until the expiration or termination of the
Commitments and thereafter so long as any of the Liabilities remain outstanding,
the Pledgor will, unless the Administrative Agent and the Required Banks, for
the benefit of the Banks and the holders of the Senior Notes, shall otherwise
consent in writing:
(i) at the Pledgor's sole expense, promptly deliver to the
Administrative Agent, from time to time upon request of the Administrative Agent
or the Required Banks, such stock powers and other documents (including UCC
financing statements), satisfactory in form and substance to the Administrative
Agent, with respect to the Collateral as the Administrative Agent or the
Required Banks may reasonably request, to perfect, preserve and protect the Lien
created hereby, and to enable the Administrative Agent to enforce its rights and
remedies hereunder;
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(ii) not permit any of the Collateral (other than the membership
interests in CLLC) to be evidenced by uncertificated Securities; provided,
however, that should for whatsoever reason any of the Collateral become
evidenced by uncertificated Securities, the Pledgor shall automatically, without
request by the Administrative Agent, forthwith (A) notify the Administrative
Agent thereof, (B) cause the books and records of the Issuer of such Securities
to contain a notation of the Lien of the Administrative Agent, for the benefit
of the Banks and the holders of the Senior Notes, thereon, and (C) take such
other action as the Administrative Agent shall reasonably request so that the
Administrative Agent shall have at all times as security for the Secured
Obligations, for the benefit of the Banks and the holders of the Senior Notes, a
valid, first priority perfected Lien on the Collateral and the proceeds thereof
free of all Liens (except for the Lien granted hereunder), claims and rights of
third parties whatsoever; and
(iii) except as otherwise may be permitted by the Credit Agreement and
the Indentures, (A) not sell, assign, exchange, pledge or otherwise dispose of
or transfer any of its rights to any of the Collateral, (B) not create or suffer
to exist any Lien on or with respect to any of the Collateral except for the
Lien created hereby, (C) not make or consent to any amendment or other
modification or waiver with respect to any of the Collateral, or enter into any
agreement or permit to exist any restriction with respect to any of the
Collateral other than pursuant hereto, and (D) not take or fail to take any
action which would in any manner impair the enforceability of the Administrative
Agent's Lien, for the benefit of the Banks and the holders of the Senior Notes,
on any of the Collateral.
(f) Notwithstanding anything contained in this Section 3 to the
contrary, the Borrower agrees and acknowledges that it shall fully comply with
its duties and obligations under the terms of the Indentures, and nothing
contained in the foregoing shall be deemed to be a waiver or amendment of any
provision contained therein.
SECTION 4 Care of Collateral. The Administrative Agent shall exercise
reasonable care in the custody and preservation of the Collateral. In addition,
the Administrative Agent shall be deemed to have exercised reasonable care in
the
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custody and preservation of the Collateral if it takes such action for that
purpose as the Pledgor requests in writing, but failure of the Administrative
Agent to comply with any such request shall not of itself be deemed a failure to
exercise reasonable care, and no failure of the Administrative Agent to preserve
or protect any rights with respect to the Collateral against prior or other
parties, or to do any act with respect to preservation of the Collateral not so
requested by the Pledgor, shall be deemed a failure to exercise reasonable care
in the custody or preservation of the Collateral.
SECTION 5 Certain Rights Regarding Collateral and Secured Obligations.
(a) Subject to Sections 5(c) and 6 hereof the Administrative Agent may,
and upon the request of the Required Banks shall, from time to time, after the
occurrence and during the continuance of a Default pursuant to Section 12.1.3 of
the Credit Agreement as to the Pledgor or an Event of Default, without notice to
the Pledgor, (i) transfer all or any part of the Collateral into the name of the
Administrative Agent or its nominee or sub-agent, with or without disclosing
that such Collateral is subject to the Lien hereunder, (ii) notify any Person
obligated on any of the Collateral to make payment to the Administrative Agent
of any amounts due or to-become due thereunder, and (iii) enforce collection of
any of the Collateral by suit or otherwise.
(b) If at any time any Secured Obligee takes any or all of the
Permitted Actions (as hereinafter defined) whether such actions are taken before
or after any of the Secured Obligations shall be due and payable and without
notice to the Pledgor, such actions shall not affect the enforceability of this
Agreement. A Secured Obligee shall have taken a "Permitted Action" if it shall
(to the extent permitted by the Credit Agreement and the other Loan Documents):
(i) retain or obtain a Lien upon any property to secure payment and performance
of any of the Secured Obligations of such Secured Obligee or any obligation
hereunder, (ii) retain, obtain or release the primary or secondary obligation of
any Person, in addition to the Pledgor, with respect to one or more of the
Secured Obligations of such Secured Obligee, (iii) create, extend or renew for
any periods (whether or not longer than the original period) or alter or
exchange any of the Secured Obligations of such Secured Obligee, or release or
compromise any obligation of any nature of any Person with respect to any of the
Secured Obligations of such Secured Obligee, (iv) release or fail to perfect its
Lien upon, or impair, surrender, release or permit any substitution or exchange
for, all or any part of any property securing any of the Secured Obligations of
such Secured Obligee or any
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obligation hereunder, or create, extend or renew for one or more periods
(whether or not longer than the original period) or release, compromise, alter
or exchange any obligations of any nature of any Person with respect to any such
property or (v) resort to the Collateral for payment of any of the Secured
obligations whether or not the Administrative Agent (A) shall have resorted to
any other property securing any of the Secured obligations or any obligation
hereunder or (B) shall have proceeded against any Person primarily or
secondarily obligated with respect to any of the Secured Obligations (all of the
actions referred to in preceding clauses (A) and (B) being hereby expressly
waived by the Pledgor).
(c) The Administrative Agent shall have no right to vote the
Pledged Shares or other Collateral or give consents, waivers or ratifications in
respect thereof prior to the occurrence and during the continuance of a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default. After the occurrence and during the continuance of a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default, the Pledgor shall have the right to vote any and all of the Pledged
Shares and other Collateral and give consents, waivers and ratifications in
respect thereof unless and until it receives notice from the Administrative
Agent that such right has been terminated. The Pledgor agrees to deliver
(properly endorsed when required) to the Administrative Agent, after a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default shall have occurred and shall be continuing, promptly upon request of
the Administrative Agent, such proxies and other documents as may be necessary
for the Administrative Agent to exercise the voting power with respect to the
Pledged Shares and other Collateral then or previously owned by the Pledgor.
SECTION 6 Dividends, etc.
(a) So long as no Default pursuant to Section 12.1.3 of the Credit
Agreement as to the Pledgor or an Event of Default shall have occurred and shall
be continuing:
(i) Subject to the provisions of the Credit Agreement and
notwithstanding the provisions of Section 2(a) of this Agreement, the Pledgor
shall be entitled to receive any and all cash dividends and payments on the
Collateral which it is otherwise entitled to receive, but any and all Securities
and/or liquidating dividends, payments, distributions in property, returns of
capital made on or in respect of the Collateral, whether resulting from a
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subdivision, combination, reclassification or conversion of the outstanding
capital stock or other Securities of any or all of the Issuers or received in
exchange for the Collateral or any part thereof, or as a result of any merger,
consolidation, acquisition or other exchange of assets to which any or all of
the Issuers may be a party or otherwise, and any and all cash and other property
received in exchange for any Collateral shall be and become part of the
Collateral pledged hereunder and, if received by the Pledgor, shall forthwith be
delivered to the Administrative Agent or its designated nominee (accompanied, if
appropriate, by proper instruments of assignment and/or stock powers executed by
the Pledgor in accordance with the Administrative Agent's instructions) to be
held subject to the terms of this Agreement, and, until delivery to the
Administrative Agent, such Collateral shall be held by the Pledgor separate and
apart from its other property in trust for the Administrative Agent, for the
benefit of the Banks and the holders of the Senior Notes.
(ii) If the Collateral or any part thereof shall have been registered
in the name of the Administrative Agent or its sub-agent, the Administrative
Agent shall execute and deliver (or cause to be executed and delivered) to the
Pledgor all such dividend orders and other instruments as the Pledgor may
request for the purpose of enabling the Pledgor to receive the dividends or
other payments which it is authorized to receive and retain pursuant to Section
6(a)(i) above.
(b) Upon the occurrence and during the continuance of a Default
pursuant to Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event
of Default, all rights of the Pledgor pursuant to Section 6(a) (i) hereof shall
cease and the Administrative Agent shall have the sole and exclusive right and
authority to receive and retain the dividends and other payments in respect of
the Collateral which the Pledgor would otherwise be authorized to retain. All
such dividends and payments, and all other distributions made on or in respect
of the Collateral which may at any time and from time to time be held by the
Pledgor, shall, until delivery to the Administrative Agent , be held by the
Pledgor separate and apart from its other property in trust for the
Administrative Agent, for the benefit of the Banks and the holders of the Senior
Notes. Any and all money and other property paid over to or received by the
Administrative Agent pursuant to the provisions of this paragraph (b) shall be
retained by the Administrative Agent as
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additional Collateral hereunder and be applied in accordance with the provisions
hereof.
SECTION 7 Default.
(a) Upon the occurrence and during the continuance of a Default
pursuant to Section- 12.1.3 of the Credit Agreement as to the Pledgor or an
Event of Default, the Administrative Agent may exercise from time to time any
rights and remedies available to it under the Credit Agreement, the Uniform
Commercial Code or the other Loan Documents or otherwise available to it,
including, without limitation, sale, assignment, or other disposal of the
Collateral in exchange for cash or credit. If any notification of intended
disposition of any of the Collateral is required by law, such notification, if
mailed, shall be deemed reasonably and properly given if mailed to the Pledgor
at least ten (10) days before such disposition as provided in Section 15.3 of
the Credit Agreement. Any proceeds of any disposition of Collateral shall be
applied as provided in Section 8 hereof. No rights and remedies of the
Administrative Agent expressed hereunder are intended to be exclusive of any
other right or remedy, but every such right or remedy shall be cumulative and
shall be in addition to all other rights and remedies herein conferred, or
conferred upon the Administrative Agent under any other agreement or instrument
relating to any of the Secured Obligations or security therefor or now or
hereafter existing at law or in equity or by statute. No delay on the part of
the Administrative Agent in the exercise of any right or remedy shall operate as
a waiver thereof, and no single or partial exercise by the Administrative Agent
of any right or remedy shall preclude any other or further exercise thereof or
the exercise of any other right or remedy.
(b)(i) The Pledgor agrees that in any sale of any of the Collateral,
the Administrative Agent is authorized to comply with any limitation or
restriction in connection with such sale as counsel may advise the
Administrative Agent is necessary in order to avoid any violation of applicable
law (including, without limitation, compliance with such procedures as may
restrict the number of prospective bidders and purchasers, require that such
prospective bidders and purchasers have certain qualifications, and restrict
such prospective bidders and purchasers to persons who will represent and agree
that they are purchasing for their own account for investment and not with a
view to the distribution or resale of such Collateral), or in order to obtain
any required approval of the sale or of the purchaser by any governmental
regulatory authority or official, and the Pledgor further agrees that such
compliance shall not result in such sale being considered or deemed not to have
been made in a commercially reasonable manner, nor shall the
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Administrative Agent or any Secured Obligee be liable or accountable to the
Pledgor for any discount allowed by reason of the fact that such Collateral is
sold in compliance with any such limitation or restriction.
(ii) Without limiting the rights of the Administrative Agent under any
other provision of this Agreement, and in addition thereto, the Pledgor agrees
that, to the maximum extent permitted by law, after a Default pursuant to
Section 12.1.3 of the Credit Agreement as to the Pledgor or an Event of Default
shall have occurred and shall be continuing, upon written request from the
Administrative Agent, the Pledgor shall or shall cause any or all of the
Issuers, as the case may be, to prepare, file and cause to become effective
promptly, registration statements complying with the Securities Act of 1933, as
amended, for the public sale of such of the Collateral as the Administrative
Agent may elect, and to take comparable action to permit such sales under the
securities laws of such jurisdictions as the Administrative Agent may designate.
The Pledgor further agrees to cause any or all of the Issuers, as the case may
be, to enter into and perform its obligations under one or more underwriting
agreements in connection therewith, containing customary representations,
warranties, covenants and indemnities and contribution provisions if requested
by the Administrative Agent. If such registration statements are filed, the
Pledgor agrees to cause any or all of the Issuers, (A) to keep any such
registration statement and related prospectus current and in compliance with
applicable federal and state securities laws so long as required to satisfy
applicable prospectus delivery requirements and (B) at the request of the
Administrative Agent at any time after the effective date of any such
registration statement, to use reasonable efforts to file post-effective
amendments to such registration statement so that the Administrative Agent's
sales of Pledged Shares or other Collateral will be covered by a current
prospectus and can be made in compliance with all applicable federal and state
securities laws.
(iii) The Pledgor further agrees, after a Default pursuant to Section
12.1.3 of the Credit Agreement as to the Pledgor or an Event of Default shall
have occurred and shall be continuing, and upon written request from the
Administrative Agent, to (A) deliver, and cause any or all of the Issuers to
deliver, to the Administrative Agent such information as the Administrative
Agent shall reasonably request for inclusion in any registration statement,
prospectus or offering memorandum or in any preliminary prospectus or
preliminary offering memorandum or any amendment or supplement to any thereof or
in any other writing prepared in connection with the offer, sale or resale of
all or any portion of the Pledged Shares or other Collateral,
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which information shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated or necessary to make such
information not misleading, and (3) do or cause to be done all such other acts
and things as may be necessary to make such offer, sale or resale of all or any
portion of the Pledged Shares or other Collateral valid and binding and in
compliance with any and all applicable laws, regulations, orders, writs,
injunctions, decrees or awards of any and all courts, arbitrators or
governmental agencies or instrumentalities, domestic or foreign, having
jurisdiction over any such offer, sale or resale.
Without limiting the foregoing paragraph, if the Administrative Agent
decides to exercise its right to sell all or any of the Pledged Shares or other
Collateral, upon written request, the Pledgor shall furnish or cause to be
furnished to the Administrative Agent all such information as the Administrative
Agent may request in order to qualify such Pledged Shares or other Collateral as
exempt securities, or the sale or resale of such Pledged Shares or other
Collateral as exempt transactions, under federal and state securities laws. The
Pledgor agrees to allow, and to cause any or all of the Issuers to allow, upon
request by the Administrative Agent, the Administrative Agent and any
underwriter access at reasonable times and places to the books, records and
premises of any or all of the Issuers; the Pledgor further agrees to assist, and
cause the Issuers to assist, the Administrative Agent, any underwriter, any
agent of any thereof, and any counsel, accountant or other expert for any
thereof, in inspection, evaluation, and any other "due diligence" action of or
with respect to any such books, records and premises; and the Pledgor further
agrees to cause any independent public accountant for any or all of the Issuers
to furnish a letter to the Administrative Agent and the underwriters in
customary form and covering matters of the type customarily covered by letters
of accountants for issuers to underwriters.
(iv) The Pledgor, upon the occurrence and during the continuance of a
Default under Section 12.1.3 of the Credit Agreement as to the Pledgor or an
Event of Default, further agrees that the Administrative Agent shall have the
right, for and in the name, place and stead of the Pledgor to execute
endorsements, assignments, stock powers and other instruments of conveyance or
transfer with respect to all or any of the Collateral, and may, without demand,
presentment or notice of any kind appropriate and apply toward the payment of
the Secured Obligations in order of application set forth in Section 8 any
balances, credits, deposits, accounts or monies of the Pledgor held by the
Administrative Agent.
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(v) Without limiting the foregoing paragraph, upon the occurrence and
during the continuance of a Default pursuant to Section 12-1.3 of the Credit
Agreement as to the Pledgor or an Event of Default, the Administrative Agent
may, to the fullest extent permitted by applicable law, without notice,
advertisement, hearing or process of law of any kind, (A) sell any or all of the
Collateral, free of all rights and claims of the Pledgor therein and thereto at
any public or private sale or brokers' board, and (B) bid for and purchase any
or all of the Collateral at any such public sale free from rights of redemption,
stay or appraisal of the Pledgor.
(vi) The Pledgor further agrees to indemnify and hold harmless the
Administrative Agent, the holders of the Senior Notes and the Banks and each of
their respective officers, directors, employees, agents, successors and assigns,
and any Person in control of any thereof, from and against any loss, liability,
claim, damage and expense, including, without limitation, reasonable attorneys'
fees actually incurred (in this paragraph collectively called the "Indemnified
Liabilities"), under federal and state securities laws or otherwise insofar as
such loss, liability, claim, damage or expense was caused by any untrue
statement or alleged untrue statement of a material fact contained in any
registration statement, any preliminary prospectus or the prospectus, or was
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such losses, claims, damages or liabilities were
caused by any such untrue statement or omission or alleged untrue statement or
omission based upon information relating to the Administrative Agent furnished
to the Pledgor in writing by the Administrative Agent expressly for use therein,
such indemnification to remain operative regardless of any investigation made by
or on behalf of the Administrative Agent or any successors thereof, or any
Person in control of any thereof. In connection with a public sale or other
distribution, the Pledgor will provide customary indemnification to any
underwriters, their respective successors and assigns, their respective officers
and directors and each Person who controls any such underwriter (within the
meaning of the Securities Act of 1933, as amended). If and to the extent that
the foregoing undertakings in this paragraph may be unenforceable for any
reason, the Pledgor agrees to make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law. The obligations of the Pledgor under this Section 7(b)(vi) shall
survive any termination of this Agreement.
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(vii) The Pledgor and the Administrative Agent acknowledge that the
commissioners or departments of insurance of various states under all applicable
insurance laws, rules and regulations may have to consent to or approve any such
sale, transfer or other disposition of the Collateral and the terms and
conditions thereof. The Pledgor hereby waives and agrees not to assert against
the Administrative Agent or any Secured Obligee any claim that any such sale,
transfer or other disposition hereunder, or the terms or conditions thereof,
were not commercially reasonable because of any provision of any such insurance
law, rule or regulation or any matter related thereto.
SECTION 8 Application of Proceeds. All of the proceeds from the sale
or disposition of any item of the Collateral pursuant to the terms of Section 7
hereof and/or, after a Default pursuant to Section 12.1.3 of the Credit
Agreement as to the Pledgor or an Event of Default, the cash held as Collateral
hereunder, shall be applied by the Administrative Agent pursuant to Section
6.2(b) of the Credit Agreement; provided that each reference to "Borrower
Non-Shared Pledge Agreement" thereunder shall be deemed a reference to this
Agreement.
SECTION 9 Authority of the Administrative Agent. The Administrative
Agent shall have, and be entitled to exercise, all such powers hereunder (to the
extent permitted by the Credit Agreement) as are specifically delegated to the
Administrative Agent by the terms hereof, together with such powers as are
incidental thereto, for the benefit of the Banks and the holders of the Senior
Notes. As to matters not expressly provided for by this Pledge Agreement
(including, without limitation, enforcement or collection of this Pledge
Agreement) the Administrative Agent shall not be required to exercise any
discretion, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Required Banks (without instructions from the holders of the Senior Notes or
any representative thereof) and such instructions shall be binding upon all
Banks and all holders of the Senior Notes and their representatives. The
Administrative Agent may execute any of its duties hereunder by or through
agents or employees and shall be entitled to retain counsel and to act in
reliance upon the reasonable advice of such counsel concerning all matters
pertaining to its duties hereunder. Neither the Administrative Agent, the
holders of the Senior Notes, the Banks nor any director, officer or employee
thereof shall be liable for any action taken or omitted to be taken by it
hereunder or in connection herewith, except for its own gross negligence or
willful misconduct. Without limiting the generality of the foregoing, the
Administrative Agent shall not be responsible to
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any Bank or any holder of a Senior Note for the due execution, legality,
validity, enforceability, genuineness, sufficiency or value of this Pledge
Agreement or any other Loan Document or other support or security (including the
validity, priority or perfection of any Lien), or any other document furnished
in connection with any of the foregoing; provided that notwithstanding the
foregoing, the Administrative Agent shall comply with Section 4. The Pledgor
agrees to reimburse the Administrative Agent, on demand, for all reasonable
costs and expenses actually incurred by the Administrative Agent in connection
with the administration and enforcement of this Agreement and for all costs and
expenses of the enforcement of this Agreement (including, without limitation,
reasonable costs and expenses actually incurred by any agent employed by the
Administrative Agent) and agrees to indemnify (which indemnification shall
survive any termination of this Agreement) and hold harmless the Administrative
Agent, the holders of the Senior Notes and the Banks (and any such agent) from
and against any and all liability incurred by the Administrative Agent, any
holder of a Senior Note or any Bank or any such agent thereof hereunder or in
connection herewith, unless such liability shall be due to gross negligence or
willful misconduct on the part of the Administrative Agent, any holder of a
Senior Note or any Bank or such agent, as the case may be.
SECTION 10 Termination. The Pledgor agrees that its Pledge hereunder
shall (notwithstanding, without limitation, that at any time or from time to
time all Liabilities may have been paid in full) terminate only (a) when all
Liabilities (except Liabilities which by the terms of the Credit Agreement
survive the payment in full of the Loans and the termination of this Agreement)
(including, without limitation, any extensions or renewals of any thereof) and
all expenses (including, without limitation, reasonable attorneys, fees and
legal expenses) paid or actually incurred by the Administrative Agent in
endeavoring to enforce this Agreement, the Credit Agreement and the other Loan
Documents to which the Administrative Agent is a party or of which it is a
beneficiary shall have been finally paid in full and all other obligations of
the Pledgor hereunder and thereunder have been fully performed, and all
Commitments under the Credit Agreement have been terminated, or (b) pursuant to
the express provisions of Section 6.4 of the Credit Agreement. The release of
the Collateral pledged hereunder shall be subject to the provisions of Section
6.4 of the Credit Agreement; at which time the Administrative Agent shall
reassign and redeliver (or cause to be reassigned and redelivered) to the
Pledgor, or to such Person or Persons as the Pledgor shall designate, such of
the Collateral (if any) as shall not have been sold or otherwise applied by the
Administrative Agent pursuant to the terms hereof and shall still be held by it
hereunder, together
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with appropriate instruments of reassignment and release. Any such reassignment
shall be without recourse upon, or representation or warranty by, the
Administrative Agent or any Bank and at the sole cost and expense of the
Pledgor.
SECTION 11 Miscellaneous.
(a) All notices or other communications hereunder shall be given in the
manner specified under Section 15.3 of the Credit Agreement, whether or not then
in effect, and such notices shall be delivered to each Secured Obligee.
(b) This Agreement, and the terms, covenants and conditions hereof,
shall be binding upon and inure to the benefit of the parties hereto, and their
respective successors and assigns, except the Pledgor shall not be permitted to
assign this Agreement nor any interest herein nor in the Collateral, nor any
part thereof, nor otherwise pledge, encumber or grant any option with respect to
the Collateral, nor any part thereof, except in accordance with the terms of the
Credit Agreement.
(c) SUBMISSION TO JURISDICTION; WAIVER OF VENUE. EACH OF THE PLEDGOR
AND THE ADMINISTRATIVE AGENT (1) HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION
OF ANY ILLINOIS STATE OR FEDERAL COURT SITTING IN THE NORTHERN DISTRICT OF
ILLINOIS OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE OTHER LOAN DO S, AND EACH OF THE PLEDGOR AND THE ADMINISTRATIVE
AGENT HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE H AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL COURT, AND
(II) AGREES NOT TO INSTITUTE ANY LEGAL ACTION OR PROCEEDING AGAINST THE OTHER
PARTY HERETO OR THE DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR PROPERTY OF ANY
THEREOF, ARISING OUT OF OR RELATING TO THIS AGREE IN ANY COURT OTHER THAN AS
HEREINABOVE SPECIFIED IN THIS SECTION 11(c). EACH OF THE PLEDGOR AND THE
ADMINISTRATIVE AGENT HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED
BY LAW, ANY OBJECTION IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF IN ANY
ACTION OR PROCEEDING (WHETHER BROUGHT BY THE PLEDGOR, ANY OF ITS SUBSIDIARIES,
THE ADMINISTRATIVE AGENT, ANY BANK OR OTHERWISE) IN ANY COURT HEREINABOVE
SPECIFIED IN THIS SECTION 11(c) AS WELL AS ANY RIGHT IT MAY NOW OR HEREAFTER
HAVE TO REMOVE ANY SUCH ACTION OR PROCEEDING, ONCE COMMENCED, TO ANOTHER COURT
ON THE GROUNDS OF FORUM NON CONVENIENS OR OTHERWISE. EACH OF THE PLEDGOR AND THE
ADMINISTRATIVE AGENT AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
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(d) At the option of the Administrative Agent, this Agreement, or a
carbon, photographic or other reproduction of this Agreement or of any Uniform
Commercial Code financing statement covering the Collateral or any portion
thereof, shall be sufficient as a Uniform Commercial Code financing statement
and may be filed as such.
(e) Subject to Section 15.1 of the Credit Agreement, the provisions of
this Agreement or the Credit Agreement (to the extent applicable hereto) may
from time to time be amended, modified or waived, if such amendment,
modification or waiver is in writing and consented to by the Pledgor and by the
Administrative Agent (at the request of the Required Banks), provided, however,
that no such amendment, modification or waiver which would adversely affect the
holders of the Senior Notes, shall in any event be effective unless the same
shall also be consented to by the holders of the Senior Notes (but only to the
extent, if any, required under the Indentures), or the Banks are similarly
adversely affected. Any such amendment, modification, waiver or consent shall be
effective only in the specific instance and for the specific purpose for which
given.
(f) The section headings in this Agreement are inserted for convenience
of reference and shall not be considered a part of this Agreement or used in its
interpretation.
(g) The Pledgor hereby expressly waives: (i) notice of the acceptance
by the Administrative Agent of this Agreement, (ii) notice of the existence or
creation or non-payment of all or any of the Secured Obligations, (iii)
presentment, demand, notice of dishonor, protest, and all other notices
whatsoever (except as otherwise required herein), and (iv) all diligence in
collection or protection of or realization upon the Secured obligations, or any
security for or guaranty of any of the foregoing.
(h) Any Secured Obligee may, from time to time, without notice to the
Pledgor, assign or transfer any or all of the Secured Obligations of such
Secured Obligee or any interest therein; and, notwithstanding any such
assignment or transfer or any subsequent assignment or transfer thereof, such
Secured Obligations shall be and remain Secured Obligations for the purposes of
this Agreement, and each and every immediate and successive assignee or
transferee of any of the Secured Obligations of such Secured Obligee or of any
interest therein shall, to the extent of the interest of such assignee or
transferee in such Secured Obligations, be entitled to the benefits of this
Agreement to the same extent as if such assignee or transferee were the
Administrative Agent; provided,
-19 -
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<PAGE>
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<PAGE>
however, that, unless the Administrative Agent shall otherwise consent in
writing, the Administrative Agent shall have an unimpaired right, prior and
superior to that of any such assignee or transferee, to enforce this Agreement.
(i) The Pledgor agrees that, if at any time all or any part of any
payment theretofore applied by the Administrative Agent, any Bank or any holder
of Senior Notes to any of the Secured Obligations is or must be rescinded or
returned by the Administrative Agent, any Bank or any holder of Senior Notes for
any reason whatsoever (including, without limitation, the insolvency, bankruptcy
or reorganization of any of the Issuers), such Secured Obligations shall, for
the purposes of this Agreement, to the extent that such payment is or must
be rescinded or returned, be deemed to have continued in existence,
notwithstanding such application by the Agent, and the pledge by the Pledgor
hereunder to be effective or be reinstated, as the case may Secured Obligations,
all as though such the Administrative Agent, such Bank or such been made.
(j) No action of the Administrative Agent permitted hereunder shall in
any way affect or impair the rights of the Administrative Agent and the
obligations of the Pledgor under this Agreement. The Pledgor hereby acknowledges
that there are no conditions to the effectiveness of this Agreement.
(k) All obligations of the Pledgor and rights of the Administrative
Agent or obligation expressed in this Agreement shall be in addition to and not
in limitation of those provided in applicable law or in any other written
instrument or agreement relating to any of the Secured Obligations.
(1) GOVERNING LAW. THIS AGREEMENT SHALL BE A CONTRACT
MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF ILLINOIS,
WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(m) This Agreement may be executed in any number of counterparts, each
of which shall for all purposes be deemed an original, but all such counterparts
shall constitute but one an the same agreement. The Pledgor hereby acknowledges
receipt of a true, correct and complete counterpart of this Agreement.
(n) The Administrative Agent acts herein as agent for itself, the
Banks, the holders of the Senior Notes and any and all future holders of the
Secured Obligations.
(o) The Administrative Agent hereby acknowledges that its exercise of
any rights or remedies hereunder shall be Administrative shall continue be, as
to such application by holder had not
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subject to any Applicable Insurance Code and agrees to first comply with any
Applicable Insurance Code in exercising its rights hereunder.
(p) WAIVER OF JURY TRIAL. EACH OF THE PLEDGOR AND THE ADMINISTRATIVE
AGENT HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ANY RIGHT TO A
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM CONCERNING ANY RIGHTS
UNDER THIS AGREE AND AGREES THAT ANY SUCH ACTION, PROCEEDING OR COUNTERCLAIM
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY; THIS PROVISION IS A
MATERIAL INDUCEMENT FOR PARTIES ENTERING INTO THIS AGREEMENT.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly
executed as of the date first above written.
CIHC, INCORPORATED
By: /s/ MARK FERRUCCI
Name: Mark Ferrucci
Its: President
BANK OF AMERICA NATIONAL TRUST AND
SAVINGS ASSOCIATION,
as Administrative Agent
By: /s/DAVID M. TERRANCE
Name: David M. Terrance
Its: Vice President
-22 -
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<PAGE>
SCHEDULE 1
WHOLLY-OWNED SUBSIDIARIES
Bankers National Life Insurance Company
National Fidelity Life Insurance Company
Jefferson National Life Insurance Company of Texas
Beneficial Standard Life Insurance Company
Great American Reserve Insurance Company
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 2
LISTING OF STOCK PLEDGED
Pledged
State of Common Ownership
Entity Incorporation Shares Percent
------ ------------- ------ --------
<S> <C> <C> <C>
Bankers National CIHC,
Life Insurance Incorporated/
Company TX 250,000 100%,
CIHC,
Incorporated/
Conseco L.L.C. DE Uncertificated 90%
Bankers Life
Holding Corporation DE 42,346,407 CIHC,
Incorporated/
54%
Conseco, Inc./
27.5%
Jefferson National Life
Insurance Company of
Texas TX 700,000 CIHC,
Incorporated/
100%
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
SCHEDULE 3
LISTING OF STOCK
Authorized Issued and
Common Outstanding
Entity Shares Common Share
<S> <C> <C>
Bankers National
Life Insurance Company 300,000 250,000
Bankers Life
Holding Corporation 500,000,000 51,975,316
</TABLE>
<PAGE>
EXHIBIT 11.1
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------------- ------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Shares outstanding, beginning of period.................. 20,211,249 24,645,708 22,184,850 25,311,773
Weighted average shares issued (acquired) during the period:
Treasury stock acquired................................ - (207,245) (1,842,514) (3,326,224)
Exercise of stock options.............................. 12,830 16,912 41,817 3,516,551
Common equivalent shares related to:
Stock options at average market price .............. 719,906 846,419 698,239 913,076
Employee stock plans ............................... 455,218 437,805 434,932 434,961
---------- ------------ ------------ ------------
Weighted average primary shares outstanding.............. 21,399,203 25,739,599 21,517,324 26,850,137
========== ============ ============ ============
Net income for primary earnings per share:
Net income as reported................................. $43,530,000 $35,757,000 $167,821,000 $150,091,000
Less preferred stock dividends......................... (4,607,000) (4,672,000) (13,820,000) (14,015,000)
------------ ------------ ------------ ------------
Net income for primary earnings per share................ $38,923,000 $31,085,000 $154,001,000 $136,076,000
=========== =========== ============ ============
Net income per primary common share...................... $1.82 $1.21 $7.16 $5.07
===== ===== ===== =====
</TABLE>
<PAGE>
EXHIBIT 11.2
CONSECO, INC. AND SUBSIDIARies
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
(unaudited)
Three months Nine months
ended ended
September 30, September 30,
------------------ --------------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Weighted average primary shares outstanding............. 21,399,203 25,739,599 21,517,324 26,850,137
Incremental common equivalent shares:
Related to options and employee stock plans based
on market price at the end of the period........... 16,900 122 63,772 69
Related to convertible preferred stock................ 4,446,765 4,509,509 4,446,765 4,509,509
----------- ------------- ----------- ------------
Weighted average fully diluted
shares outstanding.................................... 25,862,868 30,249,230 26,027,861 31,359,715
=========== ============ =========== ============
Net income for fully diluted earnings per share:
Net income as reported................................ $43,530,000 $35,757,000 $167,821,000 $150,091,000
Less preferred stock dividends ....................... - - - -
----------- ------------ ------------ ------------
Net income for fully diluted
earnings per share.................................... $43,530,000 $35,757,000 $167,821,000 $150,091,000
=========== =========== ============ ============
Net income per fully diluted
common share.......................................... $1.68 $1.18 $6.45 $4.79
===== ===== ===== =====
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FORM 10-Q FOR CONSECO,
INC. DATED SEPTEMBER 30, 1995 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<DEBT-HELD-FOR-SALE> 12,503,300
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 8,800
<MORTGAGE> 598,000 <F1>
<REAL-ESTATE> 0
<TOTAL-INVEST> 13,949,800
<CASH> 0 <F2>
<RECOVER-REINSURE> 83,800
<DEFERRED-ACQUISITION> 1,566,400 <F3>
<TOTAL-ASSETS> 17,009,100
<POLICY-LOSSES> 12,591,500
<UNEARNED-PREMIUMS> 189,200
<POLICY-OTHER> 273,700
<POLICY-HOLDER-FUNDS> 280,900
<NOTES-PAYABLE> 1,501,900 <F4>
<COMMON> 154,800
0
283,500
<OTHER-SE> 567,400 <F5>
<TOTAL-LIABILITY-AND-EQUITY> 17,009,100
1,103,300
<INVESTMENT-INCOME> 850,500
<INVESTMENT-GAINS> 80,600 <F6>
<OTHER-INCOME> 31,700 <F7>
<BENEFITS> 1,276,000 <F8>
<UNDERWRITING-AMORTIZATION> 186,500 <F9>
<UNDERWRITING-OTHER> 198,200
<INCOME-PRETAX> 285,900
<INCOME-TAX> 34,300
<INCOME-CONTINUING> 251,600
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 167,800
<EPS-PRIMARY> 7.16
<EPS-DILUTED> 6.45
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes $246,100 of credit-tenant loans.
<F2> Cash and cash equivalents are classified as short-term investments,
which are included in total investments.
<F3> Includes $1,198,400 of cost of policies purchased.
<F4> Includes notes payable of Bankers Life Holding Corporation of $272,600
and Partnership II entities of $308,500 which are not direct obligations
of Conseco.
<F5> Includes retained earnings of $510,700, and net unrealized appreciation
of securities of $56,700.
<F6> Includes net realized gains of $77,800 and net trading income of $2,800.
<F7> Includes fee revenue of $23,600, and other income of $8,100.
<PAGE>
<F8> Includes insurance policy benefits of $814,800, change in future policy
benefits of $28,400 and interest expense on annuities and financial
products of $432,800.
<F9> Includes amortization of cost of policies purchased of $87,500 and cost
of policies produced of $54,400 and amortization related to realized
losses of $44,600.
</FN>
</TABLE>
