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 March 31, 1996
[ ] 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 Street
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 May 1, 1996: 41,806,999
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(Dollars in millions)
ASSETS
March 31, December 31,
1996 1995
---- -----
(unaudited) (audited)
<S> <C> <C>
Investments:
Actively managed fixed maturity securities at fair value (amortized cost:
1996 - $12,568.8; 1995 - $12,355.1)........................................................ $12,623.7 $12,963.3
Equity securities at fair value (cost: 1996 - $31.1; 1995 - $34.6)............................ 32.3 36.6
Mortgage loans................................................................................ 325.3 339.9
Credit-tenant loans........................................................................... 284.0 259.1
Policy loans.................................................................................. 306.3 307.6
Other invested assets......................................................................... 97.2 91.2
Trading account securities.................................................................... .6 -
Short-term investments........................................................................ 105.8 189.9
Assets held in separate accounts.............................................................. 242.8 227.0
--------- ---------
Total investments..................................................................... 14,018.0 14,414.6
Accrued investment income......................................................................... 226.6 207.8
Cost of policies purchased........................................................................ 1,174.7 1,030.7
Cost of policies produced......................................................................... 481.6 391.0
Reinsurance receivables........................................................................... 93.0 84.8
Income taxes...................................................................................... 39.3 -
Goodwill (net of accumulated amortization: 1996 - $54.3; 1995 - $48.0)............................ 913.5 894.1
Property and equipment (net of accumulated depreciation: 1996 - $38.3; 1995 - $36.3)............. 86.9 88.7
Securities segregated for the future redemption of redeemable preferred stock of a
Partnership II entity......................................................................... 39.9 39.2
Other assets...................................................................................... 156.5 146.6
--------- ---------
Total assets.......................................................................... $17,230.0 $17,297.5
========= =========
(continued on next page)
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET, continued
(Dollars in millions)
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
1996 1995
---- ----
(unaudited) (audited)
<S> <C> <C>
Liabilities:
Insurance liabilities......................................................................... $13,502.9 $13,378.4
Income tax liabilities........................................................................ - 93.3
Investment borrowings......................................................................... 285.1 298.1
Other liabilities............................................................................. 381.0 329.6
Liabilities related to separate accounts...................................................... 242.8 227.0
Notes payable of Conseco...................................................................... 660.7 871.4
Notes payable of Bankers Life Holding Corporation, not direct obligations of Conseco.......... 299.9 301.5
Notes payable of Partnership II entities, not direct obligations of Conseco................... 283.5 283.2
--------- ---------
Total liabilities..................................................................... 15,655.9 15,782.5
--------- ---------
Minority interest................................................................................. 299.3 403.3
--------- ---------
Shareholders' equity:
Preferred stock............................................................................... 550.6 283.5
Common stock and additional paid-in capital, no par value, 500,000,000 shares
authorized, shares issued and outstanding: 1996 - 41,368,802; 1995 - 40,515,914............. 168.3 157.2
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities (net of applicable deferred income taxes:
1996 - $(9.5); 1995 - $66.8)............................................................. (16.4) 112.6
Equity securities (net of applicable deferred income taxes: 1996 - $(.3); 1995 - $.1)....... (.5) .1
Retained earnings............................................................................. 572.8 558.3
--------- ---------
Total shareholders' equity............................................................ 1,274.8 1,111.7
--------- ---------
Total liabilities and shareholders' equity............................................ $17,230.0 $17,297.5
========= =========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
3
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(Dollars in millions)
(unaudited)
Three months ended
March 31,
-------------------
1996 1995
---- ----
(restated)
<S> <C> <C>
Revenues:
Insurance policy income.................................................................... $369.8 $367.6
Investment activity:
Net investment income................................................................... 273.7 270.8
Net trading income (losses)............................................................. (3.5) 1.8
Net realized gains...................................................................... 9.4 1.5
Fee revenue................................................................................ 10.1 7.9
Restructuring income....................................................................... 30.4 -
Other income............................................................................... 1.9 2.7
------- -------
Total revenues...................................................................... 691.8 652.3
------- -------
Benefits and expenses:
Insurance policy benefits.................................................................. 274.7 275.1
Change in future policy benefits........................................................... 9.2 3.7
Interest expense on annuities and financial products....................................... 139.1 138.2
Interest expense on notes payable.......................................................... 28.4 26.2
Interest expense on investment borrowings.................................................. 3.7 3.4
Amortization related to operations......................................................... 44.6 51.4
Amortization related to realized gains..................................................... 9.1 2.7
Other operating costs and expenses......................................................... 62.8 65.8
------- -------
Total benefits and expenses.......................................................... 571.6 566.5
------- -------
Income before income taxes, minority interest and extraordinary charge............... 120.2 85.8
Income tax expense............................................................................ 44.9 35.0
------- -------
Income before minority interest and extraordinary charge............................. 75.3 50.8
Minority interest............................................................................. 11.6 26.4
------- -------
Income before extraordinary charge................................................... 63.7 24.4
Extraordinary charge on extinguishment of debt, net of taxes and minority interest............ 17.4 -
------- -------
(continued on next page)
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS, continued
(Dollars in millions, except per share data)
(unaudited)
Three months ended
March 31,
--------------------
1996 1995
---- ----
(restated)
<S> <C> <C>
Net income........................................................................ 46.3 24.4
Less preferred stock dividends............................................................. 8.1 4.6
----- -----
Net income applicable to common stock............................................. $38.2 $19.8
===== =====
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding.................................................. 49,684,000 43,660,000
Net income before extraordinary charge............................................... $1.19 $.45
Extraordinary charge................................................................. .35 -
---- ----
Net income........................................................................ $.84 $.45
==== ====
Fully diluted:
Weighted average shares outstanding.................................................. 59,140,000 43,660,000
Net income before extraordinary charge............................................... $1.08 $.45
Extraordinary charge................................................................. .30 -
----- -----
Net income........................................................................ $ .78 $.45
===== ====
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Dollars in millions)
(unaudited)
Three months ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Preferred stock:
Balance, beginning of period........................................................... $ 283.5 $ 283.5
Issuance of convertible preferred stock............................................. 267.1 -
-------- -------
Balance, end of period................................................................. $ 550.6 $ 283.5
======== =======
Common stock and additional paid-in capital:
Balance, beginning of period........................................................... $ 157.2 $ 165.8
Amounts related to stock options and employee benefit plans......................... 7.4 1.1
Tax benefit related to issuance of shares under employee benefit plans.............. 15.3 .1
Cost of issuance of convertible preferred stock..................................... (8.5) -
Cost of shares acquired charged to common stock and additional paid-in capital...... (3.1) (15.0)
-------- -------
Balance, end of period................................................................. $ 168.3 $ 152.0
======== =======
Unrealized appreciation (depreciation) of securities:
Fixed maturity securities:
Balance, beginning of period........................................................ $ 112.6 $(137.7)
Change in unrealized appreciation (depreciation)................................. (129.0) 69.1
-------- -------
Balance, end of period.............................................................. $ (16.4) $ (68.6)
======== =======
Equity securities:
Balance, beginning of period........................................................ $ .1 $ (2.0)
Change in unrealized appreciation (depreciation)................................. (.6) 3.4
-------- -------
Balance, end of period.............................................................. $ (.5) $ 1.4
======== =======
Retained earnings:
Balance, beginning of period........................................................... $ 558.3 $ 437.4
Net income ......................................................................... 46.3 24.4
Cost of shares acquired charged to retained earnings................................ (22.9) (77.4)
Dividends on common stock........................................................... (.8) (2.5)
Dividends on preferred stock........................................................ (8.1) (4.6)
-------- -------
Balance, end of period................................................................. $ 572.8 $ 377.3
======== =======
Total shareholders' equity....................................................... $1,274.8 $ 745.6
======== =======
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
CONSECO, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Dollars in millions)
(unaudited)
Three months ended
March 31,
------------------
1996 1995
---- ----
(restated)
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................................................. $ 46.3 $ 24.4
Adjustments to reconcile net income to net cash provided by operating activities:
Amortization and depreciation ............................................................ 56.0 56.1
Income taxes ............................................................................. 1.0 20.6
Insurance liabilities .................................................................... 21.3 1.1
Interest credited to insurance liabilities ............................................... 139.1 138.2
Fees charged to insurance liabilities .................................................... (25.8) (25.8)
Accrual and amortization of investment income ............................................ (23.8) (76.6)
Deferral of cost of policies produced .................................................... (68.0) (79.3)
Restructuring income ..................................................................... (30.4) -
Minority interest ........................................................................ 8.7 21.0
Extraordinary charge on extinguishment of debt (before income tax) ....................... 26.7 -
Realized (gains) and trading (income) losses ............................................. (5.9) (3.3)
Other .................................................................................... 20.0 14.5
-------- ---------
Net cash provided by operating activities .......................................... 165.2 90.9
-------- ---------
Cash flows from investing activities:
Sales of investments ........................................................................ 1,532.8 701.9
Maturities and redemptions .................................................................. 165.0 79.1
Purchases of investments .................................................................... (1,848.5) (2,011.5)
Purchase of property and casualty insurance brokerage businesses ............................ (12.0) -
Purchase of additional shares of Bankers Life Holding Corporation ........................... - (31.5)
Repurchase of equity securities by CCP Insurance, Inc. ...................................... - (44.5)
Repurchase of equity securities by Bankers Life Holding Corporation ......................... (27.7) -
Cash held by CCP Insurance, Inc. before consolidation ....................................... - 123.0
Other ....................................................................................... (19.1) .2
-------- ---------
Net cash used by investing activities .............................................. (209.5) (1,183.3)
-------- ---------
Cash flows from financing activities:
Issuance of shares related to stock options and employee benefit plans ...................... .9 .3
Issuance of convertible preferred stock ..................................................... 258.6 -
Issuance of notes payable of Conseco, net ................................................... 85.0 59.6
Issuance of debt of subsidiaries, net - not direct obligations of Conseco ................... 306.1 -
Payments on notes payable of Conseco ........................................................ (315.0) (30.0)
Payments on notes payable of subsidiaries - not direct obligations of Conseco ............... (323.2) (15.0)
Payments to repurchase equity securities of Conseco ......................................... (21.5) (92.4)
Investment borrowings ....................................................................... (13.0) 1,002.9
Deposits to insurance liabilities ........................................................... 381.2 523.1
Withdrawals from insurance liabilities ...................................................... (393.0) (402.3)
Dividends paid .............................................................................. (5.9) (7.1)
--------- ---------
Net cash provided (used) by financing activities ................................... (39.8) 1,039.1
--------- ---------
Net decrease in short-term investments ............................................. (84.1) (53.3)
Short-term investments, beginning of period ................................................... 189.9 295.4
--------- ---------
Short-term investments, end of period ......................................................... $ 105.8 $242.1
========= =========
<FN>
The accompanying notes are an integral part of the
consolidated financial statements.
</FN>
</TABLE>
7
<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 1995 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 March 31, 1996 and 1995, 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 1996 presentation. We
have restated all share and per share amounts for the April 1, 1996 two-for-one
stock split.
In preparing financial statements in conformity with generally accepted
accounting principles, we are required to make estimates and assumptions that
significantly affect various reported amounts. For example, we use significant
estimates and assumptions in calculating the cost of policies produced, the cost
of policies purchased, goodwill, insurance liabilities, liabilities related to
litigation, guaranty fund assessment accruals and deferred income taxes. If our
future experience differs materially from these estimates and assumptions, our
financial statements could be affected.
Consolidation issues. We acquired all of the common stock of CCP Insurance,
Inc. ("CCP") that we did not previously own in August 1995 (the "CCP Merger").
As a result, CCP is now a wholly owned subsidiary of Conseco. The Company's
consolidated financial statements reflect the operations of CCP on a
consolidated basis effective January 1, 1995. The consolidated statement of
operations for periods in 1995 prior to the acquisition has 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.
Conseco Capital Partners II, L.P. ("Partnership II") acquired American Life
Holdings, Inc. ("AGP") on September 29, 1994 (the "Acquisition"). In 1996, AGP
changed its name from American Life Group, Inc. (formerly The Statesman Group,
Inc. prior to its name change in 1995). As a result of 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 Western National Corporation ("WNC"), had a 27 percent
ownership interest in AGP. At March 31, 1996, Conseco's ownership interest in
AGP had increased to 36 percent due to: (i) the net result of changes in our
ownership percentage in BLH and CCP (which have ownership interests in
Partnership II and its subsidiaries); and (ii) the sale by AGP in November 1995
of 2,142,857 shares of its common stock for $30.0 million (including $13.2
million paid by Conseco and its subsidiaries) in a private placement
transaction, partially offset by the following transactions which occurred in
December 1994: (i) the sale of Conseco's 40 percent equity interest in WNC; and
(ii) the sale of a portion of CCP's investment in AGP to an unaffiliated
company. We accounted for the Acquisition 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.
In March 1996, Conseco announced that it would be dissolving Partnership
II; changes in the regulatory and rating agency environment have made it
impractical to structure leveraged acquisitions of life insurance companies in a
manner that produces the expected returns to the limited partners. Accordingly,
the partners (including Conseco and its subsidiaries) have no further commitment
to make additional contributions of capital to Partnership II. In accordance
with the partnership agreement, all of Partnership II's assets (primarily its
investment in AGP) will be distributed to its partners subject to the conditions
contained in the partnership agreement. In any event, Partnership II's assets
must be distributed within two years of the effective date of dissolution.
ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITY SECURITIES
We classify fixed maturity securities 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 securities in the
held to maturity category at March 31, 1996.
8
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Adjustments to carry actively managed fixed maturity securities 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
maturity securities at March 31, 1996.
<TABLE>
<CAPTION>
Effect of fair value
adjustment to
Balance actively managed
before fixed maturity Reported
adjustment securities amount
---------- ---------- ------
(Dollars in millions)
<S> <C> <C> <C>
Actively managed fixed maturity securities............................... $12,568.8 $ 54.9 $12,623.7
Cost of policies purchased............................................... 1,189.7 (15.0) 1,174.7
Cost of policies produced................................................ 489.3 (7.7) 481.6
Income tax asset......................................................... 51.6 (12.3) 39.3
Minority interest........................................................ 263.0 36.3 299.3
Unrealized depreciation of fixed maturity securities..................... - (16.4) (16.4)
</TABLE>
BANKERS LIFE HOLDING CORPORATION
During the first three months of 1996, BLH repurchased 1.3 million shares of
its common stock at a cost of $27.7 million. As a result of such repurchases,
our ownership interest in BLH increased to 90.5 percent as of March 31, 1996.
We were required to use step-basis accounting for the acquisition of
additional shares of BLH common stock in 1996 and for previous acquisitions. As
a result, the assets and liabilities of BLH included in our accompanying
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 and 1996 are valued as of the dates of
their purchase; 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 November 1992 acquisition.
9
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The share repurchases by BLH in 1996 had the following effects on Conseco's
consolidated balance sheet accounts (dollars in millions):
<TABLE>
<CAPTION>
<S> <C>
Cost of policies purchased.............................................................. $ 9.0
Cost of policies produced ............................................................. (5.0)
Goodwill................................................................................ 7.2
Insurance liabilities................................................................... (1.4)
Income taxes............................................................................ (1.1)
Other................................................................................... .3
Minority interest ...................................................................... 18.7
-----
Short-term investments used......................................................... $27.7
=====
</TABLE>
CHANGES IN NOTES PAYABLE
Notes payable of Conseco
In January 1996, we repaid $245.0 million principal amount of borrowings
under our $600 million Credit Agreement using the proceeds of the sale of
convertible preferred stock (see "Changes in Preferred Stock"). As a result of
the prepayment and amendments to the Credit Agreement (including substantive
modification of the maturity date and interest rate terms), Conseco recognized
an extraordinary loss of $9.3 million (net of applicable taxes) representing the
unamortized debt issuance costs related to the prior agreement. The amended and
restated Credit Agreement permits borrowings up to $500.0 million on a revolving
basis which are due in April 2001. Borrowings bear interest at the bank's base
rate, an Offshore Rate or a rate determined based on a solicitation of bids from
the lenders. Offshore Rates are equal to the reserve adjusted IBOR rate plus a
margin of .50 percent to 1.125 percent, based on Conseco's debt to total
capitalization ratio and the credit rating of Conseco's senior notes (the
current margin is .75 percent). A fee of .20 percent to .35 percent per annum
(depending on the credit rating of Conseco's senior notes) is payable on the
unused portion of the Credit Agreement commitment (the current fee is .25
percent per annum).
The Credit Agreement provides for mandatory prepayments under certain
conditions including the sale or disposition of significant assets other than in
the ordinary course of business and the issuance of debt or equity of Conseco or
its subsidiaries. The Credit Agreement has as collateral, among other things,
pledges of the capital stock of Conseco's subsidiaries.
In the first quarter of 1996, Conseco completed the acquisition of certain
property and casualty insurance brokerage businesses for approximately $17.0
million. The acquisitions were funded with $12.0 million in cash and promissory
notes due in five annual installments commencing in 1997.
Notes payable of BLH (not direct obligations of Conseco)
In March 1996, BLH completed a tender offer pursuant to which it
repurchased $148.3 million principal balance of its 13 percent senior
subordinated notes for $173.2 million. The repurchased notes had a carrying
value of $157.8 million. In the first quarter of 1996, Conseco reported its
share of the extraordinary charge (net of applicable income tax) of $8.1 million
related to the repurchase. The repurchase was made using the proceeds from a
revolving credit facility entered into in February 1996. In conjunction with the
tender offer, holders of the senior subordinated notes consented to amendments
to the indenture for such notes which eliminated substantially all restrictive
covenants of the notes, including covenants which limited BLH's ability to pay
dividends, incur additional indebtedness, repurchase its common stock and make
certain investments.
Principal amounts which can be borrowed under the new revolving credit
facility total $400 million (including a competitive bid facility in the
aggregate principal amount of up to $100 million) and are due in 2001.
Borrowings accrue interest at a rate of LIBOR plus an applicable margin of 50 or
75 basis points, depending on BLH's ratio of debt to consolidated net worth (the
weighted average rate at March 31, 1996, was 6.1 percent). At March 31, 1996,
the total principal balance borrowed under the revolving credit agreement was
$270 million. In addition to the repurchase of the 13 percent senior
subordinated notes, proceeds were used to repay
10
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
BLH's $110 million principal balance due under the bridge loan facility. The
revolving credit agreement contains a number of covenants, including among other
things, prohibitions or limitations on indebtedness, liens, mergers,
acquisitions, sales of assets outside of the normal course of business and
certain transactions with affiliates.
CHANGES IN PREFERRED STOCK
On January 23, 1996, Conseco completed the offering of 4.37 million shares
of Preferred Redeemable Increased Dividend Equity Securities, 7% Convertible
Preferred Stock ("PRIDES"). Proceeds from the offering of $258.6 million (after
underwriting and other associated costs) were used to repay notes payable of
Conseco (see "Changes in Notes Payable"). Each share of PRIDES will pay
dividends at the annual rate of 7 percent of the $61.125 liquidation preference
per share (equivalent to an annual amount of $4.279 per share), payable
quarterly. On February 1, 2000, unless either previously redeemed by Conseco or
converted at the option of the holder, each share of PRIDES will mandatorily
convert into two shares of Conseco common stock, subject to adjustment in
certain events. Shares of PRIDES are not redeemable prior to February 1, 1999.
During the period February 1, 1999 through February 1, 2000, the Company may
redeem any or all of the outstanding shares of PRIDES. Upon such redemption,
each holder will receive, in exchange for each share of PRIDES, the number of
shares of Conseco common stock equal to (A) the sum of (i) $62.195, declining to
$61.125 after February 1, 1999, and (ii) accrued and unpaid dividends divided by
(B) the market price of Conseco common stock at such date, but in no event less
than 1.71 shares of Conseco common stock.
CHANGES IN COMMON STOCK
In March 1996, Conseco implemented an option exercise program under which
its chief executive officer and four of its executive vice presidents exercised
outstanding options to purchase approximately 1.6 million shares of the
Company's common stock. The options would otherwise have remained exercisable
until the years 2000 through 2002. As a result of the exercise, the Company
realized a tax deduction equal to the aggregate tax gain recognized by the
executives as a result of the exercise. The tax benefit of $15.1 million (net of
payroll taxes incurred of $.7 million) is reflected as an increase to additional
paid-in capital. The Company withheld shares to cover federal and state taxes
owed by the executives as a result of the exercise transaction. Net of withheld
shares, the Company issued approximately .8 million shares of common stock to
the executives. The Company also granted to the executive officers new options
to purchase a total of .8 million shares at $32.44 per share (the market price
of a share on the grant date) to replace the shares surrendered for taxes and
the exercise price.
The $26.0 million cost of the .8 million shares repurchased by Conseco in
the transaction described above was allocated to shareholders' equity accounts
as follows: (i) $3.1 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) $22.9 million to retained earnings.
During the first three months of 1996, 900 shares of Series D Preferred
Stock were converted, at the election of the holders of such shares, into 1,410
shares of common stock.
During the first three months of 1996, we issued 86,344 shares of common
stock upon the exercise of stock options, in addition to the option exercise
program described above. Proceeds from the exercise of options of $.9 million
and the related tax benefit of $.2 million were added to common stock and
additional paid-in capital.
During the first three months of 1996, we issued 11,644 shares of common
stock to employee benefit plans. We also added $1.3 million to common stock and
additional paid-in capital related to employee benefit plans.
CHANGES IN MINORITY INTEREST
Minority interest represents the interests of investors other than Conseco
in BLH and Partnership II and its subsidiaries. Minority interest at March 31,
1996, included: (i) $48.9 million interest in the common stock of BLH; (ii)
$99.0 million interest in the redeemable preferred stock of a subsidiary of AGP;
(iii) $12.0 million interest in preferred stock of AGP; (iv) $139.4 million
interest in Partnership II and the common stock of its subsidiaries.
11
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Changes in minority interest during the first three months of 1996 and 1995
are summarized below:
<TABLE>
<CAPTION>
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Minority interest, beginning of period......................................................... $403.3 $321.7
Consolidation of CCP, effective January 1, 1995............................................ - 191.2
Changes in investments made by minority shareholders:
Purchase of BLH common stock by Conseco................................................. - (31.5)
Repurchase by BLH of its common stock................................................... (18.7) -
Repurchase by CCP of its common stock................................................... - (44.6)
Minority interests' equity in the change in financial position of the
Company's subsidiaries:
Net income ........................................................................... 11.6 26.4
Unrealized appreciation (depreciation) of securities ................................... 94.0) 94.5
Dividends............................................................................... (2.9) (5.5)
Other ................................................................................. - 2.5
------ ------
Minority interest, end of period .............................................................. $299.3 $554.7
====== ======
</TABLE>
PRO FORMA DATA
The pro forma data are presented as if the following transactions had all
occurred on January 1, 1995: (i) the CCP Merger; (ii) the acquisition of
additional shares of BLH common stock in 1995 and 1996; (iii) the issuance of
the PRIDES; (iv) the repurchase by BLH of its subordinated notes and related
financing; and (v) the AGP financing transaction completed in the fourth quarter
of 1995.
<TABLE>
<CAPTION>
Three months ended
March 31,
----------------------
1996 1995
---- ----
(Dollars in millions,
except per share data)
<S> <C> <C>
Revenues.................................................................................. $691.8 $650.5
Income before extraordinary charge........................................................ 65.4 37.6
Income before extraordinary charge per common share:
Primary............................................................................... 1.18 .64
Fully diluted......................................................................... 1.07 .64
</TABLE>
PENDING MERGER
In March 1996, Conseco and Life Partners Group, Inc. ("LPG") signed a
definitive merger agreement, whereby LPG would become a wholly owned subsidiary
of Conseco. In the merger, each of the issued and outstanding shares of LPG
common stock would be converted into the right to receive a fraction of a share
of Conseco common stock determined by dividing $21.00 by the average closing
price of Conseco common stock during the 20 trading days ending two days prior
to the merger (such fraction to be not more than 0.7000 nor less than 0.5833).
The total value of the transaction would be approximately $850 million,
including $600 million of common stock to be issued by Conseco and $250 million
of existing LPG long-term debt to be assumed by Conseco. Consummation of the
merger, which is subject to customary terms and conditions, including approval
by the shareholders of both LPG and Conseco and regulatory approvals, is
expected by mid 1996. A termination fee of $20 million is payable under certain
circumstances by either party if its shareholders do not approve the
transaction.
12
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DIRECTOR, EXECUTIVE AND SENIOR OFFICER STOCK PURCHASE PLAN
In April 1996, Conseco approved a Director, Executive and Senior Officer
Stock Purchase Plan to encourage long-term ownership of Conseco stock by Board
members, executive officers and certain senior officers. Under the program, up
to 2.0 million shares of Conseco common stock may be purchased in open market or
negotiated transactions with independent parties. Participants may elect to
purchase up to 50 percent of their participation in the form of Conseco PRIDES.
Purchases will be financed by personal loans to the participants from a bank.
Such loans will be secured by the Conseco stock purchased. Conseco will
guarantee the loans, but will have recourse to the participants if it incurs a
loss under the guarantee.
13
<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 the results
of operations and the significant changes in the balance sheet items. Changes in
1996 and 1995 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 1995 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 primarily by operating life insurance companies
and providing services to affiliates and non-affiliates for fees. In the past,
Conseco was also active in acquiring and restructuring life insurance companies
in partnership with other investors.
14
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
The following table shows the sources of Conseco's net income (after taxes
and minority interest) for the three months ended March 31, 1996 and 1995:
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Life insurance operations:
Senior market operations:
Operating earnings .................................................................... $25.4 $13.5
Net trading losses..................................................................... (.6) -
Net realized gains (losses)............................................................ .2 (.3)
Extraordinary charge................................................................... (8.1) -
----- -----
Net income.......................................................................... 16.9 13.2
----- -----
Annuity operations:
Operating earnings .................................................................... 10.5 5.9
Net trading losses..................................................................... (.9) -
Net realized gains..................................................................... .3 .1
------ -----
Net income.......................................................................... 9.9 6.0
------ -----
Other life insurance operations:
Operating earnings .................................................................... 2.9 5.0
Net trading losses..................................................................... (.1) -
Net realized losses.................................................................... (.1) (1.4)
------ -----
Net income.......................................................................... 2.7 3.6
------ -----
Partnership II operations:
Operating earnings..................................................................... 3.9 2.3
Net trading income..................................................................... - .1
Net realized gains..................................................................... .1 .1
------ -----
Net income.......................................................................... 4.0 2.5
------ -----
Total from life insurance operations:
Operating earnings ...................................................................... 42.7 26.7
Net trading income (losses).............................................................. (1.6) .1
Net realized gains (losses).............................................................. .5 (1.5)
Extraordinary charge..................................................................... (8.1) -
------ -----
Net income............................................................................. 33.5 25.3
------ -----
Fee-based operations......................................................................... 11.5 6.5
------ -----
Restructuring activities..................................................................... 17.7 -
------ -----
Interest and other:
Interest expense on notes payable........................................................ (10.5) (4.2)
Net operating revenue (expense) ......................................................... 4.7 (3.8)
Net trading income (losses).............................................................. (.6) .6
Net realized losses...................................................................... (.7) -
Extraordinary charge..................................................................... (9.3) -
------ -----
Net loss............................................................................... (16.4) (7.4)
------ -----
Consolidated earnings:
Operating earnings ...................................................................... 48.4 25.2
Net trading income (losses).............................................................. (2.2) .7
Net realized losses...................................................................... (.2) (1.5)
Restructuring income .................................................................... 17.7 -
Extraordinary charge..................................................................... (17.4) -
------ -----
Net income............................................................................. $ 46.3 $24.4
====== =====
</TABLE>
15
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
The following table shows the source of Conseco's fully diluted earnings
per share for the three months ended March 31, 1996 and 1995.
<TABLE>
<CAPTION>
Three months ended
March 31,
------------------
1996 1995
---- ----
<S> <C> <C>
Life insurance operations:
Senior market operations:
Operating earnings .................................................................... $ .44 $ .26
Net trading losses..................................................................... (.01) -
Net realized gains (losses)............................................................ - -
Extraordinary charge................................................................... (.14) -
----- ------
Net income........................................................................... .29 .26
----- ------
Annuity operations:
Operating earnings .................................................................... .18 .12
Net trading losses..................................................................... (.02) -
Net realized gains..................................................................... .01 -
----- ------
Net income........................................................................... .17 .12
----- ------
Other life insurance operations:
Operating earnings .................................................................... .05 .09
Net trading losses..................................................................... - -
Net realized losses.................................................................... - (.03)
----- ------
Net income........................................................................... .05 .06
----- ------
Partnership II operations:
Operating earnings..................................................................... .07 .05
Net trading income..................................................................... - -
Net realized gains..................................................................... - -
----- ------
Net income........................................................................... .07 .05
----- ------
Total from life insurance operations:
Operating earnings ...................................................................... .74 .52
Net trading income (losses).............................................................. (.03) -
Net realized gains (losses).............................................................. .01 (.03)
Extraordinary charge..................................................................... (.14) -
----- ------
Net income............................................................................. .58 .49
----- ------
Fee-based operations......................................................................... .19 .13
----- ------
Restructuring activities..................................................................... .30 -
----- ------
Interest and other:
Interest expense on notes payable........................................................ (.18) (.10)
Net operating revenue (expense) ......................................................... .07 (.08)
Net trading gains (losses)............................................................... (.01) .01
Net realized losses...................................................................... (.01) -
Extraordinary charge..................................................................... (.16) -
----- ------
Net loss .............................................................................. (.29) (.17)
----- ------
Consolidated earnings:
Operating earnings ...................................................................... .82 .47
Net trading income (losses).............................................................. (.04) .01
Net realized losses...................................................................... - (.03)
Restructuring income..................................................................... .30 -
Extraordinary charge..................................................................... (.30) -
----- ------
Net income............................................................................. $ .78 $ .45
===== ======
</TABLE>
16
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Additional Discussion of Consolidated Statement of Operations for the First
Quarter of 1996 Compared to the First Quarter of 1995:
The following tables and narratives summarize amounts reported in the
consolidated statement of operations. Many of the changes from period to period
resulted from changes in Conseco's ownership in BLH and CCP.
<TABLE>
<CAPTION>
Life Insurance Operations:
Senior Market Operations:
Three months
ended
March 31,
------------------
1996 1995
----- ----
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income.................................................................. $319.6 $313.9
Investment activity:
Net investment income ................................................................. 62.0 60.8
Net trading income (losses)............................................................ (1.0) .2
Net realized gains (losses)............................................................ 3.1 (1.7)
Total revenues............................................................................... 384.3 374.1
Benefits and expenses:
Insurance policy benefits and change in future policy benefits .......................... 245.8 240.5
Interest expense on annuities and financial products..................................... 19.9 19.7
Interest expense on notes payable........................................................ 7.1 8.0
Interest expense on investment borrowings ............................................. .8 .7
Amortization related to operations....................................................... 24.0 30.2
Amortization related to realized gains (losses).......................................... 2.9 (1.0)
Other operating costs and expenses ...................................................... 38.6 35.9
Income before taxes, minority interest and extraordinary charge.............................. 45.2 40.1
Income tax expense........................................................................... 17.5 16.2
Income before minority interest and extraordinary charge..................................... 27.7 23.9
Minority interest............................................................................ 2.7 10.7
Income before extraordinary charge........................................................... 25.0 13.2
Extraordinary charge......................................................................... (8.1) -
Net income................................................................................... 16.9 13.2
Summarized by component, all net of applicable expenses, taxes and minority interest:
Operating earnings ...................................................................... 25.4 13.5
Net trading losses....................................................................... (.6) -
Net realized gains (losses).............................................................. .2 (.3)
Extraordinary charge on extinguishment of debt........................................... (8.1) -
Net income............................................................................... 16.9 13.2
</TABLE>
General. Conseco's earnings for the 1995 period reflected a 60 percent
ownership interest in BLH. During the first and second quarters of 1995, Conseco
acquired 12.8 million common shares of BLH at a cost of $262.4 million. During
the last nine months of 1995 and the first quarter of 1996, BLH acquired 3.5
million shares of its common stock at a cost of $69.8 million. These
transactions increased Conseco's average ownership interest in BLH to 90.2
percent for the first quarter of 1996. All activities of BLH are included in
Conseco's financial statements on a consolidated basis. Conseco's minority
interest adjustment, however, removes the portion of BLH's net income applicable
to other owners.
17
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
At March 31 1996, the BLH shares owned by Conseco had a net carrying value
of $926.0 million, a fair value of $999.3 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, which were largely 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 2.0 percent to $62.0 million in 1996 on a
1.3 percent increase in average invested assets (amortized cost basis). 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 from 7.3 percent. Invested assets grew primarily
as a result of operations.
Net realized gains (losses) and net trading income (losses) often fluctuate
from period to period. BLH sold $531.4 million of investments in the first
quarter of 1996 compared to $81.9 million in 1995 which sales resulted in net
realized gains of $3.1 million and trading losses of $1.0 million in 1996,
compared to net realized gains of $.5 million and trading income of $.2 million
in 1995. Net realized gains in 1995 also included a $2.2 million writedown of
certain exchange-rate linked securities as a result of foreign currency
fluctuations.
Selling securities at a gain and reinvesting the proceeds at a lower yield
may, absent other management action, tend to decrease future yields. However,
the following factors would mitigate the adverse effect of such decreases on net
income: (i) BLH recognizes additional amortization of the cost of policies
purchased and the cost of policies produced 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 realized gains (losses) below); (ii)
BLH can reduce interest rates credited to some products 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.
Insurance policy benefits and change in future policy benefits increased
2.2 percent to $245.8 in the first quarter of 1996. Such increase reflects: (i)
the higher incidence of claims in the long-term care and comprehensive health
lines; and (ii) the increased amount of business in force on which benefits are
incurred.
Interest expense on annuities and financial products increased 1.0 percent
to $19.9 million in 1996. Such increase reflects the increase in annuity
liabilities resulting from increased annuity deposits. At March 31, 1996 and
1995, the weighted average crediting rate for BLH's annuity liabilities,
excluding interest bonuses guaranteed for the first year of the annuity
contract, was 5.4 percent.
Interest expense on notes payable decreased 11 percent to $7.1 million in
1996. Such decrease reflects the reduction in interest expense resulting from
the repurchase of $148.3 million principal balance of BLH's 13 percent senior
subordinated notes in March 1996 using the proceeds from BLH's revolving credit
facility. The weighted average interest rate on borrowings under the revolving
credit facility was 6.1 percent at March 31, 1996.
Interest expense on investment borrowings reflects changes in investment
borrowing activities. BLH's average investment borrowings were $61 million and
$48 million during the first quarter of 1996 and 1995, respectively.
Amortization related to operations decreased 21 percent to $24.0 million in
1996. Amortization related to operations in 1996 reflects the use of the
step-basis method of purchase accounting to account for the additional purchases
of BLH common stock. Such method results in different amortization assumptions
and bases for the cost of policies purchased and goodwill acquired in each
acquisition.
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).
18
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
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 totaled
approximately $3.0 million and have been expensed as operating expense. However,
such amounts were considered in determining the cost of policies purchased and
its amortization.
Amortization related to realized gains (losses) fluctuates as a result of
the change in realized gains (losses) discussed above.
Other operating costs and expenses increased 7.5 percent to $38.6 million
in the first quarter of 1996 due to: (i) the expensing of approximately $3.0
million of commissions on policies issued prior to the most recent acquisitions
of Conseco's ownership interests; and (ii) additional expense allocations as a
result of new service agreements with a subsidiary of Conseco (see "Fee-Based
Operations"); partially offset by expense savings realized under the Company's
expense reduction program. Prior to the acquisition of Conseco's most recent
interest, such commissions described in (i) above were capitalized as costs of
policies produced (see amortization related to operations).
Income tax expense increased 8.0 percent to $17.5 million in the 1996
period primarily due to the increase in pretax income. The effective tax rate of
39 percent and 40 percent for the 1996 and 1995 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 decreased primarily due to the increase in Conseco's
ownership interest in BLH.
Extraordinary charge in 1996 represents the loss recognized on the early
extinguishment of $148.3 million principal balance of BLH's 13 percent senior
subordinated notes.
19
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Annuity Operations:
Three months ended
March 31,
---------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income............................................................. $24.5 $26.5
Investment activity:
Net investment income............................................................. 93.1 90.8
Net trading gains (losses)........................................................ (1.4) .2
Net realized gains................................................................ 3.9 .4
Total revenues.......................................................................... 120.1 117.9
Benefits and expenses:
Insurance policy benefits and change in future policy benefits...................... 14.9 16.4
Interest expense on annuities and financial products................................ 53.0 50.8
Interest expense on notes payable................................................... 3.9 5.2
Interest expense on investment borrowings........................................... 1.9 1.2
Amortization related to operations ................................................. 7.9 9.4
Amortization related to realized gains.............................................. 3.4 .1
Other operating costs and expenses.................................................. 19.1 12.9
Income before taxes and minority interest............................................... 16.0 21.9
Income tax expense ..................................................................... 6.1 9.3
Income before minority interest......................................................... 9.9 12.6
Minority interest....................................................................... - 6.6
Net income ........................................................................... 9.9 6.0
Summarized by component, all net of applicable expenses, taxes, and minority
interest:
Operating earnings.................................................................. 10.5 5.9
Net trading losses.................................................................. (.9) -
Net realized gains.................................................................. .3 .1
Net income ......................................................................... 9.9 6.0
</TABLE>
General. The annuity operations include earnings from the former CCP
subsidiaries, Beneficial Standard Life Insurance Company and Great American
Reserve Insurance Company. After the CCP Merger in August 1995, the CCP
subsidiaries became wholly owned subsidiaries of Conseco. Conseco's consolidated
statement of operations reflects a 49 percent ownership interest for the 1995
quarter and 100 percent ownership for the 1996 quarter. The minority interest
adjustment removes from Conseco's net income the portion applicable to other
owners during the first three months of 1995.
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 decreased 7.5 percent to $24.5 million in
the first quarter of 1996 as a result of a reduction in premiums on policies
with mortality or morbidity risks.
Net investment income increased 2.5 percent to $93.1 million in the first
quarter of 1996 on a .8 percent increase in average invested assets (amortized
cost basis). The percentage increase in net investment income was greater than
the percentage increase in average invested assets because: (i) the yield earned
on average invested assets increased to 7.8 percent in 1996 from 7.6 percent in
1995; and (ii) net investment income on separate account assets increased to
$1.6 million in 1996 from $.3 million in 1995. Net investment income from
separate account assets is offset by a corresponding charge to interest expense
on annuities and financial products.
Net realized gains (losses) often fluctuate from period to period. The
annuity operations sold $.6 billion of actively managed fixed maturities in the
first quarter of 1996 compared to $.2 billion in the first quarter of 1995,
which sales resulted in net realized gains of $3.9 million and trading losses of
$1.4 million in 1996 compared to net realized gains of $.8 million and $.2
million of trading income in 1995. Net realized gains in 1995 also included a
$.4 million writedown of an exchange-rate linked security.
20
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
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 (losses) below).
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality or morbidity features. The decrease in 1996
corresponds with the decrease in the in-force block of such policies.
Interest expense on annuities and financial products increased 4.3 percent
to $53.0 million in the first quarter of 1996. Such increase reflects: (i)
increased annuity deposits (1996 insurance liabilities increased $77.8 million
or 1.8 percent since March 31, 1995); and (ii) charges to the account related to
investment income from separate account assets as described above under net
investment income. The weighted average crediting rate for annuity liabilities,
excluding interest bonuses guaranteed for the first year of the annuity
contract, was 5.3 percent and 5.5 percent at March 31, 1996 and 1995,
respectively.
Interest expense on notes payable decreased 25 percent to $3.9 million in
the first quarter of 1996. In the first quarter of 1996, interest expense
represents interest on debt due to another subsidiary of Conseco. Such interest
expense is reflected as investment income in the "Interest and Other" segment
and is eliminated in consolidation. In the first quarter of 1995, interest
expense represents interest on the $200 million 10.5 percent senior notes. After
the CCP Merger, these notes became direct obligations of Conseco. The interest
expense related to the senior notes is recorded in the "Interest and Other"
segment after the CCP Merger date.
Interest expense on investment borrowings increased during the 1996 period
due to greater investment borrowing activities, partially offset by the lower
interest rates paid on such borrowings.
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 realized gains increased in 1996 as a result of the
increase in realized gains and losses discussed above.
Other operating costs and expenses increased in 1996 as a result of
increased expenses allocated under new service agreements with a subsidiary of
Conseco (see "Fee-Based Operations").
Income tax expense decreased in 1996 primarily due to a decrease in income
before income taxes.
Minority interest was eliminated after Conseco acquired 100 percent
ownership of CCP.
21
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Other Life Insurance Operations:
Three months
ended
March 31,
-------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income................................................................... $11.8 $12.6
Investment activity:
Net investment income................................................................... 16.9 17.1
Net trading losses...................................................................... (.1) -
Net realized losses..................................................................... - (1.0)
Total revenues................................................................................ 28.6 28.7
Benefits and expenses:
Insurance policy benefits and change in future policy benefits............................ 14.7 13.8
Interest expense on annuities and financial products...................................... 4.9 3.6
Amortization related to operations ....................................................... 1.2 1.2
Amortization related to realized gains and losses......................................... .3 1.2
Other operating costs and expenses........................................................ 3.3 2.9
Income before taxes .......................................................................... 4.5 6.3
Income tax expense ........................................................................... 1.8 2.7
Net income.................................................................................... 2.7 3.6
Summarized by component, all net of applicable expenses and taxes:
Operating earnings ..................................................................... 2.9 5.0
Net trading losses...................................................................... (.1) -
Net realized losses..................................................................... (.1) (1.4)
Net income ............................................................................. 2.7 3.6
</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 and average invested assets of this segment did not
change materially in 1996. Net investment income in 1996 reflects: (i) an
increase in investment income related to separate account activities (which is
offset by a corresponding charge to interest expense on annuities and financial
products); offset by (ii) a reduction in income from other invested assets.
Net realized losses often fluctuate from period to period. The other life
insurance operations sold $66.7 million and $9.6 million of fixed maturity
investments in the first quarter of 1996 and 1995, respectively.
Insurance policy benefits and change in future policy benefits relate
solely to policies with mortality and morbidity features. These benefits
increased in 1996 as a result of adverse mortality experience.
Interest expense on annuities and financial products increased in 1996
primarily as a result of an increase in charges to the account related to
investment income from separate accounts (see net investment income). 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 for both the 1996 and 1995 quarters.
22
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Partnership II Operations:
Three months ended
March 31,
------------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Revenues:
Insurance policy income............................................................. $13.9 $14.6
Investment activity:
Net investment income ............................................................ 102.0 102.1
Net trading income ............................................................... - .6
Net realized gains................................................................ 3.4 3.8
Total revenues.......................................................................... 120.5 122.8
Benefits and expenses:
Insurance policy benefits and change in future policy benefits...................... 8.5 8.1
Interest expense on annuities and financial products................................ 61.3 64.1
Interest expense on notes payable................................................... 7.1 8.8
Interest expense on investment borrowings........................................... 1.0 1.5
Amortization related to operations.................................................. 11.3 10.5
Amortization related to realized gains and losses................................... 2.5 2.4
Other operating costs and expenses.................................................. 7.3 8.0
Income before taxes and minority interest............................................... 21.5 19.4
Income tax expense...................................................................... 9.1 7.8
Income before minority interest......................................................... 12.4 11.6
Minority interest....................................................................... 8.4 9.1
Net income.............................................................................. 4.0 2.5
Summarized by component, all net of applicable expenses, taxes, and minority
interest:
Operating earnings ............................................................... 3.9 2.3
Net trading income .............................................................. - .1
Net realized gains................................................................ .1 .1
Net income ....................................................................... 4.0 2.5
</TABLE>
General. While all activities of AGP are included in Conseco's financial
statements on a consolidated basis, 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 and 36 percent in the first quarter of
1996.
Insurance policy income, which consists of premiums received on traditional
life insurance products and policy fund and surrender charges assessed against
investment type products, decreased 4.8 percent to $13.9 million in the first
quarter of 1996. A $1.6 million reduction in life insurance premiums, primarily
related to group life insurance business coinsured to an unaffiliated company at
the end of 1995, was partially offset by an increase in surrender charges earned
on annuity policy withdrawals. Surrender charges assessed against annuity
withdrawals were $4.2 million in 1996 compared to $3.5 million in 1995; annuity
policy withdrawals were $182.4 million and $176.8 million for the respective
periods. While AGP experienced increased withdrawals during 1996, the rate of
withdrawals (relative to total annuities in force) has subsided. Total
withdrawals and surrenders by policyholders were 13.7 percent (annualized) and
14.2 percent of the average cash values outstanding during the first quarter of
1996 and the year 1995, respectively.
Net investment income was $102.0 million in 1996, approximately equal to
1995. Average invested assets (amortized cost basis) increased to $4.9 billion
from $4.6 billion while the yield earned on average invested assets declined to
8.3 percent from 8.8 percent. Cash flows received during 1995 and the first
quarter of 1996 (including cash flows from the sales of investments) were
invested in lower-yielding securities due to the general decline in interest
rates.
23
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Net realized gains (losses) often fluctuate from period to period. AGP sold
approximately $.3 billion of investments (principally fixed maturities) in 1996,
compared to $.4 billion in 1995, generating net realized gains of $3.4 million
in 1996, compared to net realized gains of $3.8 million and trading income of
$.6 million in 1995. The declining interest rate environment since the
Acquisition date, which increased the market value of fixed maturity securities,
contributed to AGP's ability to realize gains on investment sales in both
periods.
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 decreased 4.4 percent
to $61.3 million, primarily due to: (i) lower crediting rates; and (ii) the
expensing in 1995 of first-year interest rate bonuses of approximately $3.3
million 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 March 31, 1996, the weighted average crediting rate for AGP's
annuity liabilities, excluding interest rate bonuses guaranteed for the first
year of the annuity contract, was 5.0 percent compared to 5.4 percent at March
31, 1995.
Interest expense on notes payable decreased 19 percent to $7.1 million. AGP
made scheduled and unscheduled reductions in outstanding indebtedness and
benefited from more favorable interest rates on the borrowings.
Interest expense on investment borrowings decreased 33 percent to $1.0
million, due to a lower average balance of funds borrowed.
Amortization related to operations consisting of amortization of goodwill,
the cost of policies purchased for business in force at the Acquisition date and
the cost of policies produced subsequent to the Acquisition date, increased 7.6
percent to $11.3 million. Higher amortization of the cost of policies produced
reflected an increase in the amount of business in force issued since the
Acquisition date.
Amortization related to realized gains increased 4.2 percent to $2.5 million.
Realized gains in 1996 had a larger impact on the expected future gross profits
of policies purchased.
Income tax expense increased 17 percent to $9.1 million, primarily due to
the increase in pretax income. The effective tax rate of 42 percent for 1996 and
40 percent for 1995 exceeded the statutory corporate tax rate (35 percent)
primarily because goodwill amortization cannot be deducted for federal income
tax purposes.
Minority interest in the 1996 and 1995 periods include (i) dividends on
preferred stock of a subsidiary of AGP; (ii) dividends on preferred stock of AGP
issued to finance a portion of the Acquisition; and (iii) the portion of
earnings applicable to minority common shareholders. Minority interest reflects
the changes in Conseco's ownership interests in AGP as discussed above.
24
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Fee-Based Operations:
Three months
ended
March 31,
-------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Revenues:
Investment management.................................................................... $11.2 $11.1
Commissions.............................................................................. 6.3 3.0
Administrative services, net of directly related expenses................................ 10.1 2.3
Total revenues............................................................................... 27.6 16.4
Less intercompany eliminations............................................................... (17.5) (8.5)
Revenues reported............................................................................ 10.1 7.9
Net income attributable to:
Investment management.................................................................... 4.2 5.0
Commissions.............................................................................. .5 -
Administrative services.................................................................. 6.8 1.5
Net income................................................................................... 11.5 6.5
</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.
Effective January 1, 1996, Conseco's subsidiaries entered into new service
agreements with Conseco's service subsidiaries. Such new agreements had the
effect of: (i) increasing the net income of the administrative services
activities shown above by $6.0 million; (ii) decreasing the net loss of the
"Interest and Other" segment by $2.8 million; and (iii) decreasing net income of
the "Senior Market Operations", "Annuity Operations" and "Other Life Insurance
Operations" by $3.7 million, $4.3 million and $.8 million, respectively. Such
new service agreements had no effect on consolidated net income.
Commission revenues increased in 1996 primarily due to the acquisition of
certain property and casualty insurance brokerage businesses. Administrative
service fees increased as a result of the new service agreements with Conseco
subsidiaries.
25
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
Restructuring Activities:
Three months
ended
March 31,
-------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Gain on sale of investment in Noble Broadcast Group, Inc................................. $31.8 $ -
Non-recurring expenses of AGP............................................................ (1.4) -
Total revenues........................................................................... 30.4 -
Income tax expense....................................................................... 12.2 -
Minority interest........................................................................ .5 -
Net income............................................................................... 17.7 -
</TABLE>
Restructuring income in the first quarter of 1996 included a gain as a
result of the sale of Conseco's investment in Noble Broadcast Group, Inc.
("Noble"). Conseco acquired a 75 percent interest in Noble (a private company
which owned and operated radio stations) in 1995 in return for providing Noble
with $37 million of subordinated debt financing. Such gain represents an
annualized pre-tax return of approximately 230 percent.
Non-recurring expenses represent costs associated with the consolidation of
AGP's Alabama operations with its home office operations.
<TABLE>
<CAPTION>
Interest and Other:
Three months
ended
March 31,
-------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Net investment income........................................................................ $ 4.4 $1.4
Total revenues............................................................................... 2.4 2.2
Interest expense on notes payable............................................................ 16.3 6.4
Other operating costs and expenses........................................................... 1.5 7.9
Income tax benefit........................................................................... 8.3 4.7
Loss before extraordinary charge............................................................. 7.1 7.4
Extraordinary charge on extinguishment of debt .............................................. 9.3 -
Net loss..................................................................................... 16.4 7.4
</TABLE>
The "Interest and Other" segment includes financing costs for debt on which
Conseco is directly liable and the costs associated with the holding company
operations.
Net investment income increased in 1996 primarily as a result of increased
average invested assets.
Total revenues in 1996 include realized losses and trading losses of $2.0
million compared to realized gains of $.8 million in 1995.
Interest expense on notes payable increased in 1996 as a result of: (i)
borrowings under the Credit Agreement used to finance the CCP Merger and the
purchase of additional shares of BLH; and (ii) interest expense on the $200
million 10.5 percent senior notes issued by CCP (such senior notes became direct
obligations of Conseco at the CCP Merger date).
Other operating costs and expenses decreased in 1996 as a result of the new
service agreements with Conseco subsidiaries (see "Fee-Based Operations").
26
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
SALES
In accordance with generally accepted accounting principles, the insurance
policy income shown on our consolidated statement of operations consists of
premiums we receive on policies which have life contingencies or morbidity
features. For annuity and universal life contracts without such features,
accounting rules dictate that premiums collected are not reported as revenues,
but rather as deposits to insurance liabilities. We recognize revenues for these
products over time in the form of investment income and surrender or other
charges.
Total premium collections by the companies in which Conseco has ownership
interests were as follows:
<TABLE>
<CAPTION>
Three months ended
March 31,
--------------------
1996 1995
---- ----
<S> <C> <C>
Senior market operations.................................................................. $385.1 $407.3
Annuity operations........................................................................ 169.1 203.8
Other life operations..................................................................... 19.0 21.0
Partnership II operations................................................................. 178.8 249.6
------ ------
Total premium collections............................................................ $752.0 $881.7
====== ======
</TABLE>
Premiums collected by senior market operations for the first quarter of
1996 were $385.1 million, of which $54.0 million were recorded as deposits to
policy liability accounts. This compares to $407.3 million collected and $81.7
million recorded as deposits to policy liability accounts in the first quarter
of 1995. Collected premiums by type are provided in the following table:
<TABLE>
<CAPTION>
Three months
ended
March 31,
-------------------
1996 1995
---- ----
(Dollars in millions)
<S> <C> <C>
Individual health:
Medicare supplement.................................................................... $163.1 $159.9
Long-term care ........................................................................ 45.8 37.6
Other.................................................................................. 20.9 25.9
------ ------
Total individual health............................................................. 229.8 223.4
Annuities................................................................................ 53.8 80.0
Individual life.......................................................................... 24.4 24.0
Group and other.......................................................................... 77.1 79.9
------ ------
Total............................................................................... $385.1 $407.3
====== ======
</TABLE>
Medicare supplement premiums increased 2.0 percent in the first quarter of
1996 compared to the same period in 1995. Such premiums accounted for 42 percent
of total collected premiums in 1996 compared to 39 percent in 1995. The number
of new Medicare supplement policies sold in the first quarter of 1996 decreased
to 13,421, down 23 percent compared to the number of policies sold in the first
quarter of 1995. Annualized new business premiums from such new sales totaled
$12.9 million in the first quarter of 1996 compared to $15.7 million in 1995.
Long-term care premiums increased 22 percent in the first quarter of 1996
compared to the same period in 1995. Long-term care premiums accounted for 12
percent of total collected premiums in 1996 compared to 9.2 percent in 1995. 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 from new
sales were $9.9 million in the first quarter of 1996, up 19 percent.
27
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
Annuity premiums decreased 33 percent in the first quarter of 1996 compared
to the same period in 1995. The decrease in annuity premium collections reflects
increased competition from alternative investment products.
Collected premiums for other individual health policies decreased 19
percent for the first quarter of 1996 compared to the same period in 1995. The
decrease, which was anticipated, follows steps taken previously to improve the
profitability of the comprehensive major medical product included in this
category.
Premiums collected by the annuity operations in the first quarter of 1996
were $169.1 million of which $143.2 million were recorded as deposits to
insurance liability accounts. This compares to $203.8 million collected and
$187.0 million recorded as deposits to insurance liability accounts in the first
quarter of 1995. The decrease in total premiums collected was the result of
decreased sales of single premium deferred annuities by: (i) professional
independent producers ($89.7 million in 1996 versus $110.9 million in 1995), and
(ii) educator market specialists ($9.9 million in 1996 versus $15.6 million in
1995). Total premiums collected through professional independent producers were
$103.1 million in the first three months of 1996, a 19 percent decrease, and
comprised 61 percent of collected premiums. Total premiums collected through
educator market specialists were $65.4 million in the first three months of
1996, a 13 percent decrease, and comprised 39 percent of collected premiums.
Premiums collected by other life insurance operations decreased 9.5 percent
to $19.0 million in the first quarter of 1996 from $21.0 million in the first
quarter of 1995. Conseco's wholly owned subsidiaries are not actively marketing
new products.
Premiums collected by Partnership II operations in the first quarter of
1996, were $178.8 million, of which $172.7 million were recorded as deposits to
policy liability accounts. This compares to $249.6 million collected and $241.9
million recorded as deposits to policy liability accounts in the first quarter
of 1995. Net premiums collected declined in the first quarter of 1996 primarily
as a result of the decreased interest rate environment which resulted in
increased competition from alternative investments such as certificates of
deposit, mutual funds and variable annuity products.
LIQUIDITY AND CAPITAL RESOURCES
Changes in the consolidated balance sheet between December 31, 1995, and
March 31, 1996, reflect growth through operations, changes in the fair value of
actively managed fixed maturity securities and the capital and financing
transactions described in the notes to the consolidated financial statements.
In accordance with Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities ("SFAS 115"),
Conseco records its actively managed fixed maturity investments at estimated
fair value. At March 31, 1996, the amortized cost of such investments were
increased by $54.9 million as a result of the SFAS 115 adjustment, compared to
$608.2 million at December 31, 1995. The change in unrealized appreciation
(depreciation) resulted from an increasing interest rate environment which
generally caused the fair value of fixed maturities to decrease.
Minority interest decreased as a result of: (i) adjustments as a result of
SFAS 115; (ii) BLH's purchases of its outstanding common stock; and (iii)
dividends paid to the minority interest offset by (iv) the income attributable
to minority interest. Changes to minority interest are further described in the
notes to the consolidated financial statements.
The increase in shareholders' equity in the first three months of 1996
resulted from the issuance of the PRIDES, an increase in retained earnings
attributable to the Company's operations, partially offset by the change in
unrealized appreciation (depreciation) to reflect the decrease in the estimated
fair value of Conseco's investments and the cost of shares repurchased.
Dividends declared on common stock for the three months ended March 31,
1996, were $.02 per share.
28
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
The following table summarizes certain financial ratios as of and for the
three months ended March 31, 1996, and the year ended December 31, 1995:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---- ----
<S> <C> <C>
Book value per common share:
As reported........................................................................ $17.51 $20.44
Excluding unrealized appreciation (depreciation) (a)............................... 17.90 17.66
Ratio of earnings to fixed charges:
As reported........................................................................ 1.69X 1.57X
Excluding interest on annuities and financial products............................. 4.51X 3.80X
Ratio of earnings to fixed charges and preferred dividends:
As reported........................................................................ 1.54X 1.50X
Excluding interest on annuities and financial products............................. 3.01X 3.06X
Ratio of statutory earnings to cash interest (b)...................................... 3.72X 3.79X
Ratio of debt for which Conseco is directly liable to total capital of Conseco
only:
As reported...................................................................... .34X .44X
Excluding unrealized appreciation (depreciation) (a)............................. .34X .47X
Ratio of debt for which Conseco is directly liable and debt of BLH to total
capital of Conseco and BLH:
As reported...................................................................... .42X .50X
Excluding unrealized appreciation (depreciation) (a)............................. .42X .52X
Ratio of total debt to total capital:
As reported........................................................................ .44X .49X
Excluding unrealized appreciation (depreciation) (a)............................... .44X .53X
<FN>
(a) Excludes the effect of reporting fixed maturity securities at fair value.
(b) Statutory earnings represent gain from operations before interest (except
interest on annuities and financial products) and income tax of Conseco's
wholly owned life insurance companies and BLH's life insurance subsidiaries
as reported for statutory accounting purposes plus income before interest
and income tax of all non-life companies. Cash interest includes interest,
except interest on annuities and financial products, of Conseco's wholly
owned subsidiaries and BLH that is required to be paid in cash.
</FN>
</TABLE>
29
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
INVESTMENTS
At March 31, 1996, the amortized cost and estimated fair value of fixed
maturity securities (all of which were actively managed) were as follows:
<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..................................... $ 201.5 $ 6.7 $ 2.5 $ 205.7
Obligations of states and political subdivisions
and foreign government obligations............................ 160.2 3.9 4.3 159.8
Public utility securities......................................... 2,054.0 62.4 51.3 2,065.1
Other corporate securities........................................ 6,261.4 144.1 113.3 6,292.2
Mortgage-backed securities........................................ 3,891.7 73.9 64.7 3,900.9
--------- ------ ------ ---------
Total fixed maturity securities ............................ $12,568.8 $291.0 $236.1 $12,623.7
========= ====== ====== =========
</TABLE>
The following table sets forth the investment ratings of fixed maturity
securities at March 31, 1996 (designated categories include securities with "+"
or "-" rating modifiers). The category assigned is the highest rating by a
nationally recognized statistical rating organization, or as to $177.4 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 securities are 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................................... 35% 32%
AA.................................... 11 9
A..................................... 23 21
BBB................................... 26 23
--- ---
Investment grade............... 95 85
--- ---
BB.................................... 4 4
B and below........................... 1 1
---- ---
Below investment grade......... 5 5
---- ---
Total fixed maturities......... 100% 90%
=== ==
</TABLE>
At March 31, 1996, our below investment grade fixed maturity securities
had an amortized cost of $647.6 million and an estimated fair value of $642.9
million.
During the first quarter of 1996, the Company recorded no realized losses
for writedowns of fixed maturity securities. During the first quarter of 1995,
the Company recorded writedowns of fixed maturity securities of $2.6 million as
a result of changes in conditions which caused us to conclude that a decline in
fair value of the investments was other than temporary. At March 31, 1996, fixed
maturity securities in default as to the payment of principal or interest had an
aggregate amortized cost of $3.1 million and a fair value of $3.0 million.
Sales of invested assets (primarily fixed maturity securities) during the
first quarter of 1996 generated proceeds of $1.5 billion, net realized gains of
$10.5 million and net trading losses of $3.5 million. Sales of invested assets
during the first quarter of 1995 generated proceeds of $.7 billion, net realized
gains of $4.1 million and net trading income of $1.8 million. Net realized gains
in 1996 also included $1.1 million of writedowns related to mortgage loans. Net
realized gains in 1995 also included $2.6 million of writedowns of certain
exchange-rate linked securities as a result of foreign currency fluctuations.
30
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
At March 31, 1996, fixed maturity investments included $3.9 billion (or 31
percent of all fixed maturity securities) of mortgage-backed securities, of
which $2.0 billion were collateralized mortgage obligations ("CMOs") and $1.9
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 retirement of principal on a pro rata basis, such as 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 on 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.
Mortgage-backed securities purchased at a premium to par that prepay faster than
expected will incur a reduction in yield. When interest rates decline, 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 interest rates rise, prepayments on mortgage-backed securities
decrease, (because fewer underlying mortgages are refinanced). When this occurs,
the average maturity and duration of the mortgage-backed securities increase.
This lowers the yield on mortgage-backed securities purchased at a discount,
since 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 the 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 March 31, 1996,
summarized by interest rates on the underlying collateral at March 31, 1996:
<TABLE>
<CAPTION>
Par Amortized Estimated
value cost fair value
----- ---- ----------
(Dollars in millions)
<S> <C> <C> <C>
Below 7 percent..................................................................... $1,432.8 $1,368.0 $1,351.9
7 percent - 8 percent............................................................... 1,953.8 1,876.7 1,888.0
8 percent - 9 percent............................................................... 434.7 416.2 427.3
9 percent and above................................................................. 234.0 230.8 233.7
-------- -------- --------
Total mortgage-backed securities......................................... $4,055.3 $3,891.7 $3,900.9
======== ======== ========
</TABLE>
The amortized cost and estimated fair value of mortgage-backed securities
including CMOs at March 31, 1996, 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............ $2,812.6 $2,806.0 22%
Support classes........................................................... 65.9 71.5 1
Accrual (Z tranche) bonds................................................. 40.5 43.0 -
Planned amortization classes and accretion directed bonds................. 707.6 706.7 6
Subordinated classes ..................................................... 265.1 273.7 2
-------- -------- ---
$3,891.7 $3,900.9 31%
======== ======== ===
</TABLE>
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 when interest rates are volatile. 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
31
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
classes provide a modest amount of prepayment protection when prepayments on the
underlying collateral increase from the levels assumed at pricing; they thus
offer slightly better call protection than sequential classes or pass-throughs.
Planned amortization and targeted amortization classes are protected from
prepayment risk; this risk is absorbed by support classes. As such, support
classes are usually extremely sensitive to prepayments. Most of the support
classes we own are higher average life instruments whose duration generally will
not lengthen if interest rates rise further and will tend to shorten if interest
rates decline. Since these bonds have current values in excess of amortized
cost, higher prepayments will have the effect of increasing income.
Accrual bonds are CMOs structured such that the payment of coupon interest
is deferred until principal payments begin. 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 like
zero coupon bonds until cash payments begin. Cash payments typically do not
commence until earlier classes in the CMO structure have been retired, the
timing of which can be significantly influenced by the prepayment experience of
the underlying mortgage loan collateral. 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 are other CMOs, pass-through securities or 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 prepays within an
expected 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 March 31, 1996, 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 (loans which are two or more scheduled payments
past due) at March 31, 1996. During the three months ended March 31, 1996, the
Company wrote down $1.1 million of mortgage loans. There were no realized losses
on mortgage loans in the first quarter of 1995. At March 31, 1996, our loan loss
reserve was $5.3 million.
Investment borrowings averaged approximately $282.8 million during the
first quarter of 1996, compared to approximately $235.4 million during the same
period of 1995 and were collateralized by investment securities with fair values
approximately equal to the loan value. The weighted average interest rate on
such borrowings was 5.3 percent and 5.8 percent during the first quarters of
1996 and 1995, 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 March 31, 1996, after appropriate
eliminations of intercompany accounts among such subsidiaries (dollars in
millions):
<TABLE>
<S> <C>
Statutory capital and surplus ............................. $ 790.6
Asset valuation reserve ("AVR")............................ 136.9
Interest maintenance reserve ("IMR")....................... 244.9
Portion of surplus debenture carried as a liability ....... 65.5
--------
Total................................................... $1,237.9
========
</TABLE>
32
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
At March 31, 1996, the ratio of such consolidated statutory account
balances to consolidated statutory liabilities (excluding AVR, IMR, the portion
of surplus debentures carried as a liability, liabilities from separate account
business and short-term collateralized borrowings) was 9.6 percent, compared to
a ratio of 10.2 percent at December 31, 1995. The decline in the ratio is
primarily due to $47.4 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 $400.0 million at March 31, 1996, 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 March 31, 1996, was
$329.9 million. During March 1996, BLI made a scheduled principal payment on the
surplus debenture of $30.0 million plus accrued interest. In March 1996, BLI
declared an extraordinary dividend of $10.0 million to BLH, which was paid on
April 1, 1996.
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 greater than twice its total RBC
at March 31, 1996. Dividends in excess of maximum amounts prescribed by the
state statutes may not be paid without DOI approval. On April 1, 1996, BLC paid
regular dividends of $16.0 million. During the remainder of 1996, BLC may pay
additional dividends up to $70.0 million without regulatory approval.
During the first three months of 1996, the wholly owned life insurance
subsidiaries paid $37.4 million of ordinary dividends to Conseco. During the
remainder of 1996, the wholly owned insurance subsidiaries may pay additional
dividends up to $60.6 million without the permission of state regulatory
authorities.
The surplus of AGP's primary life insurance subsidiary, American Life and
Casualty Insurance Company ("American Life and Casualty"), includes a surplus
note with a balance of $50.0 million at March 31, 1996. The payment of dividends
and other distributions, including surplus note payments, by American Life and
Casualty to AGP is subject to regulation by the Iowa Insurance Division.
Currently, American Life and Casualty may pay dividends or make other
distributions without the prior approval of the Iowa Insurance Division, unless
such payments, together with all other such payments within the preceding 12
months, exceed the greater of (i) American Life and Casualty's net gain from
operations (excluding net realized capital gains or losses) for the preceding
calendar year or (ii) 10 percent of its statutory surplus at the preceding
December 31. For 1996, up to $31.0 million can be distributed as dividends and
surplus note payments by American Life and Casualty (of which $1.5 million had
been distributed through March 31, 1996). Dividends and surplus note payments
may be made only out of earned surplus, and all surplus note payments are
subject to prior approval by the Iowa Insurance Division. At March 31, 1996,
American Life and Casualty had earned surplus of $113.3 million.
33
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits.
4.14 Amended and Restated Credit Agreement dated April 12,
1996, 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.
11.1 Computation of Earnings Per Share - Primary.
11.2 Computation of Earnings Per Share - Fully Diluted.
27.0 Financial Data Schedule.
99.1 Pro Forma Consolidated Financial Statements of Conseco,
Inc. and Subsidiaries.
b) Reports on Form 8-K.
A report on Form 8-K dated January 17, 1996, was filed with the
Commission to report under Item 5, the offering of Preferred
Redeemable Increased Dividend Equity Securities, Convertible
Preferred Stock.
A report on Form 8-K dated March 11, 1996, was filed with the
Commission to report under Item 5, a definitive merger agreement with
Life Partners Group, Inc.
A report on Form 8-K dated March 14, 1996, was filed with the
Commission to report under Item 5, the restated consolidated
financial statements of Conseco, Inc. for each of the quarterly
periods ended March 31, 1995 and June 30, 1995, reflecting the
accounts of CCP Insurance, Inc. on the consolidated basis.
34
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CONSECO, INC.
Dated: May 15, 1996 By: /s/ ROLLIN M. DICK
------------------
Rollin M. Dick,
Executive Vice President and
Chief Financial Officer
(authorized officer and principal
financial officer)
35
<PAGE>
CREDIT AGREEMENT
Dated as of August 31, 1995,
As Amended and Restated as of April 12, 1996
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 COMPANY,
CREDIT LYONNAIS CAYMAN ISLAND BRANCH,
DEUTSCHE BANK AG, NEW YORK BRANCH,
DRESDNER BANK AG, NEW YORK BRANCH AND/OR CAYMAN ISLAND BRANCH,
ING CAPITAL CORPORATION, THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH, NATIONSBANK, N.A. (SOUTH),
FLEET NATIONAL BANK, and SOCIETE GENERALE,
as Managing Agents
and
BANK OF AMERICA NATIONAL TRUST
AND SAVINGS ASSOCIATION,
as Administrative Agent
Arranged By
BA SECURITIES, INC.
-1-
<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..................................................................... 4
1.1 Certain Defined Terms............................................................................. 4
1.2 Other Definitional Provisions..................................................................... 33
1.3 Accounting and Financial Determinations........................................................... 34
SECTION 2. THE COMMITMENTS AND THE LOANS..................................................................... 34
2.1 Commitment........................................................................................ 34
2.2 Procedure for Committed Borrowings................................................................ 35
2.3 Bid Borrowings.................................................................................... 36
2.4 Procedure for Bid Borrowings...................................................................... 36
2.5 Types of Loans.................................................................................... 41
2.6 Funding Reliance for Committed Borrowings......................................................... 41
2.7 Conversion and Continuation Elections for Committed Borrowings.................................... 42
2.8 Repayment of Loans................................................................................ 44
2.9 Loan Accounts; Record Keeping..................................................................... 44
SECTION 3. INTEREST AND FEES, ETC............................................................................ 44
3.1 Interest Rates.................................................................................... 44
3.2 Default Interest Rate............................................................................. 46
3.3 Interest Payment Dates............................................................................ 46
3.4 Setting and Notice of Rates....................................................................... 46
3.5 Computation of Fees and Interest.................................................................. 46
3.6 Fees.............................................................................................. 47
SECTION 4. PAYMENTS AND PREPAYMENTS.......................................................................... 48
4.1 Voluntary Termination or Reduction of Commitments................................................. 48
4.2 Optional Prepayments.............................................................................. 48
4.3 Mandatory Prepayments............................................................................. 48
4.4 Payments by the Borrower.......................................................................... 50
4.5 Application of Prepayments........................................................................ 51
4.6 Sharing of Payments............................................................................... 51
4.7 Setoff............................................................................................ 52
4.8 Net Payments...................................................................................... 53
4.9 Mandatory Reduction in the Commitments............................................................ 54
SECTION 5. CHANGES IN CIRCUMSTANCES.......................................................................... 54
5.1 Increased Costs................................................................................... 54
5.2 Change in Rate of Return.......................................................................... 55
5.3 Basis for Determining Interest Rate Inadequate or Unfair.......................................... 56
-i-
<PAGE>
5.4 Changes in Law Rendering Certain Loans Unlawful................................................... 57
5.5 Funding Losses.................................................................................... 57
5.6 Right of Banks to Fund Through Other Offices...................................................... 58
5.7 Discretion of Banks as to Manner of Funding....................................................... 58
5.8 Replacement of Banks.............................................................................. 58
5.9 Conclusiveness of Statements; Survival of Provisions.............................................. 59
SECTION 6. COLLATERAL AND OTHER SECURITY..................................................................... 59
6.1 Collateral Documents.............................................................................. 59
6.2 Application of Proceeds from Collateral........................................................... 61
6.3 Further Assurances................................................................................ 64
6.4 Release of Shared Collateral...................................................................... 64
SECTION 7. REPRESENTATIONS AND WARRANTIES.................................................................... 65
7.1 Organization, etc................................................................................. 65
7.2 Authorization..................................................................................... 65
7.3 No Conflict....................................................................................... 65
7.4 Governmental Consents............................................................................. 66
7.5 Validity.......................................................................................... 66
7.6 Financial Statements.............................................................................. 66
7.7 Material Adverse Change........................................................................... 66
7.8 Litigation and Contingent Obligations............................................................. 66
7.9 Liens............................................................................................. 66
7.10 Pension and Welfare Plans........................................................................ 67
7.11 Investment Company Act........................................................................... 68
7.12 Public Utility Holding Company Act............................................................... 68
7.13 Taxes............................................................................................ 68
7.14 Accuracy of Information.......................................................................... 69
7.15 Environmental Warranties......................................................................... 69
7.16 Proceeds......................................................................................... 71
7.17 Insurance........................................................................................ 71
7.18 Securities Laws.................................................................................. 71
7.19 Governmental Authorizations...................................................................... 71
7.20 Business Locations; Trade Names.................................................................. 72
7.21 Solvency......................................................................................... 72
7.22 Insurance Licenses............................................................................... 72
7.23 Compliance with Laws............................................................................. 72
7.24 No Default....................................................................................... 73
7.25 Pledged Shares................................................................................... 73
7.26 [Intentionally Omitted.]......................................................................... 73
7.27 Margin Regulations............................................................................... 73
7.28 Tranche B Indebtedness........................................................................... 73
7.29 Conseco Corporate Structure...................................................................... 73
7.30 Significant Subsidiaries......................................................................... 74
7.31 BLHC a Subsidiary................................................................................ 74
SECTION 8. AFFIRMATIVE COVENANTS............................................................................. 74
8.1 Reports, Certificates and Other Information....................................................... 74
8.2 Corporate Existence; Foreign Qualification........................................................ 82
-ii-
<PAGE>
8.3 Books, Records and Inspections.................................................................... 82
8.4 Insurance......................................................................................... 82
8.5 Taxes and Liabilities............................................................................. 83
8.6 Pension Plans and Welfare Plans................................................................... 83
8.7 Compliance with Laws.............................................................................. 83
8.8 Maintenance of Permits............................................................................ 83
8.9 Environmental Compliance.......................................................................... 83
8.10 BLHC a Subsidiary................................................................................ 83
SECTION 9. NEGATIVE COVENANTS................................................................................ 84
9.1 Limitation on Indebtedness........................................................................ 84
9.2 Liens............................................................................................. 86
9.3 Consolidation, Merger, etc........................................................................ 87
9.4 Asset Disposition, etc............................................................................ 88
9.5 Other Agreements.................................................................................. 89
9.6 Business Activities............................................................................... 89
9.7 Change of Location or Name........................................................................ 89
9.8 Transactions with Affiliates...................................................................... 90
9.9 Dividends, etc.................................................................................... 90
9.10 Investments....................................................................................... 91
9.11 Certain Indebtedness.............................................................................. 93
9.12 BLHC a Subsidiary................................................................................. 93
SECTION 10. FINANCIAL COVENANTS.............................................................................. 93
10.1 Minimum Surplus.................................................................................. 94
10.2 Shareholders' Equity............................................................................. 94
10.3 Debt to Total Capitalization..................................................................... 94
10.4 Risk-Based Capital............................................................................... 94
10.5 Interest Coverage Ratio.......................................................................... 94
10.6 Best Rating...................................................................................... 94
SECTION 11. CONDITIONS AND EFFECTIVENESS OF THE EXISTING CREDIT AGREEMENT AND THIS AGREEMENT................. 94
11.1 Initial Loans under the Existing Credit Agreement................................................ 94
11.2 Effectiveness of this Agreement.................................................................. 97
11.3 All Loans........................................................................................100
11.4 Tranche B Loans..................................................................................100
SECTION 12. EVENTS OF DEFAULT AND THEIR EFFECT...............................................................101
12.1 Events of Default................................................................................101
12.2 Effect of Event of Default.......................................................................104
SECTION 13. THE AGENT........................................................................................105
13.1 Authorization and Action.........................................................................105
13.2 Liability of the Administrative Agent............................................................105
13.3 Administrative Agent and Affiliates..............................................................106
13.4 Bank Credit Decision.............................................................................106
13.5 Indemnification..................................................................................106
13.6 Successor Agent..................................................................................107
-iii-
<PAGE>
13.7 Duties of Documentation Agents and Managing Agents...............................................108
SECTION 14. ASSIGNMENTS AND PARTICIPATIONS...................................................................108
14.1 Assignments......................................................................................108
14.2 Participations...................................................................................109
14.3 Disclosure of Information........................................................................110
14.4 Foreign Transferees..............................................................................111
SECTION 15. MISCELLANEOUS....................................................................................112
15.1 Waivers and Amendments...........................................................................112
15.2 Failure to Consent...............................................................................113
15.3 Notices..........................................................................................113
15.4 Payment of Costs and Expenses....................................................................114
15.5 Indemnity........................................................................................115
15.6 Subsidiary References............................................................................115
15.7 Captions.........................................................................................115
15.8 GOVERNING LAW....................................................................................115
15.9 Counterparts.....................................................................................115
15.10 SUBMISSION TO JURISDICTION; WAIVER OF VENUE.....................................................116
15.11 Service of Process..............................................................................116
15.12 Successors and Assigns..........................................................................117
15.13 WAIVER OF JURY TRIAL............................................................................117
15.14 Replacement of Existing Credit Agreement........................................................117
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
SCHEDULES AND EXHIBITS
SCHEDULES
- ---------
<S> <C>
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 [Intentionally Omitted]
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
</TABLE>
<TABLE>
<CAPTION>
EXHIBITS
- --------
<S> <C>
EXHIBIT A-1 Form of Tranche A Committed Note
EXHIBIT A-2 Form of Tranche A Bid Note
EXHIBIT B-1 Form of Tranche B Committed Note
EXHIBIT B-2 Form of Tranche B Bid Note
EXHIBIT C Form of Notice of Borrowing
EXHIBIT D Form of Continuation/Conversion Notice
EXHIBIT E-1 Form of Restated New CIHC Non-Shared Pledge Agreement
EXHIBIT E-2 Form of Restated New CIHC Shared Pledge Agreement
EXHIBIT E-3 Form of MDSCG Pledge Agreement
EXHIBIT E-4 Form of Restated Borrower Shared Pledge Agreement
EXHIBIT F Form of Service Assignment
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 [Intentionally Omitted]
EXHIBIT N Form of Excess Cash Flow Certificate
EXHIBIT O Form of Funding Loss Formula
-v-
<PAGE>
EXHIBIT P [Intentionally Omitted]
EXHIBIT Q Conseco Corporate Structure
EXHIBIT R Form of Invitation for Competitive Bids
EXHIBIT S Form of Competitive Bid Request
EXHIBIT T Form of Competitive Bid
EXHIBIT U Form of Affirmation Agreement
</TABLE>
-vi-
<PAGE>
AMENDED AND RESTATED CREDIT AGREEMENT
THIS AMENDED AND RESTATED CREDIT AGREEMENT is entered into as of April
12, 1996 (the "Restatement 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 AG, NEW YORK BRANCH AND/OR
CAYMAN ISLAND BRANCH, ING CAPITAL CORPORATION, THE LONG-TERM CREDIT BANK OF
JAPAN, LTD., CHICAGO BRANCH, NATIONSBANK, N.A. (SOUTH), FLEET NATIONAL BANK 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 Borrower, the Banks, the Documentation Agents, the
Managing Agents and the Administrative Agent are parties to a Credit Agreement,
dated as of August 31, 1995 (as amended or modified through the date hereof, the
"Existing Credit Agreement"), whereby the Banks agreed to make loans on a
revolving basis to the Borrower, on the terms and subject to the conditions set
forth in the Existing Credit Agreement, in an aggregate principal amount not to
exceed $600,000,000 at any one time for all such loans;
WHEREAS, the Borrower represents that the proceeds of the loans under
the Existing Credit Agreement were used (a) to purchase all of the outstanding
common stock of CCP Insurance, Inc., an Indiana corporation ("CCPI"), not owned
by the Borrower or its Subsidiaries on the Closing Date (as hereinafter
defined), (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;
-1-
<PAGE>
WHEREAS, the Borrower and CCPI entered into that certain Agreement and
Plan of Merger, dated as of May 19, 1995, in the form of Exhibit M to the
Existing Credit Agreement (as the same may have been amended or modified on or
before the Closing Date (the "CCPI Merger Agreement"), whereby CCPI merged with
and into the Borrower concurrently with the initial borrowing under the Existing
Credit Agreement and the separate corporate existence of CCPI ceased and the
Borrower continued as the surviving corporation under the laws of the State of
Indiana (the "CCPI Merger");
WHEREAS, prior to the initial borrowing under the Existing Credit
Agreement, (a) GARCO Holding Corporation, a Delaware corporation and a
Wholly-Owned Subsidiary of CCPI ("GARCO Holding"), merged with and into CCPI and
the separate corporate existence of GARCO Holding ceased and CCPI continued as
the surviving corporation under the laws of the State of Indiana (the "GARCO
Merger"), (b) the Borrower contributed 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 ("New CIHC"), to Old CIHC (as
hereinafter defined), (c) Old CIHC contributed all of its assets and liabilities
(other than the capital stock of CCPI owned by Old CIHC and its $900,000,000
stated value preferred stock, par value $.001 per share) to New CIHC (the "CIHC
Contribution"), and (d) Old CIHC merged with and into the Borrower and the
separate corporate existence of Old CIHC ceased and the Borrower continued as
the surviving corporation under the laws of the State of Indiana (the "CIHC
Merger");
WHEREAS, concurrently with the initial borrowing under the Existing
Credit Agreement, the Borrower contributed to New CIHC (a) all of the capital
stock of Jefferson National Life Insurance Company of Texas, a Texas corporation
("JNL-TX"), (b) all of the capital stock of Bankers Life Holding Corporation, a
Delaware corporation ("BLHC"), owned by the Borrower on the Closing Date and (c)
the Surplus Debenture (as hereinafter defined) (collectively, the "Conseco
Contribution"), in each case subject to the Lien of the Banks granted pursuant
to the Existing Borrower Non-Shared Pledge Agreement and the Existing Borrower
Shared Pledge Agreement (each as hereinafter defined) under the Existing Credit
Agreement, and the holders of the Senior Notes (as hereinafter defined), if any;
WHEREAS, as security for the loans made and to be made under the
Existing Credit Agreement and in consideration for the Banks' consent to the
CCPI Merger, the CIHC Merger, the CIHC Contribution and the Conseco
Contribution, (a) the Borrower, inter alia, pledged or caused to be pledged to
the Administrative Agent, for the benefit of the Banks and, to the extent set
forth
-2-
<PAGE>
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) on the Closing Date
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"), inter alia, pledged 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 assumed the obligations of the Borrower under the
Existing Borrower Shared Pledge Agreement and the Existing Borrower Non-Shared
Pledge Agreement with respect to the assets of the Borrower constituting
Collateral (as hereinafter defined) contributed to New CIHC pursuant to the
Conseco Contribution, and, inter alia, pledged 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 Conseco L.L.C., a
Delaware limited liability company ("CLLC"), owned by New CIHC on the Closing
Date 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"), granted 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 were a party on the Closing Date;
WHEREAS, the Borrower has requested that the Banks, the Documentation
Agents, the Managing Agents and the Administrative Agent agree to amend and
restate the Existing Credit Agreement in its entirety on the terms and
conditions hereinafter set forth; and
WHEREAS, the Banks, the Documentation Agents, the Managing Agents and
the Administrative Agent are willing, on the terms and conditions hereinafter
set forth, to amend the Existing Credit Agreement and as so amended to restate
the Existing Credit Agreement in its entirety;
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 that as
of the Amendment Effective Date, the
-3-
<PAGE>
Existing Credit Agreement is amended and restated to read in its entirety 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):
"Absolute Rate" - see Section 2.4(c)(ii)(D).
"Absolute Rate Auction" shall mean a solicitation of Competitive Bids
setting forth Absolute Rates pursuant to Section 2.4.
"Absolute Rate Loan" shall mean a Bid Loan that bears interest at a
rate determined with reference to the Absolute Rate.
"Acquired Person" shall mean any Person acquired upon the consummation
of an Acquisition permitted by the terms of this Agreement.
"Acquisition" shall mean any transaction or series of transactions
(other than Merchant Banking Investments permitted by this Agreement) for the
purpose of or resulting, directly or indirectly, in (a) the acquisition of all
or substantially all of the assets of a Person, or of any business or division
of a Person, (b) the acquisition of in excess of 50% of the capital stock,
partnership interests, membership interests or equity securities (or warrants,
options, or other rights to acquire any of the foregoing) of any Person, or
otherwise causing any Person to become a Subsidiary of the Borrower, or (c) a
merger or consolidation or any other combination of the Borrower or one of its
Subsidiaries with another Person (other than a Person that is a Subsidiary of
the Borrower immediately prior to such merger or consolidation); provided that,
in the case of any merger, consolidation or any other combination of the
Borrower, the Borrower shall be the surviving entity, in each case subject to
and to the extent permitted by this Agreement.
"Additional Secured Borrower Indebtedness" shall mean Indebtedness of
the Borrower permitted by Sections 9.1(k) and 9.1(r) in an aggregate principal
amount not to exceed $100,000,000 evidenced by one or more Contingent
Obligations of the Borrower which Contingent Obligations are secured by Liens
equal and ratable with the Liens granted to the Banks under the Loan Documents
in the Collateral to secure the Liabilities; provided that such Indebtedness is
owed to BofA or a syndicate of banks for which BofA is acting as agent.
-4-
<PAGE>
"Additional Secured Borrower Obligations" shall mean all obligations of
the Borrower to BofA and the other banks, if any, 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 the agreements and other documents evidencing the Additional
Secured Borrower Indebtedness.
"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.
"Affirmation of Loan Documents" shall mean the Affirmation Agreement,
dated as of the date hereof, in substantially the form of Exhibit U, among the
Borrower, New CIHC, MDSCG, BNL, CCM, CMCI and the Administrative Agent, as
amended or modified.
"Agents" shall mean, collectively, the Administrative Agent, the
Documentation Agents, and the Managing Agents.
"Agreement" shall mean this Amended and Restated Credit Agreement, as
amended or modified.
-5-
<PAGE>
"Amendment Effective Date" shall mean the date on which all conditions
precedent set forth in Section 11.2 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.
"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.
"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 1995 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 1995 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.
"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.
-6-
<PAGE>
"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 of America Credit Agreements" shall mean, collectively, (a) the
Bank of America $140 Million Credit Agreement and (b) the Bank of America $110
Million Credit Agreement.
"Bank Default" shall mean (a) the refusal (which has not been
retracted) of a Bank to make available its Percentage of any Committed 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 Committed Loan that bears interest based
on the Base Rate.
"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.
-7-
<PAGE>
"Bid Borrowing" shall mean a Borrowing hereunder consisting of one or
more Bid Loans made to the Borrower on the same day by one or more Banks.
"Bid Loan(s)" shall mean a Loan(s) by a Bank(s) to the Borrower under
Section 2.3, which may be an Absolute Rate Loan or an Offshore Rate Bid Loan.
"Bid Loan Bank(s)" shall mean, in respect of any Bid Loan, the Bank(s)
making such Bid Loan to the Borrower.
"Bid Notes" shall mean, collectively, the Tranche A Bid Notes and the
Tranche B Bid Notes.
"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.
"Borrowing" shall mean a borrowing hereunder consisting of Loans of the
same Type made to the Borrower on the same day by the Banks under Section 2, and
may be a Committed Borrowing or a Bid Borrowing and, other than in the case of
Base Rate Loans, having the same Interest Period.
"Borrowing Date" shall mean any date on which a Borrowing occurs under
Section 2.
"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.
-8-
<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 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" - see second recital.
-9-
<PAGE>
"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 was
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 assumed by the Borrower pursuant to the Merger, as the same may be amended
or modified in accordance with the terms of this Agreement.
"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
Closing Date.
"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 Closing
Date constituted 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.
-10-
<PAGE>
"Charges" - see Section 4.8.
"CIHC Contribution" - see fourth recital.
"CIHC Merger" - see fourth recital.
"CLLC" - see sixth recital.
"Closing Date" shall mean August 31, 1995.
"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 Banks with respect to 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, the
CCPI Senior Note Obligations, and the Additional Secured Borrower Obligations,
if any, (b) 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, the
CCPI Senior Note Obligations, and the Additional Secured Borrower Obligations,
if any, (c) 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
-11-
<PAGE>
the Liabilities, the Conseco Senior Note Obligations, the CCPI Senior Note
Obligations, and the Additional Secured Borrower Obligations, if any, and (d) in
the case of the Additional Secured Borrower Indebtedness, the numerator of which
is equal to the Additional Secured Borrower Obligations and the denominator of
which is equal to the sum of the Liabilities, the Conseco Senior Note
Obligations, the CCPI Senior Note Obligations, and the Additional Secured
Borrower Obligations.
"Commitments" shall mean, collectively, the Tranche A Commitments and
the Tranche B Commitments.
"Committed Borrowing" shall mean a Borrowing hereunder consisting of
Committed Loans made on the same day by the Banks ratably according to their
respective Percentages and, in the case of Offshore Rate Committed Loans, having
the same Interest Periods.
"Committed Loan" shall mean a Loan by a Bank to the Borrower under
Section 2.1, which may be a Base Rate Loan or an Offshore Rate Committed Loan.
"Committed Notes" shall mean, collectively, the Tranche A Committed
Notes and the Tranche B Committed Notes.
"Competitive Bid" shall mean an offer by a Bank to make a Bid Loan in
substantially the form of Exhibit T.
"Competitive Bid Request" shall mean a competitive bid request in
substantially the form of Exhibit S.
"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.
"Conseco Series D Preferred Stock" shall mean the $283,500,000 stated
value of the Borrower's Series D Preferred Stock, no par value.
"Conseco Series E Preferred Stock" shall mean $900,000,000 stated value
of the Borrower's Series E Preferred Stock, par value $.001 per share.
-12-
<PAGE>
"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.
"Conversion/Continuation Date" shall mean any date on which, under
Section 2.7, the Borrower (a) converts Committed Loans of one Type to Committed
Loans of another Type, or (b) continues as Offshore Rate Committed Loans of the
same Type, but with a new Interest Period, Offshore Rate Committed Loans having
Interest Periods expiring on such date.
-13-
<PAGE>
"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.
"Debt to Total Capitalization Ratio" shall mean, for any Calculation
Period, the ratio of (a) the principal of and accrued but 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) to (b) Total Capitalization (calculated excluding
Permitted Transactions).
"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.
"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
-14-
<PAGE>
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.
"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.
-15-
<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 the
Borrower on the Conseco Series E Preferred Stock to the extent permitted by this
Agreement, minus (b) (i) Fixed Charges, (ii) dividends paid, in cash, on the
Conseco Series D Preferred Stock, the PRIDES 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 Borrower Non-Shared Pledge Agreement" - see Section 6.1(a).
"Existing Borrower Shared Pledge Agreement" - see Section 6.1(b).
"Existing Credit Agreement" - see first recital.
"Existing New CIHC Non-Shared Pledge Agreement" - see Section 6.1(a).
"Existing New CIHC Shared Pledge Agreement" - see Section 6.1(b).
"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
-16-
<PAGE>
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.
"Fee Letter" shall mean that certain letter, dated as of February 28,
1996, 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 "1995 Fiscal Year") refer to the
Fiscal Year ending on the December 31 occurring during such calendar year.
"Fixed Charges" shall mean, for any Calculation Period, (a) interest
paid or, without duplication, accrued but unpaid on the Loans with respect to
such Calculation Period, plus (b) principal and interest paid or, without
duplication, accrued but unpaid on the Senior Notes during such Calculation
Period, plus (c) 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 such Calculation Period.
"Fixed Interest Charges" shall mean, for any Calculation Period, (a)
interest paid or, without duplication, accrued but unpaid on the Loans with
respect to such Calculation Period, plus (b) interest paid or, without
duplication, accrued but unpaid on the Senior Notes during such Calculation
Period plus (c) interest paid or, without duplication, accrued but unpaid on any
Indebtedness set forth in clauses (a) and (b) of the definition thereof during
such 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.
-17-
<PAGE>
"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.
"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;
provided that for purposes of this definition, with respect to Offshore Rate Bid
Loans in which BofA is not a Bid Loan Bank, IBOR shall be determined as if such
Offshore Rate Bid Loans were Offshore Rate Committed Loans.
"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.
-18-
<PAGE>
"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.
"Indebtedness to be Refinanced" shall mean the Indebtedness of the
Borrower under the Bank of America 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 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, without duplication, 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, without duplication, 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, without duplication, interest accrued but unpaid on
intercompany loans by the Borrower and its Subsidiaries, minus (xi) dividends
paid, in cash, to BNL by the Borrower on the Conseco Series E Preferred Stock to
the extent permitted by this Agreement, minus (xii) the
-19-
<PAGE>
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 Quarter ending June
30, 1996 the foregoing shall be calculated for the immediately preceding three
(3) consecutive Fiscal Quarters to (b) Fixed Interest Charges for the
immediately preceding four (4) consecutive Fiscal Quarters; provided that for
the Fiscal Quarter ending June 30, 1996 the foregoing shall be calculated for
the immediately preceding three (3) consecutive Fiscal Quarters, respectively.
"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 Committed Loan is converted into another Type of Committed Loan;
provided, however, that if (a) any Interest Period for an Offshore Rate
Committed 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, and (b) as to any Bid Loan, such
intervening dates prior to the maturity thereof as may be specified by the
Borrower and agreed to by the applicable Bid Loan Bank in the applicable
Competitive Bid shall also be Interest Payment Dates.
"Interest Period" shall mean (a) as to any Offshore Rate Committed
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 Committed 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, (b) as to any Offshore Rate Bid Loan, the
period commencing on the Borrowing Date of such Loan and ending on the date one,
two or three months thereafter as selected by the Borrower in the applicable
Competitive Bid Request and (c) as to any Absolute Rate Loan, a period of not
less than fourteen (14) days and not more than ninety (90) days as selected by
the Borrower in the applicable Competitive Bid Request; provided that:
(a) if any Interest Period would otherwise end on a
day that is not a Business Day, such Interest Period shall be
extended to the following Business Day unless, with respect to
any Offshore Rate Loan, 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;
-20-
<PAGE>
(b) with respect to any Offshore Rate Loan, 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.
"Invitation for Competitive Bids" shall mean a solicitation for
Competitive Bids in substantially the form of Exhibit R.
"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
-21-
<PAGE>
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 Committed Loans and maintaining Offshore Rate Bid 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.
"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 Committed Loans and the Bid
Loans.
"Loan Documents" shall mean, collectively, this Agreement, the Notes,
if any, the Surplus Debenture, the Pledge Agreements, the Assumption Agreement,
the Service Assignment, the Affirmation of Loan Documents 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
-22-
<PAGE>
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.
"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 sixth recital.
"MDSCG Pledge Agreement" - see Section 6.1(c).
"Merchant Banking Investments" shall mean the Investments set forth on
Schedule A 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
-23-
<PAGE>
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.
"New CIHC" - see fourth recital.
"New CIHC Assumption Agreement" shall mean the Assumption Agreement,
dated as of August 31, 1995, between New CIHC and the Administrative Agent,
substantially in the form of Exhibit P to the Existing Credit Agreement, as the
same may be amended or modified from time to time.
"Nonconsenting Bank" - see Section 15.2.
"Non-Insurance Subsidiary" shall mean any Subsidiary which is not an
Insurance Subsidiary.
"Non-Purpose Credit Event" shall mean any event as a result of which
none of the Loans shall constitute "purpose credit" as defined in Regulation U,
it being understood that it shall be a condition precedent to such event that
the Agent shall have received a certificate of a Responsible Officer to such
effect accompanied by opinions of independent outside counsel to the Borrower in
form and substance satisfactory to the Administrative Agent and its counsel and
to the effect that none of the Loans constitute "purpose credit" under
Regulation U.
"Non-Shared Collateral" shall mean all Collateral (and/or all cash and
Cash Equivalents held as Collateral) under the Restated New CIHC Non-Shared
Pledge Agreement and the MDSCG Pledge Agreement.
-24-
<PAGE>
"Notes" shall mean, collectively, the Committed Notes and the Bid
Notes.
"Notice of Borrowing" shall mean a notice in substantially the form of
Exhibit C.
"Notice of Conversion/Continuation" shall mean a notice in
substantially the form of Exhibit D.
"Offshore Rate Auction" shall mean a solicitation of Competitive Bids
setting forth an Offshore Rate Bid Margin pursuant to Section 2.4.
"Offshore Rate Bid Loan" shall mean any Bid Loan that bears interest at
a rate determined by reference to the Offshore Rate (Reserve Adjusted).
"Offshore Rate Bid Margin" - see Section 2.4(c)(ii)(C).
"Offshore Rate Committed Loan" shall mean any Committed Loan that bears
interest at a rate determined by reference to the Offshore Rate (Reserve
Adjusted).
"Offshore Rate Committed Margin" - see Section 3.1(a)(iii).
"Offshore Rate Loans" shall mean, collectively, Offshore Rate Committed
Loans and Offshore Rate Bid Loans.
"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
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.
"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.
-25-
<PAGE>
"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.
"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 Restated Borrower
Shared Pledge Agreement, the Restated New CIHC Non- Shared Pledge Agreement, the
Restated New CIHC Shared Pledge Agreement and the MDSCG Pledge Agreement.
"PRIDES" shall mean the $267,116,250 stated value of the Borrower's
Preferred Redeemable Increased Equity Securities, 7% Convertible Preferred
Stock, no par value, issued pursuant to a registration statement filed with the
Securities and Exchange Commission (File No. 33-53095).
"Process Agent" - see Section 15.11.
-26-
<PAGE>
"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
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.
"Regulation G" shall mean Regulation G (or any successor regulation)
promulgated by the FRB as from time to time in effect.
"Regulation U" shall mean Regulation U (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.
-27-
<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.
"Restated Borrower Shared Pledge Agreement" - see Section 6.1(iii).
"Restated New CIHC Non-Shared Pledge Agreement" - see Section 6.1(i).
"Restated New CIHC Shared Pledge Agreement" - see Section 6.1(ii).
"Restatement Date" - see Preamble.
"Risk-Based Capital" shall mean, with respect to any Insurance
Subsidiary, the ratio of Adjusted Capital of such
-28-
<PAGE>
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.
"Sale" - see Section 4.3(b).
"SAP" shall mean, as to any Insurance Subsidiary, the statutory
accounting practices prescribed or permitted by the Department.
"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(d).
"Servicing Agreements" shall mean, collectively, those agreements set
forth on Schedule 1.1.
"Shared Collateral" shall mean all Collateral (and/or cash and Cash
Equivalents held as Collateral) other than Non-Shared Collateral.
"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.
-29-
<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,
-30-
<PAGE>
(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.
"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.
"Termination Date" shall mean the earliest of (a) April 12, 2001, (b)
the date of termination in whole of the Commitments pursuant to Section 4.1, 4.3
or 12.2, and (c) April 30, 1996 if the Amendment Effective Date has not
occurred.
"Total Capitalization" shall mean (a) principal and accrued and unpaid
interest on all Indebtedness for borrowed money of the
-31-
<PAGE>
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 Bid Loan(s)" - see Section 2.3.
"Tranche A Bid Note" shall mean a promissory note, substantially in the
form of Exhibit A-2 with blanks appropriately completed in conformity herewith,
evidencing Tranche A Bid Loans, or any promissory note or promissory notes
issued in substitution or replacement therefor.
"Tranche A Commitment" - see Section 2.1
"Tranche A Committed Loan(s)" - see Section 2.1.
"Tranche A Committed Note" shall mean a promissory note, substantially
in the form of Exhibit A-1 with blanks appropriately completed in conformity
herewith, evidencing Tranche A Committed Loans, or any promissory note or
promissory notes issued in substitution or replacement therefor.
"Tranche A Loan(s)" shall mean, collectively, the Tranche A Committed
Loans and the Tranche A Bid Loans.
"Tranche B Bid Loan(s)" - see Section 2.3.
"Tranche B Bid Note" shall mean a promissory note, substantially in the
form of Exhibit B-2 with blanks appropriately completed in conformity herewith,
evidencing Tranche B Bid Loans, or any promissory note or notes issued in
substitution or replacement therefor.
"Tranche B Commitment" - see Section 2.1.
"Tranche B Committed Loan(s)" - see Section 2.1.
"Tranche B Committed Note" shall mean a promissory note, substantially
in the from of Exhibit B-1 with blanks appropriately completed in conformity
herewith, evidencing Tranche B Loans, or any promissory note or notes issued in
substitution or replacement therefor.
-32-
<PAGE>
"Tranche B Loan(s)" shall mean, collectively, the Tranche B Committed
Loans and the Tranche B Bid Loans.
"Tranche B Percentage" shall mean as to any Collateral (other than BLHC
stock), a percentage equal to the Collateral Percentage times a percentage
derived from a fraction the numerator of which is then outstanding principal
amount of Tranche B Loans and the denominator of which is the then outstanding
principal amount of all Loans.
"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, Offshore Rate Loans and Absolute
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.
(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.
-33-
<PAGE>
(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 Committed Loans. Loans (herein collectively
called the "Tranche A Committed Loans" and individually called a "Tranche A
Committed Loan") to the Borrower on a revolving basis from time to time from the
Amendment Effective Date until the Termination Date in such Bank's Percentage of
the aggregate amount of such Tranche A Committed Loans as the Borrower may
request from all Banks. The aggregate principal amount of the Tranche A
Committed 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
Committed Loans which all Banks shall be committed to have outstanding hereunder
to the Borrower, together with the aggregate principal amount of all Tranche A
Bid Loans outstanding under Section 2.3, shall not at any one time exceed
$250,000,000 (or such reduced amount as may be fixed pursuant to Sections 4.1,
4.9 and 12.2). The foregoing commitment of each Bank is herein called its
"Tranche A Commitment" and for all Banks the "Tranche A Commitments."
-34-
<PAGE>
(b) Tranche B Committed Loans. Loans (herein collectively
called the "Tranche B Committed Loans" and individually called a "Tranche B
Committed Loan") to the Borrower on a revolving basis from time to time from the
Amendment Effective Date until the Termination Date in such Bank's Percentage of
the aggregate amount of such Tranche B Committed Loans as the Borrower may
request from all Banks. The aggregate principal amount of the Tranche B
Committed 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
Committed Loans which all Banks shall be committed to have outstanding hereunder
to the Borrower, together with the aggregate principal amount of all Tranche B
Bid Loans outstanding under Section 2.3, shall not at any one time exceed
$250,000,000 (or such reduced amount as may be fixed pursuant to Sections 4.1,
4.9 and 12.2). The foregoing commitment of each Bank is herein called its
"Tranche B Commitment" and for all Banks the "Tranche B Commitments."
SECTION 2.2 Procedure for Committed Borrowings.
(a) Each Committed 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 Committed Loans, and (ii) on the requested
Borrowing Date, in the case of Base Rate Loans, specifying:
(A) the amount of such Committed 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;
(C) the Type of Loans comprising such
Committed Borrowing and whether such Borrowing shall consist
of a Tranche A Committed Loan and/or a Tranche B Committed
Loan; and
(D) with respect to any Committed Borrowing
comprised of Offshore Rate Committed Loans, the duration of
the Interest Period applicable to such Committed 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 Committed Loans, such Interest
Period shall be three (3) months.
-35-
<PAGE>
(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 the related Committed Borrowing.
(c) Each Bank will make the amount of its Percentage of each
Committed 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 Committed 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 Committed Borrowing, there may
not be more than eight (8) different Interest Periods in effect for all
Committed Loans and Bid Loans then outstanding.
SECTION 2.3 Bid Borrowings. In addition to Committed Borrowings
pursuant to Section 2.1, each Bank severally agrees that the Borrower may, as
set forth in Section 2.4, from time to time from the Amendment Effective Date to
the Termination Date, request the Banks to submit offers to make Tranche A Bid
Loans ("Tranche A Bid Loans") and Tranche B Bid Loans ("Tranche B Bid Loans") to
the Borrower; provided, however, that the Banks may, but shall have no
obligation to, submit such offers and the Borrower may, but shall have no
obligation to, accept any such offers; and provided, further, that at no time
shall (a) the outstanding aggregate principal amount of all Tranche A Bid Loans
made by all Banks, plus the outstanding aggregate principal amount of all
Tranche A Committed Loans made by all Banks exceed the aggregate Tranche A
Commitments, (b) the outstanding aggregate principal amount of all Tranche B Bid
Loans made by all Banks, plus the outstanding aggregate principal amount of all
Tranche B Committed Loans made by all Banks exceed the aggregate Tranche B
Commitments, or (c) the number of Interest Periods for Bid Loans then
outstanding plus the number of Interest Periods for Committed Loans then
outstanding exceed eight (8).
SECTION 2.4 Procedure for Bid Borrowings. (a) When the Borrower wishes
to request the Banks to submit offers to make Bid Loans hereunder, it shall
transmit to the Administrative Agent by telephone call followed promptly by
facsimile transmission of a Competitive Bid Request so as to be received no
later than 9:00 A.M. (San Francisco time) (x) five Business Days prior to the
date of a proposed Bid Borrowing in the case of an Offshore Rate Auction, or (y)
two Business Days prior to the date of a proposed Bid Borrowing in the case of
an Absolute Rate Auction, specifying:
-36-
<PAGE>
(i) the date of such Bid Borrowing, which shall be a
Business Day;
(ii) the aggregate amount of such Bid Borrowing,
which shall be a minimum amount of $10,000,000 or in integral multiples
of $1,000,000 in excess thereof;
(iii) whether the Competitive Bids requested are to
be for Offshore Rate Bid Loans or Absolute Rate Loans or both and
whether such Loan shall consist of a Tranche A Bid Loan or a Tranche B
Bid Loan; and
(iv) the duration of the Interest Period applicable
thereto, subject to the provisions of the definition of "Interest
Period" herein.
Subject to Section 2.4(c), the Borrower may not request Competitive Bids for
more than three Interest Periods in a single Competitive Bid Request and may not
request Competitive Bids more than once in any period of five Business Days.
(b) Upon receipt of a Competitive Bid Request, the
Administrative Agent will promptly send to the Banks by facsimile transmission
an Invitation for Competitive Bids, which shall constitute an invitation by the
Borrower to each Bank to submit Competitive Bids offering to make the Bid Loans
to which such Competitive Bid Request relates in accordance with this Section
2.4.
(c)(i) Each Bank may at its discretion submit a Competitive
Bid containing an offer or offers to make Bid Loans in response to any
Invitation for Competitive Bids. Each Competitive Bid must comply with
the requirements of this Section 2.4(c) and must be submitted to the
Administrative Agent by facsimile transmission at the Administrative
Agent's office for notices set forth on the signature pages hereto not
later than (1) 6:30 A.M. (San Francisco time) three Business Days prior
to the proposed date of Borrowing, in the case of an Offshore Rate
Auction or (2) 6:30 A.M. (San Francisco time) on the proposed date of
Borrowing, in the case of an Absolute Rate Auction; provided that
Competitive Bids submitted by the Administrative Agent (or any
Affiliate of the Administrative Agent) in the capacity of a Bank may be
submitted, and may only be submitted, if the Administrative Agent or
such Affiliate notifies the Borrower of the terms of the offer or
offers contained therein not later than (A) 6:15 A.M. (San Francisco
time) three Business Days prior to the proposed date of Borrowing, in
the case of an Offshore Rate Auction or (B) 6:15 A.M. (San Francisco
time) on the proposed date of Borrowing, in the case of an Absolute
Rate Auction.
-37-
<PAGE>
(ii) Each Competitive Bid shall specify therein:
(A) the proposed date of Bid Borrowing;
(B) the principal amount of each Bid Loan
for which such Competitive Bid is being made, which principal
amount (1) may be equal to, greater than or less than the
Tranche A Commitment or Tranche B Commitment (as applicable)
of the quoting Bank, (2) must be $10,000,000 or in integral
multiples of $1,000,000 in excess thereof, and (3) may not
exceed the principal amount of Bid Loans for which Competitive
Bids were requested;
(C) in case the Borrower elects an Offshore
Rate Auction, the margin above or below the Offshore Rate
(Reserve Adjusted) (the "Offshore Rate Bid Margin") offered
for each such Bid Loan, expressed in multiples of 1/1000th of
one basis point to be added to or subtracted from the
applicable Offshore Rate (Reserve Adjusted) and the Interest
Period applicable thereto;
(D) in case the Borrower elects an Absolute
Rate Auction, the rate of interest per annum expressed in
multiples of 1/1000th of one basis point (the "Absolute
Rate") offered for each such Bid Loan; and
-38-
<PAGE>
(E) the identity of the quoting Bank.
A Competitive Bid may contain up to three separate offers by the
quoting Bank with respect to each Interest Period specified in the
related Invitation for Competitive Bids.
(iii) Any Competitive Bid shall be disregarded if it:
(A) is not substantially in conformity with
Exhibit T or does not specify all of the information required
by Section 2.4(c)(ii);
(B) contains qualifying, conditional or
similar language;
(C) proposes terms other than or in addition
to those set forth in the applicable Invitation for
Competitive Bids; or
(D) arrives after the time set forth in
Section 2.4(c)(i).
(d) Promptly on receipt and not later than 7:00 A.M. (San
Francisco time) three Business Days prior to the proposed date of Borrowing in
the case of an Offshore Rate Auction, or 7:00 A.M. (San Francisco time) on the
proposed date of Borrowing, in the case of an Absolute Rate Auction, the
Administrative Agent will notify the Borrower of the terms (i) of any
Competitive Bid submitted by a Bank that is in accordance with Section 2.4(c),
and (ii) of any Competitive Bid that amends, modifies or is otherwise
inconsistent with a previous Competitive Bid submitted by such Bank with respect
to the same Competitive Bid Request. Any such subsequent Competitive Bid shall
be disregarded by the Administrative Agent unless such subsequent Competitive
Bid is submitted solely to correct a manifest error in such former Competitive
Bid and only if received within the times set forth in Section 2.4(c). The
Administrative Agent's notice to the Borrower shall specify (x) the aggregate
principal amount of Bid Loans for which Competitive Bids have been received for
each Interest Period specified in the related Competitive Bid Request; and (y)
the respective principal amounts and Offshore Rate Bid Margins or Absolute
Rates, as the case may be, so offered. Subject only to the provisions of
Sections 5.3, 5.4 and 11 and the provisions of this Section 2.4(d), any
Competitive Bid shall be irrevocable except with the written consent of the
Administrative Agent given on the written instructions of the Borrower.
(e) Not later than 7:30 A.M. (San Francisco time) three
Business Days prior to the proposed date of Borrowing, in the case of an
Offshore Rate Auction, or 7:30 A.M. (San Francisco time) on the proposed date of
Borrowing, in the case of an Absolute Rate Auction, the Borrower shall notify
the Administrative Agent of its acceptance or non-acceptance of the Competitive
Bids so notified to it pursuant to Section 2.4(d). The Borrower shall be under
no obligation to accept any Competitive Bid and may choose to reject all
Competitive Bids. In the case of acceptance, such notice shall specify the
aggregate principal amount of Competitive Bids for each Interest Period that is
accepted. The Borrower may accept any Competitive Bid in whole or in part;
provided that:
-39-
<PAGE>
(i) the aggregate principal amount of each Bid
Borrowing may not exceed the applicable amount set forth in the related
Competitive Bid Request;
(ii) the principal amount of each Bid Borrowing must
be at least $10,000,000 or in any integral multiple of $1,000,000 in
excess thereof;
(iii) acceptance of Competitive Bids may only be made
on the basis of ascending Offshore Rate Bid Margins or Absolute Rates
within each Interest Period, as the case may be; and
(iv) the Borrower may not accept any Competitive Bid
that is described in Section 2.4(c)(iii) or that otherwise fails to
comply with the requirements of this Agreement.
(f) If Competitive Bids are made by two or more Banks with the
same Offshore Rate Bid Margins or Absolute Rates, as the case may be, for a
greater aggregate principal amount than the amount in respect of which such
Competitive Bids are permitted to be accepted for the related Interest Period,
the principal amount of Bid Loans in respect of which such Competitive Bids are
accepted shall be allocated by the Administrative Agent among such Banks as
nearly as possible (in such integral multiples, not less than $1,000,000, as the
Administrative Agent may deem appropriate) in proportion to the aggregate
principal amounts of such Competitive Bids. Determination by the Administrative
Agent of the amounts of Bid Loans shall be conclusive in the absence of manifest
error.
(g)(i) The Administrative Agent will promptly notify each Bank
having submitted a Competitive Bid if its Competitive Bid has been
accepted and, if its Competitive Bid has been accepted, of the amount
of the Bid Loan or Bid Loans to be made by it on the date of the
related Bid Borrowing.
(ii) Each Bank, which has received notice pursuant to
Section 2.4(g)(i) that its Competitive Bid has been accepted, shall
make the amounts of such Bid Loans 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 such date of Bid
Borrowing, in funds immediately available to the Administrative Agent
for the account of the Borrower at the Administrative Agent's Office.
-40-
<PAGE>
(iii) Promptly following each Bid Borrowing, the
Administrative Agent shall notify each Bank of the ranges of
Competitive Bids submitted and the highest and lowest Competitive Bids
accepted for each Interest Period requested by the Borrower and the
aggregate amount borrowed pursuant to such Bid Borrowing.
(iv) From time to time, the Borrower and the Banks
shall furnish such information to the Administrative Agent as the
Administrative Agent may request relating to the making of Bid Loans,
including the amounts, interest rates, dates of borrowings and
maturities thereof, for purposes of the allocation of amounts received
from the Borrower for payment of all amounts owing hereunder.
(h) If, on or prior to the proposed date of Borrowing, the
Commitments have not been terminated and if, on such proposed date of Borrowing
all applicable conditions to funding referenced in Sections 5.3, 5.4 and 11 are
satisfied, the Banks whose Competitive Bids the Borrower has accepted will fund
each Bid Loan so accepted. Nothing in this Section 2.4 shall be construed as a
right of first offer in favor of the Banks or to otherwise limit the ability of
the Borrower to request and accept credit facilities from any Person (including
any of the Banks); provided that no Default would otherwise arise or exist as a
result of the Borrower executing, delivering or performing under such credit
facilities.
SECTION 2.5 Types of Loans. The Loans shall be denominated as Base Rate
Loans, Offshore Rate Loans and Absolute Rate Loans (each being herein called a
"Type" of Loan), as the Borrower shall specify in the related Notice of
Borrowing, the Notice of Continuation/Conversion or Competitive Bid Request.
Committed Loans and Bid Loans may be outstanding at the same time, provided that
(a) in the case of Committed Loans and Bid Loans outstanding, 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 2.6 Funding Reliance for Committed Borrowings. 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 Committed 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
-41-
<PAGE>
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
Committed 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.
SECTION 2.7 Conversion and Continuation Elections for
Committed Borrowings.
(a) As to any Loans comprising a Committed Borrowing, the
Borrower may, upon irrevocable written notice to the Administrative Agent in
accordance with Section 2.7(b):
(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 Committed 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 Committed Loans; or
(ii) elect, as of the last day of the applicable
Interest Period, to continue any Offshore Rate Committed 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 Committed
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
Committed 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 Committed Loans, as the case may be, shall
terminate.
-42-
<PAGE>
(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 Committed Loans are to be converted
into or continued as Offshore Rate Committed Loans; and (ii) one Business Day in
advance of the Conversion/Continuation Date, if the Committed Loans are to be
converted into Base Rate Loans, specifying:
(A) the proposed Conversion/Continuation
Date;
(B) the aggregate amount of Committed Loans
to be converted or renewed;
(C) the Type of Committed Loans resulting
from the proposed conversion or continuation; and
(D) in the case of conversions into Offshore
Rate Committed Loans, the duration of the requested Interest
Period.
(c) If upon the expiration of any Interest Period applicable
to Offshore Rate Committed Loans, the Borrower has failed to select timely a new
Interest Period to be applicable to such Offshore Rate Committed Loans or if any
Default then exists, the Borrower shall be deemed to have elected to convert
such Offshore Rate Committed 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 Committed 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 Committed Loan
converted into or continued as an Offshore Rate Committed Loan.
(f) After giving effect to any conversion or continuation of
Committed Loans, there may not be more than eight (8) different Interest Periods
in effect for all Loans (including Bid Loans then outstanding) hereunder.
-43-
<PAGE>
SECTION 2.8 Repayment of Loans.
(a) Committed Loans. Subject to the provisions of Sections
4.1, 4.3 and 4.5, the Committed Loans of each Bank shall be payable in full (and
the Borrower agrees to pay such Committed Loans) on the Termination Date.
(b) Bid Loans. Subject to the provisions of Sections 4.1, 4.3
and 4.5, each Bid Loan shall be payable in full (and the Borrower agrees to pay
such Bid Loan) on the last day of the relevant Interest Period for such Bid
Loan.
SECTION 2.9 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 Committed Loans made by such Bank may be evidenced by
one or more Committed Notes and the Bid Loans made by such Bank may be evidenced
by one or more Bid Notes, instead of or in addition to 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. (a) With respect to each Committed Loan,
the Borrower hereby promises to pay interest on the unpaid principal amount
thereof for the period commencing on the Borrowing Date of such Loan until such
Loan is paid in full, as follows:
-44-
<PAGE>
(i) 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.
(ii) At all times while such Loan or any portion thereof is an
Offshore Rate Committed Loan, at a rate per annum equal to the Offshore
Rate (Reserve Adjusted) from time to time in effect plus the Offshore
Rate Committed Margin (as hereinafter defined).
(iii) For purposes hereof, the Offshore Rate Committed Margin
(the "Offshore Rate Committed 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 Debt to Total Capitalization
Ratio as follows:
<TABLE>
<CAPTION>
OFFSHORE RATE COMMITTED MARGIN
Debt to Total
Capitalization Senior Notes Rating
Ratio ----------------------------------------
- --------------
BBB/ BBB-/ BB+/
Baa2, Baa3 Ba1
---- ---- ----
or or
above lower
<S> <C> <C> <C>
Greater than .35 but less than or equal to .50 0.750% 0.875% 1.125%
Greater than .25 but less than or equal to .35 0.625% 0.750% 1.00%
Less than or equal to .25 0.500% 0.625% 0.900%
===== ===== =====
</TABLE>
Any adjustment in the Offshore Rate Committed Margin as a
result of a change in the Debt to Total Capitalization Ratio shall be
effective upon receipt by the Administrative Agent of a Compliance
Certificate pursuant to Section 8.1.5 (a copy of which shall promptly
be delivered to the Banks by the Administrative Agent) setting forth
the calculation of the Debt to Total Capitalization Ratio, and any
adjustment in the Offshore Rate Committed 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; provided that, notwithstanding the foregoing,
the Offshore Rate Committed Margin for the period commencing on the
Amendment Effective Date and ending six (6) months thereafter shall be
.75% per annum; and provided, further, that in no event will the
Offshore Rate Committed Margin be reduced at any time when a Default
has occurred and is continuing.
-45-
<PAGE>
(b) With respect to each Bid Loan, the Borrower hereby
promises to pay interest on the unpaid principal amount thereof for the period
commencing on the Borrowing Date of such Loan until such Loan is paid in full at
a rate per annum equal to the Offshore Rate (Reserve Adjusted) plus (or minus)
the Offshore Rate Bid Margin, or at the Absolute Rate, as the case may be.
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 two percent (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
(Reserve Adjusted) shall be determined by the Administrative Agent. Each
determination of the applicable Offshore Rate (Reserve Adjusted) 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 and Absolute 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.
-46-
<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; and
(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, a
non-use fee on the average daily unused Commitments (without regard to
any Bid Loans then outstanding), payable quarterly in arrears on the
last Business Day of each Fiscal Quarter (commencing with the first
such date occurring after the Amendment Effective Date for the period
from the Amendment Effective Date through and including such date) and
on the 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:
<TABLE>
<CAPTION>
Senior Notes Rating
BB+/
Ba1
BBB/ BBB-/ or
Baa2, Baa3 lower
---- ---- -----
or
above
<S> <C> <C>
0.20% 0.25% 0.35%
==== ==== ====
</TABLE>
Any adjustment in the non-use fee set forth in this clause (b)
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.
-47-
<PAGE>
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 Committed 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.
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 or
Absolute Rate Loans, to the Administrative Agent by 9:00 A.M. (San Francisco
time), ratably prepay such 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, in the case of
Committed Loans, promptly notify each Bank of its receipt of any such notice,
and of such Bank's Percentage of such prepayment, and, in the case of Bid Loans,
promptly notify the Bid Loan Bank of its receipt of such notice. 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:
-48-
<PAGE>
(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 Committed Loans then
outstanding (together with any interest accrued thereon) and second,
the principal amount of the Tranche B Committed Loans then outstanding
(together with any interest accrued thereon). To the extent the Net
Proceeds of any such Disposition exceed the amount of the Committed
Loans then outstanding (together with any interest accrued thereon),
or, at the time of such Disposition, the Committed Loans shall have
been paid in full, such Net Proceeds shall be applied to repay first,
the principal amount of the Tranche A Bid Loans then outstanding
(together with any interest accrued thereon), second, the principal
amount of the Tranche B Bid Loans then outstanding (together with any
interest accrued thereon) and third, to repay the any remaining
Liabilities. Notwithstanding anything to the contrary contained in this
clause (a), to the extent any such Disposition comprises any of the
Collateral, 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).
(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
-49-
<PAGE>
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 Committed Loans then outstanding (together with any
interest accrued thereon) and second, the principal amount of the
Tranche B Committed 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 Committed Loans
shall have been paid in full, such Net Proceeds shall be applied to
repay first, the principal amount of the Tranche A Bid Loans then
outstanding (together with any interest accrued thereon), second, the
principal amount of the Tranche B Bid Loans then outstanding (together
with any interest accrued thereon) and third, to repay any remaining
Liabilities.
SECTION 4.4 Payments by the Borrower.
(a) All payments to be made by the Borrower hereunder 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 Committed Loans and the
Bid Loans, as the case may be, 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 Committed
Loans and the Bid Loans, as the case may be, 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.
-50-
<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 Committed
Loans in accordance with Section 4.2 shall be applied to the Tranche A Committed
Loans and the Tranche B Committed 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 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, on a pro rata basis.
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
(other than pursuant to Sections 5.8, 14.1 and 15.2)) on account of the
Committed 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
-51-
<PAGE>
Committed Loans on account of principal of and interest on the Committed
Loans, such Bank shall purchase from the other Banks such participation
in the Committed 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.
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
-52-
<PAGE>
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
(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.
-53-
<PAGE>
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 Committed Loans and the Tranche B Committed Loans
required pursuant to Section 4.1 or 4.3 (a) or (b) 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 on such date such
Tranche A Loans and Tranche B Loans (including interest accrued thereon) in an
amount equal to such excess.
SECTION 5. CHANGES IN CIRCUMSTANCES
SECTION 5.1 Increased Costs. If (a) Regulation D, or (b) after the
Amendment Effective Date, 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
-54-
<PAGE>
(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;
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
-55-
<PAGE>
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 Amendment Effective Date,
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:
(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 (Reserve Adjusted); 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 Amendment Effective Date 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,
-56-
<PAGE>
(ii) no Bank shall be under any obligation to make or continue
or convert into Offshore Rate Committed Loans or make Offshore Rate Bid
Loans so affected, and
(iii) on the last day of the then current Interest Period for
Offshore Rate Committed Loans so affected, such Offshore Rate Committed
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 continue or convert into
Offshore Rate Committed Loans or make Offshore Rate Bid 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 Committed 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.
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
-57-
<PAGE>
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 with respect to Offshore
Rate Loans and by a methodology reasonably determined by such Bank with respect
to Absolute Rate Loans) 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 or Absolute Rate Loans of
such Bank on a date other than the last day of an Interest Period for such
Offshore Rate Loan or Absolute 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
Competitive Bid Request (after acceptance of Competitive Bids by the Borrower)
or (c) any failure of the Borrower to convert or continue any portion of the
Committed 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.
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 (any such Bank
being hereinafter referred to as a "Replaced Bank") and shall petition the
-58-
<PAGE>
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, 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.
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. On the Closing Date, the Borrower:
(a) Existing Borrower Non-Shared Pledge Agreement. Executed and
delivered to the Administrative Agent, for the benefit of the Banks, (1)
a pledge agreement, substantially in the form of Exhibit E-1 to the
Existing Credit Agreement (herein, as the same may be amended or
modified, called the "Existing Borrower Non-Shared Pledge Agreement")
covering, among other things, (x) all of the issued and outstanding
capital stock of BLHC owned by the Borrower and the acquisition of which
was financed under the Bank of America Credit Agreements, and (y) each
indirect Wholly-Owned Subsidiary of the Borrower not constituting a
Significant Subsidiary (as defined in the Indentures), and (2) in
consideration of the Banks' consent to the CIHC Contribution and the
Conseco Contribution, caused New CIHC to assume, pursuant to an
assumption agreement in the form of Exhibit P to the Existing Credit
Agreement (the "New CIHC Assumption Agreement") and the related New CIHC
Non-Shared Pledge Agreement, the obligations of the Borrower under the
Existing Borrower Non-Shared Pledge Agreement (the Existing Borrower
Non-Shared Pledge Agreement as assumed by New CIHC pursuant to the New
CIHC Assumption Agreement and related New CIHC Non-Shared Pledge
Agreement being herein collectively called the "Existing New CIHC
Non-Shared Pledge Agreement");
-59-
<PAGE>
(b) Existing Borrower Shared Pledge Agreement. Executed and
delivered to the Administrative Agent, for the benefit of the Banks and
the holders of the Senior Notes, (1) a pledge agreement, substantially
in the form of Exhibit E-2 to the Existing Credit Agreement (herein, as
the same may be amended or modified, called the "Existing 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
Existing Borrower Non-Shared Pledge Agreement), and (2) in consideration
of the Banks' consent to the CIHC Contribution and the Conseco
Contribution, caused New CIHC to assume, pursuant to the New CIHC
Assumption Agreement and related New CIHC pledge agreement, certain of
the obligations of the Borrower under the Existing Borrower Shared
Pledge Agreement (the Existing Borrower Shared Pledge Agreement as
assumed by New CIHC pursuant to the New CIHC Assumption Agreement, and
related New CIHC Pledge Agreement being herein collectively called the
"Existing New CIHC Shared Pledge Agreement");
(c) MDSCG Pledge Agreement. Caused 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 (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; and
-60-
<PAGE>
(d) Assignment of Documents. Executed and delivered and caused
each of BNL, CCM and CMCI to execute and deliver, an Assignment of
Servicing Agreements, substantially in the form of Exhibit F (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;
it being hereby understood and agreed that on the Amendment Effective Date:
(i) Restated New CIHC Non-Shared Pledge Agreement. The Existing
New CIHC Non-Shared Pledge Agreement shall be restated pursuant to a restated
New CIHC Non-Shared Pledge Agreement, substantially in the form of Exhibit E-1
(herein, as the same may be amended or modified, called the "Restated New CIHC
Non-Shared Pledge Agreement");
(ii) Restated New CIHC Shared Pledge Agreement. The Existing New
CIHC Shared Pledge Agreement shall be restated pursuant to a restated New CIHC
Shared Pledge Agreement, substantially in the form of Exhibit E-2 (herein, as
the same may be amended or modified, called the "Restated New CIHC Shared Pledge
Agreement");
(iii) Restated Borrower Shared Pledge Agreement. The Existing
Borrower Shared Pledge Agreement shall be restated pursuant to a restated
Borrower Shared Pledge Agreement, substantially in the form of Exhibit E-4
(herein, as the same may be amended or modified, called the "Restated Borrower
Shared Pledge Agreement"); and
(iv) Partial Release of MDSCG Pledge Agreement Collateral. The
Administrative Agent shall release (and the Banks hereby consent to such
release) its Lien on the Collateral pledged to the Administrative Agent under
the MDSCG Pledge Agreement with respect to the capital stock of CBC Insurance
Agency Services, Inc. and Community Insurance Agency, Inc. and, except as
otherwise provided in this Section 6.1(iv), the MDSCG Pledge Agreement shall
remain in full force and effect. Such release shall be without representation or
warranty of any kind and shall automatically constitute a release of any Lien on
such Collateral in favor of the holders of the Senior Notes.
SECTION 6.2 Application of Proceeds from Collateral.
(a) Non-Shared Collateral. All proceeds from the sale or
disposition of any of the Non- Shared Collateral shall be applied by the
Administrative Agent in the following order:
-61-
<PAGE>
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 as collateral agent
on behalf of the Banks and the holder or holders of the
Additional Secured Borrower Indebtedness) in connection with (i)
the administration, sale or disposition of such Collateral, and
(ii) the administration and enforcement of this Agreement and
the Restated New CIHC Non- Shared Pledge Agreement and the MDSCG
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 in such order as is consistent with this Agreement
(including the provisions of Sections 4.3 and 6.2(c)) 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 of the Liabilities owing to each Bank;
Third: (i) with respect to the Non-Shared
Collateral pledged under the Restated New CIHC Non- Shared
Pledge Agreement, to the payment in full of all the Conseco
Senior Note Obligations, the CCPI Senior Note Obligations and
the Additional Secured Borrower Obligations, if any, ratably,
according to their respective Collateral Percentages, and (ii)
with respect to the Non-Shared Collateral pledged under the
MDSCG Pledge Agreement, to the payment in full of all the
Additional Secured Borrower Obligations, if any. 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. In the case of the Additional Secured Borrower
Obligations, such application shall be effected by delivery to
BofA (in its individual capacity or as agent for a syndicate of
banks, as the case may be), with respect to clause (i) above,
funds representing the Collateral Percentage of the holders of
the Additional Secured Borrower Indebtedness, and, with respect
to clause (ii) above, funds representing the amount of the
Additional Secured Borrower Obligations; and
-62-
<PAGE>
Fourth: 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 Shared Collateral 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, or as collateral agent on behalf of the Banks and
the holder or holders of the Additional Secured Borrower
Indebtedness) in connection with (i) the administration, sale or
disposition of such Collateral, and (ii) the administration and
enforcement of this Agreement, the Restated Borrower Shared
Pledge Agreement and the Restated New CIHC 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, the CCPI
Senior Note Obligations and the Additional Secured Borrower
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 Sections 4.3 and 6.2(c)) 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 of the Liabilities owing to each Bank. 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. In the case of the Additional Secured Borrower
Obligations, such application shall be effected by delivery to
BofA (in its individual capacity or as agent for a syndicate of
banks, as the case may be), funds representing the Collateral
Percentage of the holders of the Additional Secured Borrower
Indebtedness; and
-63-
<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 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.
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.
- 64-
<PAGE>
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 (or, at the time of execution and delivery thereof, had)
the power to execute, deliver and perform this Agreement and the other Loan
Documents to which it is a party, and (b) has (or, at the time of execution and
delivery thereof, had) 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 did not, 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.
-65-
<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 (or, at the time of execution and delivery
thereof, was) 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 Quarters ended March
31, 1995, June 30, 1995 and September 30, 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, 1995.
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.
-66-
<PAGE>
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 Restatement Date and prior
to the Amendment Effective 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;
(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;
-67-
<PAGE>
(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.
-68-
<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.
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;
-69-
<PAGE>
(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;
(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.
-70-
<PAGE>
SECTION 7.16 Proceeds.
(a) Tranche A Loans. The proceeds of the Tranche A Loans were or 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.
(b) Tranche B Loans. The proceeds of the Tranche B Loans were or 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.
SECTION 7.17 Insurance. Schedule 7.17 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 making 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.
-71-
<PAGE>
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.
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, 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.
-72-
<PAGE>
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, and no Default has occurred and is continuing under the
Existing Credit Agreement.
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 New CIHC pursuant to the Restated New CIHC
Non- Shared Pledge Agreement and the Restated New CIHC Shared Pledge Agreement
represent and will continue to represent all of the issued and outstanding
capital stock of BLHC owned by New CIHC. 12,147,319 shares of BLHC pledged to
the Administrative Agent, for the benefit of the Banks, under the Restated New
CIHC 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 [Intentionally Omitted.]
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).
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 prior to the Conseco
Contribution of the shares of stock of BLHC pledged hereunder.
SECTION 7.29 Conseco Corporate Structure. The corporate structure of the
Borrower and its Subsidiaries is as set forth in Exhibit Q.
-73-
<PAGE>
SECTION 7.30 Significant Subsidiaries. Set forth on Schedule 7.30 is a
complete and accurate list of each Significant Subsidiary (as defined in the
Indentures) of the Borrower.
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 Amendment Effective 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 as of the end of and 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);
(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;
-74-
<PAGE>
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 as
of the end of and 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);
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
seventy-five (75) 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;
-75-
<PAGE>
(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;
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 (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 in which any
dividend, distribution or other payment governed by Section 9.9 is made,
a duly completed certificate, substantially in the form of Exhibit N,
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;
-76-
<PAGE>
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;
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;
(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, and written notification
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:
-77-
<PAGE>
(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,
(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
-78-
<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;
-79-
<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 Amendment Effective Date
including Reinsurance Agreements, if any, which are in a runoff mode on
the Amendment Effective 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 of the first three Fiscal Quarters in any Fiscal Year
and within one hundred twenty (120) days of the end of each Fiscal Year,
a list of the Investments of the Borrower and its Subsidiaries including
a valuation thereof prepared from sources reasonably acceptable to the
Administrative Agent;
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;
-80-
<PAGE>
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;
8.1.25 Tranche B Loan Ratio. Upon the request of the
Administrative Agent or the Required Banks, the Borrower shall provide
to the Administrative Agent, for the benefit of the Banks, a computation
of the ratio set forth in Sections 11.1.4 and 12.1.11 certified by its
chief financial officer or a vice president with responsibility for or
knowledge of financial matters of the Borrower; and
-81-
<PAGE>
8.1.26 Other Information. From time to time, such other
information concerning the Borrower and any of its Subsidiaries as the
Administative 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.
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.
-82-
<PAGE>
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.
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.
-83-
<PAGE>
SECTION 9. NEGATIVE COVENANTS
The Borrower agrees that, on and after the Amendment Effective 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 Amendment Effective 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;
(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;
-84-
<PAGE>
(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);
(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
-85-
<PAGE>
(r) Indebtedness, in addition to the Indebtedness permitted by
clauses (a) through (q), in a principal amount not exceeding
$85,000,000.
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;
(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, and 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;
-86-
<PAGE>
(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);
and
(k) Liens not otherwise permitted to be incurred pursuant to the
foregoing clauses (a) - (j) in an aggregate principal amount which, when
aggregated with the Indebtedness permitted by Section 9.1(r), shall not
exceed $100,000,000; provided that no Lien permitted by this clause (k)
shall be created, assumed or permitted to exist with respect to any
asset constituting Collateral. Notwithstanding anything contained in
this Section 9.2(k) to the contrary, Liens may be granted by the
Borrower and its Subsidiaries in the Collateral to secure the Additional
Secured Borrower Indebtedness; provided, that all proceeds of Non-Shared
Collateral or Shared Collateral shall be applied in accordance with
Section 6.2.
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
consummate any Acquisition, 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,
(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, and
-87-
<PAGE>
(c) Acquisitions; provided (i) the Debt to Total Capitalization
Ratio does not exceed .35:1 immediately prior to any such Acquisition
and immediately after giving pro forma effect to such Acquisition, (ii)
if an Acquisition pursuant to clause (a) of the definition thereof, the
capital stock of the acquiring entity of such assets is pledged to the
Administrative Agent, for the benefit of the Banks, to secure the
Liabilities, (iii) if an Acquisition pursuant to clause (b) of the
definition thereof, the capital stock of the Acquired Person is pledged
to the Administrative Agent, for the benefit of the Banks, to secure the
Liabilities, and (iv) if an Acquisition pursuant to clause (c) of the
definition thereof, the capital stock (other than the Borrower) is
pledged to the Administrative Agent, for the benefit of the Banks, to
secure the Liabilities, in the case of clauses (ii), (iii) and (iv) of
this Section 9.3(c) on terms and conditions satisfactory to the
Administrative Agent and the Required Banks with opinions of counsel
satisfactory to the Administrative Agent and subject to any restriction
of any Applicable Insurance Code, and any agreement for borrowed money
of any such Acquired Person existing on the date of such Acquisition not
entered into in contemplation of such Acquisition; and provided,
further, that no Default exists at the time of such Acquisition or will
result therefrom and the Administrative Agent shall have received a
certificate of the chief financial officer or a vice president with
responsibility for or knowledge of financial affairs of the Borrower to
such effect and setting forth the Debt to Total Capitalization Ratio
immediately before, and after giving pro forma effect 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;
-88-
<PAGE>
(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.
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.
-89-
<PAGE>
SECTION 9.8 Transactions with Affiliates. Except as set forth on
Schedule 9.8 or in connection with the incurrence of the Additional Secured
Borrower Indebtedness, 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 Series D Preferred Stock in an amount not to exceed
$3.25 per share per annum, (b) dividends paid by the Borrower on the Conseco
Series E Preferred Stock in an amount not to exceed $400 per share per annum,
(c) 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, (d) 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, (e) dividends paid by the Borrower on the
PRIDES in an amount not to exceed $4.279 per share per annum, and (f) (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
(f)(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 (f)(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
-90-
<PAGE>
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.
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 (f) 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 Amendment Effective 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;
-91-
<PAGE>
(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;
(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;
-92-
<PAGE>
(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;
(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 Certain Indebtedness. 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;
(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; or
(d) amend or modify any provision of the agreements or other
documents evidencing the Contingent Obligation of the Borrower securing
the Additional Secured Borrower Indebtedness 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 Amendment Effective 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:
-93-
<PAGE>
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 (a) $900,000,000 at any time from the Amendment
Effective Date to and including December 31, 1997, and (b) $1,200,000,000 at any
time thereafter.
SECTION 10.3 Debt to Total Capitalization. Not permit the Debt to Total
Capitalization Ratio to exceed (a) .50:1 at any time from the Amendment
Effective Date to and including December 31, 1997, and (b) .45:1 at any time
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 Interest Coverage Ratio. Not permit the Interest Coverage
Ratio to be less than (a) 2.25:1 from the Amendment Effective Date to and
including December 31, 1997, (b) 2.50:1 from January 1, 1998 to and including
December 31, 1999 and (c) 2.75:1 at any time after December 31, 1999.
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 AND EFFECTIVENESS OF
THE EXISTING CREDIT AGREEMENT AND THIS AGREEMENT
SECTION 11.1 Initial Loans under the Existing Credit Agreement. The
obligations of the Banks to fund the initial loans under the Existing Credit
Agreement were subject to the prior or concurrent receipt by the Administrative
Agent of each of the following items set forth in this Section 11.1 which the
parties to this Agreement hereby agree have been heretofore satisfied:
-94-
<PAGE>
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;
11.1.2 The Existing Borrower Shared Pledge Agreement, the
Existing Borrower Non-Shared Pledge Agreement, the MDSCG Pledge
Agreement and the Existing New CIHC Non-Shared Pledge Agreement and the
Existing New CIHC Shared 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 to the Existing Credit Agreement,
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
to the Existing Credit Agreement, 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 was incorporated as of the Closing
Date;
11.1.6 Evidence that the Borrower paid to the Administrative
Agent the fees and expenses provided for in the Existing Credit
Agreement;
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
of the Existing Credit Agreement;
-95-
<PAGE>
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 the Existing Credit
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 the Existing Credit
Agreement and the CCPI Merger Documents;
11.1.9 A certificate of a Responsible Officer of the Borrower
that there were 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 of the Existing Credit Agreement;
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 had 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 had been
established;
11.1.13 Certified copies of the Servicing Agreements;
11.1.14 A payoff letter from the agent under the Bank of America
Credit Agreements satisfactory to the Administrative Agent relating to
the payment of the Indebtedness to be Refinanced including evidence that
all commitments had been terminated and all loans had been paid
thereunder;
11.1.15 Schedules and Exhibits satisfactory to the
Administrative Agent and the Banks;
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 by the Existing Credit Agreement in
accordance with Regulation U;
-96-
<PAGE>
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 were 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 had been duly
executed and delivered and were in full force and effect without
modification and that concurrently with the initial Borrowing the CCPI
Merger would 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 had been consummated and (b) the Conseco
Contribution would 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.
Other than the terms Existing Credit Agreement, Existing Borrower Shared Pledge
Agreement, Existing Borrower Non-Shared Pledge Agreement, Existing New CIHC
Non-Shared Pledge Agreement, Existing New CIHC Shared Pledge Agreement, and the
Bank of America Credit Agreements which shall have the meanings provided in this
Agreement, capitalized terms used in this Section 11.1 shall solely for purposes
of this Section 11.1 have the meanings set forth in the Existing Credit
Agreement.
SECTION 11.2 Effectiveness of this Agreement. The effectiveness of each
Bank's obligations under this Agreement are subject to Administrative Agent
having received all of the following, each, except to the extent otherwise
specified below, duly executed by a Responsible Officer, dated the Restatement
Date (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:
-97-
<PAGE>
11.2.1 If requested by a Bank, an appropriately completed
Tranche A Committed Note, payable to the order of such Bank evidencing
such Bank's Tranche A Commitment, if any, an appropriately completed
Tranche B Committed Note, payable to the order of such Bank evidencing
such Bank's Tranche B Commitment, if any, and an appropriately completed
Tranche A Bid Note, payable to the order of such Bank in principal
amount equal to the aggregate Tranche A Commitments and an appropriately
completed Tranche B Bid Note, payable to the order of such Bank in
principal amount equal to the aggregate Tranche B Commitments;
11.2.2 The Affirmation of Loan Documents, the Restated Borrower
Shared Pledge Agreement, the Restated New CIHC Non-Shared Pledge
Agreement and the Restated New CIHC Shared Pledge Agreement;
11.2.3 A favorable opinion of Lawrence Inlow, general counsel of
the Borrower and its Significant Subsidiaries (including BLHC),
substantially in the form of Exhibit H, and addressing such other legal
matters as the Administrative Agent may require;
11.2.4 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, respectively, and dated as of the Restatement 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, BNL's,
CCM's and CMCI's articles of incorporation, by-laws and directors
resolutions, or, if such articles of incorporation or by-laws have not
been amended since delivery under the Existing Credit Agreement,
statements to such effect;
11.2.5 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;
11.2.6 Evidence that the Borrower shall have paid to the
Administrative Agent the fees and expenses provided for herein;
-98-
<PAGE>
11.2.7 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;
11.2.8 A certificate of a Responsible Officer of the Borrower
that (a) there are no material insurance regulatory proceedings pending
or threatened against any of the Insurance Subsidiaries including BLHC
and (b) as to the matters set forth in Sections 11.3.2 through 11.3.5;
11.2.9 Schedules and Exhibits satisfactory to the Administrative
Agent and the Banks;
11.2.10 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;
11.2.11 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 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, to the extent required by the Indentures,
the holders of the Senior Notes, a perfected first priority Lien on the
Collateral (other than UCC financing statements, if any, to be filed in
connection with the Loan Documents which will be delivered for filing on
the Amendment Effective Date);
11.2.12 Evidence that the Borrower shall have made, concurrently
with the effectiveness of this Agreement, a contribution of borrowings
or prepayments so that after giving effect thereto, the principal amount
of each Bank's Tranche A Committed Loans or Tranche B Committed Loans,
as the case may be, shall be pro rata according to its Percentage; and
-99-
<PAGE>
11.2.13 Such other information and documents as may reasonably
be required by the Administrative Agent and the Administrative Agent's
counsel.
SECTION 11.3 All Loans. The obligation of the Banks to make Loans
hereunder is subject to the following further conditions precedent:
11.3.1 The Administrative Agent shall have received a duly
executed Notice of Borrowing or Competitive Bid Request;
11.3.2 No Default exists or will result from the making of the
Loans;
11.3.3 The representations and warranties of the Borrower
contained in Section 7 and by the Borrower, New CIHC, MDSCG, BNL, CCM
and CMCI in the other Loan Documents are true and correct with the same
effect as though made on the Borrowing Date;
11.3.4 No Material Litigation exists except as disclosed on
Schedule 7.8; and
11.3.5 No Material Adverse Change has occurred since December
31, 1995.
SECTION 11.4 Tranche B Loans. Prior to a Non-Purpose Credit Event, the
obligation of the Banks to make Tranche B Loans is subject to the following
further condition precedent:
11.4.1 The ratio of (a) the sum of (i) the current market value
of the common stock of BLHC pledged to the Administrative Agent, for the
benefit of the Banks, under the Restated New CIHC Non-Shared Pledge
Agreement, plus (ii) the current market value of the Collateral
Percentage of the Banks in the common stock of BLHC pledged under the
Restated New CIHC Shared Pledge Agreement plus (iii) the good faith loan
value of the Tranche B Percentage of the Collateral (other than BLHC
stock) pledged under the Pledge Agreements to (b) the aggregate
principal amount of the Tranche B Loans then outstanding is at least 2.0
to 1.0. To evidence compliance with the condition set forth in this
Section 11.4.1 (together with any event under Section 12.1.11), upon the
request of the Administrative Agent or the Required Banks, the Borrower
shall provide to the Administrative Agent, for the benefit of the Banks,
a computation of such ratio certified by its chief financial officer or
a vice president with responsibility for or knowledge of financial
matters of the Borrower; provided, that with respect to the amount in
clause (iii) of this Section 11.4.1 (or Section 12.1.11), such amount
shall be determined by the Administrative Agent (with the concurrence of
the Required Banks), and, upon such concurrence, provided to the
Borrower by the Administrative Agent.
-100-
<PAGE>
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.
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 Subsidiaries 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
-101-
<PAGE>
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.
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.
-102-
<PAGE>
12.1.6 Representations and Warranties. Any representation or
warranty made by the Borrower, New CIHC, MDSCG, 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.
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.
-103-
<PAGE>
12.1.9 Change in Control. The occurrence of a Change in Control.
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 Tranche B Collateral Value. Prior to a Non-Purpose
Event, the ratio of (a) the sum of (i) the current market value of the
common stock of BLHC pledged to the Administrative Agent, for the
benefit of the Banks, under the Restated New CIHC Non-Shared Pledge
Agreement, plus (ii) the current market value of the Collateral
Percentage of the Banks in the common stock of BLHC pledged under the
Restated New CIHC Shared Pledge Agreement plus (iii) the good faith loan
value of the Tranche B Percentage of the Collateral (other than BLHC
stock) pledged under the Pledge Agreements to (b) the aggregate
principal amount of the Tranche B Loans then outstanding is less than
1.5 to 1.0.
12.1.12 Default under the Additional Secured Borrower
Indebtedness. An event of default shall have occurred and be continuing
with respect to the Contingent Obligation of the Borrower securing the
Additional Secured Borrower Indebtedness.
SECTION 12.2 Effect of Event of Default. If any Event of Default
described 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 presentment,
demand, protest or 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.
-104-
<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; (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.
-105-
<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)
-106-
<PAGE>
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.
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 success or 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.
-107-
<PAGE>
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.
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 (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:
-108-
<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 Sections 5.8 and 15.2, 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
-109-
<PAGE>
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.
(b) Limitation 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 the 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
(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 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.
-110-
<PAGE>
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,
(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
-111-
<PAGE>
(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;
(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.
-112-
<PAGE>
Notwithstanding anything contained in this Section 15.1 to the contrary, by
executing and delivering this Agreement, each of the Banks agrees that the
Administrative Agent may (and is authorized on behalf of the Banks without the
prior consent of or notice to the Banks to) execute and deliver any and all
documents and instruments to effectuate the grant by the Borrower of Liens in
the Collateral to the extent permitted by Section 9.2(k) to secure the
Contingent Obligations securing the Additional Secured Borrower Indebtedness;
provided that the Administrative Agent shall always serve as collateral agent
for the Banks and the holders of the Additional Secured Borrower Indebtedness.
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.
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
-113-
<PAGE>
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.
-114-
<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.
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 Amendment Effective Date, and at such time the Administrative Agent shall
notify the Borrower and each Bank.
-115-
<PAGE>
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.
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.
-116-
<PAGE>
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.
SECTION 15.14 Replacement of Existing Credit Agreement. This Agreement
amends and restates the Existing Credit Agreement, and each of the Committed
Notes, if any, amends and restates and is issued in substitution for each of the
notes issued to the Banks pursuant to the Existing Credit Agreement. Upon the
effectiveness of this Agreement: (a) each of the Banks, as applicable, shall
return to the Borrower such Bank's existing notes under the Existing Credit
Agreement, such notes to be marked to indicate that such notes have been
-117-
<PAGE>
replaced by the Committed Notes, if any; and (b) all loans made pursuant to the
Existing Credit Agreement outstanding on such date shall be deemed to be
Committed Loans hereunder, shall be evidenced by the Committed Notes, if any,
and shall be entitled to all of the benefits and bear all of the obligations of
this Agreement. Each Bank is authorized to enter on its Committed Notes issued
pursuant to this Agreement the information marked on its existing note so
returned to the Borrower.
* * *
-118-
<PAGE>
Executed as of the day and year first above written at Chicago,
Illinois.
CONSECO, INC.
By: /s/ ROLLIN M. DICK
------------------------------
Name: Rollin M. Dick
------------------------------
Title: Executive Vice President
and Chief Financial Officer
------------------------------
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 ILLINOIS
By: /s/ RONALD J. DROBNY
------------------------------
Name: Ronald J. Drobny
------------------------------
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.D. 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/ TIMOTHY J. STAMBAUGH
------------------------------
Name: Timothy J. Stambaugh
------------------------------
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 - MITSUBISHI TRUST
COMPANY
By: /s/ DANIEL HOLMES
------------------------------
Name: Daniel Holmes
------------------------------
Title:
------------------------------
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
------------------------------
Name: Phil Truesdale
------------------------------
Title: Vice President
------------------------------
By: /s/ JOHN S. McGILL
------------------------------
Name: John S. McGill
------------------------------
Title: Vice President
------------------------------
Lending Office (Base Rate Loans)
Address: 499 Park Avenue
New York, New York 10022
Attention: Phil Truesdale
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
Lending Office (Offshore Rate Loans)
Address: 499 Park Avenue
New York, New York 10022
Attention: Phil Truesdale
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
Notice Address
Address: 499 Park Avenue
New York, New York 10022
Attention: Phil Truesdale
Telephone: (212) 415-9719
Facsimile: (212) 415-9695
<PAGE>
BANQUE PARIBAS
By: /s/GERALD E. O'KEEFE
------------------------------
Name: Gerald E. O'Keefe
------------------------------
Title: Vice President
------------------------------
By: /s/ CLARK C. KING
------------------------------
Name: Clark C. King
------------------------------
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/ ISOLDE G. O'HANLON
------------------------------
Name: Isolde G. O'Hanlon
------------------------------
Title: Managing Director
------------------------------
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
<PAGE>
COMERICA BANK
By: /s/ PHILLIP A. COOSAIA
------------------------------
Name: Phillip A. Coosaia
------------------------------
Title: 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/KATHLEEN M. PETRELLI
------------------------------
Name: Kathleen M. Petrelli
------------------------------
Title: Assistant Vice President
------------------------------
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/ RENAUD D'HERBES
------------------------------
Name: Renaud D'Herbes
------------------------------
Title: Authorized Signer
------------------------------
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>
DEUTSCHE BANK AG,
NEW YORK AND/OR
CAYMAN ISLANDS BRANCH
By: /s/ CYNTHIA A. GAVENDA
------------------------------
Name: Cynthia A. Gavenda
------------------------------
Title: Associate
------------------------------
By: /s/ ECKHARD OSENBERG
------------------------------
Name: Eckhard Osenberg
------------------------------
Title: Assistant Vice President
------------------------------
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
AND/OR GRAND CAYMAN BRANCH
By: /s/ ANTHONY C. VALENCOURT
------------------------------
Name: Anthony C. Valencourt
------------------------------
Title: First Vice President
------------------------------
By: /s/ LATISHA AZWEEM
------------------------------
Name: Latisha Azweem
------------------------------
Title: Assistant Treasurer
------------------------------
Lending Office (Base Rate Loans)
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 429-2286
Facsimile: (212) 429-2524
Lending Office (Offshore Rate Loans)
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 429-2286
Facsimile: (212) 429-2524
Notice Address
Address: 75 Wall Street, 30th FL
New York, NY 10005-2889
Attention: Anthony C. Valencourt
Telephone: (212) 429-2286
Facsimile: (212) 429-2524
<PAGE>
FIRST UNION NATIONAL BANK
OF NORTH CAROLINA
By: /s/ ANN M. DODD
------------------------------
Name: Ann M. Dodd
------------------------------
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>
FLEET NATIONAL BANK
By: /s/ R.J. KANE
------------------------------
Name: R. J. Kane
------------------------------
Title: Vice President
------------------------------
Lending Office (Base Rate Loans)
Address: 777 Main Street
Ins. Ind. Dept. CTMO250
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. CTMO250
Hartford, CT 06115
Attention: R. Jay Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264
Notice Address
Address: 777 Main Street
Ins. Ind. Dept. CTMO250
Hartford, CT 06115
Attention: R. Jay Kane
Telephone: (203) 986-2639
Facsimile: (203) 240-1264
<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: James Fayen
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
Lending Office (Offshore Rate Loans)
Address: 225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: James Fayen
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
Notice Address
Address: 225 West Wacker Drive
Suite 2000
Chicago, IL 60606
Attention: James Fayen
Telephone: (312) 621-0397
Facsimile: (312) 621-0539
<PAGE>
ING CAPITAL CORPORATION
By: /s/ JONATHON BANKS
------------------------------
Name: Jonathon Banks
------------------------------
Title: Managing Director
------------------------------
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: Eileen Lynch
Telephone: (212) 446-1518
Facsimile: (212) 750-8934
<PAGE>
THE LONG-TERM CREDIT BANK OF JAPAN,
LTD., CHICAGO BRANCH
By: /s/ RICHARD E. STAHL
------------------------------
Name: Richard E. Stahl
------------------------------
Title: Senior Vice President
and Joint 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/ MASAAKI YAMAGISHI
------------------------------
Name: Masaaki Yamagishi
------------------------------
Title: Chief 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, N.A. (SOUTH)
By: /s/ CHRISTINA EARNSHAW
------------------------------
Name: Christina Earnshaw
------------------------------
Title: Assistant 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 BONNAR
------------------------------
Name: Derek Bonnar
------------------------------
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 H. AULT
------------------------------
Name: Richard H. 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>
SOCIETE GENERALE
By: /s/ LAURA HOPE
------------------------------
Name: Laura 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 9150
Cincinnati, OH 45201
Attention: Cathy Siegel
Telephone: (513) 632-4032
Facsimile: (513) 632-2536
<PAGE>
THE SUMITOMO BANK, LIMITED
By: /s/ H.W. REDDING
------------------------------
Name: H.W. Redding
------------------------------
Title: Vice President & Manager
------------------------------
By: /s/ THOMAS A. GARZA
------------------------------
Name: Thomas A. Garza
------------------------------
Title: Vice President
------------------------------
Lending Office (Base Rate Loans)
Address: 233 S. Wacker Drive
Suite 5400
Chicago, IL 60606
Attention: Brian Cushing
Telephone: (312) 993-6253
Facsimile: (312) 993-6255
Lending Office (Offshore Rate Loans)
Address: 233 S. Wacker Drive
Suite 5400
Chicago, IL 60606
Attention: Brian Cushing
Telephone: (312) 993-6253
Facsimile: (312) 993-6255
Notice Address
Address: 233 S. Wacker Drive
Suite 5400
Chicago, IL 60606
Attention: Brian Cushing
Telephone: (312) 993-6253
Facsimile: (312) 993-6255
<PAGE>
VAN KAMPEN AMERICAN CAPITAL PRIME RATE
INCOME TRUST
By: /s/ JEFFREY W. MAILLET
------------------------------
Name: Jeffrey W. Maillet
------------------------------
Title: Sr. Vice President
- Portfolio 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/ KOICHIRO INOUE
------------------------------
Name: Koichiro Inoue
------------------------------
Title: Joint General 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>
<TABLE>
<CAPTION>
EXHIBIT 11.1
CONSECO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - PRIMARY
(unaudited)
Three months
ended
March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Shares outstanding, beginning of period........................................... 40,515,914 44,369,700
Weighted average shares issued (acquired) during the period:
Treasury stock acquired......................................................... (149,880) (2,965,084)
Exercise of stock options....................................................... 342,426 52,338
Preferred stock conversions..................................................... 332 -
Common equivalent shares related to:
Stock options at average market price ....................................... 2,311,936 1,385,512
Employee stock plans ........................................................ 996,726 817,686
PRIDES....................................................................... 5,666,114 -
---------- ----------
Weighted average primary shares outstanding....................................... 49,683,568 43,660,152
========== ==========
Net income for primary earnings per share:
Net income as reported.......................................................... $46,348,000 $24,422,000
Less preferred stock dividends.................................................. (4,606,000) (4,607,000)
----------- -----------
Net income for primary earnings per share......................................... $41,742,000 $19,815,000
=========== ===========
Net income per primary common share............................................... $.84 $.45
==== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11.2
CONSECO, INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE - FULLY DILUTED
(unaudited)
Three months
ended
March 31,
-------------------
1996 1995
---- ----
<S> <C> <C>
Weighted average primary shares outstanding........................................... 49,683,568 43,660,152
Incremental common equivalent shares:
Related to options and employee stock plans based
on market price at the end of the period......................................... 563,732 -
Related to convertible preferred stock (a).......................................... 8,893,198 -
----------- -----------
Weighted average fully diluted shares outstanding.................................... 59,140,498 43,660,152
=========== ===========
Net income for fully diluted earnings per share:
Net income as reported.............................................................. $46,348,000 $24,422,000
Less preferred stock dividends ..................................................... - (4,607,000)
----------- -----------
Net income for fully diluted
earnings per share.................................................................. $46,348,000 $19,815,000
=========== ===========
Net income per fully diluted
common share........................................................................ $.78 $.45
==== ====
<FN>
(a) The effect of the assumed conversion of convertible preferred stock on the
computation of fully diluted earnings per share was antidilutive in the
1995 period.
</FN>
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND> THE SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM FORM 10-Q FOR CONSECO,
INC. DATED MARCH 31, 1996 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<DEBT-HELD-FOR-SALE> 12,623,700
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 32,300
<MORTGAGE> 609,300 <F1>
<REAL-ESTATE> 0
<TOTAL-INVEST> 14,018,000
<CASH> 0
<RECOVER-REINSURE> 93,000
<DEFERRED-ACQUISITION> 1,656,300 <F2>
<TOTAL-ASSETS> 17,230,000
<POLICY-LOSSES> 12,771,900
<UNEARNED-PREMIUMS> 199,000
<POLICY-OTHER> 332,200
<POLICY-HOLDER-FUNDS> 199,800
<NOTES-PAYABLE> 1,244,100 <F3>
<COMMON> 168,300
0
550,600
<OTHER-SE> 555,900 <F4>
<TOTAL-LIABILITY-AND-EQUITY> 17,230,000
369,800
<INVESTMENT-INCOME> 273,700
<INVESTMENT-GAINS> 5,900 <F5>
<OTHER-INCOME> 42,400 <F6>
<BENEFITS> 423,000 <F7>
<UNDERWRITING-AMORTIZATION> 47,300 <F8>
<UNDERWRITING-OTHER> 62,800
<INCOME-PRETAX> 120,200
<INCOME-TAX> 44,900
<INCOME-CONTINUING> 75,300
<DISCONTINUED> 0
<EXTRAORDINARY> (17,400)
<CHANGES> 0
<NET-INCOME> 46,300
<EPS-PRIMARY> .84
<EPS-DILUTED> .78
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
<FN>
<F1> Includes $325,300 of mortgage loans and $284,000 of credit-tenant loans.
<F2> Includes $481,600 of cost of policies produced and $1,174,700 of cost of
policies purchased.
<F3> Includes (i) notes payable of Conseco of $660,700 and (ii) notes payable
of Bankers Life Holding Corporation of $299,900 and Partnership II of
$283,500 which are not direct obligations of Conseco.
<F4> Includes retained earnings of $572,800, offset by net unrealized
appreciation of securities of $(16,900).
<F5> Includes net realized gains of $9,400 and net trading losses of $3,500.
<F6> Includes fee revenue of $10,100, restructuring income of $30,400 and other
income of $1,900.
<PAGE>
<F7> Includes insurance policy benefits of $274,700, change in future policy
benefits of $9,200 and interest expense on annuities and financial
products of $139,100.
<F8> Includes amortization of cost of policies purchased of $25,700,
amortization of cost of policies produced of $12,500 and amortization
related to realized gains of $9,100.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
for the three months ended March 31, 1996
(Dollars in millions)
(Unaudited)
<TABLE>
<CAPTION>
Pro forma Conseco
adjustments pro forma
reflecting totals
various (before
Conseco other LPG
as reported transactions Merger)
----------- ------------ ------
<S> <C> <C> <C>
Revenues:
Insurance policy income........................................ $369.8 $ - $369.8
Investment activity:
Net investment income........................................ 273.7 273.7
Net trading losses........................................... (3.5) (3.5)
Net realized gains........................................... 9.4 9.4
Fee revenue.................................................... 10.1 10.1
Restructuring income........................................... 30.4 30.4
Other income................................................... 1.9 1.9
------ ------ ------
Total revenues............................................. 691.8 - 691.8
------ ------ ------
Benefits and expenses:
Insurance policy benefits...................................... 274.7 274.7
Change in future policy benefits............................... 9.2 9.2
Interest expense on annuities and financial products........... 139.1 139.1
Interest expense on notes payable.............................. 28.4 (1.2) (1) 25.6
(1.6) (2)
Interest expense on investment borrowings...................... 3.7 3.7
Amortization related to operations............................. 44.6 44.6
Amortization related to realized gains......................... 9.1 9.1
Other operating costs and expenses............................. 62.8 62.8
------ ------ ------
Total benefits and expenses................................ 571.6 (2.8) 568.8
------ ------ ------
Income before income taxes, minority interest
and extraordinary charge................................. 120.2 2.8 123.0
Income tax expense................................................ 44.9 1.0 (3) 45.9
------ ------ ------
Income before minority interest and extraordinary charge... 75.3 1.8 77.1
Less minority interest............................................ 11.6 .1 (4) 11.7
------ ------ ------
Income before extraordinary charge......................... $ 63.7 $ 1.7 $ 65.4
====== ====== ======
Earnings per common share and common equivalent share:
Primary:
Weighted average shares outstanding...................... 49.7 1.8 (5) 51.5
===== === =====
Income before extraordinary charge....................... $1.19 $1.18
===== =====
Fully diluted:
Weighted average shares outstanding...................... 59.1 1.8 (5) 60.9
===== === =====
Income before extraordinary charge....................... $1.08 $1.07
===== =====
<FN>
The accompanying notes are an integral part of the pro forma
consolidated financial statements.
</FN>
</TABLE>
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
BASIS OF PRESENTATION
The unaudited pro forma consolidated statement of operations for the three
months ended March 31, 1996, of Conseco, Inc. ("Conseco" or the "Company") is
presented as if the following transactions had occurred on January 1, 1995: (i)
the issuance of 4.37 million shares of Preferred Redeemable Increased Dividend
Equity Securities, 7% Convertible Preferred Stock ("PRIDES") in January 1996;
and (ii) the BLH tender offer for and repurchase of its senior subordinated
notes due 2002 and related financing transactions completed in March 1996.
The pro forma consolidated financial statements are based on the historical
financial statements of Conseco and should be read in conjunction with its
respective financial statements and notes included in Conseco's Form 10-Q for
the quarterly period ended March 31, 1996. The pro forma data are not
necessarily indicative of the results of operations of Conseco had those
transactions occurred on January 1, 1995, nor the results of future operations.
In March 1996, Conseco and Life Partners Group, Inc. ("LPG") signed a
definitive merger agreement, whereby LPG would become a wholly owned subsidiary
of Conseco (the "Merger"). These pro forma consolidated financial statements do
not include the pro forma effect of the Merger.
PRO FORMA ADJUSTMENTS
(1) On January 23, 1996, Conseco completed the offering of 4.37 million
shares of PRIDES. Proceeds from the offering of approximately $258
million (after underwriting and other associated costs) were used to
repay amounts outstanding under a senior credit facility (the
"Conseco Credit Facility").
Each share of PRIDES will pay dividends at the annual rate of 7
percent of the $61.125 liquidation preference per share (equivalent
to an annual amount of $4.279 per share), payable quarterly. On
February 1, 2000, unless either previously redeemed by Conseco or
converted at the option of the holder, each share of PRIDES will
mandatorily convert into two shares of Conseco common stock, subject
to adjustment in certain events. Shares of PRIDES are not redeemable
prior to February 1, 1999. During the period February 1, 1999 through
February 1, 2000, Conseco may redeem any or all of the outstanding
shares of PRIDES. Upon such redemption, each holder will receive, in
exchange for each share of PRIDES, the number of shares of Conseco
common stock equal to (A) the sum of (i) $62.195, declining to
$61.125 after February 1, 1999, and (ii) accrued and unpaid dividends
divided by (B) the market price of Conseco common stock at such date,
but in no event less than 1.71 shares of Conseco common stock. The
following summarizes the sources and uses of funds related to this
transaction (dollars in millions):
<TABLE>
<S> <C>
Sources of funds:
Gross proceeds from issuance of PRIDES................................................... $267.1
Underwriting and other transaction expenses (charged to paid-in capital)................. (8.5)
------
Net proceeds..................................................................... 258.6
Uses of funds:
Principal repaid on Conseco Credit Facility.............................................. (245.0)
Payment of accrued interest.............................................................. (2.6)
------
Funds available.................................................................. $ 11.0
======
</TABLE>
Interest expense is adjusted to reflect the repayment of a portion of
the Conseco Credit Facility using a portion of the proceeds from the
issuance of the PRIDES.
<PAGE>
CONSECO, INC. AND SUBSIDIARIES
NOTES TO PRO FORMA CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(2) In March 1996, BLH completed a tender offer pursuant to which it
repurchased $148.3 million principal amount of its 13 percent senior
subordinated notes for $173.2 million. The repurchase was made using
the proceeds from a revolving credit facility entered into in
February 1996. Maximum principal amounts which can be borrowed under
the agreement total $400 million (including a competitive bid
facility in the aggregate principal amount of up to $100 million).
Amounts borrowed under the new facility are due in 2001 and accrue
interest at a rate of LIBOR plus an applicable margin of between 50
and 75 basis points, depending on BLH's ratio of consolidated net
worth. Additional proceeds were borrowed under the agreement to repay
the existing $110 million principal balance due under the bridge loan
facility and for other corporate purposes. The following summarizes
the sources and uses of funds related to the tender offer and related
financing transactions:
<TABLE>
<CAPTION>
<S> <C>
Sources of funds:
Amounts borrowed under $400 million revolving credit agreement................ $310.0
======
Uses of funds:
Related to 13 percent senior subordinated notes:
Principal tendered......................................................... $148.3
Premium paid in tender offer............................................... 24.8
Payment of accrued interest................................................ 6.6
Related to bridge loan facility:
Principal repaid .......................................................... 110.0
Payment of accrued interest................................................ .5
Debt issuance costs........................................................... 3.7
Other corporate purposes, including repayment
of amounts borrowed to purchase BLH common stock........................... 16.1
------
Total uses........................................................ $310.0
======
</TABLE>
Interest expense is adjusted to reflect reduced interest expense on
the $148.3 million principal balance of BLH's senior subordinated
notes which were tendered, offset by interest expense on amounts
borrowed under the BLH revolving credit facility.
(3) All pro forma adjustments to operations are tax affected based on the
appropriate rate for the specific item.
(4) The minority interests' share of the pro forma adjustments is
recognized.
(5) Primary and fully diluted weighted average shares outstanding
are adjusted to reflect the issuance of the PRIDES.
