As filed with the Securities and Exchange Commission on October
29 , 1996
Registration No. 333-01173
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-1
PRE-EFFECTIVE AMENDMENT NO. 2 to
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of Registrant)
COLORADO 63 84-0467907
(State of Incorporation) (Primary Standard (I.R.S. Employer
Industrial Identification
Classification Code No.)
Number)
8515 East Orchard Road
Englewood, Colorado 80111
(800) 537-2033
(Address, including zip code, and telephone number,
including area code, or registrant's principal executive officer)
William T. McCallum
President and Chief Executive Officer
Great-West Life & Annuity Insurance Company
8515 East Orchard Road
Englewood, Colorado 80111
(Name and Address of Agent for Service)
Copy to:
James F. Jorden, Esq.
Jorden Burt Berenson & Johnson LLP
1025 Thomas Jefferson Street, N.W., Suite 400 East
Washington, D.C. 20007-0805
Approximate Date of Proposed Public Offering: Upon the effective
date of
this Registration Statement.
It is proposed that this Registration Statement will become
effective on
October 31, 1996
If any of the securities being registered on this form are to be
offered on
a delayed or continuous basis pursuant to Rule 415 under the
Securities Act
of 1933, check the following:
If this Form is filed to register additional securities for an
offering
pursuant to Rule 462(b) under the Securities Act, check the
following box and
list the Securities Act registration statement number of the
earlier
effective registration statement for the same offering:
If this Form is a post-effective amendment filed pursuant to Rule
462(c)
under the Securities Act, check the following box and list the
Securities Act
registration statement for the same offering:
If delivery of the prospectus is expected to be made pursuant to
Rule 434,
check the following box:
The Registrant hereby amends this registration statement on such
date or
dates as may be necessary to delay its effective date until the
Registrant
shall file a further amendment which specifically states that this
registration statement shall thereafter become effective in
accordance with
Section 8(a) of the Securities Act of 1933 or until the
registration
statement shall become effective on such date as the Commission
acting
pursuant to said Section 8(a) may determine.<PAGE>
Cross Reference Sheet
Showing Location in Prospectus
and Statement of Additional Information
As Required by Form S-1
FORM S-1 PROSPECTUS
CAPTION ITEM
1. Forepart of Registration Statement
and Outside Front Cover Page Cover Page
2. Inside Front and Outside Cover Page;
Back Cover Pages Table of
Contents
3. Summary Information, Risk Factors Key Features of
and Ratio of Earnings the Annuity;
to Fixed Charges Great-West Life
&
Annuity
Insurance
Company
4. Use of Proceeds Not Applicable
5. Determination of Offering Price Not Applicable
6. Dilution Not Applicable
7. Selling Security Holders Not Applicable
8. Plan of Distribution Distribution of
the Contracts
9. Description of Securities The Guarantee
Period Fund; The
Market Value
Adjustment
10. Interest of Named Experts Legal Matters;
and Counsel Experts
11. Information with Respect Selected
Financial
to the Registrant Data; Legal
Proceedings;
Financial
Statements
12. Disclosure of Commission, Distribution of
Position on Indemnification the Contracts
for Securities Act Liabilities
<PAGE>
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT.
A REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN
FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY
NOT BE SOLD NOR MAY OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS SHALL
NOT
CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY
NOR SHALL THERE BE ANY SALE OF THESE SECURITIES IN ANY STATE IN
WHICH
SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR TO
REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH
STATE.
THE SCHWAB VARIABLE ANNUITY TM
A FLEXIBLE PREMIUM DEFERRED FIXED AND VARIABLE ANNUITY
Distributed by
CHARLES SCHWAB & CO., INC.
_____________________________________________
Issued by
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
This prospectus describes interests under a flexible premium
deferred
annuity contract, The Schwab Variable Annuity (the "Contract").
The
Contract is issued either on a group basis or as individual
contracts
by Great-West Life & Annuity Insurance Company (the "Company").
Participation in a group contract will be accounted for by the
issuance of a certificate showing an interest under the group
contract. The certificate and the individual contract are
hereafter
both referred to as the "Contract."
Your investment in the Contract may be allocated among
twenty-one
Investment Divisions of the Variable Annuity-1 Series Account
("Series Account") and the available Guarantee Periods under the
Guarantee Period Fund. The Investment Divisions invest in various
underlying funds (open-end investment companies) offered by fund
families such as Federated, INVESCO, Janus, Lexington, Alger,
Schwab
Funds, Stein Roe, Strong, Montgomery, Twentieth Century and Van
Eck.
You also have the option of allocating some or all of your
investment
in the Contract to the Guarantee Period Fund which allows you to
select one or more Guarantee Periods, each of which offers you a
specified interest rate for a specified period. There may be a
market value adjustment on the amounts withdrawn from the Guarantee
Period Fund.
The minimum initial investment is $5,000 ($2,000 if an IRA) or
$1,000
if made under an Automatic Contribution Plan ("ACP"). The minimum
subsequent Contribution is $500 (or $100 per month if made under an
ACP).
There are no sales charges, redemption, surrender or withdrawal
charges. The Contract provides a Free Look Period of 10 days from
your receipt of the Contract (or longer, if required by state law),
during which time you may cancel your investment in the Contract.
During the Free Look Period, all Contributions allocated to an
Investment Division will be allocated first to the Schwab Money
Market Investment Division and will remain there until the next
Transaction Date following the end of the Free Look Period.
Contributions to the Guarantee Period Fund will be allocated
immediately into the specified Guarantee Period(s).
Your Variable Account Value will increase or decrease based on the
investment performance of the options you select. You bear the
entire investment risk under the Contract prior to the annuity
commencement date for all amounts in your Variable Sub-Accounts.
While there is a guaranteed death benefit, there is no guaranteed
or
minimum Variable Account Value on amounts allocated to Investment
Divisions. Therefore, the Annuity Account Value you receive could
be
less than the total amount of your Contributions.
Amounts allocated to the Guarantee Period Fund may be subject to a
Market Value Adjustment which could result in receipt of less than
your Contributions if you surrender, Transfer, make a partial
withdrawal, apply amounts to purchase an annuity or take a
distribution upon the death of the Owner or Annuitant before a
Guarantee Period Maturity Date. Whether such a result actually
occurs depends on the timing of the transaction, the amount of the
Market Value Adjustment and the interest rate credited. The
interest
rate in subsequent Guarantee Periods may be more or less than the
rate of a previous Guarantee Period.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE. NO PERSON IS AUTHORIZED BY THE COMPANY TO GIVE
INFORMATION
OR TO MAKE ANY REPRESENTATION, OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS, IN CONNECTION WITH THE OFFERS CONTAINED IN THIS
PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY
JURISDICTION IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE.
PLEASE
READ THIS PROSPECTUS AND KEEP IT FOR FUTURE REFERENCE.
Prospectus Dated November 1 , 1996
The Contracts are not deposits of, or guaranteed or endorsed by any
bank, nor are the Contracts federally insured by the Federal
Deposit
Insurance Corporation, the Federal Reserve Board or any other
government agency. The Contracts involve certain investment risks,
including possible loss of principal.
To Place Orders and for Account Information: Contact the Schwab
Annuity Service Center at 800-838-0650 or P.O. Box 7666, San
Francisco, California 94120-7666.
About This Prospectus: This Prospectus concisely presents
important
information you should have before investing in the Contract.
Please
read it carefully and retain it for future reference. You can find
more detailed information pertaining to the Contract in the
Statement
of Additional Information dated November 1, 1996 (as may be amended
from time to time), and filed with the Securities and Exchange
Commission. The Statement of Additional Information is
incorporated
by reference into this Prospectus, and may be obtained without
charge
by contacting the Schwab Annuity Service Center at 800-838-0650 or
P.O. Box 7666, San Francisco, California 94120-7666.
<PAGE>
TABLE OF CONTENTS
Page
DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . .iv
KEY FEATURES OF THE ANNUITY . . . . . . . . . . . . . . . . . . .
1
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT . . . . . . . . . . . . . . . .
7
THE ELIGIBLE FUNDS. . . . . . . . . . . . . . . . . . . . . . . .
8
THE GUARANTEE PERIOD FUND . . . . . . . . . . . . . . . . . . . .12
THE MARKET VALUE ADJUSTMENT . . . . . . . . . . . . . . . . . . .15
APPLICATION AND CONTRIBUTIONS . . . . . . . . . . . . . . . . . 16
ANNUITY ACCOUNT VALUE . . . . . . . . . . . . . . . . . . . . . .17
TRANSFERS . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
CASH WITHDRAWALS. . . . . . . . . . . . . . . . . . . . . . . . .21
TELEPHONE TRANSACTIONS. . . . . . . . . . . . . . . . . . . . . .22
DEATH BENEFIT . . . . . . . . . . . . . . . . . . . . . . . . . .22
CHARGES AND DEDUCTIONS. . . . . . . . . . . . . . . . . . . . . .25
PAYMENT OPTIONS . . . . . . . . . . . . . . . . . . . . . . . . .27
FEDERAL TAX MATTERS . . . . . . . . . . . . . . . . . . . . . . .31
ASSIGNMENTS OR PLEDGES. . . . . . . . . . . . . . . . . . . . . .36
PERFORMANCE DATA . . . . . . . . . . . . . . . . . . . . . . . .36
DISTRIBUTION OF THE CONTRACTS . . . . . . . . . . . . . . . . . .37
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . .38
VOTING RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . 48
RIGHTS RESERVED BY THE COMPANY. . . . . . . . . . . . . . . . . .49
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . .49
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . .49
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . .50
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . .50
FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . F-1
___________________________________________________________________
_______
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFERING IN ANY JURISDICTION
IN WHICH SUCH OFFERING MAY NOT LAWFULLY BE MADE. NO DEALER,
SALESPERSON, OR OTHER PERSON IS AUTHORIZED TO GIVE ANY INFORMATION
OR MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH OTHER INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED ON.
___________________________________________________________________
_______
The Contract is not available in all states.
<PAGE>
___________________________________________________________________
_______
DEFINITIONS
___________________________________________________________________
_______
Accumulation Period - The period between the Effective Date and the
Payment Commencement Date.
Annuitant - The person named in the application upon whose life the
payment of an annuity is based and who will receive annuity
payments.
If a Contingent Annuitant is named, then the Annuitant will be
considered the Primary Annuitant. While the Annuitant is living
and
at least 30 days prior to the annuity commencement date, the Owner
may, by Request, change the Annuitant.
Annuity Account - An account established by the Company in the name
of the Owner that reflects all account activity under this
Contract.
Annuity Account Value - The sum of the Variable and Fixed Sub-
Accounts credited to the Owner under the Annuity Account; less
Transfers, partial withdrawals, amounts applied to an annuity
option,
periodic withdrawals, charges deducted under the Contract and, less
Premium Tax, if any.
Annuity Payment Period - The period beginning on the annuity
commencement date and continuing until all annuity payments have
been
made under the Contract.
Annuity Unit - An accounting measure used to determine the dollar
value of any variable annuity payment after the first annuity
payment
is made.
Automatic Contribution Plan ("ACP") - A plan which allows for
automatic periodic Contributions. The Contribution amount will be
withdrawn from a designated pre-authorized account and
automatically
credited to the Annuity Account.
Beneficiary - The person(s) designated by the Owner, in the
application, or as subsequently changed by the Owner by Request, to
receive any death benefit which may become payable under the terms
of
the Contract. If the surviving spouse of an Owner is the surviving
Joint Owner, the surviving spouse will become the Beneficiary upon
such Owner's death and may elect to take the death benefit, if any,
or elect to continue the Contract in force.
Company - Great-West Life & Annuity Insurance Company, the issuer
of
this annuity, located at 8515 East Orchard Road, Englewood,
Colorado
80111.
Contingent Annuitant - The person named in the application, unless
later changed by the Owner by Request while the Annuitant is alive
and before annuity payments have commenced, who becomes the
Annuitant
when the Primary Annuitant dies. No new Contingent Annuitant may
be
designated after the death of the Primary Annuitant.
Contributions - Purchase amounts received under the Contract and
allocated to the Fixed or Variable Sub-Account(s) prior to any
Premium Tax or other deductions.
Effective Date - The date on which the first Contribution is
credited
to the Annuity Account.
Eligible Fund - A registered management investment company, or
portfolio thereof, in which the assets of the Series Account may be
invested.
Fixed Sub-Accounts - The subdivision(s) of the Owner's Annuity
Account reflecting the value of Contributions made to a fixed
interest investment option available under the Contract and any
Fixed
Sub-Account Riders.
Guarantee Period - One of the periods of time available in the
Guarantee Period Fund during which the Company will credit a stated
rate of interest. The Company may stop offering any term at any
time
for new Contributions. Amounts allocated to one or more Guaranteed
Periods may be subject to a Market Value Adjustment.
Guarantee Period Fund - A Fixed Sub-Account in which amounts
allocated will be credited a stated rate of interest for the
applicable Guarantee Period(s).
Guarantee Period Maturity Date - The last day of any Guarantee
Period.
Guaranteed Interest Rate - The minimum interest rate applicable to
each Fixed Sub-Account equal to an annual effective rate in effect
at
the time the Contribution is made and as reflected in written
confirmation of the Contribution. This is the minimum rate allowed
by law and is subject to change in accordance with changes in
applicable law.
Individual Retirement Annuity (IRA) - An annuity contract used in
a
retirement savings program that is intended to satisfy the
requirements of Section 408 of the Internal Revenue Code of 1986,
as
amended.
Investment Division - A division of the Series Account containing
the
shares of an Eligible Fund. There is an Investment Division for
each
Eligible Fund.
Market Value Adjustment - An adjustment which may be made to
amounts
paid out before the Guarantee Period Maturity Date due to
surrenders,
partial withdrawals, Transfers, amounts applied to the periodic
withdrawal option or to purchase an annuity, and distributions
resulting from death of the Owner or Annuitant, as applicable. The
Market Value Adjustment may increase or decrease the amount payable
on one of the above-described distributions. A negative adjustment
may result in an effective interest rate lower than the applicable
Guaranteed Interest Rate and the value of the Contribution(s)
allocated to the Guarantee Period being less than the
Contribution(s)
made. The Market Value Adjustment is detailed on page 15.
Non-Qualified Annuity Contract - An annuity contract which is not
intended to be part of a qualified retirement plan and is not
intended to satisfy the requirements of Section 408 of the Internal
Revenue Code of 1986, as amended.
Owner (Joint Owner) or You - The person(s), while the Annuitant is
living, named in the Contract Data Page who is entitled to exercise
all rights and privileges under the Contract. Joint Owners must be
husband and wife as of the date the Contract is issued. The
Annuitant will be the Owner unless otherwise indicated in the
application. If a Contract is purchased as an IRA, the Owner and
the
Annuitant must be the same individual and no Joint Owner may be
named. Any reference to Owner in the singular tense shall include
the plural, and vice versa, as applicable.
Payment Commencement Date - The date on which annuity payments or
periodic withdrawals commence under a payment option. The Payment
Commencement Date must be at least one year after the Effective
Date
of the Contract. If a Payment Commencement Date is not shown on
the
Contract Data Page, annuity payments will commence on the first day
of the month of the Annuitant's 91st birthday. The Payment
Commencement Date may be changed by the Owner within 60 days prior
to
commencement of annuity payments or it may be changed by the
Beneficiary upon the death of the Owner. If this is an IRA,
payments
which satisfy the minimum distribution requirements of the Internal
Revenue Code of 1986, as amended, must begin no later than the
Owner's attainment of age 70 1/2.
Premium Tax - The amount of tax, if any, charged by a state or
other
governmental authority.
Request - Any written, telephoned, or computerized instruction in
a
form satisfactory to the Company and received at the Schwab Annuity
Service Center (or other annuity service center subsequently named)
from the Owner or the Owner's designee (as specified in a form
acceptable to the Company) or the Beneficiary (as applicable) as
required by any provision of the Contract or as required by the
Company. All Requests are subject to any action taken or payment
made by the Company before it was processed.
Schwab Annuity Service Center - P.O. Box 7666, San Francisco,
California 94120-7666, telephone 800-838-0650.
Series Account - The segregated account established by the Company
under Colorado law and registered as a unit investment trust under
the Investment Company Act of 1940, as amended.
Simplified Employee Pension - An individual retirement annuity
(IRA)
which may accept contributions from one or more employers under a
retirement savings program intended to satisfy the requirements of
Section 408(k) of the Internal Revenue Code of 1986, as amended.
Surrender Value - The Annuity Account Value with a Market Value
Adjustment, if applicable, on the effective date of the surrender,
less Premium Tax, if any.
Transaction Date - The date on which any Contribution or Request
from
the Owner will be processed by the Company at the Schwab Annuity
Service Center. Contributions and Requests received after 4:00
p.m.
EST/EDT will be deemed to have been received on the next business
day. Requests will be processed and the Variable Account Value
will
be determined on each day that the New York Stock Exchange is open
for trading.
Transfer - The moving of money from among and between the
Investment
Division(s) and the Guaranteed Period Fund.
Variable Account Value - The sum of the values of the Variable Sub-
Accounts credited to the Owner under the Annuity Account.
Variable Sub-Accounts - The sub-division(s) of the Owner's Annuity
Account containing the value credited to the Owner under the
Annuity
Account from an Investment Division.
We, our, us, or GWL&A: Great-West Life & Annuity Insurance
Company.
<PAGE>
KEY FEATURES OF THE ANNUITY
The Contract currently allows you to invest in your choice of
twenty-
one different Investment Divisions offered by eleven different
mutual
fund investment advisers. You can also invest in the Guarantee
Period Fund. Your Annuity Account Value allocated to an Investment
Division will vary with the investment performance of the
Investment
Division you select. You bear the entire investment risk for all
amounts invested in the Investment Division(s). Your Annuity
Account
Value could be less than the total amount of your
Contributions.
Who should invest. The Contract is designed for investors who are
seeking long-term tax deferred asset accumulation with a wide range
of investment options. The Contract can be used for retirement or
other long-term investment purposes. The deferral of income taxes
is
particularly attractive to investors in high federal and state tax
brackets who have already fully taken advantage of their ability to
make IRA contributions or "pre-tax" contributions to their employer
sponsored retirement or savings plans.
A Wide Range of Variable Investment Choices. The Contract gives
you
an opportunity to select among twenty-one different Investment
Divisions. Each Investment Division invests in shares of an
Eligible
Fund. The Eligible Funds cover a wide range of investment
objectives
as follows:
Investment Objective Eligible Funds
Aggressive Growth Janus Aspen Aggressive
Growth Portfolio
SteinRoe Capital
Appreciation Fund
Strong Discovery Fund II
Alger American Small
Capitalization Portfolio
Growth Janus Aspen Growth Portfolio
Alger American Growth Portfolio
TCI Growth
Montgomery Variable Series:
Growth Fund
Schwab Asset Director - High
Growth Portfolio
Index Schwab S&P 500 Portfolio
Growth & Income Federated American Leaders
Fund II
Equity Income INVESCO VIF-Industrial Income
Portfolio
Balanced/Asset Allocation INVESCO VIF-Total Return
Portfolio
Gold/Natural Resources Van Eck Gold and Natural
Resources Fund
International Lexington Emerging Markets
Fund
TCI International
Janus Aspen Worldwide Growth
Portfolio
Montgomery Variable Series:
International Small Cap Fund
High Yield Bond INVESCO VIF-High Yield
Portfolio
Government Bond Federated Fund for U.S.
Government Securities II
Money Market Schwab Money Market Portfolio
The distinct investment objectives and policies for each
Eligible
Fund are more fully described in their individual fund prospectuses
which are available from the Schwab Annuity Service Center, P.O.
Box
7666, San Francisco, California 94120-7666, or via telephone at 1-
800-838-0650.
The Guarantee Period Fund. The Contract also gives you an
opportunity to allocate your Contributions and to transfer your
Annuity Account Value to the Guarantee Period Fund. This Fixed
Sub-
Account option is comprised of Guarantee Periods, each of which has
its own stated rate of interest and its own maturity date. The
stated rate of interest for the Guarantee Period will depend on the
date the Guarantee Period is established and the duration of the
Guarantee Period you select from among those available. The rates
declared are subject to a minimum (Guaranteed Interest Rate), but
the
Company may declare higher rates (the stated rate of interest).
The
Guaranteed Interest Rate will be disclosed in the written
confirmation. The stated rate of interest will not be less than
the
Guaranteed Interest Rate and will also be disclosed in the written
confirmation. Amounts withdrawn or transferred from a Guarantee
Period prior to the Guarantee Period Maturity Date may be subject
to
a Market Value Adjustment. (See "Market Value Adjustment," page
15.)
How to Invest. You must complete a Contract application form in
order to invest in the Contract and you must pay by check or
instruct
us to transfer funds from your Schwab account. The minimum initial
investment is $5,000 (or $2,000 if in an IRA). Subsequent
investments must be at least $500. The minimum initial investment
may be reduced to $1,000 should the Owner agree to make additional
$100 per month minimum recurring deposits through an ACP.
Free Look Period. The Contract provides for a Free Look Period
which
allows you to cancel your investment generally within 10 days of
your
receipt of the Contract. You can cancel the Contract during the
Free
Look Period by delivering or mailing the Contract to the Schwab
Annuity Service Center. The cancellation is not effective unless
we
receive a notice which is postmarked before the end of the Free
Look
Period. If the Contract is returned, the Contract will be void
from
the start and the Annuity Account Value will be refunded. These
procedures may vary where required by state law. (See "Application
and Contributions," page 16.)
Allocation of the Initial Investment. Any initial Contribution
allocated to an Investment Division (other than certain 1035
exchanges - see "Application and Contributions," page 16) will be
allocated to the Schwab Money Market Portfolio until the next
Transaction Date following the end of the Free Look Period. At
that
time, the Variable Account Value will be allocated to the
Investment
Divisions in accordance with your instructions. (See "Annuity
Account Value," page 17.) Your initial investment in the Guarantee
Period Fund will be immediately allocated to the Guarantee
Period(s)
specified in the application.
Charges and Deductions Under the Contract. The Contract is a "no
load" variable annuity and, as such, imposes no sales charges,
redemption or withdrawal charges.
There is a Mortality and Expense Risk Charge at an effective
annual
rate of 0.85% of the value of the net assets in the Variable
Account.
A Contract Maintenance Charge of $25 will be deducted annually from
your Annuity Account Value. There will be a transfer fee of $10
for
each Transfer in excess of twelve Transfers per calendar year.
(See
"Charges and Deductions," page 25.)
Depending on your state of residence, we may deduct a charge for
Premium Tax from purchase payments or amounts withdrawn or at the
Payment Commencement Date. (See "Charges and Deductions," page
25.)
The Market Value Adjustment may increase or decrease the value of
a
Guarantee Period if the Guarantee Period is broken prior to the
Guarantee Period Maturity Date. A negative adjustment may result
in
an effective interest rate lower than the stated rate of interest
for
the Guarantee Period and the Guaranteed Interest Rate and the value
of the Guarantee Period being less
than Contribution(s). (See "Market Value Adjustment," page 15).
Switching Investments. You may switch Contributions among the
Investment Divisions or Guarantee Period
Fund as often as you like with no immediate tax consequences. You
may make a Transfer Request to the
Schwab Annuity Service Center. A transfer fee may apply. (See
"Charges and Deductions," page 25.)
Amounts Transferred out of a Guarantee Period prior to the
Guarantee Period Maturity Date may be subject
to a Market Value Adjustment. (See "Market Value Adjustment," page
15.)
Full and Partial Withdrawals. You may withdraw all or part of your
Annuity Account Value before the earlier
of the annuity commencement date you selected or the Annuitant's or
Owner's death. Withdrawals may be
taxable and if made prior to age 59 1/2 may be subject to a 10%
penalty tax. Withdrawals of amounts
allocated to a Guarantee Period prior to the Guarantee Period
Maturity Date may be subject to Market Value
Adjustment. (See "Market Value Adjustment," page 15.) The minimum
partial withdrawal prior to the Market
Value Adjustment is $500. There is no limit on the number of
withdrawals made. The Company may delay
payment of withdrawals from your Variable Sub-Accounts by up to 7
days and may delay withdrawals from
the Guarantee Period Fund by up to 6 months. (See "Cash
Withdrawals," page 21.)
Annuity Options. Beginning on the first day of the month
immediately following the annuity commencement
date you select, you may elect to receive annuity payments on a
fixed or variable basis. (The default date
is the first day of the month that the Annuitant attains age 91.)
A wide range of annuity options are available
to provide flexibility in choosing an annuity payment schedule that
meets your particular needs. These
annuity options include alternatives designed to provide payments
for life (for either a single or joint life), with
or without a guaranteed minimum number of payments. (See "Payment
Options," page 27.)
Death Benefit. The amount of the death benefit, if payable before
annuity payments commence, will be the
greater of (a) the Annuity Account Value with a Market Value
Adjustment, if applicable, as of the date a
Request for payment is received, less Premium Tax, if any; or (b)
the sum of Contributions paid, less partial
withdrawals and Periodic Withdrawals, less charges deducted under
the Contract, if any, less Premium Tax,
if any. (See "Death Benefit," page 22.)
Customer Service. Schwab's professional representatives are
available toll-free to assist you. If you have
any questions about your Contract, please telephone the Schwab
Annuity Service Center (800-838-0650) or
write to the Schwab Annuity Service Center at P.O. Box 7666, San
Francisco, California 94120-7666. All
inquiries should include the Contract number and the Owner's name.
As a Contract Owner you will receive
periodic statements confirming any transactions relating to your
Contract, as well as a quarterly statement
and an annual report.
<PAGE>
VARIABLE ANNUITY FEE TABLE
The purpose of this table and the examples that follow is to
assist you in understanding the various
costs and expenses that you will bear directly or indirectly when
investing in the Contract. The table and
examples reflect expenses related to the Investment Divisions as
well as of the Eligible Funds. The table
assumes that the entire Annuity Account Value is allocated to one
or more Investment Divisions. The
information set forth should be considered together with the
narrative provided under the heading "Charges
and Deductions," page 25 of this Prospectus, and with the Funds'
prospectuses. In addition to the expenses
listed below, Premium Tax may be applicable.
Contract Owner Transaction Expenses
Sales Load None
Surrender Fee None
Transfer Fee (First 12 Per Year) None
Annual Contract Maintenance Charge $25.00
Investment Division Annual Expenses1
(as a percentage of average Variable
Account assets)
Mortality and Expense Risk Charge 0.85%
Administrative Expense Charge 0.00%
Other Fees and Expenses of the Variable Account0.00%
Total Investment Division Annual Expenses0.85%
<PAGE>
Eligible Fund Annual Expenses (1)
(as a percentage of Eligible Fund net assets, after expenses
reimbursements)
Total
Management Other 12b-1 Eligible
Fees Expenses Fees Fund
Expenses
Portfolio
Alger American Growth Portfolio .75% .10% 0% .85%
Alger American Small
Capitalization Portfolio .85% .07% 0% .92%
Federated American Leaders Fund II .0% .85% 0% .85%
Federated Fund for U.S. Government Securities II.0%.80%0%.80%
INVESCO VIF-High Yield Portfolio.60%.37% 0% .97%
INVESCO VIF-Industrial Income Portfolio.75%.28%0% 1.03%
INVESCO VIF-Total Return Portfolio.75%.26% 0% 1.01%
Janus Aspen Aggressive
Growth Portfolio .75% .11% 0% .86%
Janus Aspen Growth Portfolio.65%.13% 0% .78%
Janus Aspen Worldwide
Growth Portfolio .68% .22% 0% .90%
Lexington Emerging Markets Fund.85%.90% 0% 1.75%
Montgomery Variable Series: Growth Fund1.00%.25%0%1.25%
Montgomery Variable Series:
International Small Cap Fund1.25%.25% 0% 1.50%
Schwab Asset Director -
High Growth Portfolio.60% .15% 0% .75%
Schwab Money Market Portfolio.44%.06% 0% .50%
Schwab S&P 500 Portfolio.20% .15% 0% .35%
SteinRoe Capital Appreciation Fund.50%.26% 0% .76%
Strong Discovery Fund II1.00% .31% 0% 1.31%
TCI Growth 1.00% 0% 0% 1.00%
TCI International 1.50% 0% 0% 1.50%
Van Eck Gold and Natural Resources Fund.90%.18%0% 1.08%
_________________________________
(1) The figures given above reflect the amounts actually
deducted
from the Eligible Funds during 1995. From
time to time, an Eligible Fund's investment adviser, in its sole
discretion, may waive all or part of its fees
and/or voluntarily assume certain expenses. For a more complete
description of the Eligible Funds' fees and
expenses, see the Eligible Funds' prospectuses. As of the date of
this Prospectus, certain fees are being
waived or expenses are being assumed, in each case on a voluntary
basis. Without such waivers or
reimbursements, the total Eligible Fund annual expenses that would
have been incurred for the last
completed fiscal year would be: 2.21% for Federated American
Leaders Fund II; 5.61% for Federated Fund
for U.S. Government Securities II; 2.71% for INVESCO VIF-High Yield
Portfolio; 2.31% for INVESCO VIF-
Industrial Income Portfolio; 2.51% for INVESCO VIF-Total Return
Portfolio; .93% for Janus Aspen Aggressive
Growth Portfolio; .98% for Janus Aspen Growth Portfolio; 1.09% for
Janus Aspen Worldwide Growth Portfolio;
4.09% for Lexington Emerging Markets Fund; and 1.02% for Schwab
Money Market Portfolio. See the Eligible
Funds' prospectuses for a discussion of fee waiver and expense
reimbursements. <PAGE>
Examples(1)
If you retain, annuitize, or surrender the Contract at the end of
the applicable time period, you would pay the
following fees and expenses on a $1,000 investment, assuming a 5%
annual return on assets:
Investment Divisions 1 Year 3 Years
Alger American Growth Portfolio $ 8.89 $29.14
Alger American Small
Capitalization Portfolio $ 9.61 $31.51
Federated Equity Growth and Income Fund$ 8.89$29.14
Federated U.S. Government Bond Fund$ 8.37 $27.45
INVESCO VIF-High Yield Portfolio $10.13 $33.20
INVESCO VIF-Industrial Income Portfolio$10.76$35.22
INVESCO VIF-Total Return Portfolio $10.55 $34.55
Janus Aspen Aggressive
Growth Portfolio $ 8.99 $29.48
Janus Aspen Growth Portfolio $ 8.16 $26.77
Janus Aspen Worldwide
Growth Portfolio $ 9.41 $30.83
Lexington Emerging Markets Fund $18.21 $59.20
Montgomery Variable Series: Growth Fund$13.04$42.60
Montgomery Variable Series:
International Small-Cap Fund $15.63 $50.93
Schwab Asset Director -
High Growth Portfolio $ 7.84 $25.75
Schwab Money Market Portfolio $ 5.24 $17.23
Schwab S&P 500 Portfolio $ 3.67 $12.09
SteinRoe Capital Appreciation Fund $ 7.95 $26.09
Strong Discovery Fund II $13.66 $44.61
TCI Growth $10.45 $34.21
TCI International $15.63 $50.93
Van Eck Gold and Natural Resources Fund$11.28$36.90
THESE EXAMPLES SHOULD NOT BE CONSIDERED REPRESENTATIONS OF PAST OR
FUTURE EXPENSES.
ACTUAL EXPENSES PAID MAY BE GREATER OR LESS THAN THOSE SHOWN,
SUBJECT TO THE
GUARANTEES IN THE CONTRACT.
These examples assume that no premium taxes have been assessed
(although premium taxes may be
applicable - see "Premium Tax," page 26).
(1) The Eligible Fund Annual Expenses and these examples are based
on data provided by the Eligible
Funds. The Company has no reason to doubt the accuracy or
completeness of that data, but the Company
has not verified the Eligible Funds' figures. In preparing the
Eligible Fund Expense table and the Examples
above, the Company has relied on the figures provided by the
Eligible Funds.
<PAGE>
_________________________________________________________________
___________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
AND THE SERIES ACCOUNT
_________________________________________________________________
___________
Great-West Life & Annuity Insurance Company ("GWL&A")
The Company is a stock life insurance company originally
organized under the laws of the state of
Kansas as the National Interment Association. Its name was changed
to Ranger National Life Insurance
Company in 1963 and to Insuramerica Corporation prior to changing
to its current name in 1982. In
September of 1990, GWL&A redomesticated and is now organized under
the laws of the state of Colorado.
GWL&A is authorized to engage in the sale of life insurance,
accident and health insurance and
annuities. It is qualified to do business in the District of
Columbia, Puerto Rico and 49 states in the United
States.
GWL&A is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West Life").
Great-West Life is a subsidiary of Great-West Lifeco Inc., a
holding company. Great-West Lifeco Inc. is in turn
a subsidiary of Power Financial Corporation, a financial services
company. Power Corporation of Canada,
a holding and management company, has voting control of Power
Financial Corporation. Mr. Paul
Desmarais, through a group of private holding companies, which he
controls, has voting control of Power
Corporation of Canada.
The Series Account
The Variable Annuity-1 Series Account ("Series Account") was
established by the Company as a
separate account under the laws of the State of Colorado on July
24, 1995. The Series Account is
registered with the Securities and Exchange Commission
("Commission") under the Investment Company
Act of 1940, as amended ("1940 Act"), as a unit investment trust.
The Series Account meets the definition
of a "separate account" under the federal securities laws. However,
such registration does not involve
supervision of the management of the Series Account or the Company
by the Commission.
The Company does not guarantee the investment performance of
the Series Account. The
portion of the Annuity Account Value attributable to the Series
Account and the amount of variable
annuity payments depend on the investment performance of the
Eligible Funds. Thus, the Contract
Owner bears the full investment risk for all Contributions
allocated to the Series Account.
The Series Account is administered and accounted for as part
of the general business of the
Company; but the income, capital gains, or capital losses of each
Investment Division are credited to or
charged against the assets held in that Investment Division in
accordance with the terms of the Contract,
without regard to other income, capital gains or capital losses of
any other Investment Division or arising
out of any other business the Company may conduct. Under Colorado
law, the assets of the Series
Account are not chargeable with liabilities arising out of any
other business the Company may conduct.
Nevertheless, all obligations arising under the Contracts are
generally corporate obligations of the
Company.
The Series Account currently has twenty-one Investment
Divisions available for allocation of
Contributions. If, in the future, the Company determines that
marketing needs and investment conditions
warrant, it may establish additional Investment Divisions which
will be made available to Owners to the
extent and on a basis to be determined by the Company, (See
"Addition, Deletion, or Substitution," page
12). Each Investment Division invests in shares of an Eligible
Fund, each having a specific investment
objective.
_________________________________________________________________
___________
THE ELIGIBLE FUNDS
_________________________________________________________________
___________
The Eligible Funds described below are offered exclusively for
use as funding vehicles for
insurance products and, consequently, are not publicly available
mutual funds. Each Eligible Fund has
separate investment objectives and policies. As a result, each
Eligible Fund operates as a separate
investment portfolio and the investment performance of one Eligible
Fund has no effect on the investment
performance of any other Eligible Fund. See the Eligible Funds'
prospectuses for more information.
The Alger American Fund
Alger American Small Capitalization Portfolio: Seeks long-term
capital appreciation by investing
at least 65% of its total assets, except during temporary
defensive periods, in equity securities of
companies that, at the time of purchase, have total market
capitalization within the range of
companies included in the Russell 2000 Growth Index, updated
quarterly. The Russell 2000
Growth Index is designed to track the performance of small
capitalization companies with market
capitalizations which range from $20 million to $3.04 billion.
The Portfolio may invest up to 35%
of its total assets in equity securities of companies that, at
the time of purchase, have total market
capitalization greater than the range of companies included in
the Russell 2000 Growth Index and
in excess of that amount (up to 100% of its assets) during
temporary defensive periods.
Alger American Growth Portfolio: Seeks long-term capital
appreciation by investment of at least
65% of its assets, except during temporary defensive periods,
in equity securities of companies
that, at the time of purchase of the securities, have total
market capitalization of $1 billion or
greater. The Portfolio may invest up to 35% of its total
assets in equity securities of companies
that, at the time of purchase, have total market
capitalization of less than $1 billion and in excess
of that amount (up to 100% of its assets) during temporary
defensive periods.
Federated Investors Insurance Management Series
Federated American Leaders Fund II: Seeks to achieve
long-term
growth of capital as a primary
objective and seeks to provide income as a secondary objective
through investment of at least 65
% of its total assets (under normal circumstances) in common
stocks of "blue chip" companies.
Federated Fund for U.S. Government Securities II: Seeks to
provide current income through
investment of at least 65% of its total assets in securities
which are primary or direct obligations
of the U.S. government or its agencies or instrumentalities or
which are guaranteed as to
principal and interest by the U.S. government, its agencies,
or instrumentalities and in certain
collateralized mortgage obligations, and repurchase
agreements.
<PAGE>
INVESCO Variable Investment Funds, Inc.
INVESCO VIF-Industrial Income Portfolio: Seeks the best
possible current income while
following sound investment practices. Capital growth
potential is an additional, but secondary,
consideration in the selection of portfolio securities. The
Industrial Income Portfolio seeks to
achieve its investment objective by investing in securities
which will provide a relatively high yield
and stable return and which, over a period of years, also may
provide capital appreciation.
INVESCO VIF-Total Return Portfolio: Seeks a high total return
on investment through capital
appreciation and current income. The Total Return Portfolio
seeks to achieve its investment
objective by investing in a combination of equity securities
(consisting of common stocks and, to
a lesser degree, securities convertible into common stock) and
fixed income securities.
INVESCO VIF-High Yield Portfolio: Seeks a high level of
current income by investing
substantially all of its assets in lower rated bonds and other
debt securities and in preferred
stock. These bonds and other securities are sometimes
referred to as "junk bonds." The High
Yield Portfolio pursues its investment objective through
investment in a variety of long-term,
intermediate-term, and short-term bonds. Potential capital
appreciation is a factor in the selection
of investments, but is secondary to the Portfolio's primary
objective.
Janus Aspen Series
Janus Aspen Aggressive Growth Portfolio: Seeks long-term
growth of capital in a manner
consistent with the preservation of capital. The Portfolio
normally invests at least 50% of its equity
assets in securities issued by medium-sized companies.
Medium-sized companies are those
whose market capitalizations fall within the range of
companies in the S&P MidCap 400 Index (the
"MidCap Index"). Companies whose capitalization falls outside
this range after the Portfolio's
initial purchase continue to be considered medium-sized
companies for the purpose of this
policy. As of December 29, 1995, the MidCap Index included
companies with capitalizations
between approximately $118 million to $7.5 billion. The range
of the MidCap Index is expected to
change on a regular basis. Subject to the above policy, the
Portfolio may also invest in smaller
or larger issuers.
Janus Aspen Growth Portfolio: Seeks long-term growth of
capital in a manner consistent with
the preservation of capital. The Portfolio pursues its
objective by investing in common stocks of
companies of any size. This Portfolio generally invests in
larger, more established issuers.
Janus Aspen Worldwide Growth Portfolio: Seeks long-term growth
of capital in a manner
consistent with the preservation of capital. The Portfolio
pursues its objective primarily through
investments in common stocks of foreign and domestic issuers.
The Portfolio has the flexibility to
invest on a worldwide basis in companies and organizations of
any size, regardless of country of
organization or place of principal business activity. The
Portfolio normally invests in issuers from
at least five different countries, including the United
States; however, it may at times invest in
fewer than five countries or even a single country.
Lexington Emerging Markets Fund, Inc.
Lexington Emerging Markets Fund: Seeks long term growth of
capital primarily through
investment in equity securities of companies domiciled in, or
doing business in emerging
countries and emerging markets. For purposes of its
investment objective, the Fund considers
emerging country equity securities to be any country whose
economy and market the World Bank
or United Nations considers to be emerging or developing. The
Fund may also invest in equity
securities and equivalents traded in any market of companies
that derive 50% or more of their
total revenue from either goods or services produced in such
emerging countries or markets or
sales made in such countries.
Montgomery Variable Series
Montgomery Growth Fund: Seeks capital appreciation by
investing at least 65% of its total
assets (under normal conditions) in the equity securities of
domestic corporations. In addition to
capital appreciation, this Fund emphasizes value. While the
Fund emphasizes investments in
common stock, it also invests in other types of equity
securities (including options on equity
securities, warrants and futures contracts on equity
securities). The Fund may invest up to 35%
of its total assets in debt securities rated within the three
highest grades of S&P, Moody's or
Fitch, or unrated debt securities deemed to be of comparable
quality by its portfolio manager
using guidelines approved by the Board of Trustees.
Montgomery International Small Cap Fund: Seeks capital
appreciation by investing at least
65% of its total assets (under normal conditions) in equity
securities of companies outside the
United States having total market capitalizations of less than
$1 billion, sound fundamental values
and potential for long-term growth at a reasonable price. The
Fund generally invests the
remaining 35% of its total assets in a similar manner but may
invest those assets in companies
having market capitalizations of $1 billion or more, or in
debt securities, including up to 5% of its
total assets in debt securities rated below investment grade.
Schwab Annuity Portfolios
Schwab Money Market Portfolio: Seeks maximum current income
consistent with liquidity and
stability of capital. It seeks to achieve its objective by
investing in short-term money market
instruments. This Portfolio is neither insured nor guaranteed
by the United States Government
and there can be no assurance that it will be able to maintain
a stable net asset value of $1.00
per share.
Schwab Asset Director-High Growth Portfolio: seeks to
provide
high capital growth with less
volatility than an all stock portfolio. The High Growth Fund
seeks to meet its investment objective
by investing in a mix of stocks, bonds, and cash
equivalents.
Schwab S&P 500 Portfolio: seeks to track the price and
dividend performance (total return) of
common stocks of U.S. companies, as represented in the
Standard & Poor's Composite Index of
500 stocks (the "Index"). The S&P 500 Fund invests primarily
in the common stocks of
companies composing the Index.
SteinRoe Variable Investment Trust
SteinRoe Capital Appreciation Fund: Seeks capital growth by
investing primarily in common
stocks, convertible securities, and other securities selected
for prospective capital growth.
Strong Discovery Fund II, Inc.
Strong Discovery Fund II: Seeks capital growth by investing in
a diversified portfolio of securities
that the Fund's investment adviser believes represent
attractive growth opportunities. The Fund
normally emphasizes equity investments, although it has the
flexibility to invest in any security the
Fund's investment adviser believes has the potential for
capital appreciation.
TCI Portfolios, Inc.
TCI Growth: Seeks capital growth by investing in common
stocks (including securities
convertible into common stocks and other equity equivalents)
and other securities that meet
certain fundamental and technical standards of selection and
have, in the opinion of the
investment manager, better-than-average potential for
appreciation. The Portfolio's investment
manager intends to stay fully invested in such securities,
regardless of the movement of stock
prices generally.
TCI International: Seeks capital growth by investing primarily
in an internationally diversified
portfolio of securities of foreign companies that meet certain
fundamental and technical standards
of selection and have, in the opinion of the investment
manager, potential for capital appreciation.
The Portfolio will invest primarily in common stocks (defined
to include depository receipts for
common stock and other equity equivalents) of such companies.
Investment in securities for
foreign issues typically involves a greater degree of risk
than an investment in domestic
securities.
Van Eck Worldwide Insurance Trust
Van Eck Gold and Natural Resources Fund: Seeks long-term
capital appreciation by investing in
equity and debt securities of companies engaged in the
exploration, development, production
and distribution of gold and other natural resources, such as
strategic and other metals, minerals,
forest products, oil, natural gas and coal. Current income is
not an investment objective.
The two Alger American Funds are advised by Fred Alger
Management, Inc. of New York, New
York. The two Federated Insurance Series Portfolios are advised by
Federated Advisers of Pittsburgh,
Pennsylvania. The three INVESCO Variable Investment Funds, Inc.,
Portfolios are advised by INVESCO
Funds Group, Inc., of Denver, Colorado. INVESCO Trust Company is
the sub-adviser for the INVESCO
VIF-Industrial Income Portfolio. The three Janus Aspen Series
Portfolios are advised by Janus Capital
Corporation of Denver, Colorado. The Lexington Emerging Markets
Fund is advised by Lexington
Management Corporation of Saddle Brook, New Jersey. The two
Montgomery Variable Series Funds are
advised by Montgomery Asset Management, L.P. of San Francisco,
California. The three Schwab Annuity
Portfolios are advised by Charles Schwab Investment Management,
Inc., of San Francisco, California.
The SteinRoe Capital Appreciation Fund is advised by Stein Roe &
Farnham Incorporated of Chicago,
Illinois. Strong Discovery Fund II is advised by Strong Capital
Management, Inc. of Milwaukee, Wisconsin.
The two TCI Portfolios, Inc., are advised by Investors Research
Corporation of Kansas City, Missouri,
advisers to the Twentieth Century family of mutual funds. The Van
Eck Gold and Natural Resources
Fund is advised by Van Eck Associates Corporation of New York, New
York.
***
Meeting investment objectives depends on various factors,
including, but not limited to, how well
the Eligible Fund managers anticipate changing economic and market
conditions. THERE IS NO
ASSURANCE THAT ANY OF THESE ELIGIBLE FUNDS WILL ACHIEVE THEIR
STATED OBJECTIVES.
The Contracts are not deposits of, or guaranteed or endorsed
by, any bank, nor are the Contracts
federally insured by the Federal Deposit Insurance Corporation, the
Federal Reserve Board or any other
government agency. The Contracts involve certain investment risks,
including possible loss of principal.
Each Eligible Fund is registered with the Commission as an
open-end management investment
company or portfolio thereof. The Commission does not supervise
the management or the investment
practices and policies of any of the Eligible Funds.
Since some of the Eligible Funds are available to registered
separate accounts of other insurance
companies offering variable annuity and variable life products,
there is a possibility that a material conflict
may arise between the interests of the Series Account and one or
more other separate accounts
investing in the Eligible Funds. In the event of a material
conflict, the affected insurance companies are
required to take any necessary steps to resolve the matter,
including stopping their separate accounts
from investing in the Eligible Funds. See the Eligible Funds'
prospectuses for more details.
Additional information concerning the investment objectives
and policies of all of the Eligible
Funds and the investment advisory services and administrative
services and charges can be found in the
current prospectuses for the Eligible Funds, which can be obtained
by calling the Schwab Annuity
Service Center at 800-838-0650, or by writing to Schwab Annuity
Service Center, P.O. Box 7666, San
Francisco, California 94120-7666. The Eligible Funds' prospectuses
should be read carefully before
any decision is made concerning the allocation of Contributions to,
or Transfers among, the
Investment Divisions.
Addition, Deletion, or Substitution
The Company does not control the Eligible Funds and cannot
guarantee that any of the Eligible
Funds will always be available for allocation of Contributions or
Transfers. The Company retains the
right to make changes in the Series Account and in its investments.
Currently, Schwab must approve
certain changes.
GWL&A and Schwab reserve the right to eliminate the shares of
any Eligible Fund held by an
Investment Division and to substitute shares of another Eligible
Fund or of another investment company,
for the shares of any Eligible Fund, if the shares of the Eligible
Fund are no longer available for
investment or if, in GWL&A's and Schwab's judgment, investment in
any Eligible Fund would be
inappropriate in view of the purposes of the Series Account. To
the extent required by the 1940 Act, a
substitution of shares attributable to the Owner's interest in an
Investment Division will not be made
without prior notice to the Owners and the prior approval of the
Commission. Nothing contained herein
shall prevent the Series Account from purchasing other securities
for other series or classes of variable
annuity policies, or from effecting an exchange between series or
classes of variable policies on the basis
of Requests made by you.
New Investment Divisions may be established when, in our
discretion, marketing, tax, investment
or other conditions so warrant. Any new Investment Divisions will
be made available to Owners on a
basis to be determined by us. Each additional Investment Division
will purchase shares in a Eligible
Fund or in another mutual fund or investment vehicle. We may also
eliminate one or more Investment
Divisions if, in our sole discretion, marketing, tax, investment or
other conditions so warrant. In the event
any Investment Division is eliminated, we will notify the Owners
and request a re-allocation of the
amounts invested in the eliminated Investment Division.
In the event of any such substitution or change, we may make
such changes to your Contract as
may be necessary or appropriate to reflect such substitution or
change. Furthermore, if deemed to be in
the best interests of persons having voting rights under the
Contracts, the Series Account may be
operated as a management company under the 1940 Act or any other
form permitted by law, may be de-
registered under such Act in the event such registration is no
longer required, or may be combined with
one or more other separate accounts. Such changes will be made in
compliance with applicable law.
_________________________________________________________________
__________
THE GUARANTEE PERIOD FUND
_________________________________________________________________
___________
Guarantee Period Fund
Amounts allocated to the Guarantee Period Fund under the
Contract will be deposited to, and
accounted for, in a non-unitized separate account established by
the Company under Section 10-7-401,
et seq. of the Colorado Insurance Code and, accordingly, are not
part of the Series Account. A non-
unitized separate account is a separate account in which the Owner
does not participate in the
performance of the assets through unit values. Therefore, Owners
allocating Contributions do not receive
a unit ownership of assets accounted for in this separate account.
The assets accrue solely to the
benefit of the Company and any gain or loss in the separate account
is borne entirely by the Company.
For amounts allocated to the Guarantee Period Fund, Owners will
receive the Contract guarantees made
by the Company.
Contributions allocated to or amounts transferred to the
Guarantee Period Fund will establish a
new Guarantee Period of a duration selected by the Owner from those
currently being offered by the
Company. Every Guarantee Period offered by the Company will have
a duration of at least one year.
Contributions allocated to the Guarantee Period Fund will be
credited on the Transaction Date.
Each Guarantee Period will have its own stated rate of
interest and Guarantee Period Maturity
Date. The stated rate of interest applicable to a Guarantee Period
will depend on the date the Guarantee
Period is established and the duration chosen by the Owner.
As of the date of this Prospectus, Guarantee Periods with
annual durations of 1 to 10 years are
offered. The Guarantee Periods may be changed in the future;
however, any such modification will not
have an impact on any Guarantee Period then in effect.
The value of amounts in each Guarantee Period is the Owner's
Contributions, less Premium Tax,
if any, in that Guarantee Period, plus interest earned, less
amounts distributed, withdrawn (in whole or in
part), Transferred or applied to an annuity option, periodic
withdrawals, and charges deducted under the
Contract. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. Any such
amount withdrawn or Transferred from a Guarantee Period will be
paid in accordance with the MVA
formula (See "Market Value Adjustment," page 15.)
Investments
The Company intends to invest in assets which, in the
aggregate, have characteristics, especially
cash flow patterns, reasonably related to the characteristics of
its liabilities. Various techniques will be
used to achieve the objective of close aggregate matching of assets
and liabilities. The Company will
primarily invest in investment-grade fixed income securities
including:
Securities issued by the U.S. Government or its agencies
or instrumentalities, which
issues may or may not be guaranteed by the U.S. Government.
Debt securities which have an investment grade, at the
time of purchase, within the four
highest grades assigned by Moody's Investment Services, Inc.
(Aaa, Aa, A or Baa), Standard &
Poor's Corporation (AAA, AA, A or BBB) or any other nationally
recognized rating service.
Other debt instruments, including, but not limited to,
issues of banks or bank holding
companies and of corporations, which obligations, although not
rated by Moody's, Standard &
Poor's, or other nationally recognized rating firms, are
deemed by the Company's management to
have an investment quality comparable to securities which may
be purchased as stated above.
Commercial paper, cash or cash equivalents, and other
short-term investments having a
maturity of less than one year which are considered by the
Company's management to have
investment quality comparable to securities which may be
purchased as stated above.
In addition, the Company may invest in futures and options.
Financial futures and related options
thereon and options on securities are purchased solely for
non-speculative hedging purposes. The
Company may sell a futures contract or purchase a put option on
futures or securities to protect the
value of securities held in or to be sold for the general account
or the non-unitized separate account in
the event the securities prices are anticipated to decline.
Similarly, if securities prices are expected to
rise, the Company may purchase a futures contract or a call option
thereon against anticipated positive
cash flow or may purchase options on securities.
WHILE THE FOREGOING GENERALLY DESCRIBES THE INVESTMENT
STRATEGY FOR THE
GUARANTEE PERIOD FUND, THE COMPANY IS NOT OBLIGATED TO INVEST THE
ASSETS
ATTRIBUTABLE TO THE GUARANTEE PERIOD FUND ACCORDING TO ANY
PARTICULAR
STRATEGY, EXCEPT AS MAY BE REQUIRED BY COLORADO AND OTHER STATE
INSURANCE
LAWS, NOR WILL THE STATED RATE OF INTEREST THAT THE COMPANY
ESTABLISHES
NECESSARILY RELATE TO THE PERFORMANCE OF THE NON-UNITIZED SEPARATE
ACCOUNT.
Subsequent Guarantee Periods
Prior to the date annuity payments commence, you may invest
the value of amounts held in a
maturing Guarantee Period in any Guarantee Period that we offer at
that time. On the quarterly
statement issued prior to the end of any Guarantee Period, we will
notify you of the upcoming maturity of
a Guarantee Period. THE GUARANTEE PERIOD AVAILABLE FOR NEW
CONTRIBUTIONS MAY BE
CHANGED AT ANY TIME, INCLUDING BETWEEN THE DATE OF NOTIFICATION OF
A MATURING
GUARANTEE PERIOD AND THE DATE A SUBSEQUENT GUARANTEE PERIOD BEGINS.
Information
regarding the current Guarantee Periods then available and their
stated rate of interest may be obtained
by calling the Schwab Annuity Service Center at:
1-800-838-0650.
If the Company receives no direction from the Contract
Owner
by the Guarantee Period Maturity
Date, the Company will automatically allocate the amount from the
maturing Guarantee Period to a
Guarantee Period equal in duration to the one just ended. If at
that time, the duration previously chosen
is no longer available, the amount will be allocated to the next
shortest available Guarantee Period
duration. If none of the above is available, the value of matured
Guarantee Periods will be allocated to
the Schwab Money Market Investment Division. In any event, a
Guarantee Period will not renew for a
term equal in duration to the one just ended if the Guarantee
Period will mature after the Payment
Commencement Date. No Guarantee Period may mature later than six
months after a Payment
Commencement Date. For example, if a 3-year Guarantee Period
matures and the Payment
Commencement Date begins 1 3/4 years from the Guarantee Period
Maturity Date, the matured value
will be transferred to a 2-year Guarantee Period.
Breaking A Guarantee Period
Any Transfer, withdrawal or the selection of an annuity option
prior to the Guarantee Period
Maturity Date will be known as breaking a Guarantee Period. When
a Request to break a Guarantee
Period is received, the Guarantee Period that is closest to the
Guarantee Period Maturity Date will be
broken first. If a Guarantee Period is broken, a Market Value
Adjustment may be assessed. The Market
Value Adjustment may increase or decrease the value of the amount
Transferred or withdrawn from the
Guarantee Period Fund. The Market Value Adjustment may reduce the
value of amounts held in a
Guarantee Period below the amount of your Contribution(s) allocated
to that Guarantee Period. (See
"Market Value Adjustment" below.)
Interest Rates
Declared rates are effective annual rates of interest. The
rate is guaranteed throughout the
Guarantee Period. FOR GUARANTEE PERIODS NOT YET IN EFFECT, GWL&A
MAY DECLARE
INTEREST RATES DIFFERENT THAN THOSE CURRENTLY IN EFFECT. When a
subsequent Guarantee
Period begins, the rate applied will not be less than the rate then
applicable to new Contracts of the
same type with the same Guarantee Period.
The stated rate of interest must be at least equal to the
Guaranteed Interest Rate. The Company
may declare higher rates. The Guaranteed Interest Rate is based on
the applicable state standard non-
forfeiture law. Please see Appendix A for the standard
non-forfeiture law rate applicable to the state in
which the Contract was issued.
The determination of the stated rate of interest is influenced
by, but does not necessarily
correspond to, interest rates available on fixed income investments
which the Company may acquire
using funds deposited into the Guarantee Period Fund. In addition,
the Company will consider other
items in determining the stated rate of interest including
regulatory and tax requirements, sales
commissions and administrative expenses borne by the Company,
general economic trends, and
competitive factors.
Market Value Adjustment
Distributions from the amounts allocated to a Guarantee Period
due to a full surrender or partial
withdrawal, Transfer, application of amounts to the periodic
withdrawal option or to purchase an annuity,
or distributions resulting from the death of the Owner or Annuitant
prior to a Guarantee Period Maturity
Date will be subject to a Market Value Adjustment ("MVA"). An MVA
may increase or decrease the
amount payable on one of the above described distributions. Amount
available for a full surrender,
partial withdrawal or Transfer = amount Requested + MVA. The MVA
is calculated by multiplying the
amount Requested by the Market Value Adjustment Factor ("MVAF").
The MVA reflects the relationship as of the time of its
calculation between (a) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior to
the date the stated rate of interest was established for the
Guarantee Period; and (b) the U.S. Treasury
Strip ask side yield as published in the Wall Street Journal on the
last business day of the week prior to
the week the Guarantee Period is broken. There would be a downward
adjustment if Treasury rates at
the time the Guarantee Period is broken, exceed Treasury rates when
the Guarantee Period was created.
There would be an upward adjustment if Treasury rates at the time
the Guarantee Period is broken, are
lower than when the Guarantee Period was created. The MVA factor
is the same for all Contracts.
1. The formula used to determine the MVA is:
MVA = (amount applied) X (MVAF)
The Market Value Adjustment Factor (MVAF) is:
MVAF = {[(1 + i)/(1 + j +.10%)] N/12} - 1
where:
a) i is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal
on the last business day of the week prior to the date
the stated rate of interest was
established for the Guarantee Period. The term of i is
measured in years and equals the
term of the Guarantee Period;
b) j is the U.S. Treasury Strip ask side yield as
published in the Wall Street Journal
on the last business day of the week prior to the week
the Guarantee Period is broken.
The term of j equals the remaining term to maturity of
the Guarantee Period, rounded up
to the higher number of years; and
c) N is the number of complete months remaining until
maturity.
If i + j differ by less than .10%, the MVA will equal 0. If
N is less than 6, the MVA will
equal 0.
2. The Market Value Adjustment will apply to any Guarantee Period
six or more months prior to the
Guarantee Period Maturity Date in each of the following situations:
a) Transfer to another Guarantee Period or to an
Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals; or
c) A single sum payment upon death of the Owner or
Annuitant.
3. The Market Value Adjustment will not apply to any Guarantee
Period having fewer than six
months prior to the Guarantee Period Maturity Date in each of the
following situations:
a) Transfer to an Investment Division offered under
this Contract; or
b) Surrenders, partial withdrawals, annuitization or
Periodic Withdrawals.
c) A single sum payment upon death of the Owner or
Annuitant.
See Appendix B for Illustrations of the MVA.
<PAGE>
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APPLICATION AND CONTRIBUTIONS
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Contributions
All Contributions may be paid at the Schwab Annuity Service
Center by a check payable to the
Company or by transfer to the Company of available funds from your
Schwab account.
The initial Contribution for the Contract must be at least
$5,000 (or $2,000 if for an IRA).
Subsequent Contributions must be at least $500. This minimum
initial investment may be reduced to
$1,000, but only if you participate in an Automatic Contribution
Plan and contribute at least $100 per
month through a recurring deposit. A confirmation will be issued
to you upon the acceptance of each
Contribution.
Your Contract will be issued and your Contribution
generally
will be accepted and credited within
two business days after receipt of an acceptable application and
receipt of the initial Contribution at the
Schwab Annuity Service Center. All Contributions should be paid to
the Schwab Annuity Service Center
by check (payable to GWL&A) or by instructing Schwab to transfer to
GWL&A available funds from your
account with Schwab. Acceptance is subject to there being
sufficient information in a form acceptable to
us and we reserve the right to reject any application or
Contribution.
The Schwab Annuity Service Center will process your
application and Contributions. If your
application is complete and your initial Contribution is being
transferred from funds available in your
Schwab account, then the Contribution will generally be credited
within two business days following
receipt of the application. If your application is incomplete, the
Schwab Annuity Service Center will either
complete the application from information Schwab has on file, or
contact you for the additional
information. No transfer of funds will be made from your Schwab
account until your application is
complete. The funds will be credited as Contributions to the
Contract when they are transferred.
If your Contribution is by check, and the application is
complete, Schwab will use its best efforts
to credit the Contribution on the day of receipt, but in all such
cases it will be credited to your Contract
within two business days of receipt. If your application is
incomplete, the Schwab Annuity Service Center
will complete the application from information Schwab has on file
or contact you by telephone to obtain
the required information. If your application remains incomplete
for five business days, we will return to
you both the check and the application unless you consent to our
retaining the initial Contribution and
crediting it as soon as the requirements are fulfilled.
A Contract may be returned within ten days after receipt, or
longer where required by law ("Free
Look Period"). During the Free Look Period, all contributions will
be processed as follows:
(1) Amounts to be allocated to one or more of the then
available Guarantee Periods will be
allocated as directed, effective upon the Transaction
Date.
(2) Amounts the Owner has directed to be allocated to one or
more of the Investment
Divisions will first be allocated to the Schwab Money
Market Investment Division until the
next Transaction Date following the end of the Free Look
Period. On that date, the
Variable Account Value held in the Schwab Money Market
Investment Division will be
allocated to the Investment Divisions selected by the
Owner.
(3) During the Free Look Period, you may change the
allocation percentages among the
Investment Divisions and/or your selection of Investment
Divisions to which Contributions
will be allocated after the Free Look Period.
(4) If the Contract is returned, the contract will be void
from the start and the greater of:
(a) Contributions received or (b) the Annuity Account
Value less surrenders, withdrawals
and distributions, will be refunded. Exercising the
return privilege requires the return of
the Contract to the Company or to the Schwab Annuity
Service Center.
Amounts the Owner has contributed from a 1035 exchange of the
Schwab Investment Advantage
Annuity Contract will be immediately allocated to the Investment
Divisions selected by the Owner. If the
Contract is returned, it will be void from the start and the
greater of: (a) Contributions received or (b) the
Annuity Account Value less surrenders, withdrawals and
distributions, will be refunded.
Additional Contributions may be made at any time prior to the
Payment Commencement Date, as
long as the Annuitant is living. Additional Contributions must be
at least $500 or $100 per month if under
an ACP.
Total Contributions may exceed $1,000,000 with our prior
approval.
The Company reserves the right to modify the limitations set
forth in this section.
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ANNUITY ACCOUNT VALUE
_________________________________________________________________
___________
Before the date annuity payments commence, your Annuity
Account Value is the sum of each
Variable and Fixed Sub-Account established under your Contract.
Before the annuity commencement date, the Variable Account
Value is the total dollar amount of
all Accumulation Units under each of your Variable Sub-Accounts.
Initially, the value of each
Accumulation Unit was set at $10.00. Each Variable Sub-Account's
value prior to the annuity
commencement date is equal to: (a) net Contributions allocated to
the corresponding Investment
Division; plus or minus (b) any increase or decrease in the value
of the assets of the Variable Sub-
Account due to investment results; less (c) the daily Mortality and
Expense Risk Charge; less (d)
reductions for the Contract Maintenance Charge deducted on the last
business day of each Contract
Year; less (e) any applicable Transfer Fees; and less (f) any
withdrawals or Transfers from the Variable
Sub-Account.
A Valuation Period is the period between successive Valuation
Dates. It begins at the close of
the New York Stock Exchange (generally 4:00 p.m. ET) on each
Valuation Date and ends at the close of
the New York Stock Exchange on the next succeeding Valuation Date.
A Valuation Date is each day that
the New York Stock Exchange is open for regular business. The
value of an Investment Division's assets
is determined at the end of each Valuation Date. To determine the
value of an asset on a day that is not
a Valuation Date, the value of that asset as of the end of the
previous Valuation Date will be used.
The Variable Account Value is expected to change from
Valuation Period to Valuation Period,
reflecting the investment experience of the selected Investment
Division(s) as well as the deductions for
charges.
Contributions which you allocate to an Investment Division are
used to purchase Variable
Accumulation Units in the Investment Division(s) you select. The
number of Accumulation Units to be
credited will be determined by dividing the portion of each
Contribution allocated to the Investment
Division by the value of an Accumulation Unit determined at the end
of the Valuation Period during which
the Contribution was received. In the case of the initial
Contribution, Accumulation Units for that payment
will be credited to the Variable Account Value (and, except for
certain 1035 exchanges), held in the
Schwab Money Market Investment Division until the end of the Free
Look Period (see "Application and
Contributions," page 16). In the case of any subsequent
Contribution, Accumulation Units for that
payment will be credited at the end of the Valuation Period during
which we receive the Contribution.
The value of an Accumulation Unit for each Investment Division for
a Valuation Period is established at
the end of each Valuation Period and is calculated by multiplying
the value of that unit at the end of the
prior Valuation Period by the Investment Division's Net Investment
Factor for the Valuation Period.
Unlike a brokerage account, amounts held under a Contract are
not covered by the Securities
Investor Protection Corporation ("SIPC") .
_________________________________________________________________
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TRANSFERS
_________________________________________________________________
___________
In General
Prior to the Payment Commencement Date you may Transfer all or
part of your Annuity Account
Value among and between the Investment Divisions and the available
Guarantee Periods by telephone or
by sending a Request to the Schwab Annuity Service Center. The
Request must specify the amounts
being Transferred, the Investment Division(s) and/or Guarantee
Period(s) from which the Transfer is to be
made, and the Investment Division(s) and/or Guarantee Period(s)
that will receive the Transfer.
Currently, there is no limit on the number of Transfers you
can make among the Investment
Divisions during any Contract Year. There is no charge for the
first twelve Transfers each Contract Year,
but there will be a charge of $10 for each additional Transfer in
each Contract Year. We reserve the right
to limit the number of Transfers you make. The charge will be
deducted from the amount transferred. All
Transfers made on a single Transaction Date will be aggregated to
count as only one Transfer toward the
twelve free Transfers; however, if a one time rebalancing Transfer
also occurs on the Transaction Date, it
will be counted as a separate and additional Transfer.
Transfers involving the Guarantee Period Fund (including
Transfers to or from the Investment
Division(s)) are not limited during any calendar year. These
Guarantee Period Fund Transfers are
counted against your twelve free Transfer as discussed above. The
$10 charge will apply to each
Transfer made in excess of the first twelve Transfers each calendar
year.
A Transfer generally will be effective on the date the Request
for Transfer is received by the
Schwab Annuity Service Center if received before 4:00 p.m. Eastern
Time. Under current law, there will
not be any tax liability to you if you make a Transfer.
Transfers involving the Investment Divisions will result in
the purchase and/or cancellation of
Accumulation Units having a total value equal to the dollar amount
being Transferred to or from a
particular Investment Division. The purchase and/or cancellation
of such units generally shall be made
using the Variable Account Value as of the end of the Valuation
Date on which the Transfer is effective.
When a Transfer is made from amounts in a Guarantee Period
before the Guarantee Period
Maturity Date, the amount Transferred may be subject to a Market
Value Adjustment. (See "Market Value
Adjustment," page 15.) A Request for Transfer from amounts in a
Guarantee Period made prior to the
Guarantee Period Maturity Date for Transfers on the Guarantee
Period Maturity Date will not be counted
for the purpose of determining any Transfer Fee on Transfers in
excess of the twelve Transfers per year if
these Transfers are to take place on the Guarantee Period Maturity
Date.
Possible Restrictions
We reserve the right without prior notice to modify, restrict,
suspend or eliminate the Transfer
privileges (including telephone Transfers) at any time. For
example, restrictions may be necessary to
protect Owners from adverse impacts on portfolio management of
large and/or numerous Transfers by
market timers or others. We have determined that the movement of
significant amounts from one
Investment Division to another may prevent the underlying Eligible
Fund from taking advantage of
investment opportunities because the Eligible Fund must maintain a
significant cash position in order to
handle redemptions. Such movement may also cause a substantial
increase in Eligible Fund transaction
costs which must be indirectly borne by Owners. Therefore, we
reserve the right to require that all
Transfer Requests be made by the Owner and not by an Owner's
designee and to require that each
Transfer Request be made by a separate communication to us. We
also reserve the right to request that
each Transfer Request be submitted in writing and be manually
signed by the Owner; facsimile Transfer
Requests may not be allowed. Transfers among the Investment
Divisions may also be subject to such
terms and conditions as may be imposed by the Eligible Funds.
Custom Transfer: Dollar Cost Averaging (Automatic Transfers)
The Owner may Request to automatically Transfer at regular
intervals, predetermined amounts
from one Investment Division selected from among those being
allowed under this option (which may be
modified by the Company from time to time) to any of the other
Investment Divisions. The intervals
between Transfers may be monthly, quarterly, semi-annually or
annually. The Transfer will be initiated on
the Transaction Date one frequency period following the date of the
Request. Transfers will continue on
that same day each interval unless terminated by you or for other
reasons as set forth in the Contract. If
there are insufficient funds in the applicable Variable Sub-Account
on the date of Transfer, no Transfer
will be made; however, Dollar Cost Averaging will resume once there
are sufficient funds in the applicable
Variable Sub-Account. Dollar Cost Averaging will terminate
automatically upon the annuity
commencement date. Amounts transferred through Dollar Cost
Averaging are not counted against the
twelve free Transfers allowed in a calendar year.
Automatic Transfers must meet the following conditions:
1. The minimum amount that can be Transferred out of the
selected Investment Division is $100
per month.
2. The Owner must specify dollar amount to be Transferred,
designate the Investment Division(s)
to which the Transfer will be made and the percent to be allocated
to such Investment Division(s). The
Accumulation Unit values will be determined on the Transfer
Date.
Dollar Cost Averaging may be used to purchase Accumulation
Units of the Investment Divisions
over a period of time. The Owner, by Request, may cease Dollar
Cost Averaging at any time.
Participation in Dollar Cost Averaging does not, however, assure a
greater profit, nor will it prevent or
necessarily alleviate losses in a declining market. The Company
reserves the right to modify, suspend or
terminate Dollar Cost Averaging at any time.
Custom Transfer: Rebalancer Option
The Owner may Request to automatically Transfer among the
Investment Divisions on a periodic
basis by electing the Rebalancer Option. This option automatically
reallocates the Variable Account
Value to maintain a particular allocation among Investment
Divisions selected by the Owner. The amount
allocated to each Investment Division will increase or decrease at
different rates depending on the
investment experience of the Investment Division.
The Owner may Request that the rebalancing occur one time
only, in which case the Transfer will
take place on the Transaction Date of the Request. This Transfer
will count as one Transfer towards the
twelve free Transfers allowed in a calendar year. (See "Transfer
Fee," page 26.)
Rebalancing may also be set up on a quarterly, semiannual or
annual basis, in which case the
first Transfer will be initiated on the Transaction Date one
frequency period following the date of the
Request. On the Transaction Date for the specified Request, assets
will be automatically reallocated to
the selected Investment Divisions. Rebalancing will continue on
the same Transaction Date for
subsequent periods. In order to participate in the Rebalancer
Option, the entire Variable Account Value
must be included. Transfers set up with these frequencies will not
count against the twelve free Transfers
allowed in a calendar year.
The Owner must specify the percentage of Variable Account
Value to be allocated to each
Investment Division and the frequency of rebalancing. The Owner,
by Request, may modify the
allocations or cease the Rebalancer Option at any time. The
Rebalancer Option will terminate
automatically upon the annuity commencement date. Participation in
the Rebalancer Option and Dollar
Cost Averaging at the same time is not allowed. Participation in
the Rebalancer Option does not assure
a greater profit, nor will it prevent or necessarily alleviate
losses in a declining market. The Company
reserves the right to modify, suspend, or terminate the Rebalancer
Option at any time.
_________________________________________________________________
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CASH WITHDRAWALS
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Withdrawals
You (the Owner) may withdraw from the Contract all or part of
your Annuity Account Value at any
time during the life of the Annuitant and prior to the date annuity
payments commence by Request at the
Schwab Annuity Service Center subject to the rules below. Federal
or state laws, rules or regulations
may apply. The amount payable to you if you surrender your
Contract is your Annuity Account Value,
with a Market Value Adjustment, if applicable, on the effective
date of the surrender, and less any
applicable Premium Tax. No withdrawals may be made after the date
annuity payments commence.
A Request for a partial withdrawal will result in a reduction
in your Annuity Account Value equal to
the sum of the dollar amount withdrawn. A Market Value Adjustment
may apply. (See "Market Value
Adjustment," page 15.) The partial withdrawal proceeds may be
greater or less than the amount
requested, depending on the effect of the Market Value Adjustment.
The minimum partial withdrawal before application of the MVA
is $500. Partial withdrawals are
unlimited; however, you must specify the Investment Division(s) or
Guarantee Period(s) from which the
withdrawal is to be made. After any partial withdrawal, if the
remaining Annuity Account Value is less
than $2,000, then a full surrender may be required.
The following terms apply:
(a) No partial withdrawals are permitted after the date
annuity payments commence.
(b) A partial withdrawal will be effective upon the
Transaction Date.
(c) A partial withdrawal from amounts in a Guarantee Period
may be subject to the Market
Value Adjustment provisions, the Guarantee Period Fund
provisions of the Contract, and
the terms of the attached Guarantee Period Fund Rider(s),
if any.
Withdrawals may be taxable (this includes Periodic
Withdrawals, discussed below). Moreover, the
Internal Revenue Code (the "Code") provides that a 10% penalty tax
may be imposed on the taxable
portions of certain early withdrawals. The Code generally requires
us to withhold federal income tax from
withdrawals. However, generally you will be entitled to elect, in
writing, not to have tax withholding apply
unless withholding is mandatory for your Contract. Withholding
applies to the portion of the withdrawal
which is included in your income and subject to federal income tax.
The tax withholding rate is 10% of
the taxable amount of the withdrawal. Withholding applies only if
the taxable amount of the withdrawal is
at least $200. Some states also require withholding for state
income taxes. (See "Federal Tax Matters,"
page 31.)
Withdrawal Requests must be in writing to ensure that your
instructions regarding withholding are
followed. If an adequate election is not made, the Request will be
denied and no withdrawal or partial
withdrawal will be processed.
After a withdrawal of all of your total Annuity Account Value,
or at any time that your Annuity
Account Value is zero, all your rights under the Contract will
terminate.
Since IRAs are offered by this Prospectus, reference should be
made to the applicable provisions
of the Code for any additional limitations or restrictions on cash
withdrawals.
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TELEPHONE TRANSACTIONS
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___________
We will employ reasonable procedures to confirm that
instructions communicated by telephone
are genuine and if we follow such procedures we will not be liable
for any losses due to unauthorized or
fraudulent instructions. However, we may be liable for such losses
if we do not follow those reasonable
procedures. The procedures we will follow for telephone
transactions may include requiring some form of
personal identification prior to acting on instructions received by
telephone, providing written confirmation
of the transaction, and/or tape recording the instructions given by
telephone.
We reserve the right to suspend telephone transaction
privileges at any time, for some or all
Contracts, and for any reason. Withdrawals are not permitted by
telephone.
<PAGE>
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DEATH BENEFIT
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___________
Payment of Death Benefit
Before the date annuity payments commence, the death benefit,
if any, will be equal to the
greater of: (a) the Annuity Account Value with an MVA, if
applicable, as of the date the Request for
payment is received, less Premium Tax, if any, or (b) the sum of
Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less Premium Tax, if any.
The death benefit will become
payable following the Company's receipt of a Request from the
Beneficiary. When an Owner or the
Annuitant dies before the annuity commencement date and a death
benefit is payable to a Beneficiary,
the death benefit proceeds will remain invested in accordance with
the allocation instructions given by
the Owner(s) until new allocation instructions are Requested by the
Beneficiary or until the death benefit
is actually paid to the Beneficiary. The death benefit will be
determined as of the date payments
commence; however, on the date a payment option is processed,
amounts in the Variable Sub-Account
will be Transferred to the Money Market Investment Division unless
the Beneficiary otherwise elects by
Request. Subject to the distribution rules set forth below,
payment of the death benefit may be
Requested to be made as follows:
A. Proceeds from the Variable Sub-Account(s)
1. payment in a single sum; or
2. payment under any of the variable annuity options
provided under this Contract.
B. Proceeds from the Guarantee Period(s)
1. payment in a single sum with respect to which a
Market Value Adjustment may
apply; or
2. payment under any of the annuity options provided
under this Contract with
respect to which a Market Value Adjustment may
apply; or
3. payment on the Guarantee Period Maturity Date so
that a Market Value
Adjustment will not apply.
In any event, no payment of benefits provided under the
Contract will be allowed that does not
satisfy the requirements of Section 72(s) of the Code and any other
applicable federal or state laws, rules
or regulations.
Distribution Rules
1. Death of Annuitant
Upon the death of the Annuitant while the Owner is living, and
before the annuity commencement
date, the Company will pay the death benefit to the Beneficiary
unless there is a Contingent Annuitant.
If a Contingent Annuitant was named by the Owner(s) prior to
the Annuitant's death, and the
Annuitant dies before the annuity commencement date while the Owner
and Contingent Annuitant are
living, no death benefit will be payable by reason of the
Annuitant's death and the Contingent Annuitant
will become the Annuitant.
If the Annuitant dies after the date annuity payments commence
and before the entire interest
has been distributed, any benefit payable must be distributed to
the Beneficiary in accordance with and
at least as rapidly as under the payment option applicable to the
Annuitant on the Annuitant's date of
death.
If a corporation or other non-individual is an Owner, or if
the deceased Annuitant is an Owner, the
death of the Annuitant will be treated as the death of an Owner and
the Contract will be subject to the
"Death of Owner" provisions described below.
2. Death of Owner
If the Owner is not the Annuitant:
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner, the Joint Owner
will become the Owner and Beneficiary and may elect to take
the death benefit or elect to
continue the Contract in force.
(2) In all other cases, the Company will pay the death
benefit to the Beneficiary even if a Joint
Owner (who was not the Owner's spouse on the date of the
Owner's death), the Annuitant and/or
the Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is
the deceased Owner's surviving spouse and the Beneficiary
elects to become the Owner and
Annuitant and to continue the Contract in force.
If the Owner is not the Annuitant, and the Owner dies after
annuity payments commence and
before the entire interest has been distributed while the Annuitant
is living, any benefit payable will
continue to be distributed to the Annuitant at least as rapidly as
under the payment option applicable on
the Owner's death. All rights granted the Owner under the Contract
will pass to any surviving Joint
Owner and, if none, to the Annuitant.
If the Owner is the Annuitant (Owner/Annuitant):
(1) If there is a Joint Owner who is the surviving spouse of
the deceased Owner and a
Contingent Annuitant, the Joint Owner will become the Owner
and the Beneficiary, the Contingent
Annuitant will become the Annuitant, and the Contract will
continue in force.
(2) If there is a Joint Owner who is the surviving spouse of
the deceased Owner but no
Contingent Annuitant, the Joint Owner will become the Owner,
Annuitant and Beneficiary and
may elect to take the death benefit or continue the Contract
in force.
(3) In all other cases, the Company will pay the death
benefit to the Beneficiary, even if a Joint
Owner (who was not the Owner's spouse on the date of the
Owner's death), Annuitant and/or
Contingent Annuitant are alive at the time of the Owner's
death, unless the sole Beneficiary is the
deceased Owner's surviving spouse and the Beneficiary Requests
to become the Owner and
Annuitant and to continue the Contract in force.
Any death benefit payable to the Beneficiary upon an Owner's
death will be distributed as follows:
(1) If the Owner's surviving spouse is the person entitled to
receive benefits upon the Owner's
death, the surviving spouse will be treated as the Owner and
will be allowed to take the death
benefit or continue the Contract in force; or
(2) If the Beneficiary is a non-spouse individual, she/he may
elect, not later than one year after
the Owner's date of death, to receive the death benefit in
either a single sum or payment under
any of the variable or fixed annuity options available under
the Contract, provided that (a) such
annuity is distributed in substantially equal installments
over the life or life expectancy of the
Beneficiary or over a period not extending beyond the life
expectancy of the Beneficiary; and (b)
such distributions begin not later than one year after the
Owner's date of death. If no election is
received by the Company from a non-spouse Beneficiary such
that substantially equal
installments have begun not later than one year after the
Owner's date of death, then the entire
amount must be distributed within five years of the Owner's
date of death. The death benefit will
be determined as of the date the payments commence; or
(3) If a corporation or other non-individual entity is
entitled to receive benefits upon the Owner's
death, the death benefit must be completely distributed within
five years of the Owner's date of
death.
Beneficiary
You may select one or more Beneficiaries. If more than one
Beneficiary is selected, unless you
indicate otherwise, they will share equally in any death benefit
payable. You may change the Beneficiary
any time before the Annuitant's death.
You may, while the Annuitant is living, change the Beneficiary
by Request. A change of
Beneficiary will take effect as of the date the Request is
processed by the Schwab Annuity Service
Center, unless a certain date is specified by the Owner. If the
Owner dies before the Request was
processed, the change will take effect as of the date the Request
was made, unless the Company has
already made a payment or otherwise taken action on a designation
or change before receipt or
processing of such Request. A beneficiary designated irrevocably
may not be changed without the
written consent of that Beneficiary, except as allowed by law.
The interest of any Beneficiary who dies before the Owner or
the Annuitant will terminate at the
death of the Beneficiary. The interest of any Beneficiary who dies
at the time of, or within 30 days after,
the death of an Owner or the Annuitant will also terminate if no
benefits have been paid to such
Beneficiary, unless the Owner otherwise indicates by Request. The
benefits will then be paid as though
the Beneficiary had died before the deceased Owner or Annuitant.
If no Beneficiary survives the Owner
or Annuitant, as applicable, the Company will pay the death benefit
proceeds to the Owner's estate.
If the surviving spouse of an Owner is the surviving Joint
Owner, the surviving spouse will
become the Beneficiary upon such Owner's death and may elect to
take the death benefit or may elect to
continue the Contract in force. If there is no surviving Joint
Owner, and no named Beneficiary is alive at
the time at the time of an Owner's death, any benefits payable will
be paid to the Owner's estate.
Contingent Annuitant
While the Annuitant is living, the Owner(s) may, by Request,
designate or change a Contingent
Annuitant from time to time. A change of Contingent Annuitant will
take effect as of the date the Request
is processed at the Schwab Annuity Service Center, unless a certain
date is specified by the Owner(s).
<PAGE>
_________________________________________________________________
___________
CHARGES AND DEDUCTIONS
_________________________________________________________________
___________
No deductions are made from Contributions except for any
applicable Premium Tax. Therefore,
the full amount of the Contributions (less any applicable Premium
Tax) are invested in the Contract.
As more fully described below, charges under the Contract are
assessed only as deductions for
Premium Tax, if applicable, for certain Transfers, as a Contract
Maintenance Charge, and as charges
against the assets in the Owner's Variable Sub-Account(s) for our
assumption of mortality and expense
risks. In addition, a Market Value Adjustment may apply to
withdrawals and surrenders, Transfers,
amounts applied to purchase an annuity, and distributions resulting
from death of the Owner or Annuitant
if the amounts held in a Guarantee Period are paid out prior to the
Guarantee Period Maturity Date.
Mortality and Expense Risk Charge
We deduct a Mortality and Expense Risk Charge from your
Variable Sub-Account(s) at the end of
each Valuation Period to compensate us for bearing certain
mortality and expense risks under the
Contract. This is a daily charge equal to an effective annual rate
of 0.85% of the value of the net assets
in your Variable Sub-Account(s). The approximate portion of this
charge attributable to mortality risks is
0.68%; the approximate portion of this charge estimated to be
attributable to expense risk is 0.17% of the
value of the net assets in your Variable Sub-Account(s). We
guarantee that this charge will never
increase beyond 0.85%.
The Mortality and Expense Risk Charge is reflected in the
Accumulation Unit Values for each of
your Variable Sub-Accounts. Thus, this charge will continue to be
applicable should you choose a
variable annuity payment option or the periodic withdrawal option.
Annuity Account Values and annuity payments are not affected
by changes in actual mortality
experience incurred by us. The mortality risks assumed by us arise
from our contractual obligations to
make annuity payments determined in accordance with the annuity
tables and other provisions contained
in the Contract. Thus you are assured that neither the Annuitant's
longevity nor an unanticipated
improvement in general life expectancy will adversely affect the
annuity payments under the Contract.
We bear substantial risk in connection with the death benefit
before the annuity commencement
date, since we will pay a death benefit equal to the greater of:
(1) the Annuity Account Value with a
Market Value Adjustment, if applicable, as of the later of the date
of death or the date the Request for
payment is received, less Premium Tax, if any; or, (2) the sum of
the Contributions paid, less partial
withdrawals and/or Periodic Withdrawals, less any charges under
Contract less Premium Tax, if any (i.e.,
we bear the risk of unfavorable experience in your Variable
Sub-Accounts).
The expense risk assumed is the risk that our actual expenses
in administering the Contracts and
the Series Account will be greater than anticipated, or exceed the
amount recovered through the
Contract Maintenance Charge plus the amount, if any, recovered
through Transfer Fees.
If the Mortality and Expense Risk Charge is insufficient to
cover actual costs and risks assumed,
the loss will fall on us. Conversely, if this charge is more than
sufficient, any excess will be profit to us.
Currently, we expect a profit from this charge. Our expenses for
distributing the Contracts will be borne
by our general assets, including any profits from this charge.
Contract Maintenance Charge
We currently deduct a $25 annual Contract Maintenance Charge
from the Annuity Account Value
only on each Contract anniversary date. This charge partially
covers our costs for administering the
Contracts and the Series Account. Once you have selected a payment
option, this charge will cease to
apply other than for the Periodic Withdrawal Option. The Contract
Maintenance Charge is deducted from
your Annuity Account Value allocated to the Schwab Money Market
Investment Division. If you do not
have sufficient Annuity Account Value allocated to the Schwab Money
Market Investment Division to cover
the Contract Maintenance Charge, then the charge or any portion
thereof will be deducted on a pro rata
basis from all your Variable Sub-Accounts with current value. If
the entire Annuity Account is held in the
Guarantee Period Fund or there are not enough funds in any Variable
Sub-Account to pay the entire
charge, then the Contract Maintenance Charge will be deducted on a
pro rata basis from amounts held
in all Guarantee Periods. There is no MVA on amounts deducted from
a Guarantee Period for the
Contract Maintenance Charge. We do not expect a profit from
amounts received from the Contract
Maintenance Charge.
Premium Tax
We may be required to pay state premium taxes or retaliatory
taxes currently ranging from 0% to
3.5% in connection with Contributions or values under the
Contracts. Depending upon applicable state
law, we will deduct charges for the premium taxes we incur with
respect to a particular Contract from the
Contributions, from amounts withdrawn, or from amounts applied on
the Payment Commencement Date.
In some states, charges for both direct premium taxes and
retaliatory premium taxes may be imposed at
the same or different times with respect to the same Contribution,
depending on applicable state law.
Transfer Fee
There will be a $10 charge for each Transfer in excess of
twelve Transfers in any calendar year.
We do not expect a profit from the Transfer fee for excess
Transfers.
Other Taxes
Under present laws, we will incur state or local taxes (in
addition to the Premium Tax described
above) in several states. No charges are currently made for taxes
other than Premium Tax. However, we
reserve the right to deduct charges in the future for federal,
state, and local taxes or the economic
burden resulting from the application of any tax laws that we
determine to be attributable to the
Contracts.
Expenses of the Eligible Funds
The value of the assets in the Investment Divisions reflect
the value of Eligible Fund shares and
therefore the fees and expenses paid by each Eligible Fund. A
complete description of the fees,
expenses, and deductions from the Eligible Funds are found in the
Eligible Funds' prospectuses. (See
"The Eligible Funds," page 8.) Current prospectuses for the Funds
can be obtained by calling the
Schwab Annuity Service Center at 800-838-0650, or by writing to the
Schwab Annuity Service Center,
P.O. Box 7666, San Francisco, California 94120-7666.
<PAGE>
_________________________________________________________________
___________
PAYMENT OPTIONS
_________________________________________________________________
___________
Periodic Withdrawal Option
The Owner may Request that all or part of the Annuity Account
Value be applied to a Periodic
Withdrawal Option. The amount applied to a Periodic Withdrawal is
the Annuity Account Value with an
MVA, if applicable, less Premium Tax, if any.
In Requesting Periodic Withdrawals, the Owner must elect:
- The withdrawal frequency of either 12-, 6-, 3-, or
1-month intervals;
- A withdrawal amount; a minimum of $100 is required;
- The calendar day of the month on which withdrawals will
be made;
- One withdrawal option; and
- The allocation of withdrawals from the Owner's Variable
and/or Fixed Sub-Account(s) as
follows:
1) Prorate the amount to be paid across all Variable
and Fixed Sub-Accounts in
proportion to the assets in each sub-account; or
2) Select the Variable and/or Fixed Sub-Account(s) from
which withdrawals will be
made. Once the Variable and/or Fixed Sub-Accounts
have been depleted, the
Company will automatically prorate the remaining
withdrawals against all
remaining available Variable and/or Fixed
Sub-Accounts unless the Owner
Requests the selection of another Variable and/or
Fixed Sub-Account.
The Owner may elect to change the withdrawal option and/or the
frequency once each calendar
year.
While Periodic Withdrawals are being received:
1. the Owner may continue to exercise all contractual rights
that are available prior to
electing an annuity option, except that no Contributions
may be made;
2. for Periodic Withdrawals from Guarantee Periods six or
more months prior to its
Guarantee Period Maturity Date, a Market Value
Adjustment, if applicable, will be
assessed;
3. the Owner may keep the same investment options as were in
force before periodic
withdrawals began;
4. charges and fees under the Contract continue to apply;
and
5. maturing Guarantee Periods renew into the shortest
Guarantee Period then available.
Periodic Withdrawals will cease on the earlier of the date:
1. the amount elected to be paid under the option selected
has been reduced to zero;
2. the Annuity Account Value is zero;
3. the Owner Requests that withdrawals stop; or
4. an Owner or the Annuitant dies.
The Owner must elect one of the following five (5) withdrawal
options:
1. Income for a Specified Period for at least thirty-six
(36) months - The Owner elects the
duration over which withdrawals will be made. The amount paid
will vary based on the duration;
or
2. Income of a Specified Amount for at least thirty-six (36)
months - The Owner elects the
dollar amount of the withdrawals. Based on the amount
elected, the duration may vary; or
3. Interest Only - The withdrawals will be based on the
amount of interest credited to the
Guarantee Period Fund between each withdrawal. Available only
if 100% of the account value is
invested in the Guarantee Period Fund; or
4. Minimum Distribution - If this is an IRA contract, the
Owner may Request minimum
distributions as specified under Code Section 401(a)(9); or
5. Any Other Form for a period of at least thirty-six (36)
months - Any other form of Periodic
Withdrawal which is acceptable to the Company.
If Periodic Withdrawals cease, the Owner may resume making
Contributions. The Owner may
elect to restart a Periodic Withdrawal program; however, the
Company may limit the number of times the
Owner may restart a Periodic Withdrawal program.
Periodic withdrawals may be taxable, subject to withholding
and subject to the 10% penalty tax.
IRAs are subject to complex rules with respect to restrictions on
and taxation of distributions, including
the applicability of penalty taxes. A competent tax adviser should
be consulted before a Periodic
Withdrawal Option is requested. (See "Federal Tax Matters," page
31.)
Annuity Date
The date annuity payments commence may be chosen when the
Contract is purchased or at a
later date. This date must be at least one year after the initial
Contribution. In the absence of an earlier
election, the annuity date is the first day of the month of the
Annuitant's 91st birthday.
If an option has not been elected within 30 days of the
annuity commencement date, the Annuity
Account Value held in the Fixed Sub-Account(s) will be applied
under Annuity Payment Option 3,
discussed below, to provide payments for life with a guaranteed
period of 20 years. The Annuity
Account Value held in the Variable Sub-Account(s) will be applied
under Variable Annuity Payment
Option 1, discussed below, to provide payments for life with a
guaranteed period of 20 years.
Under section 401(a)(9) of the Code, a Contract which is
purchased and used in connection with
an Individual Retirement Account or with certain other plans
qualifying for special federal income tax
treatment is subject to complex "minimum distribution"
requirements, which require that distributions
under such a plan must begin by a specific date, and also that the
entire interest of the plan participant
must be distributed within certain specified periods under formulas
that specify minimum annual
distributions. The application of the minimum distribution
requirements to each person will vary
according to the person's age and other circumstances. A
prospective purchaser may wish to consult a
competent tax adviser regarding the application of the minimum
distribution requirements. (See "Federal
Tax Matters," page 31.)
<PAGE>
Annuity Options
An annuity option may be selected by the Owner when the
Contract is purchased, or at a later
date. This selection may be changed, by Request, at any time up to
30 days before the annuity date. In
the absence of an election, payments will automatically commence on
the annuity date as described
above. The amount to be applied is the Annuity Account Value on
the annuity date. The minimum
amount that may be withdrawn from the Annuity Account Value to
purchase an annuity payment option is
$2,000 with an MVA, if applicable. If the amount is less than
$2,000, the Company may pay the amount
in a single sum subject to the Contract provisions applicable to a
partial withdrawal. Payments may be
elected to be received monthly, quarterly, semi-annually or
annually. Payments to be made under the
annuity payment option selected must be at least $50. The Company
reserves the right to make
payments using the most frequent payment interval which produces a
payment of not less than $50. The
maximum amount that may be applied under any payment option is
$1,000,000, unless prior approval is
obtained from the Company.
A single sum payment may be elected. If it is, then the
amount to be paid is the Surrender
Value. If the Owner elects a variable annuity with funds from the
Owner's Variable Sub-Accounts, then
the amount to be applied is the Annuity Account Value held in the
Variable Sub-Account(s), as of the
annuity commencement date, less any applicable Premium Tax. If the
Owner elects a fixed annuity with
funds from the Fixed Sub-Accounts, then the amount to be applied is
the Annuity Account Value held in
the Fixed Sub-Account(s), as of the annuity commencement date with
an MVA, if applicable, less any
applicable Premium Tax.
Fixed Annuity Payment Options
Option 1: Income of Specified Amount
The amount applied under this option may be paid in equal
annual, semiannual, quarterly or
monthly installments of the dollar amount elected for not more than
240 months. Upon death of the
Annuitant, the Beneficiary will begin to receive the remaining
payments at the same interval that was
elected by the Owner.
Option 2: Income for a Specified Period
Payments are paid annually, semiannually, quarterly or
monthly, as elected, for a selected
number of years not to exceed 240 months. Upon death of the
Annuitant, the Beneficiary will begin to
receive the remaining payments at the same interval that was
elected by the Owner.
Option 3: Fixed Life Annuity with Guaranteed Period
This option provides for monthly payments during a designated
period and thereafter throughout
the lifetime of the Annuitant. The designated period may be 5, 10,
15 or 20 years. Upon death of the
Annuitant, for each remaining designated period, the amounts
payable under this payment option will be
paid to the Beneficiary.
Option 4: Fixed Life Annuity
This annuity is payable monthly during the lifetime of the
Annuitant, terminating with the last
payment due prior to the death of the Annuitant. Since no minimum
number of payments is guaranteed,
this option may offer the maximum level of monthly payments of the
annuity options. It is possible that
only one payment may be made if the Annuitant died before the date
on which the second payment was
due. No other payments nor death benefits would be payable.
Option 5: Any Other Form
This option allows an Owner the ability to choose any other
form of annuity which is acceptable
to the Company.
Variable Annuity Payment Options
Option 1: Variable Life Annuity with Guarantee Period
This option provides for payments during a designated period
and thereafter throughout the life
time of the Annuitant. The designated period may be 5, 10, 15 or
20 years. Upon death of the
Annuitant, for each remaining designated period, the amounts
payable under this payment option will be
paid to the Beneficiary.
Option 2: Variable Life Annuity
This annuity is payable during the lifetime of the Annuitant.
The annuity terminates with the last
payment due prior to the death of the Annuitant. Since no minimum
number of payments is guaranteed,
this option may offer the maximum level of monthly payments of the
annuity options. It is possible that
only one payment may be made if the Annuitant died before the date
on which the second payment was
due. No other payments nor death benefits would be payable.
Variable annuity payment options are subject to the following
provisions:
Amount of First Payment
The first payment under a variable annuity payment option will
be based on the value of the
amounts held in each Variable Sub-Account on the 5th Valuation Date
preceding the annuity
commencement date. It will be determined by applying the
appropriate rate to the amount applied under
the payment option.
Annuity Units
The number of Annuity Units paid to the Annuitant for each
Variable Sub-Account is determined
by dividing the amount of the first monthly payment by its
Accumulation Unit Value on the 5th Valuation
Date preceding the date the first payment is due. The number of
Annuity Units used to calculate each
payment for a Variable Sub-Account remains fixed during the Annuity
Payment Period.
Amount of Payments after the First
Payments after the first will vary depending upon the
investment experience of the Investment
Divisions. The subsequent amount paid from each sub-account is
determined by multiplying (a) by (b)
where (a) is the number of sub-account Annuity Units to be paid and
(b) is the sub-account Annuity Unit
value on the 5th Valuation Date preceding the date the annuity
payment is due. The total amount of
each variable annuity payment will be the sum of the variable
annuity payments for each Variable Sub-
Account. The Company guarantees that the dollar amount of each
payment after the first will not be
affected by variations in expenses or mortality experience.
<PAGE>
Transfers After the Annuity Commencement Date
Once annuity payments have begun, no Transfers may be made
from a fixed annuity payment
option to a variable annuity payment option, or vice versa;
however, for variable annuity payment options,
Transfers may be made among Investment Divisions. Transfers after
the annuity commencement date
will be made by converting the number of Annuity Units being
Transferred to the number of Accumulation
Units of the Variable Sub-Account to which the Transfer is made.
The result will be that the next annuity
payment, if it were made at that time, would be the same amount
that it would have been without the
Transfer. Thereafter, annuity payments will reflect changes in the
value of the new Annuity Units.
***
For annuity options involving life income, the actual age
and/or sex of the Annuitant will affect the
amount of each payment. We reserve the right to ask for
satisfactory proof of the Annuitant's age. We may
delay annuity payments until satisfactory proof is received. Since
payments to older Annuitants are expected
to be fewer in number, the amount of each annuity payment under a
selected annuity form will be greater
for older Annuitants than for younger Annuitants.
If the age of the Annuitant has been misstated, the payments
established will be made on the basis
of the correct age. If payments were too large because of
misstatement, the difference with interest may be
deducted by the Company from the next payment or payments. If
payments were too small, the difference
with interest may be added by the Company to the next payment.
This interest is at an annual effective rate
which will not be less than the Guaranteed Interest Rate.
The Payment Commencement Date and annuity options available
for IRAs may also be controlled
by endorsements, the plan documents, or applicable law.
Once payments start under the annuity form selected by the
Owner: (a) no changes can be made
in the annuity form, (b) no additional Contributions will be
accepted under the Contract, and (c) no further
withdrawals, other than withdrawals made to provide annuity
benefits, will be allowed.
***
A portion or the entire amount of the annuity payments may be
taxable as ordinary income. If, at the
time the annuity payments begin, we have not received a proper
written election not to have federal income
taxes withheld, we must by law withhold such taxes from the taxable
portion of such annuity payments and
remit that amount to the federal government (an election not to
have taxes withheld is not permitted for
certain Qualified Contracts). State income tax withholding may
also apply. (See "Federal Tax-Matters,"
below.)
_________________________________________________________________
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FEDERAL TAX MATTERS
_________________________________________________________________
___________
Introduction
The following discussion is a general description of federal
income tax considerations relating to the
Contracts and is not intended as tax advice. Further, this
discussion is based on the assumption that the
Contract qualifies as an annuity contract for federal income tax
purposes. This discussion is not intended
to address the tax consequences resulting from all of the
situations in which a person may be entitled to or
may receive a distribution under the Contract. Any person
concerned about these tax implications should
consult a competent tax adviser before initiating any transaction.
This discussion is based upon our
understanding of the present federal income tax laws as they are
currently interpreted by the Internal
Revenue Service. No representation is made as to the likelihood of
the continuation of the present federal
income tax laws or of the current interpretation by the Internal
Revenue Service. Moreover, no attempt has
been made to consider any applicable state or other tax laws.
The Contract may be purchased on a non-tax qualified basis
("Non-Qualified Contract") or purchased
and used in connection with IRAs. The ultimate effect of federal
income taxes on the amounts held under
a Contract, on annuity payments, and on the economic benefit to
you, the Annuitant, or the Beneficiary may
depend on the type of Contract, and on the tax status of the
individual concerned. In addition, certain
requirements must be satisfied in purchasing an IRA and receiving
distributions from an IRA in order to
continue receiving favorable tax treatment. Therefore, purchasers
of IRAs should seek competent legal and
tax advice regarding the suitability of the Contract for their
situation, the applicable requirements, and the
tax treatment of the rights and benefits of the Contract. The
following discussion assumes that an IRA is
purchased with proceeds from and/or Contributions that qualify for
the intended special federal income tax
treatment.
Tax Status
The Company is taxed as a life insurance company under Part I
of Subchapter L of the Code.
Taxation of Annuities
In General
Section 72 of the Code governs taxation of annuities in
general. An Owner who is a natural person
generally is not taxed on increases (if any) in the value of an
Annuity Account Value until distribution occurs
by withdrawing all or part of the Annuity Account Value (e.g.,
withdrawals or annuity payments under the
annuity form elected). However, under certain circumstances, the
Owner may be subject to taxation
currently. In addition, an assignment, pledge, or agreement to
assign or pledge any portion of the Annuity
Account Value generally will be treated as a distribution. The
taxable portion of a distribution (in the form
of a single sum payment or an annuity) is taxable as ordinary
income. An IRA Contract may not be assigned
as collateral.
The Owner of any annuity contract who is not a natural person
(e.g. a corporation) generally must
include in income any increase in the excess of the Annuity Account
Value over the "investment in the
contract" (discussed below) during each taxable year. The rule
does not apply where the non-natural person
is the nominal owner of a Contract and the beneficial owner is a
natural person. The rule also does not apply
in the following circumstances: (1) where the annuity Contract is
acquired by the estate of a decedent, (2)
where the Contract is held under an IRA, (3) where the Contract is
a qualified funding asset for a structured
settlement, and (4) where the Contract is purchased on behalf of an
employee upon termination of a qualified
plan. A prospective Owner that is not a natural person may wish to
discuss these matters with a competent
tax adviser.
The following discussion generally applies to a Contract owned
by a natural person.
Withdrawals
In the case of a withdrawal under an IRA, including
withdrawals under the Periodic Withdrawal Option,
a ratable portion of the amount received may be non-taxable. The
amount of the non-taxable portion is
generally determined by the ratio of the "investment in the
contract" to the individual's total accrued benefit
under the retirement plan. The "investment in the contract"
generally equals the amount of any nondeductible
Contributions paid by or on behalf of any individual. Special tax
rules may be available for certain
distributions from an IRA.
With respect to Non-Qualified Contracts, partial withdrawals,
including Periodic Withdrawals, are
generally treated as taxable income to the extent that the Annuity
Account Value immediately before the
withdrawal exceeds the "investment in the contract" at that time.
If a partial withdrawal is made from a
Guarantee Period which is subject to a Market Value Adjustment,
then the Annuity Account Value immediately
before the withdrawal will not be altered to take into account the
Market Value Adjustment. As a result, for
purposes of determining the taxable portion of the partial
withdrawal, the Annuity Account Value will not
reflect the amount, if any, deducted from or added to the Guarantee
Period due to the Market Value
Adjustment. Full surrenders are treated as taxable income to the
extent that the amount received exceeds
the "investment in the contract." The taxable portion of any
annuity payment is taxed at ordinary income tax
rates.
Annuity Payments
Although the tax consequences may vary depending on the
annuity form elected under the Contract,
in general, only the portion of the annuity payment that represents
the amount by which the Annuity Account
Value exceeds the "investment in the contract" will be taxed; after
the investment in the contract is recovered,
the full amount of any additional annuity payments is taxable. For
fixed annuity payments, in general there
is no tax on the portion of each payment which represents the same
ratio that the "investment in the contract"
bears to the total expected value of the annuity payments for the
term of the payments; however, the
remainder of each annuity payment is taxable. Once the investment
in the Contract has been fully recovered,
the full amount of any additional annuity payments is taxable. If
the annuity payments cease as a result of
an Annuitant's death before full recovery of the "investment in the
contract," you should consult a competent
tax adviser regarding the deductibility of the unrecovered amount.
Penalty Tax
In the case of a distribution pursuant to a Non-Qualified
Contract, there may be imposed a federal
income tax penalty equal to 10% of the amount treated as taxable
income. In general, however, there is no
penalty tax on distributions: (1) made on or after the date on
which the Owner attains age 59 1/2; (2) made
as a result of death or disability of the Owner; or (3) received in
substantially equal periodic payments as a
life annuity or a joint and survivor annuity for the lives or life
expectancies of the Owner and a "designated
beneficiary." Other exemptions or tax penalties may apply to
certain distributions pursuant to an IRA. For
more details regarding these exemptions or penalties consult a
competent tax adviser.
Taxation of Death Benefit Proceeds
Amounts may be distributed from the Contract because of the
death of an Owner or the Annuitant.
Generally such amounts are includible in the income of the
recipient as follows: (1) if distributed in a lump
sum, they are taxed in the same manner as a full surrender, as
described above, or (2) if distributed under
an annuity form, they are taxed in the same manner as annuity
payments, as described above.
Distribution-at-Death Rules
In order to be treated as an annuity contract, the terms of
the Contract must provide the following
two distribution rules: (A) if any Contract Owner dies on or after
the date annuity payments commence, and
before the entire interest in the Contract has been distributed,
the remainder of his interest will not be
distributed under a slower distribution schedule than that provided
for in the method in effect on the Contract
Owner's death; and (B) if any Contract Owner dies before the date
annuity payments commence, his entire
interest must generally be distributed within five years after the
date of death provided that if such interest
is payable to a designated Beneficiary, then such interest may be
made over the life of that designated
Beneficiary or over a period not extending beyond the life
expectancy of that Beneficiary, so long as
payments commence within one year after the Contract Owner's death.
If the sole designated Beneficiary
is the spouse of the Contract Owner, the Contract may be continued
in the name of the spouse as Contract
Owner. The designated Beneficiary is the natural person designated
by the terms of the Contract or by the
Contract Owner as the individual to whom ownership of the contract
passes by reason of the Contract
Owner's death. If the Contract Owner is not an individual, then
for purposes of the distribution at death rules,
the Primary Annuitant is considered the Contract Owner. In
addition, when the Contract Owner is not an
individual, a change in the Primary Annuitant is treated as the
death of the Contract Owner.
Transfers, Assignments, or Exchanges
A Transfer of ownership of a Contract, the designation of an
Annuitant, Payee or other Beneficiary
who is not also the Owner, or the exchange of a Contract may result
in adverse tax consequences to the
Owner that are not discussed herein. An Owner contemplating any
such designation, transfer, assignment,
or exchange of a Contract should contact a competent tax adviser
with respect to the potential tax effects
of such a transaction.
Multiple Contracts
All deferred, non-qualified annuity contracts that are issued
by the Company (or our affiliates) to the
same Owner during any calendar year will be treated as one annuity
contract for purposes of determining
the amount includible in gross income under section 72(e) of the
Code. Amounts received under any such
Contract may be taxable (and may be subject to the 10% Penalty Tax)
to the extent of the combined income
in all such Contracts. In addition, the Treasury Department has
specific authority to issue regulations that
prevent the avoidance of section 72(e) through the serial purchase
of annuity contracts or otherwise.
Congress has also indicated that the Treasury Department may have
authority to treat the combination
purchase of an immediate annuity contract and separate deferred
annuity contracts as a single annuity
contract under its general authority to prescribe rules as may be
necessary to enforce the income tax laws.
Withholding
Annuity distributions generally are subject to withholding for
the recipient's federal income tax liability
at rates that vary according to the type of distribution and the
recipient's tax status. Recipients, however,
generally are provided the opportunity to elect not to have tax
withheld from distributions. Certain
distributions from IRAs are subject to mandatory federal income tax
withholding.
Possible Changes in Taxation
In past years, legislation has been proposed that would have
adversely modified the federal taxation
of certain annuities. For example, one such proposal would have
changed the tax treatment of non-qualified
annuities that did not have "substantial life contingencies" by
taxing income as it is credited to the annuity.
There is always the possibility that the tax treatment of annuities
could change by legislation or other means
(such as IRS regulations, revenue rulings, judicial decisions,
etc.). Moreover, it is also possible that any
change could be retroactive (that is, effective prior to the date
of the change).
<PAGE>
Section 1035 Exchanges
Code Section 1035 provides that no gain or loss shall be
recognized on the exchange of one annuity
contract for another. A replacement contract obtained in a
tax-free exchange of contracts succeeds to the
status of the original contract. Special rules apply to Contracts
issued prior to August 14, 1982. Prospective
Owners wishing to take advantage of a Section 1035 exchange should
consult their tax adviser.
Individual Retirement Annuities
The Contract may be used with IRAs as described in Section 408
of the Code. Section 408 of the
Code permits eligible individuals to contribute to an individual
retirement program known as an Individual
Retirement Annuity. Also, certain kinds of distributions from
certain types of qualified and non-qualified
retirement plans may be "rolled over" following the rules set out
in the Code to maintain favorable tax
treatment, to an Individual Retirement Annuity. The sale of a
Contract for use with an IRA may be subject
to special disclosure requirements of the Internal Revenue Service.
Purchasers of the Contract for use with
IRA's will be provided with supplemental information required by
the Internal Revenue Service or other
appropriate agency. Such purchasers will have the right to revoke
their purchase within seven days of
purchase of the IRA Contract.
Various tax penalties may apply to contributions in excess of
specified limits, aggregate distributions
in excess of $150,000 annually, distributions that do not satisfy
specified requirements, and certain other
transactions. The Contract will be amended as necessary to conform
to the requirements of the Code.
Purchasers should seek competent advice as to the suitability of
the Contract for use with IRA's.
If a Contract is issued in connection with an employer's
Simplified Employee Pension ("SEP") plan,
Owners, Annuitants and Beneficiaries are cautioned that the rights
of any person to any of the benefits under
the Contract may be subject to the terms and conditions of the plan
itself, regardless of the terms and
conditions of the Contract.
If a Contract is purchased to fund an IRA the Annuitant must
also be the Owner. In addition, if a
Contract is purchased to fund an IRA, minimum distributions must
commence not later than April 1st of the
calendar year following the calendar year in which you attain age
70 1/2. You should consult your tax adviser
concerning these matters.
The Contract and prototype IRA endorsement have been submitted
for IRS approval and
determination that they are acceptable under Section 408 of the
Code, so that each individual who purchases
a Contract with an IRA endorsement will be considered to have
adopted a retirement savings program that
satisfies the requirements of Section 408 of the Code. The IRS
approval is a determination only as to the
form of the Contract and does not represent a determination of the
merits of the Contract.
At the time the Initial Contribution is paid, a prospective
purchaser must specify whether he or she
is purchasing a Non-Qualified Contract or an IRA. If the initial
Contribution is derived from an exchange or
surrender of another annuity contract, we may require that the
prospective purchaser provide information with
regard to the federal income tax status of the previous annuity
contract. We will require that persons
purchase separate Contracts if they desire to invest monies
qualifying for different annuity tax treatment
under the Code. Each such separate Contract would require the
minimum initial Contribution stated above.
Additional Contributions under a Contract must qualify for the same
federal income tax treatment as the initial
Contribution under the Contract; we will not accept an additional
Contribution under a Contract if the federal
income tax treatment of such Contribution would be different from
that of the initial Contribution.
Seek Tax Advice
The foregoing discussion of the federal income tax
consequences is only a brief summary and is not
intended as tax advice. Further, the federal income tax
consequences discussed herein reflect our
understanding of current law and the law may change. Federal
estate tax consequences and state and local
estate, inheritance, and other tax consequences of ownership or
receipt of distributions under a Contract
depend on the individual circumstances of each Owner or recipient
of the distribution. A COMPETENT TAX
ADVISER SHOULD BE CONSULTED FOR FURTHER INFORMATION.
_________________________________________________________________
___________
ASSIGNMENTS OR PLEDGES
_________________________________________________________________
___________
Generally, rights in the Contract may be assigned or pledged
for loans at any time during the life of
the Annuitant; however, if the Contract is an IRA, the Owner may
not assign the Contract as collateral.
If a non-IRA Contract is assigned, the interest of the
assignee has priority over the interest of the
Owner and the interest of the Beneficiary. Any amount payable to
the assignee will be paid in a single sum.
A copy of any assignment must be submitted to the Company at
the Schwab Annuity Service Center.
Any assignment is subject to any action taken or payment made by
the Company before the assignment was
processed. The Company is not responsible for the validity or
sufficiency of any assignment.
If any portion of the Annuity Account Value is assigned or
pledged for a loan, it may be treated as
a distribution. A competent tax adviser should be consulted for
further information.
_________________________________________________________________
___________
PERFORMANCE DATA
_________________________________________________________________
___________
From time to time, we may advertise yields and average annual
total returns for the Investment
Divisions. In addition, we may advertise the effective yield of
the Schwab Money Market Investment Division.
These figures will be based on historical information and are not
intended to indicate future
performance.
The yield of the Schwab Money Market Investment Division
refers to the annualized income generated
by an investment in that Investment Division over a specified
seven-day period. The yield is calculated by
assuming that the income generated for that seven-day period is
generated each seven-day period over a
52-week period and is shown as a percentage of the investment. The
effective yield is calculated similarly
but, when annualized, the income earned by an investment in that
Investment Division is assumed to be
reinvested. The effective yield will be slightly higher than the
yield because of the compounding effect of this
assumed reinvestment.
The yield of an Investment Division (other than the Schwab
Money Market Investment Division) refers
to the annualized income generated by an investment in that
Investment Division over a specified thirty-day
period. The yield is calculated by assuming that the income
generated by the investment during that thirty-
day period is generated each thirty-day period over a twelve-month
period and is shown as a percentage
of the investment.
The yield calculations do not reflect the effect of any
Premium Tax that may be applicable to a
particular Contract. To the extent that premium taxes are
applicable to a particular Contract, the yield of that
Contract will be reduced. For a description of the methods used to
determine yield and total returns, see
the Statement of Additional Information.
The average annual total return of an Investment Division
refers to return quotations assuming an
investment has been held in the Investment Division for various
periods of time including, but not limited to,
a period measured from the date the Investment Division commenced
operations. When an Investment
Division has been in operation for 1, 5, and 10 years,
respectively, the average annual total return for these
periods will be provided. The average annual total return
quotations will represent the average annual
compounded rates of return that would equate an initial investment
of $1,000 to the redemption value of that
investment (excluding Premium Tax) as of the last day of each of
the periods for which total return quotations
are provided. For additional information regarding yields and
total returns calculated using the standard
formats briefly described herein, please refer to the Statement of
Additional Information.
Performance information for any Investment Division reflects
only the performance of a hypothetical
Contract under which Annuity Account Value is allocated to an
Investment Division during a particular time
period on which the calculations are based. Performance
information should be considered in light of the
investment objectives and policies and characteristics of the
Eligible Funds in which the Investment Division
invests, and the market conditions during the given time period,
and should not be considered as a
representation of what may be achieved in the future.
Reports and promotional literature may also contain other
information including (1) the ranking of any
Investment Division derived from rankings of variable annuity
separate accounts or their investment products
tracked by Lipper Analytical Services, Inc., VARDS, Morningstar,
Value Line, IBC/Donoghue's Money Fund
Report, Financial Planning Magazine, Money Magazine, Bank Rate
Monitor, Standard & Poor's Indices, Dow
Jones Industrial Average, and other rating services, companies,
publications, or other persons who rank
separate accounts or other investment products on overall
performance or other criteria, and (2) the effect
of tax-deferred compounding on investment returns, or returns in
general, which may be illustrated by graphs,
charts, or otherwise, and which may include a comparison, at
various points in time, of the return from an
investment in a Contract (or returns in general) on a tax-deferred
basis (assuming one or more tax rates) with
the return on a currently taxable basis. Other ranking services
and indices may be used.
We may from time to time also disclose cumulative
(non-annualized) total returns for the Investment
Divisions. We may from time to time also disclose yield and
standard total returns for any or all Investment
Divisions.
We may also advertise performance figures for the Investment
Divisions based on the performance
of an Eligible Fund prior to the time the Series Account commenced
operations.
For additional information regarding the calculation of other
performance data, please refer to the
Statement of Additional Information.
<PAGE>
_________________________________________________________________
__________
DISTRIBUTION OF THE CONTRACTS
_________________________________________________________________
___________
Charles Schwab & Co., Inc. ("Schwab") is the distributor of
the Contracts. Schwab is registered with
the Securities and Exchange Commission as a broker/dealer and is a
member of the National Association
of Securities Dealers, Inc. ("NASD"). Its principal offices are
located at 101 Montgomery, San Francisco,
California 94104, telephone 800-838-0650.
Certain administrative services are provided by Schwab to
assist the Company in the processing of
the Contracts, which services are described in written agreements
between Schwab and the Company. The
Company has agreed to indemnify Schwab (and its agents, employees,
and controlling persons) for certain
damages arising out of the sale of the Contracts, including those
arising under the securities laws.
_________________________________________________________________
__________
SELECTED FINANCIAL DATA
_________________________________________________________________
___________
The following is a summary of certain financial data of the
Company. This summary has been derived
in part from, and should be read in conjunction with, the financial
statements of the Company included
elsewhere in this Prospectus.
Nine Months EndedYears Ended December
31,
(In Millions) 9/30/969/30/95 1995 1994 19931992 1991
INCOME STATEMENT DATA
Premiums and other income$ 785$ 793$ 1,067$ 1,000$ 696$ 245$
58
Net investment income 623 622 835 768 792 661 599
Realized investment gains (losses) (31) 2 8 (72)
25 (4) (30)
Total Revenues 1,377 1,417 $ 1,910$ 1,696$ 1,513$ 902$
627
Total benefits and expenses1,2391,290$ 1,733$ 1,594$ 1,417$ 844$
596
Income tax expense 39 45 49 28 31 18
7
Cumulative effect of adopting a
new accounting method for income taxes_____ ____ ____ (23) ___
Net income $ 99$ 82$ 128$ 74$ 65$ 63$
24
BALANCE SHEET DATA
Investment assets $12,572
$12,148$12,473$11,791$11,592$10,771$8,483
Separate account assets 5,039 3,728 3,999 2,555 1,680 937 550
Total assets 18,90717,067 17,68215,61614,29612,9489,571
Total policy liabilities11,64011,399 11,49210,92910,59210,3527,808
Total shareholder's equity 989908 993 777 821 769 624
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company
The Company operates in one business segment as a provider of
life, health and annuity products
to groups of individuals associated with employers or distributors;
however, the business operations of
GWL&A will be discussed in terms of its major business units: the
Employee Benefits Division, which
distributes life, health, disability income insurance and 401(k)
products to employee groups, primarily to small
to mid-sized corporations; and the Financial Services Division,
which distributes accumulation and payout
annuity products for both group and individual clients, primarily
in the public\non-profit sector, as well as
insurance products for individual clients.
GWL&A recognized the potential problems of high yielding
assets in the late 1980's and adjusted
its investment policy accordingly. The impact of problem mortgage
and real estate accounts showed marked
improvement in the last few years as the Company curtailed any new
investment in mortgage loans. The
emphasis of quality over yield in the bond portfolio certainly has
proved to be beneficial to the overall
strength of the investment assets.
Going forward, GWL&A intends to increase the percentage of
assets and liabilities funded on a
separate account basis. Management believes this emphasis is in
the best interests of its customers and
shareholders. GWL&A intends to continue to improve its
administrative and distribution systems in order to
compete with insurers, mutual fund companies, and other money
managers.
NINE MONTHS ENDED SEPTEMBER 30, 1996 and 1995
Results of Operations
Net income increased to $98.7 million as of September 30,
1996, compared to $82.1 million for
the same period in 1995. The growth in earnings is being driven by
good results from operations.
Increased Employee Benefits Division earnings reflected an
improvement in group health morbidity and
expense gains associated with the large growth in 401(k). The
Financial Services Division net income
increased as a result of effective expense management and increased
interest margins on annuity
products.
The Company also benefited from a $25.6 million release of
a
provision on a contingent liability it
assumed from Great-West Life in 1993. This was largely offset by
capital losses of $21.5 million incurred
on the sales of bonds in the first nine months of 1996. The
Company had realized capital gains on bond
sales of $16.8 million through the first nine months of 1995. The
bond
capital gains and losses are included in the
realized investment gains [losses] in the income statement.
YEARS ENDED DECEMBER 31, 1995 and 1994
Results of Operations
The net income of $128 million in 1995 is up significantly
from the $74 million recorded in 1994.
The growth in earnings is related to the Company's continued
investment philosophy of replacing
mortgage loans with higher quality bonds which ultimately resulted
in a reduction of mortgage
writedowns. This is very apparent in the Financial Services
Division where the asset intensive lines
benefited from a combination of lower mortgage writedowns and
capital gains in the bond portfolio. The
Company's strategy of increasing fee income and reducing interest
rate exposure is apparent in the
growth of the separate accounts. The Employee Benefits Division's
net income from operations
increased in 1995, largely due to low healthcare inflation,
favorable mortality, outstanding 401(k) growth
and effective expense management.
Life, accident, and health premium increased $49 million from
1994 to a total of $988 million
primarily due to an increase in group health premium, which
primarily reflects the acquisition of a block of
group life and health business from Confederation Life Insurance
Company.
Net investment income increased $67 million to a total of $835
million in 1995 reflecting higher
earned rates and growth in policy loans associated with corporate
owned life insurance (COLI) business.
The net realized gains and losses improved significantly over
last year as the $8 million of gains
in 1995 was substantially better than the $72 million of losses
recorded in 1994. Provisions for asset
losses, included in realized losses, continued to decline as the
$22 million in 1995 were $12 million
better than the $34 million recorded in 1994. Interest rates
decreased in 1995, leading to bond capital
gains of $28 million which were better than the $39 million of
losses recorded in 1994.
The capital gains and losses recorded in 1994 and 1995 were
somewhat mitigated by
adjustments to the amortization of deferred acquisition costs and
premium deficiency reserves totalling
$(10) million in 1995 and $19 million in 1994.
Policyholder benefits increased to $1.2 billion, up $76
million, which is a combination of an
increase in interest credits to policyholders and higher group life
and health claims.
The commissions and operating expense increase of $56 million
to a total of $465 million includes
expense increases associated with managed care and the acquisition
of a block of group life and health
business from Confederation Life Insurance Company.
The effective income tax rate in 1995 and 1994 was lower than
the statutory rate due to a
reduction of $13 million and $7 million, respectively, in the
deferred tax asset valuation allowance held in
a subsidiary company, GWL Properties Inc.
Balance Sheet
Total assets grew approximately $2.1 billion to a total of
$17.7 billion, reflecting continued growth
in the separate accounts of $1.4 billion and a $333 million
increase in policy loans associated with COLI
business.
It is important to recognize the continued shift away from
mortgages as the portfolio dropped
$298 million during 1995. The mortgage portfolio of $1.7 billion
at December 31, 1995 represented 13.7%
of total investment assets, compared to 17.1% at December 31, 1994.
Stockholder's equity at December 31, 1995 of $993 million
increased substantially from December
31, 1994, as the result of higher earnings and a significant
increase in the unrealized gains on the bond
portfolio that is available for sale.
YEARS ENDED DECEMBER 31, 1994 and 1993
Results of Operations
Net income in 1994 of $74 million increased from $65 million
in 1993. The higher group life and
health earnings more than offset the lower asset intensive earnings
associated with the capital losses on
the bond portfolio.
Premiums and other income consist primarily of life, accident,
and health premiums which
increased 48% over 1993 to a total of $939 million. The $306
million increase was primarily the result of
group life and health, which was up $248 million as none of the
premium was reinsured to The Great-
West Life during 1994, compared to $179 million reinsured in 1993.
Net investment income decreased $24 million to a total of $768
million. The decrease was
associated with a 0.68% drop in the yield on investments as higher
yielding mortgages and bonds
continued to be replaced by lower yielding, higher quality bonds.
The net realized losses of $72 million were significantly
worse than the $25 million of net gains
recorded in 1993, reflecting the decline in bond prices during
1994. However, provisions for asset losses
in 1994 of $34 million showed improvement over the $43 million in
1993, reflecting the overall decrease in
mortgage investments and the reduction in problem mortgages.
The capital losses in 1994 were somewhat mitigated by
adjustments to the amortization of
deferred acquisition costs and premium deficiency reserves
totalling $19 million. The same components
were adjusted by $44 million in 1993.
The increase in benefits and expenses was primarily related to
a $69 million increase in policy
benefits and a $98 million increase in commission and operating
expenses, both the result of the group
life and health business not being reinsured at all during 1994.
In 1993 the business had been reinsured
to Great-West Life for part of the year.
The 1994 effective income tax rate of 27.7% is lower than the
1993 rate of 32.5% as a result of a
$7 million reduction in the deferred income tax asset valuation
allowance being held in a subsidiary
company, GWL Properties Inc.
Balance Sheet
Total assets increased $1.3 billion in 1994 to a total of
$15.6 billion. The only growth in the
general account was the acquisition of corporate owned life
insurance (COLI) policies from Confederation
Life Insurance Company which increased assets $250 million. The
majority of the increase is associated
with separate account assets which grew by $875 million over 1993
to a total of $2.6 billion. The growth
in separate accounts is derived from a combination of good sales in
both the 401(k) and the public non-
profit business units and good investment performance.
The mortgage loans on real estate portfolio reduced $367
million bringing the total portfolio to
$2.0 billion or 17.1% of total investment assets. The reduction is
related to a combination of
prepayments, renewals refinanced with other lenders, and the
Company's policy of not initiating any new
mortgage loans.
Liquidity and Capital Resources
The principal short- and long-term liquidity needs of the
Company are to satisfy policyholder
benefits. The liquidity needs of the Company are closely managed
through cash flow matching of assets
and liabilities, and the forecasting of earned and required yields
to ensure consistency between
policyholder requirements and the yield of assets. Over 88.1% of
policy liabilities are non-cashable prior
to maturity or subject to market value adjustments or withdrawal
penalties.
Investments in highly marketable securities at the end of 1995
totaled $6.4 billion, including short-
term investments of $135 million which have minimal market risk.
For several years, the Company has
followed an investment policy that has emphasized high-quality
bonds and de-emphasized high-yield,
lower quality bonds and mortgage loans. At December 31, 1995,
mortgages represented 13.7% of
investments, compared to 25.2% at December 31, 1991. Bonds rated
below investment grade were only
1.4% of investments at December 31, 1995. The Company's
investments in mortgage-backed and asset-
backed bonds do not include highly volatile issues. The Company
limits its use of derivative financial
instruments to contracts which change the interest rate
characteristics of certain bonds from variable to
fixed rates or which effectively change interest paid in foreign
currencies to U.S. dollars.
Additional liquidity is available through the Company's
commercial paper program which is
partially supported by a standby letter of credit. At December 31,
1995, the program had an outstanding
balance of $85 million with maturities ranging from 25 to 160 days
and interest rates ranging from 5.7% to
5.9%.
The National Association of Insurance Commissioners (NAIC)
utilizes risk-based capital standards
to determine the capital requirements of a life insurance company
based upon its inherent operating
risks. These standards require the computation of a risk-based
capital amount which is then compared
to the Company's actual adjusted capital. Based on current
calculations of the risk-based capital
standards, the Company's percentage to total adjusted capital is
well in excess of ratios that would
require regulatory attention.
Great-West Life owns all of the Company's $122 million of
preferred shares and all of its
common stock. The shareholder's equity was $993 million as of
December 31, 1995, compared to $777
million as of December 31, 1994. Most of the increase was related
to the increase in fair value of the
Company's available-for-sale bond portfolio, including $23 million
related to the Company's
reclassification on December 31, 1995 of $2.1 billion of bonds from
the held-to-maturity portfolio.
Ratings
The Company operates in a very competitive market place,
and
therefore its ratings from various
rating agencies are very important to its ability to distribute
certain products. A.M. Best Company has
assigned the Company its highest financial strength and operating
performance rating of A++. Duff &
Phelps Corporation has assigned the Company their highest claims
paying ability rating of AAA.
Standard & Poor's Corporation has assigned the Company its second
highest rating of AA+ for claims
paying ability. Moody's Investors Service has assigned the Company
an insurance and financial
strength rating of Aa2.
These ratings represent the rating agency's independent
opinion of the Company's financial
strength and ability to meet its policyholder obligations, but have
no relevance to the performance or
quality of the assets in the Series Account.
Regulation and Reserves
The Company is subject to regulation and supervision by the
insurance departments of the state
in which it is licensed. This regulation covers a variety of
areas, including policy reserve requirements,
adequacy of company capital and surplus, operational standards, and
financial accounting policies and
procedures.
Pursuant to state insurance laws and regulations, the Company
is obligated to hold policy
reserves to meet its obligations under all outstanding insurance
contracts. These reserves are based on
a number of assumptions as to future experience. Neither the
reserve requirements nor the other
aspects of state insurance regulation provide absolute protection
to holders of insurance contracts if the
Company were to experience unexpected losses (e.g., infectious
diseases or catastrophic investment
losses).
Competition
The Company is engaged in a business that is highly
competitive due to the large number of
insurance companies and other entities competing in marketing,
administering, and selling insurance
products. There are approximately 2,300 insurers in the life
insurance business in the United States.
Segment Information
The Company operates in one business segment as a provider of
life, health and annuity
products to groups of individuals associated with employers or
distributors.
Employees and Facilities
The Company has an administrative services agreement with
Great-West Life, to provide total
administrative support for all aspects of the Company's business.
Great-West Life has approximately
4,300 employees in its U.S. operations. The home office facilities
are in Englewood, Colorado which
includes 517,633 square feet in a three building complex. As well,
there are sales and claims offices
located in several states.
State Regulation
As a life insurance company organized and operated under
Colorado law, GWL&A is subject to
provisions governing such companies and regulation by the Colorado
Division of Insurance.
GWL&A's books and accounts are subject to review and
examination by the Colorado Division of
Insurance at any time, and a full examination of its operations is
conducted triennially.
In addition, GWL&A is subject to comprehensive and detailed
regulation and supervision by the
supervisory agencies in each jurisdiction in which it conducts
business. Each state's supervisory agency
has broad administrative authority which includes, but is not
limited to, the power to regulate licenses to
transact business, trade practices, agent licensing, policy forms,
claims practices, underwriting practices,
reserve requirements, fixing maximum interest rates on life
insurance policy loans and minimum rates for
accumulation of surrender values, the form and content of required
financial statements and the type and
amounts of investments permitted. GWL&A is required to file
detailed annual reports with supervisory
agencies in each of the jurisdictions in which it does business and
its accounts are subject to
examination by such agencies at regular intervals.
Under insurance guaranty fund laws in most states, insurers
can be assessed up to prescribed
limits for insurance contract losses incurred by insolvent
companies. GWL&A has estimated that the $9
million reserve being held at December 31, 1995 is adequate to
cover any obligations of known
insolvencies.
In addition, most jurisdictions, including Colorado, regulate
affiliated groups of insurers such as
GWL&A and its affiliates under insurance holding company
legislation. Under such laws, intercorporate
transfers of assets and dividend payments from insurance
subsidiaries may be subject to prior notice or
approval, depending on the size of such transfers and payments in
relation to the financial position of the
company making the transfer. Changes in control also are regulated
under these laws.
Although the federal government generally does not directly
regulate the business of insurance,
federal initiatives often have an impact on the business in a
variety of ways. Current and proposed
federal measures which may significantly affect GWL&A's insurance
business include employee benefits
regulation, controls on medical care costs, insurance reform,
managed care regulation, medical
entitlement programs (e.g., Medicare), removal of barriers
preventing banks from engaging in the
insurance and mutual fund businesses, the taxation of insurance
companies and the tax treatment of
insurance products.
The Securities and Exchange Commission regulates certain
separate accounts of GWL&A and
the mutual funds used as funding vehicles for those accounts.
Directors and Officers
Set forth below is information concerning the Company's
directors and executive officers,
together with their principal occupation for the past five years.
Unless otherwise indicated, all of the
directors and executive officers have been engaged for not less
than five years in their present principal
occupations or in another executive capacity with the companies or
firms identified.
Directors Principal Occupation Last 5 Years
James Balog Company Director since March 1993;
previously Chairman,
Lambert Brussels Capital Corporation
James W. Burns, O.C. Chairman of the Boards of Lifeco1 and
Great-West Life; Deputy
Chairman, PCC2
Orest T. Dackow President and Chief Executive Officer,
Lifeco since April 1992;
previously President, Great-West Life
Paul Desmarais, Jr. Chairman and Co-Chief Executive Officer,
PCC; Chairman, PFC3
Robert G. Graham Company Director since January 1996;
previously Chairman and
Chief Executive Officer, Inter-City
Products Corporation
Robert Gratton Chairman of the Board of Great-West Life
& Annuity Insurance
Company ("GWL&A"); President and Chief
Executive Officer, PFC
N. Berne Hart Company Director since February 1992;
previously Chairman of
the Board, United Banks of Colorado, Inc.
Kevin P. Kavanagh Company Director since April 1992;
previously President and
Chief Executive Officer, Lifeco
William Mackness Company Director since July 1995;
previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum President and Chief Executive Officer,
GWL&A; President and
Chief Executive Officer (U.S. Operations),
Great-West Life
Jerry E.A. Nickerson Chairman of the Board, H.B. Nickerson &
Sons Limited
The Honourable
P. Michael Pitfield, P.C., Q.C.Vice-Chairman, PCC; Member of the
Senate of Canada
Michel Plessis-Belair, F.C.A.Executive Vice-President and Chief
Financial Officer, PCC; Senior
Vice-President, Finance, PFC
Ross J. Turner Chairman, Genstar Investment Corporation
Brian E. Walsh Partner, Trinity L.P. since January 1996;
previously Managing
Director and Co-head, Global Investment
Bank, Bankers Trust
Company
1 Great-West Lifeco, Inc.
2 Power Corporation of Canada
3 Power Financial Corporation
Executive Officers Principal Occupation Last 5 Years
William T. McCallum President and Chief Executive Officer,
GWL&A;
President and Chief President and Chief Executive Officer
(U.S. Operations),
Executive Officer Great-West Life
Dennis Low Executive Vice President, Financial
Services, GWL&A
Executive Vice President,and Great-West Life
Financial Services
Alan D. MacLennan Executive Vice President, Employee
Benefits, GWL&A
Executive Vice President,and Great-West Life
Employee Benefits
John T. Hughes Senior Vice President, Chief Investment
Officer, GWL&A;
Senior Vice President, Senior Vice President, Chief Investment
Officer (U.S.
Chief Investment Officer Operations), Great-West Life
D. Craig Lennox Senior Vice President, General Counsel and
Secretary,
Senior Vice President, GWL&A; Senior Vice President and General
Counsel,
General Counsel and SecretaryGreat-West Life
James D. Motz Senior Vice President, Employee Benefits
Operations,
Senior Vice President, GWL&A and Great-West Life
Employee Benefits Operations
Douglas L. Wooden Senior Vice President, Financial Services,
GWL&A and
Senior Vice President, Great-West Life
Financial Services
Executive Compensation
The following table sets out all compensation paid by
Great-West Life and its subsidiaries in
respect of the individuals who were, at December 31, 1995, the
Chief Executive Officer and the other four
most highly compensated executive officers of GWL&A (collectively
the "Named Executive Officers") for
services rendered to GWL&A and Great-West Life in all capacities
for fiscal years ended 1993, 1994 and
1995 respectively.
Name and
Principal Position
Year
Annual
Compensation(1)
Salary Bonus
($) ($)
Long-Term
Compensation Awards
Securities Under
Options Granted (2)
W.T. McCallum,
President and
Chief Executive
Officer
1995
1994
1993
523,958 351,000
225,000(3)
476,750 318,500
426,383 295,750
None
None
None
D. Low, Executive
Vice President,
Financial Services
1995
1994
1993
305,000 152,500
285,000 142,500
263,479 121,750
None
None
None
J.T. Hughes, Senior
Vice President, Chief
Investment Officer
1995
1994
1993
301,000 150,500
290,000 145,000
275,000 137,500
None
None
None
A.D. MacLennan,
Executive Vice
President, Employee
Benefits
1995
1994
1993
312,000 125,000
300,000 97,890
283,000 113,426
None
None
None
D.L. Wooden, Senior
Vice President,
Financial Services
1995
1994
1993
275,500 137,500
265,000 142,500
250,000 125,000
None
None
None
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each
Named Executive Officer in 1995 did not exceed the lesser of
$50,000 and 10% of the total of the
individual's annual salary and bonus.
(2) The options are for common shares of Power Financial
Corporation ("PFC Options"). PFC Options
are granted by, and in the sole discretion of, Power Financial
Corporation. (For additional information on
Power Financial Corporation, see "Ownership of Securities" in this
prospectus.)
(3) A special one-time bonus payment with respect to long-term
performance.
The following table describes all PFC Options exercised in
1995, and unexercised PFC Options
held as of December 31, 1995, by the Named Executive Officers.
Name
Securities
Acquired
on
Exercise
Aggregate
Value
Realized
($)
Unexercised Options at FY-
End
Exercisable Unexercisable<PAGE>
Value of Unexercised in-
the-Money Options at FY-
End ($)
Exercisable Unexercisable
W.T. McCallum
34,000
418,290
26,000 None
371,002 None
D. Low
None
None
44,000 None
627,849 None
J.T. Hughes
20,000
175,551
60,000 None
548,713 None
A.D. MacLennan
32,000
389,430
None None
None None
D.L. Wooden
None
None
44,000 None
423,621 None
Pension Plan Tables
The following discussion relates to pension benefits payable
to the Named Executive Officers as
of December 31, 1995.
Great-West Life has a non-contributory pension plan covering
substantially all of its employees.
Great-West Life contributes such amounts as are necessary, on an
actuarial basis, to provide the plan
with assets sufficient to meet the benefits to be paid to plan
members. Contributions under the plan are
based on length of service and average annual compensation.
Compensation includes normal salary
and wages and does not include bonuses, overtime pay,
reimbursements or special pay.
The directors of Great-West Life or of GWL&A determine the
eligibility for, and the amount of,
supplemental executive retirement benefits.
The President and Chief Executive Officer is entitled to the
benefits shown in Table #1 and has
30 years of service. The Executive Vice President, Financial
Services; Senior Vice President, Chief
Investment Officer; Executive Vice President, Employee Benefits;
and Senior Vice President, Financial
Services, are entitled to the benefits shown in Table #1 and Table
#2, and have 31, 6, 30 and 5 years of
service respectively.
Table #1 - Employees' Pension Plan
Remuneration
($)<PAGE>
Years of Service
5 15 20 25
30 35 40
200,000
18,875 56,625 75,500 94,375 113,250
120,000 120,000
300,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
400,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
500,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
600,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
700,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
800,000
22,459 67,377 89,836 112,295 120,000
120,000 120,000
The benefits shown in Table #1 are payable upon the attainment
of age 65, the normal retirement date, or age 62 with 35 years of
service. Remuneration is the average of the highest 60 consecutive
months of regular salary during the last 84 months of employment.
The determination of remuneration
and the pension amount are limited by Internal Revenue Service
maximums for qualified plans. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
<PAGE>
Table #2 - Supplemental Executive Retirement Benefits
Remuneration
($)
Years of Service
5 15 20 25
30 35 40
200,000
None None None None None
None None
300,000
401 15,123 22,664 30,205 52,500
52,500 52,500
400,000
10,401 45,123 62,664 80,205 112,500
112,500 112,500
500,000
20,401 75,123 102,664 130,205 172,500
172,500 172,500
600,000
30,401 105,123 142,664 180,205 232,500
232,500 232,500
700,000
40,401 135,123 182,664 230,205 292,500
292,500 292,500
800,000
50,401 165,123 222,664 280,205 352,500
352,500 352,500
The benefits shown in Table #2 are payable upon the attainment
of age 62, the normal retirement
date. Remuneration is the average of the highest 60 consecutive
months of compensation during the last
84 months of employment. Compensation includes salary and bonuses
prior to any deferrals. The
normal form of pension is a life only annuity. Other optional
forms of pension payment are available on
an actuarially equivalent basis. The benefits listed in the table
are not subject to deduction for social
security or other offset amounts.
Ownership of Securities
All of the Company's outstanding shares are owned by The
Great-West Life Assurance Company,
100 Osborne Street North, Winnipeg, Manitoba, Canada R3C 3A5. The
Great-West Life Assurance
Company is owned 99.5% by Great-West Lifeco Inc., both of which
share the same address. Great-West
Lifeco Inc. is owned 86.5% by Power Financial Corporation, 751
Victoria Square, Montreal, Quebec,
Canada H2Y 2J3. It is owned 68.3% by 171263 Canada Inc., which is
owned 100% by Power
Corporation of Canada, both of which share the same address as
Power Financial Corporation. Mr. Paul
Desmarais, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3,
through a group of private holding
companies, which he controls, has voting control of Power
Corporation of Canada.
_________________________________________________________________
___________
VOTING RIGHTS
_________________________________________________________________
___________
To the extent required by applicable law, all Eligible Fund
shares held in the Series Account will
be voted by the Company at regular and special shareholder meetings
of the respective Eligible Funds in
accordance with instructions received from persons having voting
interests in the corresponding
Investment Division. If, however, the 1940 Act or any regulation
thereunder should be amended, or if the
present interpretation thereof should change, or if we determine
that we are allowed to vote all Eligible
Funds shares in our own rights, we may elect to do so.
Before the annuity commencement date, you the Owner, have
the
voting interest. The number of
votes which are available to you will be calculated separately for
each of your Variable Sub-Accounts.
That number will be determined by applying your percentage
interest, if any, in a particular Investment
Division to the total number of votes attributable to that
Investment Division. You hold a voting interest in
each Investment Division to which your Annuity Account Value is
allocated. If you select a variable
annuity option, the votes attributable to a Contract will decrease
as annuity payments are made.
The number of votes of an Eligible Fund will be determined
as
of the date coincident with the
date established by that Eligible Fund for determining shareholders
eligible to vote at the meeting of the
Eligible Funds. Voting instructions will be solicited by written
communication prior to such meeting in
accordance with procedures established by the respective Eligible
Funds.
Shares as to which no timely instructions are received and
shares held by us as to which Owners
have no beneficial interest will be voted in proportion to the
voting instructions which are received with
respect to all Contracts participating in the Investment Division.
Voting instructions to abstain on any
item to be voted upon will be applied on a pro rata basis to reduce
the votes eligible to be cast.
Each person or entity having a voting interest in a Investment
Division will receive proxy material,
reports and other material relating to the appropriate Eligible
Fund.
It should be noted that generally the Eligible Funds are not
required to, and do not intend to,
hold annual or other regular meetings of shareholders.
Contract Owners have no voting rights in the Company.
_________________________________________________________________
___________
RIGHTS RESERVED BY THE COMPANY
_________________________________________________________________
___________
The Company reserves the right to make certain changes if, in
its judgment, they would best
serve the interests of Owners and Annuitants or would be
appropriate in carrying out the purposes of the
Contracts. Any changes will be made only to the extent and in the
manner permitted by applicable laws.
Also, when required by law, the Company will obtain your approval
of the changes and approval from
any appropriate regulatory authority. Such approval may not be
required in all cases, however.
Examples of the changes the Company may make include:
- To operate the Series Account in any form permitted under
the Investment Company Act of
1940 or in any other form permitted by law.
- To transfer any assets in any Investment Division to
another Investment Division, or to one or
more separate accounts, or to a Guarantee Period; or to add,
combine or remove Investment
Divisions of the Series Account.
- To substitute, for the Eligible Fund shares in any
Investment Division, the shares of another
Eligible Fund or shares of another investment company or any
other investment permitted by law.
- To make any changes required by the Internal Revenue Code
or by any other applicable law in
order to continue treatment of the Contract as an annuity.
- To change the time or time of day at which a Valuation Date
is deemed to have ended.
- To make any other necessary technical changes in the
Contract in order to conform with any
action the above provisions permit the Company to take,
including to change the way the
Company assess charges, but without increasing as to any then
outstanding Contract the
aggregate amount of the types of charges which the Company has
guaranteed.
_________________________________________________________________
___________
LEGAL PROCEEDINGS
_________________________________________________________________
___________
There are at present no material legal proceedings to which
the Series Account is a party or to
which the assets of the Series Account are subject. The Company is
not currently a party to, and its
property is not currently subject to, any material legal
proceedings. The lawsuits to which the Company
is a party are, in the opinion of management, in the ordinary
course of business, and are not expected to
have a material adverse effect on the financial results, conditions
or prospects of the Company.
_________________________________________________________________
___________
LEGAL MATTERS
_________________________________________________________________
___________
Advice regarding certain legal matters concerning the federal
securities laws applicable to the
issue and sale of the Contract has been provided by Jorden Burt
Berenson & Johnson LLP. The
organization of the Company, the Company's authority to issue the
Contract, and the validity of the form
of the Contract have been passed upon by Ruth B. Lurie, Vice
President, Counsel and Associate
Secretary of the Company.
_________________________________________________________________
___________
EXPERTS
_________________________________________________________________
___________
The consolidated financial statements of Great-West Life &
Annuity Insurance Company at
December 31, 1995 and 1994, and for each of the three years in the
period ended December 31, 1995
included in this prospectus have been audited by Deloitte & Touche
LLP, independent auditors, as stated
in their report appearing herein, and are included in reliance upon
the report of such firm given upon
their authority as experts in accounting and auditing.
_________________________________________________________________
___________
AVAILABLE INFORMATION
_________________________________________________________________
___________
We have filed a registration statement ("Registration
Statement") with the Commission under the
1933 Act relating to the Contracts offered by this Prospectus.
This Prospectus has been filed as a part of
the Registration Statement and does not contain all of the
information set forth in the Registration
Statement and exhibits thereto. Reference is hereby made to the
Registration Statement and exhibits for
further information relating to us and the Contracts. Statements
contained in this Prospectus, as to the
content of the Contracts and other legal instruments, are
summaries. For a complete statement of the
terms thereof, reference is made to the instruments as filed as
exhibits to the Registration Statement.
The Registration Statement and its exhibits may be inspected and
copied at the offices of the
Commission located at 450 Fifth Street, N.W., Washington, D.C.
<PAGE>
Appendix A
The standard nonforfeiture rate in all states, other than those
listed below is 3%.
Florida 0%
Mississippi 0%
Oklahoma 0%
<PAGE>
Appendix B
On the following pages are four examples of Market Value
Adjustments illustrating (1) increasing interest
rates, (2) decreasing interest rates, (3) flat interest rates (i
and j are within .10% of each other), and (4)
less than 6 months to maturity.
Example #1 - Increasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 7.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]65/12} - 1
= .952885 - 1
= .047115
MVA = (amount Transferred or surrendered) x MVAF
= $10,000 x - .047115
= - $471.15
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + - $471.15)
= $9,528.85
Example #2 - Decreasing Interest Rates
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 5.00%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.05]65/12} - 1
= .0055323
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x .0055323
= $553.23
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $553.23)
= $10,553.23
<PAGE>
Example #3 - Flat Interest Rates (i and j are within .10% of
each other)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2000
j: 6.24%
Amount Surrendered: $10,000
N: 65
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.0634]65/12} - 1
= .99036 - 1
= -.00964
However, [i-j] <.10%, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered +
MVA)
= ($10,000 + $0)
= $10,000
Example #4 - N<6 (less than 6 months to maturity)
Deposit: $25,000 on November 1, 1996
Maturity Date: December 31, 2005
Interest Guarantee Period:10 years
i: assumed to be 6.15%
Surrender Date: July 1, 2005
j: 7.00%
Amount Surrendered: $10,000
N: 5
MVAF = {[(1 + i)/(1 + j + .10%)]N/12} - 1
= {[1.0615/1.071]5/12} - 1
= .99629 - 1
= -.00371
However, N<6, so MVAF = 0
MVAF = (amount Transferred or surrendered) x MVAF
= $10,000 x 0
= $0
Surrender Value = (amount Transferred or surrendered + MVA)
= ($10,000 + $0)
= $10,000 <PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT
AND
UNAUDITED FINANCIAL STATEMENTS
FOR THE PERIOD ENDED
SEPTEMBER 30, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED FINANCIAL STATEMENTS FOR THE
YEARS ENDED DECEMBER 1995, 1994 AND 1993
AND INDEPENDENT AUDITORS' REPORT<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the accompanying consolidated balance sheets of
Great-West Life & Annuity Insurance Company (a wholly-owned
subsidiary of The Great-West Life Assurance Company) and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, stockholder's equity, and cash
flows for each of the three years in the period ended December 31,
1995. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present
fairly, in all material respects, the financial position of
Great-West Life & Annuity Insurance Company and subsidiaries as of
December 31, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1995 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 19, 1996
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
(Dollars in Thousands)
ASSETS
1995
1994
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost
(fair value $2,158,043 and $4,135,248)
$ 2,054,204
$4,293,985
Available for sale, at fair value
(amortized cost $6,087,969 and $2,997,087)
6,263,187
2,824,703
Common stock
9,440
5,222
Mortgage loans on real estate
1,713,195
2,011,059
Real estate
60,454
43,663
Policy loans
2,237,745
1,905,013
Short-term investments
134,835
706,920
Total Investments
12,473,060
11,790,565
Cash
90,939
131,621
Reinsurance receivable
333,924
295,148
Deferred policy acquisition costs
278,526
297,092
Investment income due and accrued
211,922
195,817
Other assets
40,038
55,579
Premiums in course of collection
85,990
84,478
Deferred income taxes
168,941
210,407
Separate account assets
3,998,878
2,554,836
TOTAL ASSETS
$17,682,218
$15,615,543
See notes to consolidated financial statements.
LIABILITIES AND STOCKHOLDER'S EQUITY
1995
1994
POLICY BENEFIT LIABILITIES:
Policy reserves
$10,845,935
$10,334,456
Policy and contract claims
359,791
338,515
Policyholders' funds
154,872
144,262
Experience refunds
83,562
70,359
Provision for policyholders'dividends
47,760
41,840
GENERAL LIABILITIES:
Due to Parent Corporation
149,974
159,117
Repurchase agreements
372,965
564,160
Commercial paper
84,854
89,686
Other liabilities
453,889
420,154
Undistributed earnings on
participating business
136,617
120,927
Separate account liabilities
3,998,878
2,554,836
Total Liabilities
16,689,097
14,838,312
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 600 shares issued and
outstanding 60,000 60,000
Series B, cumulative,
1500 shares authorized, liquidation value of
$100,000 per share, 200 shares issued and
outstanding 20,000 20,000
Series C, cumulative,
1500 shares authorized, none outstanding
Series D, cumulative,
1500 shares authorized, none outstanding
Series E, non-cumulative,
2,000,000 shares authorized,
liquidation value of $20.90
41,800 41,800
per share, issued, and outstanding
Common stock, $1 par value;
50,000,000 shares authorized;
7,032,000 shares issued and
outstanding 7,032 7,032
Additional paid-in capital
657,265
657,265
Net unrealized gains (losses) on
securities available-for-sale
58,763
(78,427)
Retained earnings
148,261
69,561
Total Stockholder's Equity
993,121
777,231
TOTAL LIABILITIES AND STOCKHOLDER'S
EQUITY
$17,682,218
$15,615,543
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
REVENUES:
Annuity contract charges and
premiums
$79,816
$61,122
$63,210
Life, accident, and health premiums
earned (net of premiums ceded totaling
$60,880,
$48,115
and $254,969)
987,611
938,947
632,961
Net investment income
835,046
767,646
791,424
Net realized gains (losses) on
investments
7,465
(71,939)
25,342
1,909,938
1,695,776
1,512,937
BENEFITS AND EXPENSES:
Life and other policy benefits (net
of reinsurance recoveries totaling
$43,574,
$18,937,
and $151,598)
557,469
548,950
390,562
Increase in reserves
98,797
64,834
59,873
Interest paid or credited to
contractholders
562,263
529,118
623,417
Provision for policyholders' share
of earnings (losses)
on participating business
2,027
(725)
(1,498)
Dividends to policyholders
48,150
42,094
34,474
1,268,706
1,184,271
1,106,828
Commissions
122,926
120,058
90,472
Operating expenses
314,810
261,311
196,820
Premium taxes
26,884
27,402
23,129
1,733,326
1,593,042
1,417,249
INCOME BEFORE INCOME TAXES
176,612
102,734
95,688
PROVISION FOR INCOME TAXES:
Current
88,366
65,070
76,672
Deferred
(39,434)
(36,614)
(45,620)
48,932
28,456
31,052
NET INCOME
$127,680
$74,278
$64,636
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S
EQUITY
YEARS ENDED DECEMBER 31, 1995, 1994, AND
1993 (Dollars in Thousands)
Net Additional
Unrealized Retained
Preferred Stock
Common Stock
Paid-In
Gains
Earnings
Shares
Amount
Shares
Amount
Capital
(Losses)
(Deficit)
Total
BALANCE, JANUARY 1, 1993
2,000,800
$121,800
7,028,217
$7,028
$647,199
$0
$(7,063)
$768,964
Issuance of common stock
3,783
4
496
500
Capital contributions
9,098
9,098
Dividends
(21,852)
(21,852)
Net income
64,636
64,636
BALANCE, DECEMBER 31, 1993
2,000,800
121,800
7,032,000
7,032
656,793
0
35,721
821,346
Adjustment to beginning
balance for change in
accounting method for investment
securities
6,515
6,515
Change in net unrealized
gains (losses)
(84,942)
(84,942)
Capital contributions
472
472
Dividends
(40,438)
(40,438)
Net income
74,278
74,278
BALANCE, DECEMBER 31, 1994
2,000,800
121,800
7,032,000
7,032
657,265
(78,427)
69,561
777,231
Change in net unrealized
gains (losses)
137,190
137,190
Dividends
(48,980)
(48,980)
Net income
127,680
127,680
BALANCE, DECEMBER 31,
1995
2,000,800
$121,800
7,032,000
$7,032
$657,265
$58,763
$148,261
$993,121
See notes to consolidated financial
statements.
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
OPERATING ACTIVITIES:
Net income
$127,680
$74,278
$64,636
Adjustments to reconcile net
income to net cash provided by
operating activities:
Gain (loss) allocated to
par policyholders
2,027
(725)
(1,498)
Amortization of
investments
26,725
36,978
36,782
Realized losses (gains) on
disposal of investments
and write-downs of
mortgage loans and real estate
(7,465)
71,939
(25,342)
Amortization
49,464
29,197
34,115
Deferred income taxes
(39,763)
(38,631)
(56,959)
Changes in assets and
liabilities:
Policy benefit
liabilities
346,975
93,998
438,809
Reinsurance receivable
(38,776)
(25,868)
352,106
Accrued interest and
other receivables
(17,617)
(26,032)
(19,817)
Other, net
8,834
96,950
119,284
Net cash provided by operating activities
458,084
312,084
942,116
INVESTING ACTIVITIES:
Proceeds from sales,
maturities, and redemptions of
investments:
Fixed maturities
4,744,309
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
655,993
1,034,324
Available-for-sale
Sales
4,211,649
1,753,445
Maturities and redemptions
253,747
141,299
Mortgage loans
260,960
291,102
339,406
Real estate
4,401
29,868
22,974
Common stock
178
Purchases of investments:
Fixed maturities
(5,494,534)
Held-to-maturity
(490,228)
(673,567)
Available-for-sale
(4,932,566)
(2,606,028)
Mortgage loans
(683)
(9)
(52,917)
Real estate
(5,302)
(9,253)
(14,303)
Common stock
(4,218)
(2,063)
Net cash used in
investing activities
(27,426)
(24,690)
(455,065)
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE
COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1994,
AND 1993
(Dollars in Thousands)
1995
1994
1993
FINANCING ACTIVITIES:
Contract withdrawals, net of
deposits
$(217,190)
$(238,166)
$(590,118)
Due to Parent Corporation
(9,143)
(13,078)
(149,510)
Dividends paid
(48,980)
(40,438)
(21,852)
Net commercial paper (repayments)
borrowings
(4,832)
89,686
Net repurchase agreements
(repayments) borrowings
(191,195)
(39,244)
311,937
Net cash used in
financing activities
(471,340)
(241,240)
(449,543)
NET INCREASE IN CASH
(40,682)
46,154
37,508
CASH, BEGINNING OF YEAR
131,621
85,467
47,959
CASH, END OF YEAR
$90,939
$131,621
$85,467
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$83,841
$68,892
$87,778
Interest
17,016
12,229
7,438
See notes to consolidated financial
statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization - Great-West Life & Annuity Insurance Company
(the Company) is a wholly-owned subsidiary of The Great-West Life
Assurance Company (the Parent Corporation). The Company is an
insurance company domiciled in the State of Colorado. The Company
offers a wide range of life insurance, health insurance, and
retirement and investment products to individuals, businesses,
and other private and public organizations throughout the United
States.
Basis of Presentation - The preparation of financial
statements in conformity with generally accepted accounting
principles equires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates. The consolidated financial statements
include the accounts of the Company and its subsidiaries. All
material intercompany transactions and balances have been
eliminated.
Certain reclassifications have been made to the 1994 and 1993
financial statements to conform with the basis of presentation
used in 1995.
Investments - Investments are reported as follows:
1. Management determines the classification of fixed
maturities at the time of purchase. Fixed maturities are
classified as held-to-maturity when the Company has the positive
intent and ability to hold the securities to maturity.
Held-to-maturity securities are stated at amortized cost unless
fair value is less than cost and the decline is deemed to be other
than temporary, in which case they are written down to fair
value and a new cost basis is established. Fixed maturities not
classified as held-to-maturity are classified as
available-for-sale. Available-for-sale securities are carried at
fair value, with the net unrealized gains and losses reported as a
separate component of stockholder's equity. The net unrealized
gains and losses in derivative financial instruments used to hedge
available-for-sale securities is included in the separate component
of stockholder's equity.
The amortized cost of fixed maturities classified as
held-to-maturity or available-for-sale is adjusted for
amortization of premiums and accretion of discounts using the
effective interest method over the life of the related bonds. Such
amortization is included in interest income from investments.
Realized gains and losses, and declines in value judged to be
other-than-temporary are included in net realized gains
(losses) on investments.
2. Mortgage loans on real estate are carried at their unpaid
balances adjusted for any unamortized premiums or discounts and any
valuation reserves. Interest income is accrued on the unpaid
principal balance. Discounts and premiums are amortized to income
using the effective interest method. Accrual of interest is
discontinued on any impaired loans where collection of interest is
doubtful.
The Company maintains an allowance for credit losses at
a level that, in management's opinion, is sufficient to
absorb possible credit losses on its impaired loans and to provide
adequate provision for any possible future losses in the portfolio.
Management's judgement is based on past loss experience, current
and projected economic conditions, and extensive situational
analysis of each individual loan.
Effective January 1, 1995, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 114 "Accounting by
Creditors for Impairment of a Loan" and SFAS No. 118 "Accounting by
Creditors for Impairment of a Loan-Income Recognition and
Disclosures". In accordance with these standards, a mortgage loan
is considered to be impaired when it is probable that the Company
will be unable to collect all amounts due according to the
contractual terms of the loan agreement. The measurement of
impaired loans is based on the fair value of the collateral. As
the Company was already providing for impairment of loans through
an allowance for credit losses, the implementation of these
statements had no material effect on the Company's financial
statements.
3. Real estate is carried at the lower of cost or fair
value. In March 1995, the FASB issued SFAS No. 121 "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of" to be effective for fiscal years beginning after
December 15, 1995. The effect of adopting this statement is not
expected to be material.
4. Policy loans are carried at their unpaid balances.
5. Short-term investments include securities purchased with
initial maturities of one year or less and are carried at amortized
cost. The Company considers short-term investments to be
available-for-sale and amortized cost approximates fair value.
Gains and losses realized on disposal of investments are
determined on a specific identification basis.
Cash - Cash includes only amounts in demand deposit accounts.
Deferred Policy Acquisition Costs - Policy acquisition costs,
which consist of sales commissions and other costs that vary with
and are primarily related to the production of new and renewal
business, have been deferred to the extent recoverable. Deferred
costs associated with the annuity products are being amortized
over the life of the contracts in proportion to the emergence of
gross profits. Retrospective adjustments of these amounts are made
when the Company revises its estimates of current or future gross
profits. Deferred costs associated with traditional life
insurance are amortized over the premium paying period of the
related policies in proportion to premium revenues recognized.
Amortization of deferred policy acquisition costs totalled $48,054,
$28,199, and $32,611 in 1995, 1994, and 1993, respectively.
Separate Account - Separate account assets and related
liabilities are carried at fair value. The Company's separate
accounts invest in shares of Maxim Series Fund, Inc., a
diversified, open-end management investment company which is an
affiliate of the Company, shares of other external mutual funds, or
government or corporate bonds.
Life Insurance and Annuity Reserves - Life insurance and
annuity policy reserves with life contingencies of $4,675,175, and
$3,995,927 at December 31, 1995 and 1994, respectively, are
computed on the basis of estimated mortality, investment yield,
withdrawals, future maintenance and settlement expenses, and
retrospective experience rating premium refunds. Annuity contract
reserves without life contingencies of $6,170,760, and $6,338,529
at December 31, 1995 and 1994, respectively, are established
at the contractholder's account value.
Reinsurance - Policy reserves ceded to other insurance
companies are carried as reinsurance receivable on the balance
sheet (See Note 3).
The cost of reinsurance related to long-duration contracts is
accounted for over the life of the underlying reinsured policies
using assumptions consistent with those used to account for the
underlying policies.
Policy and Contract Claims - Policy and contract claims
include provisions for reported claims in process of settlement,
valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported
based primarily on prior experience of the Company.
Participating Fund Account - Participating life and annuity
policy reserves are $3,339,316 and $2,917,273 at December 31, 1995
and 1994, respectively. Participating business approximates 46%
of the Company's ordinary life insurance in force and 84% of
ordinary life insurance premium income at December 31, 1995.
The liability for undistributed earnings on participating
business was increased by $15,690 in 1995, which represented $2,027
of earnings on participating business and adjustments of $13,663
to reflect the net unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes.
The amount of dividends to be paid from undistributed earnings
on participating business is determined annually by the Board of
Directors. Amounts allocable to participating policyholders are
consistent with established Company practice.
The Company has established a Participating Policyholder
Experience Account (PPEA) for the benefit of all participating
policyholders which is included in the accompanying consolidated
balance sheet. Earnings associated with the operation of the PPEA
are credited to the benefit of all participating policyholders. In
the event that the assets of the PPEA are insufficient to provide
contractually guaranteed benefits, the Company must provide such
benefits from its general assets.
The Company has also established a Participation Fund Account
(PFA) for the benefit of the participating policyholders previously
transferred to the Company from the Parent under an assumption
reinsurance transaction. The PFA is part of the PPEA. The assets
and liabilities associated with these policies are segregated in
the accounting records of the Company to assure the continuation of
current policyholder dividend expectations. Earnings derived
from the operation of the PFA accrue solely for the benefit of the
acquired participating policyholders.
Recognition of Premium Income and Benefits and Expenses - Life
insurance premiums are recognized as earned. Annuity premiums
with life contingencies are recognized as received. Accident and
health premiums are earned on a monthly pro rata basis. Revenues
for annuity and other contracts without significant life
contingencies consist of contract charges for the cost of
insurance, contract administration, and surrender fees that have
been assessed against the contract account balance during the
period. Benefits and expenses on policies with life contingencies
are associated with premium income by means of the provision for
future policy benefit reserves, resulting in recognition of profits
over the life of the contracts. The average crediting rate on
annuity products was approximately 7.2% in 1995.
Income Taxes - Income taxes are recorded using the asset and
liability approach which requires, among other provisions, the
recognition of deferred tax assets and liabilities for expected
future tax consequences of events that have been recognized in the
Company's financial statements or tax returns. In estimating
future tax consequences, all expected future events (other than the
enactments or changes in the tax laws or rules) are considered.
Deferred tax assets are recorded net of a valuation allowance to
the extent that management estimates that recovery of the asset is
not more likely than not.
Repurchase Agreements - The Company enters into repurchase
agreements with third-party broker-dealers in which the Company
sells securities and agrees to repurchase substantially similar
securities at a specified date and price. Such agreements are
accounted for as collateralized borrowings. Interest expense on
repurchase agreements is recorded at the coupon interest rate on
the underlying securities. The repurchase fee received or paid is
amortized over the term of the related agreement and recognized as
an adjustment to investment income.
Derivatives - The Company engages in hedging activities to
manage interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
Reinsurance Transactions - The Company entered into a series
of reinsurance transactions with the Parent Corporation during 1993
and prior years intended to make the Company the underwriter and
administrator of all life and health insurance, annuity products,
and related services with respect to United States policyholders.
A May 1, 1993, reinsurance transaction resulted in the Company
recapturing certain group life and health business previously ceded
to the Parent under a coinsurance agreement, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$217,254
Policy reserves
$253,479
Mortgage loans
27,182
Cash and short-term
investments
5,607
Investment income
due & accrued
3,436
$253,479
$253,479
In addition, effective December 31, 1993, the Company
recaptured certain participating life business also previously
ceded to the Parent Corporation, as follows:
Assets
Liabilities and
Stockholder's Equity
Bonds
$171,005
Policy reserves
$180,000
Cash and short-term
investments
8,087
Investment income
due & accrued
908
$180,000
$180,000
From 1989 to 1993, the Company has assumed most of the United
States business of the Parent Corporation. During this period, the
Parent Corporation had recorded estimated tax liabilities for
certain United States federal income taxes in its financial
statements. On December 31, 1993 and December 30, 1994, the Parent
Corporation transferred assets with an estimated fair value of
$82,800 and $9,391, respectively, to the Company in exchange for
the Company agreeing to assume the estimated tax liabilities of the
Parent Corporation, and the issuance of shares of the Company's
common stock.
Fees and Expenses - The Company and the Parent Corporation
have a number of service agreements whereby the Parent Corporation
administers, distributes, and underwrites business for the Company
and administers the Company's investment portfolio. Certain
operating expenses represent allocations made by the Parent
Corporation to the Company for services provided pursuant to these
service agreements. These transactions are summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment management expense
(included in net
investment income)
$15,182
$13,841
$17,767
Administrative and underwriting
payments (included
in operating expenses)
301,529
269,020
199,947
Other - At December 31, 1995 and 1994, due to Parent
Corporation includes $27,814 and $35,388 due on demand and $122,160
and $123,729 of notes payable which bear interest and mature at
various dates. These notes may be prepaid in whole or in part at
any time without penalty; the issuer may not demand payment before
the maturity date. The Company also has available an arrangement
to obtain advances from the Parent Corporation to fund short-term
liquidity needs. The due on demand to the Parent Corporation bears
interest at the public bond rate (6.4% and 8.5% at December 31,
1995 and 1994, respectively) while the remainder bear interest at
various rates.
3. REINSURANCE
In the normal course of business, the Company seeks to limit
its exposure to loss on any single insured and to recover a
portion of benefits paid by ceding risks to other insurance
enterprises under excess coverage and co-insurance contracts. The
Company retains a maximum of $1.5 million of coverage per
individual life.
Reinsurance contracts do not relieve the Company from its
obligations to policyholders. Failure of reinsurers to honor their
obligations could result in losses to the Company; consequently,
allowances are established for amounts deemed uncollectible. The
Company evaluates the financial condition of its reinsurers
and monitors concentrations of credit risk arising from similar
geographic regions, activities, or economic characteristics of
the reinsurers to minimize its exposure to significant losses from
reinsurer insolvencies. At December 31, 1995 and 1994, reinsurance
receivables with a carrying value of $333,924, and $295,148,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,606 and $2,438, and $0, in 1995, 1994, and 1993,
respectively.
The Company considers all accident and health policies to be
short-duration contracts. The following schedule details life
insurance in force and life and accident/health premiums:
Assumed
Ceded
Primarily
Percentage
Primarily to
From
of
Amount
Gross
the Parent
Other
Net
Assumed
to
Amount
Corporation
Companies
Amount
Net
December 31, 1995:
Life insurance in force:
Individual
$22,388,520
$7,200,882
$3,476,784
$18,664,422
18.6%
Group
48,415,592
1,954,313
50,369,905
3.9%
Total
$70,804,112
$7,200,882
$5,431,097
$69,034,327
Premiums:
Life insurance
$339,342
$51,688
$21,028
$308,682
6.8%
Accident/health
623,626
9,192
64,495
678,929
9.5%
Total
$962,968
$60,880
$85,523
$987,611
December 31, 1994:
Life insurance in force:
Individual
$21,461,590
$7,411,811
$3,415,596
$17,465,375
19.6%
Group
48,948,669
2,102,228
51,050,897
4.1%
Total
$70,410,259
$7,411,811
$5,517,824
$68,516,272
Premiums:
Life insurance
$322,263
$42,946
$22,009
$301,326
7.3%
Accident/health
579,650
5,169
63,140
637,621
9.9%
Total
$901,913
$48,115
$85,149
$938,947
December 31, 1993:
Life insurance in force:
Individual
$17,131,994
$7,797,389
$3,142,723
$12,477,328
25.2%
Group
37,789,859
2,108,314
39,898,173
5.3%
Total
$54,921,853
$7,797,389
$5,251,037
$52,375,501
Premiums:
Life insurance
$283,707
$112,798
$18,753
$189,662
9.9%
Accident/health
524,747
142,171
60,723
443,299
13.7%
Total
$808,454
$254,969
79,476
$632,961
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1995
1994
1993
Investment income:
Bonds and short-term
investments
$592,062
$555,103
$545,926
Mortgage loans on real
estate
171,008
182,544
220,477
Real estate
3,936
5,700
9,265
Policy loans
163,547
116,060
91,529
930,553
859,407
867,197
Investment expenses,
including interest on
amounts charged by the
Parent Corporation
of $10,778, $11,145, and
$7,250
95,507
91,761
75,773
Net investment income
$835,046
$767,646
$791,424
5. NET REALIZED GAINS (LOSSES) ON
INVESTMENTS
Net realized gains (losses) on
investments are as follows:
Years Ended December 31,
1995
1994
1993
Net realized gains
(losses):
Bonds
$28,166
$(39,775)
$68,884
Mortage loans on real
estate
1,309
2,120
(98)
Real estate
(10)
(102)
(102)
Bond provisions
(5,000)
(3,200)
(4,456)
Mortgage loan provisions
(15,877)
(27,918)
(38,089)
Real estate provisions
(1,123)
(3,064)
(797)
Net realized gains
(losses) on investments
$7,465
$(71,939)
$25,342
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31,
1995 are summarized as follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair
Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations of U.S.
Government Agencies:
Collateralized
mortgage obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
11,107
1,093
12,200
11,107
Collateralized
mortgage obligations
Public utilities
269,671
22,084
95
291,660
269,671
Corporate bonds
1,732,046
83,583
5,867
1,809,762
1,732,046
Foreign governments
18,596
1,087
12
19,671
18,596
State and
municipalities
22,784
1,966
24,750
22,784
$2,054,204
$109,813
$5,974
$2,158,043
$2,054,204
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$561,475
$9,983
$1,948
$569,510
$569,510
Direct mortgage pass-through
certificates
794,056
11,980
2,233
803,803
803,803
Other
561,736
7,703
39
569,400
569,400
Collateralized
mortgage obligations
490,074
18,044
3,304
504,814
504,814
Public utilities
581,482
16,607
2,425
595,664
595,664
Corporate bonds
2,943,918
121,537
26
3,065,429
3,065,429
Foreign governments
141,362
5,021
5,644
140,739
140,739
State and
municipalities
13,866
22
60
13,828
13,828
$6,087,969
$190,897
$15,679
$6,263,187
$6,263,187
6.SUMMARY OF INVESTMENTS (Continued)
Fixed maturities owned at December 31, 1994 are summarized as
follows:
Gross
Gross
Estimated
Amortized
Unrealized
Unrealized
Fair Carrying Cost
Gains
Losses
Value
Value
Held-to-Maturity:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$521,408
$389
$33,018
$488,779
$521,408
Direct
mortgage pass-through
certificates
69,559
617
1,001
69,175
69,559
Other
85,406
246
923
84,729
85,406
Collateralized
mortgage obligations
309,869
1,205
14,208
296,866
309,869
Public utilities
457,758
2,898
14,340
446,316
457,758
Corporate bonds
2,757,612
14,701
111,410
2,660,903
2,757,612
Foreign governments
90,690
47
3,950
86,787
90,690
State and
municipalities
1,683
10
1,693
1,683
$4,293,985
$20,113
$178,850
$4,135,248
$4,293,985
Available-for-Sale:
U.S. Treasury
Securities and
obligations
of U.S.
Government Agencies:
Collateralized
mortgage obligations
$80,531
$
$3,798
$76,733
$76,733
Direct
mortgage pass-through
certificates
759,815
871
49,462
711,224
711,224
Other
198,651
9
2,654
196,006
196,006
Collateralized
mortgage obligations
203,036
6,379
196,657
196,657
Public utilities
325,383
193
26,379
299,197
299,197
Corporate bonds
1,119,726
3,253
65,398
1,057,581
1,057,581
Foreign governments
298,597
17
21,826
276,788
276,788
State and
municipalities
11,348
831
10,517
10,517
$2,997,087
$4,343
$176,727
$2,824,703
$2,824,703
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of three
to thirty years and average lives of less than one to twelve
years. Prepayments on all mortgage-backed securities are monitored
monthly and amortization of the premium and/or the accretion of the
discount associated with the purchase of such securities is
adjusted by such prepayments.
The cumulative effect as of January 1, 1994 of adopting SFAS
No. 115 "Accounting for Certain Investments in Debt and Equity
Securities," increased the opening balance of stockholders'
equity by $6,515 to reflect the net unrealized gains on securities
classified as available-for-sale (previously carried at the
lower of aggregate amortized cost or fair value) and the
corresponding adjustments to deferred policy acquisition costs,
policy reserves, and amounts allocable to the liability for
undistributed earnings on participating business, all net of income
taxes.
In November 1995, the Financial Accounting Standards Board
issued a special report entitled A Guide to Implementation of SFAS
115 on Accounting for Certain Investments in Debt and Equity
Securities. In accordance with the adoption of this guidance, the
Company reassessed the classification of its investment portfolio
in December 1995 and reclassed securities totalling $2,119,814
from held-to-maturity to available-for-sale. In connection with
this reclassification, an unrealized gain, net of related
adjustments (see above), of $23,449 was recognized in stockholder's
equity at the date of transfer.
The estimated fair value of fixed maturities that are publicly
traded are obtained from an independent pricing service. To
determine fair value for fixed maturities not actively traded, the
Company utilized discounted cash flows at determined current market
spread rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1995, by projected maturity, are shown
below. Actual maturities will likely differ from these projections
because borrowers may have the right to call or prepay obligations
with or without call or prepayment penalties.
Held-to-
Maturity
Available-
for-Sale
Amortized
Estimated
Amortized
Estimated
Cost
Fair Value Cost
Fair Value Due in one year or
less
$287,565
$293,666
$326,032
$337,792
Due after one year
through five years
838,993
877,949
1,452,442
1,495,755
Due after five years
through ten years
537,365
575,896
1,023,894
1,064,871
Due after ten years
159,064
173,487
522,002
542,559
Mortgage-backed
securities
1,845,605
1,878,127
Asset-backed
securities
231,217
237,045
917,994
944,083
$2,054,204
$2,158,043
$6,087,969
$6,263,187
During the years ended December 31, 1995 and 1994,
available-for-sale securities with a fair value at the date of sale
of $4,211,649 and $1,753,445 were sold. The realized gains and
losses on such sales totaled $39,755 and $15,516 for 1995 and
$7,030 and $50,612 for 1994. During 1995 and 1994,
held-to-maturity securities with an amortized cost of $18,087 and
$15,300 were sold due to credit deterioration with insignificant
realized gains and losses. Gains on securities which were called
for redemption by the respective issuers prior to maturity were
$2,990 and $3,093 in 1995 and 1994, respectively.
At December 31, 1995 and 1994, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $343,351 and $0 of fixed maturities, respectively.
The Company makes limited use of derivative financial
instruments to manage interest rate and foreign exchange risk.
Such hedging activity consists of interest rate swap agreements,
interest rate floors and caps, and foreign currency exchange
contracts. Interest rate floors and caps are interest rate
protection instruments that require the payment by a counter-party
to the Company of an interest differential. This differential
represents the difference between current interest rates and an
agreed-upon rate, the strike rate, applied to a notional principal
amount. Interest rate swap agreements are used to convert the
interest rate on certain fixed maturities from a floating rate to
a fixed rate. Interest rate swap transactions generally involve
the exchange of fixed and floating rate interest payment
obligations without the exchange of the underlying principal
amounts. Foreign currency exchange contracts are used to hedge the
foreign exchange rate risk associated with bonds denominated in
other than U.S. dollars. The differential paid or received on
interest rate and amounts received under interest rate floor and
cap agreements are recognized as an adjustment to net investment
income on the accrual method. Gains and losses on foreign exchange
contracts are deferred and recognized in net investment income when
the hedged transactions are realized.
Although derivative financial instruments taken alone may
expose the Company to varying degrees of market and credit risk
when used solely for hedging purposes, these instruments typically
reduce overall market and interest rate risk. The Company controls
the credit risk of its financial contracts through credit
approvals, limits, and monitoring procedures. As the Company
generally enters nto transactions only with high quality
institutions, no losses associated with non-performance on
derivative financial instruments have occurred or are expected to
occur.
The following table summarizes the financial hedge
instruments:
Notional
Strike/Swap
December 31, 1995
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Cap
100,000
11.0% [CMT]
2000
Interest Rate Swaps
165,000
6.203% to
9.35%
01/98 to
2/2002
Foreign Currency
Exchange Contracts
66,650
N/A
10/96 to
09/98
Notional
Strike
December 31, 1994
Amount
Rate
Maturity
Interest Rate Floor
$100,000
4.5%
[LIBOR]
1999
Interest Rate Swaps
150,000
6.275% to
10.644%
01/95 -
01/2000
Foreign Currency
Exchange Contracts
70,991
N/A
10/96 -
09/98
LIBOR - London Interbank Offered Rate
CMT - Constant Maturity Treasury Rate
The Company has established specific investment guidelines
designed to emphasize a diversified and geographically dispersed
portfolio of mortgages collateralized by commercial and industrial
properties located in the United States. The Company's policy is
to obtain collateral sufficient to provide loan-to-value ratios of
not greater than 75% at the inception of the mortgages. At
December 31, 1995 approximately 28% and 11% of the Company's
mortgage loans were collateralized by real estate located in
California and Illinois, respectively.
At December 31, 1995, the recorded investment in loans that
were considered to be impaired under SFAS No. 114 was $23,678
including $3,254 of loans with a related allowance for credit
losses of $654. Additionally, loans totaling $6,481 were on a
non-accrual basis. The average recorded investment in impaired
loans during the year ended December 31, 1995 was approximately
$29,150. For the year ended December 31, 1995, the Company
recognized interest income on those impaired loans of $675.
Interest income received and recorded using the cash basis method
of recognition during 1995 totalled $857.
As part of an active loan management policy and in the
interest of maximizing the future return of each individual loan,
the Company may from time to time alter the original terms of
certain loans. These restructured loans, all performing in
accordance with their modified terms, aggregated $89,160 and
$102,538 at December 31, 1995 and 1994, respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
Balance at January 1, 1995
$57,987
Provision for loan losses
15,877
Direct chargeoffs
(10,480)
Recoveries
610
Balance at December 31, 1995
$63,994
7. COMMERCIAL PAPER
The Company has a commercial paper program which is partially
supported by a $50,000 standby letter-of-credit. At December 31,
1995, commercial paper outstanding has maturities ranging from 25
to 160 days and interest rates ranging from 5.7% to 5.9%. At
December 31, 1994, maturities ranged from 40 to 120 days and
interest rates ranged from 5.4% to 6.4%
8. ESTIMATED FAIR VALUE OF FINANCIAL INSTRUMENTS
The following table provides estimated fair value for all
assets and liabilities and hedge contracts considered to be
financial instruments:
December 31,
1995
1994
Estimated
Carrying
Estimated
Carrying
Fair
Amount
Fair
Value
Amount
Value
ASSETS:
Fixed maturities
and short-term
investments
$8,452,226
$8,556,065
$7,825,608
$7,666,871
Mortgage loans
on real estate
1,713,195
1,749,514
2,011,059
2,037,694
Policy loans
2,237,745
2,237,745
1,905,013
1,905,013
Common stock
9,440
9,440
5,222
5,222
LIABILITIES:
Annuity contract
reserves
without life
contingencies
6,170,760
6,268,749
6,338,529
6,286,966
Policyholders'
funds
154,872
154,872
144,262
144,262
Due to Parent
Corporation
149,974
152,347
159,117
159,334
Repurchase agreements
372,965
372,965
564,160
564,160
Commercial paper
84,854
84,854
89,686
89,686
HEDGE CONTRACTS:
Interest rate
floor
84
1,320
88
76
Interest rate cap
90
90
Interest rate swaps
10,052
10,052
(771)
(771)
Foreign currency
exchange contracts
(4,604)
(4,604)
(4,345)
(4,345)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgement is
necessarily required to interpret market data to develop the
estimates of fair value. Accordingly, the estimates presented
are not necessarily indicative of the amounts the Company could
realize in a current market exchange. The use of different market
assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
Mortgage loans fair value estimates generally are based on a
discounted cash flow basis. A discount rate "matrix" is
incorporated whereby the discount rate used in valuing a specific
mortgage generally corresponds to that mortgage's remaining
term. The rates selected for inclusion in the discount rate
"matrix" reflect rates that the Company would quote if placing
loans representative in size and quality to those currently in the
portfolio.
Policy loans accrue interest generally at variable rates with
no fixed maturity dates and, therefore, estimated fair value
approximates carrying value.
The fair value of annuity contract reserves without life
contingencies is estimated by discounting the cash flows to
maturity of the contracts, utilizing current credited rates for
similar products.
The estimated fair value of policyholder's funds is the same
as the carrying amount as the Company can change the crediting
rates with 30 days notice.
The estimated fair value of due to Parent Corporation is based
on discounted cash flows at current market spread rates on high
quality investments.
The carrying value of repurchase agreements and commercial
paper is a reasonable estimate of fair value due to the short-term
nature of the liabilities.
The estimated fair value of financial hedge instruments, all
of which are held for other than trading purposes, is the
estimated amount the Company would receive or pay to terminate the
agreement at each year-end, taking into consideration current
interest rates and other relevant factors. Included in the net
gain (loss) position for interest rates swaps are $0 and $2,985 of
unrealized losses in 1995 and 1994, respectively. Included in the
net loss position for foreign currencies exchange contracts are
$5,497 and $4,504 loss exposures in 1995 and 1994, respectvely.
See note 6 for additional information on policies regarding
estimated fair value of fixed maturities.
9. FEDERAL INCOME TAXES
The following is a reconciliation between the federal income
tax
rate and the Company's effective rate:
1995
1994
1993
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting
from:
Investment income not
subject to federal tax
(0.5)
(1.0)
(1.2)
Effect of tax rate change
on net deferred tax assets
(1.8)
Change in valuation
allowance
(7.8)
(6.9)
1.0
State and environmental
taxes
0.7
0.9
Other, net
0.3
(0.3)
(0.5)
Total
27.7%
27.7%
32.5%
Temporary differences which give rise to the deferred tax
assets
and liabilities as of December 31, 1995 and 1994 are as
follows:
1995
1994
Deferred Tax
Asset
Deferred Tax
Liability
Deferred Tax
Asset
Deferred Tax
Liability
Policyholder
reserves
$162,073
$
$119,764
$
Deferred policy
acquisition costs
55,542
62,040
Deferred acquisition
cost proxy tax
58,481<PAGE>
45,422
Investment assets
16,372
97,249
Net operating loss
carryforwards
17,588
22,666
Tax credits and
other
4,786
2,564
Subtotal
242,928
71,914
287,665
62,040
Valuation allowance
(2,073)
(15,218)
Total Deferred Taxes
$240,855
$71,914
$272,447
$62,040
Amounts related to investment assets above include $33,735 and
$(47,493) related to the unrealized gains (losses) on the Company's
fixed maturities available-for-sale at December 31, 1995 and 1994,
respectively.
The Company files a separate tax return and, therefore, losses
incurred by subsidiaries cannot be offset against operating income
of the Company. At December 31, 1995, the Company's subsidiaries
have approximately $50,251 of net operating loss carryforwards,
expiring through the year 2010. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$419 are included in the deferred tax assets.
The Company's valuation allowance was decreased in 1995 and
1994 by $13,145 and $6,278, respectively, primarily as a result of
taxable income in subsidiaries which was greater than expected and
the resulting re-evaluation by management of future estimated
taxable income in the subsidiaries.
Under pre-1984 life insurance company income tax laws, a
portion of life insurance company gain from operations was not
subject to current income taxation but was accumulated, for tax
purposes, in a memorandum account designated as "policyholders'
surplus account." The aggregate accumulation in the account is
$7,742 and the Company does not anticipate any transactions which
would cause any part of the amount to become taxable. Accordingly,
no provision has been made for possible future federal income
taxes on this accumulation.
The Internal Revenue Service is currently auditing tax years
1988 to 1991, inclusive. In the opinion of Company management,
amounts paid or accrued are adequate, however, it is possible that
the Company's estimate may change as a result of the completion of
the IRS audits.
10. STOCKHOLDER'S EQUITY, DIVIDEND RESTRICTIONS, AND OTHER MATTERS
All of the Company's outstanding series of preferred stock are
owned by the Parent Corporation. The dividend rate on the Series
A Stated Rate Auction Preferred Stock (STRAPS) is 7.3% through
December 30, 2002. The Series A STRAPS are redeemable at the
option of the Company on or after December 29, 2002 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
Through December 30, 1995, the Series B STRAPS had a 7%
dividend rate. Thereafter, the Company will, at its option, select
future dividend periods. Future dividend rates will be fixed by a
market auction process with dividend rates dependent upon the
Company. If auctions are undersubscribed or otherwise
unsuccessful, the dividend rate is fixed by formula. The Company
has the flexibility of specifying, before each auction, the rights
of redemption which it has during the succeeding dividend period.
These redemption rights are factored into the auctions which set
dividend rates.
The Series B STRAPS are redeemable at the option of the
Company at a price of $100,000 per share, plus accumulated and
unpaid dividends.
The Company's Series E 7.5% non-cumulative preferred shares
are redeemable by the Company after April 1, 1999. The shares are
not redeemable at the option of the holder at any time. The
shares are convertible into common shares at the option of the
holder on or after September 30, 1999, at a conversion price
negotiated between the holder and the Company or at a formula
determined conversion price in accordance with the share
conditions.
On December 31, 1993, the Company issued 3,783 shares of
common stock to the Parent Corporation in connection with an
assumption of estimated tax liabilities. The Company also received
$472 and $9,098 of contributed capital in the form of deferred tax
assets from the Parent Corporation during 1994 and 1993,
respectively, in connection with the 1993 reinsurance transactions
(see Note 2).
The Company's net income and capital and surplus, as
determined in accordance with statutory accounting principles and
practices for December 31 are as follows:
1995
1994
1993
(Unaudited)
Net Income
$114,931
$70,091
$55,995
Capital and Surplus
653,479
621,589
628,944
The maximum amount of dividends which can be paid to
stockholders by insurance companies domiciled in the State of
Colorado is subject to restrictions relating to statutory surplus
and statutory net gain from operations. Statutory surplus and net
gains from operations at December 31, 1995 were $524,647 and
$119,299 (unaudited), respectively. The Company should be able to
pay up to $119,299 (unaudited) of dividends without regulatory
approval in 1996.
Dividends of $9,217, $7,475, and $9,335, were paid on
preferred stock in 1995, 1994, and 1993, respectively. In
addition, dividends of $39,763, $32,963, and $12,517 were paid on
common stock in 1995, 1994 and 1993, respectively. Dividends are
paid as determined by the Board of Directors.
The Company is involved in various legal proceedings which
arise in the ordinary course of its business. In the opinion of
management, after consultation with counsel, the resolution of
these proceedings should not have a material adverse effect on its
financial position or results of operations.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
ASSETS 1996
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized
cost (fair value $2,006,053) $1,977,771
Available for sale, at fair
value (amortized cost $5,981,777) 5,992,295
Common stock 9,583
Mortgage loans on real estate 1,516,393
Real estate 62,763
Policy loans 2,506,789
Short-term investments 506,129
Total Investments 12,571,723
Cash 81,791
Reinsurance receivable 359,673
Deferred policy acquisition costs 286,502
Investment income due and accrued 218,402
Other assets 35,428
Premiums in course of collection 92,181
Deferred income taxes 222,437
Separate account assets 5,039,240
TOTAL ASSETS $18,907,377
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1996
[Unaudited] (Dollars in Thousands)
LIABILITIES AND STOCKHOLDER'S EQUITY 1996
POLICY BENEFIT LIABILITIES:
Policy reserves $10,985,700
Policy and contract claims 380,547
Policyholders' funds 139,153
Experience refunds 84,837
Provision for policyholders' dividends 50,151
GENERAL LIABILITIES:
Due to Parent Corporation 134,051
Repurchase agreements 395,735
Commercial paper 84,488
Other liabilities 490,029
Undistributed earnings on
participating business 134,374
Separate account liabilities 5,039,240
Total Liabilities 17,918,305
STOCKHOLDER'S EQUITY:
Preferred stock, $1 par value,
50,000,000 shares authorized:
Series A, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
600 shares issued and outstanding 60,000
Series B, cumulative, 1500 shares authorized,
liquidation value of $100,000 per share,
200 shares issued and outstanding 20,000
Series C, cumulative, 1500 shares authorized,
none outstanding
Series D, cumulative, 1500 shares authorized,
none outstanding
Series E, non-cumulative, 2,000,000
shares authorized, liquidation value of $20.90
per share, issued, and outstanding 41,800
Common stock, $1 par value; 50,000,000 shares authorized;
7,032,000 shares issued and outstanding 7,032
Additional paid-in capital 657,265
Net unrealized gains (losses) on
securities available-for-sale (1,797)
Retained earnings 204,772
Total Stockholder's Equity 989,072
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY $18,907,377
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
REVENUES:
Annuity contract charges and premiums $67,430 $57,362
Life, accident, and health premiums earned
(net of premiums ceded totaling $43,542
and $47,077) 717,528 735,859
Net investment income 622,703 622,044
Net realized gains (losses) on investments(30,692) 1,906
1,376,969 1,417,171
BENEFITS AND EXPENSES:
Life and other policy benefits (net of
reinsurance recoveries totaling
$38,981 and $26,463) 381,420 410,712
Increase in reserves 63,056 91,258
Interest paid or credited to
contractholders 422,697 417,745
Provision for policyholders' share
of earnings (losses)
on participating business 1,813 313
Dividends to policyholders 32,081 31,268
901,067 951,296
Commissions 77,866 93,465
Operating expenses 242,233 226,135
Premium taxes 17,526 19,256
1,238,692 1,290,152
INCOME BEFORE INCOME TAXES 138,277 127,019
PROVISION FOR INCOME TAXES:
Current 58,001 61,980
Deferred (18,394) (17,104)
39,607 44,876
NET INCOME $98,670 $82,143
See notes to consolidated financial statements.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
OPERATING ACTIVITIES:
Net income $98,670 $82,143
Adjustments to reconcile net income to
net cash provided by operating
activities:
Gain allocated to par policyholders 1,814 313
Amortization of investments 18,562 20,886
Realized losses (gains) on disposal
of investments and write-downs of
mortgage loans and real estate 30,692 (1,694)
Amortization 24,741 35,472
Deferred income taxes (18,676) (17,330)
Changes in assets and liabilities:
Policy benefit liabilities 206,966 222,687
Reinsurance receivable (25,749) (26,667)
Accrued interest and other
receivables (12,671) (20,527)
Other, net 28,593 (70,263)
Net cash provided by
operating activities 352,942 225,020
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales 11,466
Maturities and redemptions 409,012 504,168
Available-for-sale
Sales 2,664,867 2,846,901
Maturities and redemptions 621,231 90,020
Mortgage loans 188,398 191,009
Real estate 2,111 4,239
Common stock 1,773 0
Purchases of investments:
Fixed maturities
Held-to-maturity (336,291) (698,794)
Available-for-sale (3,590,988)(2,849,310)
Mortgage loans (3,485) (683)
Real estate (5,923) (4,594)
Common stock (1,904) (1,387)
Net cash (used in)
provided by investing
activities (51,199) 93,035
(Continued)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Dollars in Thousands)
Nine Months Ended
September 30,
1996 1995
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits $(275,213)$(75,477)
Due to Parent Corporation (15,923) (24,039)
Dividends paid (42,159) (35,262)
Net commercial paper (repayments) borrowings (366) (5,472)
Net repurchase agreements (repayments)
borrowings 22,770 (247,224)
Net cash (used in) provided by
financing activities (310,891)(387,474)
NET DECREASE IN CASH (9,148) (69,419)
CASH, BEGINNING OF YEAR 90,939 131,621
CASH, END OF PERIOD $ 81,791 $ 62,202
See notes to consolidated financial statements.
(Concluded)
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 1996 AND 1995
[Unaudited] (Amounts in Thousands, except Share Amounts)
1. UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The accompanying financial statements and related notes have
been prepared in accordance with generally accepted accounting
principles for interim financial reporting. Accordingly, certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. In the
opinion of management, all adjustments [consisting of only normal
recurring accruals] considered necessary for fair presentation of
the Company's financial position, results of operations, and cash
flows have been included. These financial statements should be
read in conjunction with the audited consolidated financial
statements and notes thereto for the year ended December 31, 1995.
The results of operations for the periods presented are not
necessarily indicative of the results for a full year.
2. OTHER
Pursuant to a December 31, 1993 agreement between the Company
and its Parent whereby the Company assumed responsibility for the
Parent Corporation's income tax liability for fiscal years prior to
1994, the Company had previously recorded a contingent liability
provision. The Company's 1996 results of operations include a
release of $25,600 from that provision, to reflect the resolution
of 1988 and 1989 tax issues with the Internal Revenue Service. In
the opinion of Company management, the remaining amounts paid or
accrued are adequate, however, it is possible that the Company's
estimate may change as a result of the completion of the IRS
audits.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The estimated expenses of the issuance and distribution of the
Contracts, other than commissions
on sales of the Contracts are as follows:
Securities and Exchange Commission fee $ 68,965.52
Accounting fees and expenses $ 5,000.00
Legal fees and expenses $ 20,000.00
Item 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Provisions exist under the Colorado Business Corporation Act
and the Bylaws of GWL&A whereby
GWL&A may indemnify a director, officer, or controlling person of
GWL&A against liabilities arising under
the Securities Act of 1933. The following excerpts contain the
substance of these provisions:
Colorado Business Corporation Act
Article 109 - INDEMNIFICATION
Section 7-109-101. Definitions.
As used in this Article:
(1) "Corporation" includes any domestic or foreign entity
that is a predecessor of the
corporation by reason of a merger, consolidation, or other
transaction in which the predecessor's
existence ceased upon consummation of the transaction.
(2) "Director" means an individual who is or was a director
of a corporation or an individual
who, while a director of a corporation, is or was serving at
the corporation's request as a director,
officer, partner, trustee, employee, fiduciary or agent of
another domestic or foreign corporation
or other person or employee benefit plan. A director is
considered to be serving an employee
benefit plan at the corporation's request if his or her duties
to the corporation also impose duties
on or otherwise involve services by, the director to the plan
or to participants in or beneficiaries
of the plan.
(3) "Expenses" includes counsel fees.
(4) "Liability" means the obligation incurred with respect to
a proceeding to pay a judgment,
settlement, penalty, fine, including an excise tax assessed
with respect to an employee benefit
plan, or reasonable expenses.
(5) "Official capacity" means, when used with respect to a
director, the office of director in the
corporation and, when used with respect to a person other than
a director as contemplated in
Section 7-109-107, means the office in the corporation held by
the officer or the employment,
fiduciary, or agency relationship undertaken by the employee,
fiduciary, or agent on behalf of the
corporation. "Official capacity" does not include service for
any other domestic or foreign
corporation or other person or employee benefit plan.
(6) "Party" includes a person who was, is, or is threatened
to be made a named defendant
or respondent in a proceeding.
(7) "Proceeding" means any threatened, pending, or completed
action, suit, or proceeding,
whether civil, criminal, administrative, or investigative and
whether formal or informal.
Section 7-109-102. Authority to indemnify directors.
(1) Except as provided in subsection (4) of this section, a
corporation may indemnify a
person made a party to the proceeding because the person is or
was a director against liability
incurred in any proceeding if:
(a) The person conducted himself or herself in good
faith;
(b) The person reasonably believed:
(I) In the case of conduct in an official capacity
with the corporation, that his
or her conduct was in the corporation's best
interests; or
(II) In all other cases, that his or her conduct was
at least not opposed to the
corporation's best interests; and
(c) In the case of any criminal proceeding, the person
had no reasonable cause to
believe his or her conduct was unlawful.
(2) A director's conduct with respect to an employee benefit
plan for a purpose the director
reasonably believed to be in the interests of the participants
in or beneficiaries of the plan is
conduct that satisfies the requirements of subparagraph (II)
of paragraph (b) of subsection (1) of
this section. A director's conduct with respect to an
employee benefit plan for a purpose that the
director did not reasonably believe to be in the interests of
the participants in or beneficiaries of
the plan shall be deemed not to satisfy the requirements of
subparagraph (a) of subsection (1)
of this section.
(3) The termination of any proceeding by judgment, order,
settlement, or conviction, or upon
a plea of nolo contendere or its equivalent, is not, of
itself, determinative that the director did not
meet the standard of conduct described in this section.
(4) A corporation may not indemnify a director under this
section:
(a) In connection with a proceeding by or in the right
of the corporation in which the
director was adjudged liable to the corporation; or
(b) In connection with any proceeding charging that the
director derived an improper
personal benefit, whether or not involving action in his
official capacity, in which
proceeding the director was adjudged liable on the basis
that he or she derived an
improper personal benefit.
(5) Indemnification permitted under this section in
connection with a proceeding by or in the
right of a corporation is limited to reasonable expenses
incurred in connection with the
proceeding.
Section 7-109-103. Mandatory Indemnification of Directors.
Unless limited by the articles of incorporation, a corporation
shall be required to indemnify a
person who is or was a director of the corporation and who was
wholly successful, on the merits or
otherwise, in defense of any proceeding to which he was a party,
against reasonable expenses incurred
by him in connection with the proceeding.
Section 7-109-104. Advance of Expenses to Directors.
(1) A corporation may pay for or reimburse the reasonable
expenses incurred by a director
who is a party to a proceeding in advance of the final
disposition of the proceeding if:
(a) The director furnishes the corporation a written
affirmation of his good-faith belief
that he has met the standard of conduct described in
Section 7-109-102;
(b) The director furnishes the corporation a written
undertaking, executed personally
or on the director's behalf, to repay the advance if it
is ultimately determined that he or
she did not meet such standard of conduct; and
(c) A determination is made that the facts then known to
those making the
determination would not preclude indemnification under
this article.
(2) The undertaking required by paragraph (b) of subsection
(1) of this section shall be an
unlimited general obligation of the director, but need not be
secured and may be accepted
without reference to financial ability to make repayment.
(3) Determinations and authorizations of payments under this
section shall be made in the
manner specified in Section 7-109-106.
Section 7-109-105. Court-Ordered Indemnification of Directors.
(1) Unless otherwise provided in the articles of
incorporation, a director who is or was a party
to a proceeding may apply for indemnification to the court
conducting the proceeding or to
another court of competent jurisdiction. On receipt of an
application, the court, after giving any
notice the court considers necessary, may order
indemnification in the following manner:
(a) If it determines the director is entitled to
mandatory indemnification under section
7-109-103, the court shall order indemnification, in
which case the court shall also order
the corporation to pay the director's reasonable expenses
incurred to obtain court-
ordered indemnification.
(b) If it determines that the director is fairly and
reasonably entitled to indemnification
in view of all the relevant circumstances, whether or not
the director met the standard of
conduct set forth in section 7-109-102 (1) or was
adjudged liable in the circumstances
described in Section 7-109-102 (4), the court may order
such indemnification as the court
deems proper; except that the indemnification with
respect to any proceeding in which
liability shall have been adjudged in the circumstances
described Section 7-109-102 (4)
is limited to reasonable expenses incurred in connection
with the proceeding and
reasonable expenses incurred to obtain court-ordered
indemnification.
<PAGE>
Section 7-109-106. Determination and Authorization of
Indemnification of Directors.
(1) A corporation may not indemnify a director under Section
7-109-102 unless authorized
in the specific case after a determination has been made that
indemnification of the director is
permissible in the circumstances because he has met the
standard of conduct set forth in Section
7-109-102. A corporation shall not advance expenses to a
director under Section 7-109-104
unless authorized in the specific case after the written
affirmation and undertaking required by
Section 7-109-104(1)(a) and (1)(b) are received and the
determination required by Section 7-109-
104(1)(c) has been made.
(2) The determinations required to be made under subsection
(1) of this section shall be
made:
(a) By the board of directors by a majority vote of
those present at a meeting at
which a quorum is present, and only those directors not
parties to the proceeding shall
be counted in satisfying the quorum.
(b) If a quorum cannot be obtained, by a majority vote
of a committee of the board
of directors designated by the board of directors, which
committee shall consist of two
or more directors not parties to the proceeding; except
that directors who are parties to
the proceeding may participate in the designation of
directors for the committee.
(3) If a quorum cannot be obtained as contemplated in
paragraph (a) of subsection (2) of this
section, and the committee cannot be established under
paragraph (b) of subsection (2) of this
section, or even if a quorum is obtained or a committee
designated, if a majority of the directors
constituting such quorum or such committee so directs, the
determination required to be made
by subsection (1) of this section shall be made:
(a) By independent legal counsel selected by a vote of
the board of directors or the
committee in the manner specified in paragraph (a) or (b)
of subsection (2) of this section
or, if a quorum of the full board cannot be obtained and
a committee cannot be
established, by independent legal counsel selected by a
majority vote of the full board
of directors; or
(b) By the shareholders.
(4) Authorization of indemnification and evaluation as to
reasonableness of expenses shall
be made in the same manner as the determination that
indemnification is permissible; except that,
if the determination that indemnification is permissible is
made by independent legal counsel,
authorization of indemnification and advance of expenses shall
be made by the body that
selected such counsel.
Section 7-109-107. Indemnification of Officers, Employees,
Fiduciaries, and Agents.
(1) Unless otherwise provided in the articles of
incorporation:
(a) An officer is entitled to mandatory indemnification
under section 7-109-103, and
is entitled to apply for court-ordered indemnification
under section 7-109-105, in each
case to the same extent as a director;
(b) A corporation may indemnify and advance expenses to
an officer, employee,
fiduciary, or agent of the corporation to the same extent
as a director; and
(c) A corporation may indemnify and advance expenses to
an officer, employee,
fiduciary, or agent who is not a director to a greater
extent, if not inconsistent with public
policy, and if provided for by its bylaws, general or
specific action of its board of directors
or shareholders, or contract.
Section 7-109-108. Insurance.
A corporation may purchase and maintain insurance on behalf of
a person who is or was a
director, officer, employee, fiduciary, or agent of the corporation
and who, while a director, officer,
employee, fiduciary, or agent of the corporation, is or was serving
at the request of the corporation as a
director, officer, partner, trustee, employee, fiduciary, or agent
of any other domestic or foreign corporation
or other person or of an employee benefit plan against any
liability asserted against or incurred by the
person in that capacity or arising out of his or her status as a
director, officer, employee, fiduciary, or
agent whether or not the corporation would have the power to
indemnify the person against such liability
under the Section 7-109-102, 7-109-103 or 7-109-107. Any such
insurance may be procured from any
insurance company designated by the board of directors, whether
such insurance company is formed
under the laws of this state or any other jurisdiction of the
United States or elsewhere, including any
insurance company in which the corporation has an equity or any
other interest through stock ownership
or otherwise.
Section 7-109-109. Limitation of Indemnification of Directors.
(1) A provision concerning a corporation's indemnification
of, or advance of expenses to,
directors that is contained in its articles of incorporation
or bylaws, in a resolution of its
shareholders or board of directors, or in a contract, except
for an insurance policy or otherwise,
is valid only to the extent the provision is not inconsistent
with Sections 7-109-101 to 7-109-108.
If the articles of incorporation limit indemnification or
advance of expenses, indemnification or
advance of expenses are valid only to the extent not
inconsistent with the articles of incorporation.
(2) Sections 7-109-101 to 7-109-108 do not limit a
corporation's power to pay or reimburse
expenses incurred by a director in connection with an
appearance as a witness in a proceeding
at a time when he or she has not been made a named defendant
or respondent in the
proceeding.
Section 7-109-110. Notice to Shareholders of Indemnification of
Director.
If a corporation indemnifies or advances expenses to a
director under this article in connection
with a proceeding by or in the right of the corporation, the
corporation shall give written notice of the
indemnification or advance to the shareholders with or before the
notice of the next shareholders'
meeting. If the next shareholder action is taken without a meeting
at the instigation of the board of
directors, such notice shall be given to the shareholders at or
before the time the first shareholder signs
a writing consenting to such action.
Bylaws of GWL&A
Article II, Section 11. Indemnification of Directors.
The Company may, by resolution of the Board of Directors,
indemnify and save harmless out of
the funds of the Company to the extent permitted by applicable law,
any director, officer, or employee of
the Company or any member or officer of any committee, and his
heirs, executors and administrators,
from and against all claims, liabilities, costs, charges and
expenses whatsoever that any such director,
officer, employee or any such member or officer sustains or incurs
in or about any action, suit, or
proceeding that is brought, commenced, or prosecuted against him
for or in respect of any act, deed,
matter or thing whatsoever made, done, or permitted by him in or
about the execution of his duties of his
office or employment with the Company, in or about the execution of
his duties as a director or officer of
another company which he so serves at the request and on behalf of
the Company, or in or about the
execution of his duties as a member or officer of any such
Committee, and all other claims, liabilities,
costs, charges and expenses that he sustains or incurs, in or about
or in relation to any such duties or
the affairs of the Company, the affairs of such Committee, except
such claims, liabilities, costs, charges
or expenses as are occasioned by his own wilful neglect or default.
The Company may, by resolution of
the Board of Directors, indemnify and save harmless out of the
funds of the Company to the extent
permitted by applicable law, any director, officer, or employee of
any subsidiary corporation of the
Company on the same basis, and within the same constraints as,
described in the preceding sentence.
Item 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
Item 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Form of Principal Underwriter and Distribution
Agreement
is attached as Exhibit 1.
2. Not applicable.
3. (i) Articles of Incorporation of Great-West Life &
Annuity Insurance Company is attached
as Exhibit 3(a).
(ii) Bylaws of Great-West Life & Annuity Insurance
Company is attached as Exhibit 3(b).
4. (a) Form of Combination Fixed and Variable Group
Annuity
Contract is incorporated by
reference to Registrant's Amendment No. 1 to the
Registration Statement.
(b) Form of IRA Endorsement is incorporated by
reference
to Registrant's Amendment
No. 1 to the Registration Statement.
5. Opinion and consent of Ruth B. Lurie, Vice President,
Counsel and Associate Secretary
as to the legality of the securities being registered, is
incorporated by reference to
Registrant's Registration Statement.
6. Not applicable.
7. Not applicable.
8. Not applicable.
9. Not applicable.
10. Not applicable.
11. Not applicable.
12. Not applicable.
13. Not applicable.
14. Not applicable.
15. Not applicable.
16. Not applicable.
17. Not applicable.
18. Not applicable.
19. Not applicable.
20. Not applicable.
21. List of significant subsidiaries of Great-West Life &
Annuity Insurance Company, the state
of incorporation or organization or each, and the names
under which such subsidiaries
do business, is attached as Exhibit 21.
22. Not applicable.
23. (a) Consent of Jorden Burt Berenson & Johnson LLP is
incorporated by referenced to
Registrant's Registration Statement.
(b) Consent of Deloitte & Touche LLP is attached as
Exhibit 23b.
24. Power of Attorney for Messrs. Balog, Burns, Dackow,
Desmarais, Jr., Gratton, Hart,
Mackness, McCallum, Nickerson, Pitfield, Plessis-Belair,
Turner and Walsh are
incorporated by referenced to Registrant's Registration
Statement. Power of Attorney for
Messrs. Graham and Kavanagh are incorporated by reference
to Registrant's Amendment
No. 1 to the Registration Statement.
25. Not applicable.
26. Not applicable.
27. Financial Data Schedule for Great-West Life & Annuity
Insurance Company.
Item 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment
to this registration statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the
registration statement (or the most recent post-effective
amendment thereof) which,
individually or in the aggregate, represent a fundamental
change in the information set
forth in the registration statement;
(iii) To include any material information with respect
to the plan of distribution not
previously disclosed in the registration statement or any
material change to such
information in the registration statement, including (but
not limited to) any addition or
deletion of a managing underwriter.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such
post-effective amendment shall be deemed to be a new
registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be
the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities
being registered which remain unsold at the termination of the
offering.
(4) Insofar as indemnification for liability arising under
the Securities Act of 1933 may be
permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing
provisions, or otherwise, the registrant has been advised that
in the opinion of the Securities and
Exchange Commission such indemnification is against public
policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or
controlling person of the registrant in the successful defense
of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being
registered, the registrant will, unless in the opinion of its
counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such
indemnification by it is against public policy as expressed in
the Act and will be governed by the
final adjudication of such issue.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933,
the Registrant has duly caused this Amendment No. 2 to the
Registration Statement on Form S-1 to be signed on its behalf, in
the City of Englewood, State of Colorado, on this 28th day of
October , 1996.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
(Depositor)
By: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
As required by the Securities Act of 1933, this Registration
Statement has been signed by the following persons in the
capacities with Great-West Life & Annuity Insurance Company and on
the dates indicated:
Signature and Title Date
/s/ R. Gratton* 10/28, 1996
Director, Chairman of the
Board (Robert Gratton)
/s/ W.T. McCallum 10/28, 1996
Director, President and Chief Executive
Officer (William T. McCallum)
/s/ G.R. Derback 10/28, 1996
Vice President, Financial Control
and Controller (Glen R. Derback)
Signature and Title Date
/s/ J. Balog* 10/28, 1996
Director, (James Balog)
/s/ J.W. Burns* 10/28, 1996
Director, (James W. Burns)
/s/ O.T. Dackow* 10/28, 1996
Director (Orest T. Dackow)
/s/ P. Desmarais, Jr.* 10/28, 1996
Director (Paul Desmarais, Jr.)
/s/ R.G. Graham* 10/28, 1996
Director (Robert G. Graham)
/s/ N.B. Hart* 10/28, 1996
Director (N. Berne Hart)
/s/ K.P. Kavanagh* 10/28, 1996
Director (Kevin P. Kavanagh)
/s/ W. Mackness* 10/28, 1996
Director (William Mackness)
/s/ J.E.A. Nickerson* 10/28, 1996
Director (Jerry E.A. Nickerson)
<PAGE>
Signature and Title Date
/s/ P.M. Pitfield* 10/28, 1996
Director (P. Michael Pitfield)
/s/ Michel Plessis-Belair* 10/28, 1996
Director (Michel Plessis-Belair)
/s/ R.J. Turner* 10/28, 1996
Director (Ross J. Turner)
/s/ B.E. Walsh* 10/28, 1996
Director (Brian E. Walsh)
*By: /s/ D.C. Lennox 10/28, 1996
D. C. Lennox
Attorney-in-fact pursuant to Powers of Attorney filed with the
Registration Statement and Amendment No. 1 thereto.
<PAGE>
Exhibit Table
Form S-1
Exhibit
1. Form of Underwriting agreement and
and Distribution Agreement 1
3. (i) Articles of Incorporation1
(ii) Bylaws 1
4. (i) Form of Combination Fixed and
Variable Annuity Contract 2
(ii) Form of IRA Endorsement 2
5. Opinion and consent of Ruth B. Lurie,
Vice President, Counsel and Associate
Secretary as to the legality of the
securities being registered 3
21. List of significant subsidiaries of
Great-West Life & Annuity Insurance
Company, the state of incorporation or
organization of each, and the names under
which such subsidiaries do business1
23. (a) Consent of Jorden Burt Berenson &
Johnson LLP 3
(b) Consent of Deloitte & Touche LLP 1
24. Power of Attorney for Messrs. Balog,
Burns, Dackow, Desmarais, Jr., Gratton,
Hart, Mackness, McCallum, Nickerson,
Pitfield, Plessis-Belair, Turner and
Walsh 2
27. Financial Data Schedule 1
1 Filed on October 29, 1996 with Amendment No. 2 to Registration
Statement.
2 Filed on August 2, 1996 with Amendment No. 1 to Registration
Statement and incorporated herein by
reference.
3 Filed on February 22, 1996 with Registration Statement and
incorporated herein by reference.
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
BY AND BETWEEN
CHARLES SCHWAB & CO., INC.
AND
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
TABLE OF CONTENTS
Description
SECTION 1. AVAILABLE CONTRACTS 2
1.1 Availability 2
1.2 Modification of Contracts; Suspension or Restriction of
Sales 2
1.3 Reinsurance of Contracts 3
SECTION 2. CONTRACT DISTRIBUTION 3
2.1 Exclusive Appointments; Efforts; Independent Contractor 3
2.2 Registration of Associated Persons 4
2.3 Insurance Agent Licensing 4
2.4 Sales Agreements 5
2.5 Supervisory Responsibilities 6
2.6 Suitability Determinations 6
2.7 Marketing Materials 6
2.8 Non-marketing Materials 7
2.9 Banking Arrangements 7
2.10 Limitations on Authority 8
SECTION 3. RECORDKEEPING 8
3.1 Recordkeeping 8
SECTION 4. LEGAL COMPLIANCE 9
4.1 Securities Laws 9
4.2 Tax Laws 11
4.3 Insurance Laws and Other Laws 12
4.4 Notice of Certain Proceedings and Other Circumstances 13
4.5 Parties to Cooperate 14
4.6 Information About GREAT-WEST and SCHWAB 14
SECTION 5. COSTS AND EXPENSES 15
5.1 GREAT-WEST to Pay Employees 15
5.2 SCHWAB to Pay Employees 15
5.3 Each Party To Bear Own Costs 15
SECTION 6. INDEMNIFICATION 16
6.1 Indemnification by GREAT-WEST 16
6.2 Indemnification by SCHWAB 17
6.3 Limitation on Liability 19
6.4 Injunctive Relief 19
SECTION 7. TERM AND TERMINATION 19
7.1 Term 19
7.2 Events of Termination 19
7.3 Events of Default 21
7.4 Parties to Cooperate Respecting Termination 21
SECTION 8. CONFIDENTIALITY 21
SECTION 9. ARBITRATION 22
SECTION 10. BONDING AND INSURANCE 23
SECTION 11. NOTICES 24
SECTION 12. TRADEMARKS 24
SECTION 13. MISCELLANEOUS 26
13.1 Amendment 26
13.2 Non-Assignment 26
13.3 Governing Law 26
13.4 Survival of Provisions 26
13.5 Severability 26
13.6 Waiver 26
13.7 Right to Audit 26
13.8 Force Majeure 27
13.9 Entire Agreement 27
SCHEDULE 1 28
SCHEDULE 1.1 29
SCHEDULE 4.3(a) 30
AMENDED AND RESTATED
DISTRIBUTION AGREEMENT
This Amended and Restated Distribution Agreement (the "Agreement")
is made as of the 25th day of _October_, 1996, by and between
Charles Schwab & Co., Inc., a California corporation ("SCHWAB"),
and Great-West Life & Annuity Insurance Company, a Colorado
insurance company ("GREAT-WEST"), on behalf of itself and each of
its separate accounts listed on Schedule 1 hereto, as the same may
be amended from time to time (each an "Account") (each, a "Party,"
collectively, the "Parties").
RECITALS
WHEREAS, the Agreement supersedes that certain Distribution and
Administration Agreement dated December 5, 1995 between the parties
hereto (the "Old Agreement") with respect to the subject matter
hereof; and
WHEREAS, GREAT-WEST is a Colorado life insurance company duly
licensed as required by applicable law to issue life insurance and
annuity contracts identified on Schedule 1.1, as may be amended
from time to time, (each a "Contract," collectively, the
"Contracts") in certain states and other jurisdictions; and
WHEREAS, GREAT-WEST, has developed or is developing Contracts, some
of which shall be funded by segregated asset accounts; and
WHEREAS, SCHWAB is licensed or will become licensed as required by
applicable law to market such Contracts pursuant to applicable
state law and is registered as a broker-dealer under the Securities
Exchange Act of 1934 (the "1934 Act") and under the securities laws
in all fifty (50) states, and is a member of the National
Association of Securities Dealers, Inc. ("NASD"); and
WHEREAS, GREAT-WEST has extensive experience in the operation of
its insurance business and has trained personnel, equipment, and
facilities for conducting its present and future insurance
operations; and
WHEREAS, SCHWAB has extensive experience in the operation of its
business as a registered broker-dealer and has trained (and
NASD-registered) personnel, equipment, and facilities for
conducting its present and future broker-dealer operations; and
WHEREAS, certain personnel of SCHWAB may engage, or deemed to be
engaged, directly or indirectly, in the offering, selling,
advertising or marketing of certain Contracts the interests under
which are required to be registered under the Securities Act of
1933, as amended (the "1933 Act") ("registered Contracts"); the
confirming of transactions under registered Contracts as required
by the 1934 Act Rule 10b-10; the maintenance of records with
respect to registered Contracts as required by 1934 Act Rules 17a-3
and 17a-4 or other SEC or NASD rules applicable to registered
broker-dealers (all Distributor personnel engaged in these
activities, as well as all other persons whom Section 3(a)(18) of
the 1934 Act defines as associated persons of SCHWAB, are
collectively referred to herein as "Associated Persons"); and
WHEREAS, GREAT-WEST and SCHWAB desire to enter into an agreement to
have SCHWAB act as the principal underwriter and/or insurance
agent, as applicable, for the sale of the Contracts.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements herein contained, and of the mutual expectations of
benefit occurring from the activities herein contemplated, the
Parties hereto agree as follows:
SECTION 1. AVAILABLE CONTRACTS
1.1 Availability
(a) SCHWAB shall have exclusive marketing and distribution rights
for certain Contracts specifically identified in Schedule 1.1
(hereinafter, "Exclusive Contracts"). SCHWAB shall have
non-exclusive marketing and distribution rights for all Contracts
identified in Schedule 1.1 (hereinafter, "Other Contracts").
Schedule 1.1 may be amended from time to time as mutually agreed to
in writing between the two Parties. The Parties have agreed that
certain Contracts will be designed to be sold into the Internal
Revenue Code Sections 403(b), 457 and 401(k) markets and made available
for distribution by SCHWAB and added to Schedule 1.1 when
available. SCHWAB acknowledges that GREAT-WEST is currently
marketing contracts similar to the Exclusive Contracts and may
develop and market contracts in the future with similar terms to
those contained in the Contracts. In no event may GREAT-WEST
directly or indirectly develop, issue, market or otherwise promote
any Contract that bears the name SCHWAB or any other proprietary
SCHWAB tradenames, trademarks or service mark without the prior
written approval of SCHWAB, except as permitted by and in
accordance with Section 12.1 hereof.
1.2 Modification of Contracts; Suspension or Restriction of Sales
(a) GREAT-WEST may modify the terms of any Contract, to the extent
permitted or required by applicable law. Any modification, other
than a modification required to be made to conform the Contracts to
a change in applicable law, shall be approved by SCHWAB, which
approval shall not be unreasonably withheld. SCHWAB may, from time
to time, propose modifications to the terms of any Contract, and
GREAT-WEST agrees to implement any such modification in a timely
manner, subject to GREAT-WEST's approval, which shall not be
unreasonably withheld. Prior to implementation of any
modification, the Parties must mutually agree on such change or
changes and agree as to who will bear the costs associated with
such change.
(b) Upon 180 days' prior written notice, GREAT-WEST may suspend
or restrict the sale of any Contract in any state or other
jurisdiction, GREAT-WEST will effect such withdrawal in accordance
with all applicable law. GREAT-WEST reserves the right to
immediately withdraw any fixed annuity contract (or portion
thereof) with respect to future sales where the declared interest
rate, as determined by GREAT-WEST's usual and customary business
practices, would be below that Contract's declared minimum
guaranteed interest rate. In addition, notwithstanding any
provision herein to the contrary, GREAT-WEST may refuse to sell any
Contract to any applicant for any reason. GREAT-WEST shall
communicate the reasons for any refusal to SCHWAB.
1.3 Reinsurance of Contracts
GREAT-WEST may reinsure any of the Contracts with a reinsurer of
its choice at any time in accordance with applicable law.
SECTION 2. CONTRACT DISTRIBUTION
2.1 Exclusive Appointments; Efforts; Independent Contractor
(a) GREAT-WEST appoints SCHWAB, and SCHWAB accepts GREAT-WEST's
appointment, as the exclusive principal underwriter, and, as
applicable, exclusive insurance agent for the offer and sale of the
Exclusive Contracts and as non-exclusive principal underwriter and
insurance agent of the Other Contracts offered by SCHWAB to the
public, during the term of this Agreement, in each state and other
jurisdiction in which such Contracts may lawfully be offered and
sold. Notwithstanding anything herein to the contrary, SCHWAB
shall not act as, or be deemed to be, the principal underwriter of
any Contract that is not registered under the 1933 Act and which
appears on any of the Schedules attached hereto.
(b) SCHWAB shall use all commercially reasonable efforts to
offer the Contracts for sale and distribution, but shall be under
no obligation to effectuate any particular amount of sales of
Contracts. SCHWAB shall, however, provide GREAT-WEST in writing
new product sales projections for the initial twelve (12) month
period of this Agreement and every twelve (12) month period
thereafter. The estimate should contain quarterly information for
the period in question. The estimate should also provide sales
estimates on a Contract by Contract basis, and include all
projected premiums. GREAT-WEST acknowledges that SCHWAB currently
sells, and may in the future sell, annuity contracts and/or life
insurance policies issued by life insurance companies unaffiliated
with GREAT-WEST.
(c) SCHWAB shall at all times function as, and be deemed to be, an
independent contractor.
(d) Except as may be necessary to comply with the requirements of
any applicable law or regulation, SCHWAB shall not, absent
GREAT-WEST's consent, actively promote the replacement of any
Contract or the redirection of the cash value of a Contract into
any other product; provided, however, that GREAT-WEST's consent
shall be presumed granted (i) upon the occurrence, with respect to
GREAT-WEST, of any event described in Sections 7.2(a)(iii) or
7.2(b) hereof only to the extent of Contract owners in those
jurisdictions in the events under 7.2(b)(ii) and (iii) or (ii) upon
the failure of GREAT-WEST to cure a default pursuant to Section 7.3
hereof. "Actively promote" shall include, but not be limited to,
mailings specifically sent to or conversations specifically held
with Contract owners or licensed agents of SCHWAB which induce or
attempt to induce a Contract owner to surrender the Contract and
replace it with another product (other than a product offered by
GREAT-WEST or it affiliates), or to direct premiums, cash values or
deposits from a Contract to any other product (other than a product
offered by GREAT-WEST or its affiliates). Notwithstanding the
foregoing, in no event shall this provision prevent SCHWAB from
concurrently or subsequently offering and selling to a Contract
owner any non-insurance product, whether or not offered by
GREAT-WEST or its affiliates. This provision shall survive the
termination of this Agreement other than pursuant to Sections
7.2(a)(iii), 7.2(b) or 7.3 hereof.
2.2 Registration of Associated Persons
(a) SCHWAB shall be responsible for ensuring, at its sole cost,
that each Associated Person involved with the offer or sale of
registered Contracts is duly registered and qualified pursuant to
the 1934 Act, NASD regulations, and any other required securities
regulatory body.
(b) In connection with such registration, SCHWAB shall conduct
such background investigations of the SCHWAB employees necessary to
determine their qualifications, good character and moral fitness to
offer and sell the Contracts. Such information shall be available
to GREAT-WEST upon request.
(c) SCHWAB shall continuously monitor the status of SCHWAB and
each of SCHWAB's registered employees to ensure that they are and
remain properly registered and qualified.
2.3 Insurance Agent Licensing
(a) Neither SCHWAB nor any of its employees shall engage in any
activities that would require insurance agent licensing in the
state or jurisdiction where such activities are performed, unless
and until SCHWAB and its employees are properly licensed to perform
such services in the particular state or other jurisdiction. As
used herein, "properly licensed" includes the filing of an
appointment by GREAT-WEST, SCHWAB and/or other person when required
by the laws or regulations of the applicable state or jurisdiction.
(b) SCHWAB shall, from time to time, advise GREAT-WEST of the
SCHWAB employees that it wishes GREAT-WEST to appoint as GREAT-WEST
insurance agents. In that connection, SCHWAB shall conduct
background investigations of the SCHWAB employees to determine
their qualifications, good character and moral fitness to offer and
sell the Contracts, and shall prepare and submit completed agent
appointment forms for GREAT-WEST's approval. GREAT-WEST shall
forward all approved agent appointment forms in a timely manner to
the appropriate state insurance departments and pay all required
appointment fees.
(c) SCHWAB shall be responsible for ensuring that all SCHWAB
employees engaged in the offer or sale of Contracts (whether or not
registered with the SEC under the 1933 Act) are properly licensed
and remain properly licensed under the insurance laws of the
applicable states and other jurisdictions to sell the Contracts. In
furtherance of this obligation, SCHWAB shall continuously monitor
the status of SCHWAB's and each SCHWAB employee's insurance agent
license and renewal in each state and jurisdiction in which the
Contracts may be offered and sold. SCHWAB shall notify GREAT-WEST
in a timely manner of any license not renewed.
(d) SCHWAB agrees to undertake all actions necessary and to pay
all costs to effect licensing of itself and its employees and
renewals thereof as required for the business of this Agreement.
GREAT-WEST agrees to take all actions necessary and to pay all
costs to effect the appointment as insurance agents of SCHWAB and
its employees and renewals thereof as required for the business of
this Agreement.
(e) GREAT-WEST, in its sole discretion, may refuse to appoint or
renew the appointment of a SCHWAB employee as a GREAT-WEST
insurance agent. In the event GREAT-WEST refuses to renew the
appointment of a SCHWAB employee, it shall not act except upon ten
(10) days prior written notice to SCHWAB.
2.4 Sales Agreements
GREAT-WEST and SCHWAB may, from time to time, enter into separate
written agreements ("Sales Agreements"), on such terms and
conditions as they may determine to be not inconsistent with this
Agreement, with one or more organizations that agree to participate
in the distribution of the Contracts, provided, that such
organizations, shall to the extent required by law, be both
registered as a broker-dealer under the 1934 Act and a member of
the NASD, and provided further, that such organizations and their
agents or representatives soliciting applications for Contracts
shall be properly licensed, registered or otherwise qualified to
offer and sell the Contracts under the applicable insurance and
other laws of each state or other jurisdiction in which GREAT-WEST
is licensed to sell the Contracts. Such written agreements with
other organizations shall be subject to approval by GREAT-WEST and
shall incorporate terms and provisions establishing requirements
and standards of conduct on the sale of the Contracts by the
organization.
2.5 Supervisory Responsibilities
(a) SCHWAB shall be responsible for training, monitoring and
controlling the activities of SCHWAB employees involved in the
offer and sale of the Contracts. GREAT-WEST shall participate in,
and shall bear responsibility with respect to, such training
monitoring, and control to the extent required by applicable NASD
rules, SEC laws, state insurance laws, or other applicable laws.
(b) Notwithstanding the above, GREAT-WEST shall provide adequate
training to SCHWAB supervisory personnel with respect to the
Contracts.
2.6 Suitability Determinations
SCHWAB agrees to establish written procedures that will require
SCHWAB employees to review all Contract applications to determine
that the Contracts are a "suitable" investment vehicle for the
applicant. While not limited to the following, such written
procedures must provide that a determination of suitability shall
be based on information furnished to a SCHWAB employee after
reasonable inquiry of such applicant concerning the applicant's
investment objectives and financial situation. In no event shall
Contracts be sold describing premiums as "vanishing" or Contracts
as being paid up at a time other than the date described in the
Contract itself.
2.7 Marketing Materials
(a) SCHWAB shall have the responsibility for developing, printing,
and distributing, at its sole cost, all marketing materials to be
used in connection with the offer and sale of the Contracts. As
used herein, "marketing materials" shall mean any "advertisement"
or "sales literature," as those terms are defined in NASD Conduct
Rule 2210(a), as amended from time to time, including any so-called
"dealer only" materials, and including any material intended to be
spoken in the solicitation of a Contract, such as telephone
scripts, scripted answers to questions and slide show scripts but
excluding Contract Prospectuses, registration statements, annual
and semi-annual reports and other materials that are developed by
GREAT-WEST.
(b) SCHWAB shall submit definitive copies of all marketing
materials to GREAT-WEST for its written approval, which shall not
be unreasonably withheld, at least five (5) business days prior to
printing or finalization.
(c) SCHWAB shall, to the extent required, file in a timely manner
all marketing materials with the NASD, the SEC, or any other
securities regulatory body, as appropriate, and shall obtain any
necessary approval of these regulatory bodies of such marketing
materials.
(d) GREAT-WEST shall, to the extent required by law, file in a
timely manner all marketing materials with the various state
insurance regulatory bodies, and shall obtain any necessary
approval of these regulatory bodies of such marketing materials.
2.8 Non-marketing Materials
(a) GREAT-WEST shall be responsible for preparing, printing in
quantity and delivering to SCHWAB, at GREAT-WEST's sole cost: (i)
all Contract forms, applications and related materials, (ii) all
forms pertaining to the processing of premium payments, refunds and
other monies, and (iii) all forms pertaining to transactions,
claims, and other features available under the Contracts,
including, but not limited to, full or partial surrenders,
exchanges, transfers, loans, systematic purchases, death claims,
changes in premium allocations, and changes in beneficiary.
GREAT-WEST shall submit definitive copies of all materials to
SCHWAB for its written approval, which shall not be unreasonably
withheld, at least five (5) business days prior to printing or
finalization.
(b) SCHWAB shall be responsible for preparing, printing, and
distributing, at its sole cost, all correspondence with Contract
owners, except for correspondence or other communication prepared,
printed, and distributed by GREAT-WEST. GREAT-WEST and SCHWAB
agree that SCHWAB shall submit copies of all prototypes of
correspondence, with all variations, and copies of all materials
being mass mailed to Contract owners to GREAT-WEST for its written
approval, which shall not be unreasonably withheld, at least five
(5) business days prior to printing or finalization.
(c) GREAT-WEST shall be responsible for preparing, printing, and
distributing, or causing the same to be done, at its sole cost: (i)
all Contract owner account statements, (ii) confirmations of
Contract owner transactions required to be delivered to Contract
owners pursuant to Section 4.1(g), and (iii) all documents
described in Sections 4.1(b), 4.1(h) and 4.2(c)hereof. GREAT-WEST
and SCHWAB agree that GREAT-WEST shall submit the form of all items
(i) and (ii) and definitive copies of (iii) to SCHWAB for its
written approval, which shall not be unreasonably withheld, at
least five (5) business days prior to printing or finalization.
GREAT-WEST acknowledges that these materials, with the exception of
4.2(c), are marketing materials and may be used as such by SCHWAB.
(d) SCHWAB and GREAT-WEST agree that correspondence or other
communication to any policyowner involving a complaint shall be
submitted to the other for written approval prior to mailing or
communicating with the policyowner.
2.9 Banking Arrangements
(a) SCHWAB agrees to handle all premium payments or other monies
that it receives in connection with the sale of the Contracts as a
fiduciary for the benefit of GREAT-WEST. All such premium payments
shall be the property of GREAT-WEST.
(b) Premium payments may be received by either SCHWAB or
GREAT-WEST. SCHWAB shall deposit and maintain any premium payments
received by SCHWAB (whether such premium payments are received in
the form of a check, pursuant to an authorization to wire transfer
monies from a SCHWAB client's account, or in any other manner) in
one or more segregated accounts maintained by GREAT-WEST in its
name (or in the name of an Account) at one or more banks or other
financial institutions, and in connection therewith SCHWAB shall:
(i) send GREAT-WEST a copy of the deposit slip or wire transfer
ticket by overnight mail or fax, and (ii) immediately deposit any
monies received with an application into such depository account or
accounts as designated from time to time by GREAT-WEST. GREAT-WEST
shall be responsible for depositing any premium payments received
at the offices of GREAT-WEST.
2.10 Limitations on Authority
(a) SCHWAB and its employees shall have no authority to, and shall
not: (i) add, alter, waive or discharge any Contract or application
provision or Prospectus provision or represent that such can be
done by GREAT-WEST or SCHWAB; (ii) extend the time of making any
payments; (iii) alter or substitute GREAT-WEST's forms in any
manner; (iv) give or offer to give, on behalf of GREAT-WEST, any
tax or legal advice related to the purchase of a Contract; (v)
guarantee the issuance of any Contract or the reinstatement of any
lapsed Contract; or (vi) exercise any authority on behalf of
GREAT-WEST other than that expressly conferred on SCHWAB or its
employees by this Agreement.
(b) GREAT-WEST and its employees shall have no authority to, and
shall not (i) give or offer to give on behalf of SCHWAB, any tax or
legal advice related to the purchase of a Contract, or (ii)
exercise any authority on behalf of SCHWAB other than that
expressly conferred on GREAT-WEST or its employees by this
Agreement.
SECTION 3. RECORDKEEPING
3.1 Recordkeeping
(a) Each Party agrees to keep, at its principal office, all
accounts, books and other records required by and in accordance
with applicable federal and state law, including any state
insurance laws, and the regulations of any regulatory body having
jurisdiction over such accounts, books, and other records,
including but not limited to Rules 31a-1 and 31a-2 under the
Investment Company Act of 1940 (" 1940 Act") and Rules 17a-3 and
17a-4 under the 1934 Act.
(b) Any and all accounts, books and other records of GREAT-WEST,
the Accounts, and SCHWAB as may pertain to the Contracts and this
Agreement shall be maintained so as to clearly and accurately
disclose the nature and details of Contract transactions or any
transactions related thereto.
(c) Any accounts, books, and other records maintained by
GREAT-WEST, at its expense, as agent for the benefit of SCHWAB
shall conform to the requirements of Rules 17a-3 and 17a-4 under
the 1934 Act, and as further amplified in SEC Release 34-8389.
Furthermore, such accounts, books, and other records shall remain
the property of SCHWAB, shall be surrendered promptly to SCHWAB at
its request without charge, and shall at all times be subject to
inspection by SCHWAB, the SEC pursuant to Section 17(a) of the 1934
Act and any other appropriate governmental agency. SCHWAB shall
have responsibility for maintaining the records required of it by
applicable law or regulations with respect to broker-dealer
operations, although, in SCHWAB's discretion and at GREAT-WEST's
expense, SCHWAB may use GREAT-WEST as its agent for this purpose.
(d) Any accounts, books, and other records maintained by SCHWAB,
at its expense, as agent for the benefit of GREAT-WEST or the
Accounts, shall conform to the requirements of Rules 31a-1 and
31a-2 under the 1940 Act or such other SEC requirement as relates
to non-1940 Act products or as required by state insurance
regulators and conveyed to SCHWAB in writing. Furthermore, such
accounts, books, and records shall remain the property of
GREAT-WEST or the Accounts, shall be surrendered promptly to
GREAT-WEST or the Accounts upon request by GREAT-WEST without
charge, and shall at all times be subject to inspection by
GREAT-WEST, whether acting on behalf of itself or the Accounts, the
SEC pursuant to Section 31(b) of the 1940 Act and any other
appropriate governmental agency. GREAT-WEST or the Accounts shall
have responsibility for maintaining the records required of them by
applicable law or regulations with respect to investment company
operations, although, in GREAT-WEST's discretion and at the
Distributor's expense, GREAT-WEST and the Accounts may use SCHWAB
as their agent for this purpose.
(e) Upon the written request of either Party to the other, or upon
termination of this Agreement, a Party shall provide to the other
without charge the originals, if the requesting Party is required
to maintain such originals, or, at the requesting Party's cost,
copies of the accounts, books and other records or electronic
information representing the accounts, books and records if that is
the format in which they are maintained.
SECTION 4. LEGAL COMPLIANCE
4.1 Securities Laws
(a) GREAT-WEST represents and warrants that:
(i) interests in each Account funding any Contract or Contracts
will be registered under the 1933 Act to the extent required by the
1933 Act,
(ii) the Contracts will be duly authorized for issuance and sale in
compliance with all applicable federal and state laws, including,
without limitation, the 1933 Act, the 1934 Act, the 1940 Act and
Colorado law,
(iii) each Account is and will remain registered under the 1940
Act, to the extent required by the 1940 Act,
(iv) each Account does and will comply in all material respects
with the requirements of the 1940 Act and the rules thereunder, to
the extent required,
(v) each Account's 1933 Act registration statement relating to the
Contracts, together with any amendments thereto, will at all times
comply in all material respects with the requirements of the 1933
Act and the rules thereunder,
(vi) GREAT-WEST will amend the registration statement for its
Contracts under the 1933 Act and for its Accounts under the 1940
Act from time to time as required in order to effect the continuous
offering of its Contracts or as may otherwise be required by
applicable law, subject to its right to discontinue or withdraw
from future sale any Contract pursuant to 1.2(b) of this Agreement,
and
(vii) each prospectus for the Contracts, including any statement of
additional information (collectively, as the context requires,
"Contract Prospectus") will at all times comply in all material
respects with the requirements of the 1933 Act and the rules
thereunder.
(b) GREAT-WEST represents and warrants that it will prepare,
print, and deliver, in a timely manner annual and semi-annual
reports for the Accounts, Contract Prospectuses, voting instruction
forms, as required, and related materials to all existing Contract
owners, as appropriate. The costs of preparing and delivering the
foregoing materials shall be borne by GREAT-WEST.
(c) SCHWAB represents and warrants that it is duly registered with
the SEC as a broker-dealer under the 1934 Act, that it is licensed
as a broker-dealer in all 50 states, and that the activities of
SCHWAB and its employees in connection with the offer and sale of
Contracts shall be in compliance with applicable federal and state
securities laws in all material respects.
(d) SCHWAB agrees that neither it nor its employees shall make any
representations concerning the Contracts, except those contained in
or reasonably derived from the Contract Prospectus, registration
statements, annual or semi-annual reports of the Accounts, or in
other written materials prepared by or on behalf of GREAT-WEST.
(e) SCHWAB shall reimburse GREAT-WEST for the cost of printing the
Contract Prospectuses for persons other than existing Contract
owners, and SCHWAB shall pay for all costs of delivering Contract
Prospectuses to such persons.
(f) SCHWAB agrees to execute such papers and do such acts and
things as shall from time to time be reasonably requested by
GREAT-WEST for the purpose of maintaining the registration of the
Contracts under the 1933 Act and any Account under the 1940 Act and
any applicable insurance regulatory authority.
(g) SCHWAB, directly or through GREAT-WEST (at GREAT-WEST's
expense), shall, upon or prior to the completion of each Contract
transaction for which a confirmation is legally required, send a
written confirmation to the Contract owner for each such
transaction, in a form and manner which complies with the
requirements of the 1934 Act, state laws and regulations, and the
disclosure requirements of the NASD. Such confirmations shall be
furnished to all Contract owners in accordance with securities
laws, shall reflect the facts of the transaction, and, if
applicable, shall show that they are being sent by GREAT-WEST on
behalf of SCHWAB. The Parties agree that the form and the manner of
use of confirmations in connection with transactions occurring in
Contract accounts shall be supervised by SCHWAB. GREAT-WEST shall
prepare and distribute such confirmations in accordance with
SCHWAB's instructions. GREAT-WEST shall make no changes or
variations in either the form or the manner of distribution of such
confirmations without the written approval of SCHWAB and shall
cause such confirmations to be issued as directed by SCHWAB and on
behalf of SCHWAB.
(h) GREAT-WEST represents and warrants that it shall prepare,
print, deliver and file with the SEC or other appropriate
regulatory body, or cause the same to be done, as required by law
and in a timely manner, all registration statements, annual and
semi-annual reports, proxies and related materials, and other
documents relating to all underlying investment vehicles to which
Contract owner premiums may be allocated. GREAT-WEST's obligations
in this regard, and the allocation of expenses relating thereto,
shall be delineated in a separate agreement with each underlying
investment vehicle and SCHWAB, to which GREAT-WEST shall be a
party.
4.2 Tax Laws
(a) GREAT-WEST represents and warrants that the Contracts
currently are treated as annuity, endowment, or life insurance
contracts under applicable provisions of the Internal Revenue Code
of 1986, as amended ("Code") and that it will make every effort to
maintain such treatment; GREAT-WEST will notify SCHWAB immediately
upon having a reasonable basis for believing that any of the
Contracts have ceased to be so treated or that they might not be so
treated in the future.
(b) GREAT-WEST represents and warrants that each Account is a
"segregated asset account" and that interests in each Account are
offered exclusively through the purchase of or transfer into a
"variable contract," within the meaning of such terms under Section
817 of the Code and the regulations thereunder to the extent
required by law. GREAT-WEST will make every effort to continue to
meet such definitional requirements, and it will notify SCHWAB
immediately upon having a reasonable basis for believing that such
requirements have ceased to be met or that they might not be met in
the future.
(c) GREAT-WEST agrees to administer the Contracts in a manner that
will comply with all federal and state tax law.
(d) GREAT-WEST agrees to prepare, print, and deliver to Contract
owners, and, to the extent required, file with the Internal Revenue
Service and any other appropriate regulatory body, all reports,
forms, and other information necessary for GREAT-WEST to comply
with applicable federal and state tax law.
4.3 Insurance Laws and Other Laws
(a) GREAT-WEST shall take all actions necessary to the extent
required by law to obtain and maintain all regulatory approvals
required to issue the Contracts for sale in all states. GREAT-WEST
is not currently licensed to do business in New York or Puerto
Rico. It is in the process of establishing a New York subsidiary
through which business could be sold in New York. Schedule 4.3(a)
attached hereto sets out GREAT-WEST's proposed time line for
establishing this subsidiary.
(b) SCHWAB shall take all actions necessary to ensure that it and
its employees are properly licensed and appointed by GREAT-WEST to
sell insurance and annuities in the jurisdictions in which they are
selling and shall execute such papers and do such acts and things
as shall from time to time be reasonably requested by GREAT-WEST
for the purpose of qualifying and maintaining qualification of the
Contracts for sale under the applicable laws of any state.
(c) GREAT-WEST represents and warrants that:
(i) it is an insurance company duly organized, validly existing and
in good standing under the laws of the State of Colorado and has
full corporate power, authority and legal right to execute, deliver
and perform its duties and comply with its obligations under this
Agreement,
(ii) it will legally and validly establish and maintain each
Account as a segregated asset account under C.R.S. 10-7-401, et.
seq. of the Colorado Insurance Code and the regulations thereunder,
and
(iii) the Contracts comply in all material respects with all other
applicable federal and state laws and regulations.
(d) SCHWAB represents and warrants that it is a corporation duly
organized, validly existing, and in good standing under the laws of
the State of California and has full power, authority, and legal
right to execute, deliver, and perform its duties and comply with
its obligations under this Agreement.
(e) SCHWAB represents and warrants that it is a member in good
standing of the NASD and that it has obtained all approvals
necessary to offer the Contracts and otherwise enter into and carry
out all transactions contemplated by this Agreement, has obtained
or will obtain all approvals, licenses, authorizations, orders or
consents, and shall be duly registered and appointed or otherwise
qualified under the securities and insurance laws of any state or
other jurisdiction where offers or sales of the Contracts may be
made.
(f) SCHWAB agrees that it shall be bonded as required by all
applicable laws and regulations. SCHWAB shall be responsible for
carrying out its sales and underwriting obligations hereunder in
continued compliance with applicable NASD Rules of Fair Practice
and federal and state securities laws and regulations and state
insurance laws and regulations.
4.4 Notice of Certain Proceedings and Other Circumstances
(a) GREAT-WEST shall immediately notify SCHWAB of:
(i) the issuance by any court or regulatory body of any stop order,
cease and desist order, or other similar order with respect to any
Contract or to any Account's registration statement under the 1933
Act relating to the Contracts or any Contract Prospectus,
(ii) any request by the SEC or other regulatory body for any
amendment to such registration statement or Contract Prospectus,
(iii) the initiation of any proceeding materially affecting the
offering or sale of the Contracts or the ability of GREAT-WEST to
issue or sell such Contracts,
(iv) any other actions or circumstances that may prevent the
lawful offer or sale of any of the Contracts in any state.
GREAT-WEST shall make every effort to prevent the issuance of any
such stop order, cease and desist order or similar order and, if
any such order is issued, to obtain the lifting thereof at the
earliest possible time.
(b) SCHWAB shall immediately notify GREAT-WEST of:
(i) the issuance by any court or regulatory body of any order
having a material effect with respect to SCHWAB's ability to
perform its obligations hereunder,
(ii) the initiation of any proceeding materially affecting the
offering or sale of the Contracts or the ability of SCHWAB to sell
such Contracts, and
(iii) any other actions or circumstances that may prevent the
lawful offer or sale of any of the Contracts in any state.
(c) SCHWAB shall notify GREAT-WEST within three (3) business days
if it or any of its officers, directors, employees or registered
representatives who are licensed to sell insurance and are
appointed by GREAT-WEST is or becomes subject to any proceedings or
is sanctioned or suspended (i) by the SEC or NASD, (ii) by any
court for securities, insurance or financial institution law
violations, or (iii) by any state regulatory authority.
(d) In the case of an oral or written consumer or regulatory
agency complaint, SCHWAB and GREAT-WEST shall notify the other
within three (3) business days of receipt and shall coordinate and
fully cooperate in responding to such complaints. SCHWAB and
GREAT-WEST shall develop procedures to coordinate, investigate and
respond to such complaints.
4.5 Parties to Cooperate
SCHWAB and GREAT-WEST shall cooperate fully in any insurance or
securities regulatory examination, investigation, or proceeding or
any judicial proceeding with respect to GREAT-WEST, SCHWAB, and
their respective affiliates, agents and representatives to the
extent that such examination, investigation, or proceeding arises
in connection with Contracts distributed under this Agreement.
SCHWAB and GREAT-WEST shall furnish applicable federal and state
regulatory authorities with any information or reports in
connection with its services or sales under this Agreement, which
authorities may lawfully request in order to ascertain whether
GREAT-WEST or SCHWAB sales and operations are being conducted in a
manner consistent with any applicable law or regulations. The
Parties shall, at least 10 business days prior to provision of such
information, notify the other to enable that Party, if it so
desires, to interpose any legal objections to provision of the
reports or information.
4.6 Information About GREAT-WEST and SCHWAB
(a) GREAT-WEST shall provide to SCHWAB or its designated agent at
least one complete copy of all SEC registration statements,
Contract Prospectuses, reports, any required voting instruction
solicitation material, applications for exemptions, requests for
no-action letters, and all amendments to any of the above, that
relate to each Account or the Contracts, at least five (5) business
days prior to the filing of such document with the SEC or other
regulatory authorities for approval.
(b) Neither GREAT-WEST nor any of its affiliates will give any
information or make any representations or statements on behalf of
or concerning SCHWAB or its affiliates in connection with the sale
of the Contracts other than (i) the information or representations
contained in the registration statement, including the Contract
Prospectus contained therein, as such registration statement and
Prospectus may be amended from time to time; or (ii) in reports or
voting instruction solicitation materials for the Accounts; or
(iii) in marketing material prepared by SCHWAB, except with the
express written permission of SCHWAB.
(c) Except with the express written permission of GREAT-WEST,
neither SCHWAB nor any of its affiliates, officers or employees
will give any information or make any representations or statements
on behalf of or concerning GREAT-WEST or its affiliates or the
Contracts or Accounts, in connection with the sale of the Contracts
other than
(i) the information or representations contained in the Contracts,
the registration statement, including the Contract Prospectus
contained therein, as such registration statement and Prospectus
may be amended from time to time, or the Prospectuses of the
underlying funds; or
(ii) in reports or voting instruction solicitation materials for
the Accounts; or
(iii) in marketing material or other material approved or developed
by GREAT-WEST.
SECTION 5. COSTS AND EXPENSES
5.1 GREAT-WEST to Pay Employees
GREAT-WEST shall have the responsibility for paying any
compensation due its employees. GREAT-WEST specifically agrees to
indemnify, hold harmless and defend SCHWAB against any and all
expense, cost, causes of action, liability, loss or damage,
including reasonable attorneys' fees, resulting or arising from or
related to any claim against SCHWAB for compensation allegedly owed
to a GREAT-WEST employee. GREAT-WEST specifically agrees that it
shall not represent to any employee, broker-dealer, or registered
representative that any compensation or fees are payable to them
from SCHWAB.
5.2 SCHWAB to Pay Employees
SCHWAB shall have the responsibility for paying any compensation
due its employees. SCHWAB specifically agrees to indemnify, hold
harmless and defend GREAT-WEST against any and all expense, cost,
causes of action, liability, loss or damage, including reasonable
attorneys' fees, resulting or arising from or related to any claim
against GREAT-WEST for compensation allegedly owed to a SCHWAB
employee. SCHWAB specifically agrees that it shall not represent
to any employee, broker-dealer, or registered representative that
any compensation or fees are payable to them from GREAT-WEST.
5.3 Each Party To Bear Own Costs
Except as otherwise expressly provided, each Party to this
Agreement shall bear all expenses of fulfilling its duties and
obligations hereunder.
SECTION 6. INDEMNIFICATION
6.1 Indemnification by GREAT-WEST
(a) GREAT-WEST shall indemnify and hold harmless SCHWAB against
any loss, liability, claim, damage or expense (including the
reasonable cost of investigating or defending any alleged loss,
liability, claim, damage or expense, and reasonable counsel fees
incurred in connection therewith) arising by reason of any person's
acquiring any Contract, which may be based upon any federal or
state securities act, or on any other statute or at common law,
(i) on the ground that the Contract, offering document,
registration statement or related Contract Prospectus, as from time
to time amended and supplemented, or the annual or interim reports
to Contract owners, any published marketing materials or
communications with any Contract owner or prospective Contract
owner concerning the Contract, include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, if such statement or omission was made in reliance
upon, and in conformity with, information furnished by or on behalf
of GREAT-WEST to SCHWAB; or
(ii) on the ground that GREAT-WEST, its employees, officers, or
directors, failed to comply with any applicable securities or other
laws and regulations in connection with its rendering of Contract
issue, recordkeeping, confirmation or other services under this
Agreement; or
(iii) on the ground of GREAT-WEST's negligence or misconduct, or
that of GREAT-WEST's employees, officers, or directors, in the
performance of its duties hereunder, or breach by GREAT-WEST of any
representation or warranty hereunder.
The indemnities in this Section 6.1 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director,
officer and employee of SCHWAB and any person controlling or
controlled by SCHWAB within the meaning of Section 15 of the 1933
Act or Section 20 of the 1934 Act.
(b) In no case is the indemnity of GREAT-WEST in favor of SCHWAB
and any such controlling or controlled persons to be deemed to
protect SCHWAB or any such controlling or controlled persons
thereof against any liability to GREAT-WEST, or the Accounts or its
Contract owners to which SCHWAB or any such controlling or
controlled persons would otherwise be subject by reason of willful
misfeasance, bad faith or gross negligence in the performance of
its duties or by reason of reckless disregard of its obligations
and duties under this Agreement. In addition, in no case is
GREAT-WEST to be liable under its indemnity agreement contained in
Section 6.1(a) with respect to any claim made against SCHWAB or any
such controlling or controlled persons, unless SCHWAB or such
controlling or controlled persons, as the case may be shall have
notified GREAT-WEST in writing by fax or overnight mail within two
(2) days after the summons or other first legal process giving
information of the nature of the claim shall have been served upon
SCHWAB or such controlling or controlled persons (or after SCHWAB
or such controlling or controlled persons shall have received
notice of such service on any designated agent), but failure to
notify GREAT-WEST of any such claim shall not relieve GREAT-WEST
from any liability which it may have to the person against whom
such action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. GREAT-WEST will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if GREAT-WEST elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to SCHWAB or such controlling or controlled person or
persons, defendant or defendants in the suit. In the event
GREAT-WEST elects to assume the defense of any such suit and
retains such counsel, SCHWAB or such controlling or controlled
person or persons, defendant or defendants in the suit, shall bear
the fees and expense of any additional counsel retained by SCHWAB
or such controlling or controlled person or persons, but, in case
GREAT-WEST does not elect to assume the defense of any such suit,
it will reimburse SCHWAB or such controlling or controlled person
or persons, defendant or defendants in the suit, for the reasonable
fees and expense of any counsel retained by them. GREAT-WEST shall
promptly notify SCHWAB of the commencement of any litigation or
proceedings against GREAT-WEST or any of its officers, directors,
employees or agents in connection with the issuance or sale of the
Contracts.
6.2 Indemnification by SCHWAB
(a) SCHWAB shall indemnify and hold harmless GREAT-WEST and the
Accounts against any loss, liability, claim, damage or expense
(including the reasonable cost of investigating or defending any
alleged loss, liability, claim, damage or expense and reasonable
counsel fees incurred in connection therewith) arising by reason of
any person's acquiring any Contract, which may be based upon any
federal or state securities act, or on any other statute or at
common law:
(i) on the ground that the Contract, offering document,
registration statement or related Contract Prospectus, as from time
to time amended and supplemented, or the annual or interim reports
to Contract owners, any published marketing materials or
communications with any Contract owner or prospective Contract
owner concerning the Contract, include an untrue statement of a
material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein
not misleading, if such statement or omission was made in reliance
upon, and in conformity with, information furnished in connection
therewith by or on behalf of SCHWAB to GREAT-WEST; or
(ii) on the ground that SCHWAB, its employees, officers or
directors failed to comply with any applicable securities or other
laws and regulations in connection with its rendering of Contract
issue, recordkeeping, confirmation or other services under this
Agreement; or
(iii) on the ground of SCHWAB's negligence or misconduct, or that
of SCHWAB's employees, officers or directors, in the performance of
its duties hereunder, or breach of any representation or warranty
hereunder.
The indemnities in this Section 6.2 shall, upon the same terms and
conditions, extend to and inure to the benefit of each director,
officer and employee of GREAT-WEST and any person controlling or
controlled by GREAT-WEST within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act.
(b) In no case is the indemnity of SCHWAB in favor of GREAT-WEST
and any such controlling or controlled persons to be deemed to
protect GREAT-WEST or any such controlling or controlled persons
thereof against any liability to SCHWAB to which GREAT-WEST or any
such controlling or controlled persons would otherwise be subject
by reason of willful misfeasance, bad faith or gross negligence in
the performance of its duties or by reason of reckless disregard of
its obligations and duties under this Agreement. In addition, in no
case is SCHWAB to be liable under its indemnity agreement contained
in Section 6.2(a) with respect to any claim made against GREAT-WEST
or any such controlling or controlled persons, unless GREAT-WEST or
such controlling or controlled persons, as the case may be shall
have notified SCHWAB in writing within two (2) days after the
summons or other first legal process giving information of the
nature of the claim shall have been served upon GREAT-WEST or such
controlling or controlled persons (or after GREAT-WEST or such
controlling or controlled persons shall have received notice of
such service on any designated agent), but failure to notify SCHWAB
of any such claim shall not relieve SCHWAB from any liability which
it may have to the person against whom such action is brought
otherwise than on account of its indemnity agreement contained in
this paragraph. SCHWAB will be entitled to participate at its own
expense in the defense, or, if it so elects, to assume the defense
of any suit brought to enforce any such liability, but if SCHWAB
elects to assume the defense, such defense shall be conducted by
counsel chosen by it and satisfactory to GREAT-WEST or such
controlling or controlled person or persons, defendant or
defendants in the suit. In the event SCHWAB elects to assume the
defense of any such suit and retain such counsel, GREAT-WEST or
such controlling or controlled person or persons, defendant or
defendants in the suit, shall bear the fees and expense of any
additional counsel retained by GREAT-WEST or such controlling or
controlled person or persons, but, in case SCHWAB does not elect to
assume the defense of any such suit, it will reimburse GREAT-WEST
or such controlling or controlled person or persons, defendant or
defendants in the suit, for the reasonable fees and expense of any
counsel retained by them. SCHWAB shall promptly notify GREAT-WEST
of the commencement of any litigation or proceedings against SCHWAB
or any of its officers, directors, employees or agents in
connection with the issuance or sale of the Contracts.
6.3 Limitation on Liability
In no event shall either Party under this Agreement be liable for
lost profits or for exemplary, special, punitive or consequential
damages alleged to have been sustained by the other Party, as
opposed to a third party.
6.4 Injunctive Relief
The Parties each agree that monetary damages may be an inadequate
remedy in the event of a breach by either Party of any of the
covenants in this Agreement, and that any such breach by a Party
may cause the other Party great and irreparable injury and damage.
Accordingly, nothing in this Agreement shall limit a Party's right
to obtain equitable relief when appropriate.
SECTION 7. TERM AND TERMINATION
7.1 Term
This Agreement shall be effective as of the date first above
written and shall remain in full force and effect thereafter,
subject to Section 7.2 below.
7.2 Events of Termination
(a) In addition to the provisions of Section 7.3, this Agreement
shall terminate at either Party's option, without penalty:
(i) with or without cause, on not less than 180 days written notice
to the other Party;
(ii) upon the mutual written consent of the Parties;
(iii) upon written notice of one Party to the other in the event of
bankruptcy or insolvency of the Party to which notice is given; or
(b) This Agreement shall terminate at the option of SCHWAB, in the
event of
(i) fraud, misrepresentation, conversion or unlawful withholding of
funds by GREAT-WEST;
(ii) the dissolution or disqualification of GREAT-WEST to do
business under any applicable state or federal law where
GREAT-WEST's ability to perform is materially impaired; however,
such termination shall extend only to the jurisdiction(s) where
GREAT-WEST is prohibited from doing business;
(iii) the suspension or revocation of any material license or
permit held by GREAT-WEST by the appropriate governmental agency or
authority; however, such termination shall extend only to the
jurisdiction(s) where GREAT-WEST is prohibited from doing business;
(iv) the sale (without the prior written consent of SCHWAB, which
consent shall not be unreasonably withheld) of the GREAT-WEST
business relating to the Contracts, which sale is to an
unaffiliated person or entity, whether by merger, consolidation, or
sale of substantially all of GREAT-WEST's assets or stock related
to the Contracts, during the term of, and any extension of, this
Agreement;
(v) upon institution of formal proceedings against GREAT-WEST by
the NASD, SEC, or any other regulatory body regarding GREAT-WEST's
duties under this Agreement, the sale of the Contracts, or the
operation of any Account, which would materially impair the
marketability of the Contracts, provided that such proceedings
result in a finding of material wrongdoing by GREAT-WEST, or which
result in disqualification from continued membership with the NASD
or registration with the SEC; or
(vi) any termination at the option of SCHWAB of that
certain Administration Agreement of even date herewith between
GREAT-WEST and SCHWAB (the "Administration Agreement") pursuant to
Section 7.2(a)(iii), 7.2(b)(i)-(iv), or 7.3 of the Administration
Agreement.
(c) This Agreement shall terminate at the option of GREAT-WEST, in
the event of:
(i) fraud, misrepresentation, conversion or unlawful withholding of
funds by SCHWAB;
(ii) the dissolution or disqualification of SCHWAB to do business
under any applicable state or federal law where SCHWAB's ability to
perform is materially impaired; however, such termination shall
extend only to the jurisdiction(s) where SCHWAB is prohibited from
doing business;
(iii) the suspension or revocation of any material license or
permit held by SCHWAB by the appropriate governmental agency or
authority; however, such termination shall extend only to the
jurisdiction(s) where SCHWAB is prohibited from doing business;
(iv) the sale (without the prior written consent of GREAT-WEST,
which consent shall not be unreasonably withheld) of SCHWAB's
business to an unaffiliated person or entity, whether by merger,
consolidation, or sale of substantially all of SCHWAB's assets or
stock or otherwise, during the term of, and any extension of, this
Agreement;
(v) upon institution of formal disciplinary proceedings against
SCHWAB by the NASD, SEC, or any other regulatory body, which would
materially impair the marketability of the Contracts, provided that
such proceedings result in a finding of material wrongdoing by
SCHWAB, or which result in disqualification from continued
membership with the NASD or registration with the SEC; or
(vi) any termination at the option of GREAT-WEST of the
Administration Agreement pursuant to Section 7.2(a)(iii),
7.2(c)(i)-(iv), or 7.3 of the Administration Agreement.
7.3 Events of Default
If either Party breaches this Agreement or is in default in the
performance of any of its duties and obligations hereunder (the
"defaulting Party"), the non-defaulting Party may give written
notice thereof to the defaulting Party, and if such breach or
default is not remedied within 90 days after such written notice is
given, then the non-defaulting Party may terminate this Agreement
by giving 90 days written notice of such termination to the
defaulting Party.
7.4 Parties to Cooperate Respecting Termination
The Parties agree to cooperate and give reasonable assistance to
one another in effecting an orderly transition following
termination.
SECTION 8. CONFIDENTIALITY
Subject to the requirements of legal process and regulatory
authority, each Party shall treat as confidential (a) the identity
of existing or prospective Contract owners and the investment
managers enrolled in SCHWAB's Financial Advisor Service Program
("investment managers"), (b) any financial or other information
provided by existing or prospective Contract owners or investment
managers, and (c) any other information reasonably identified as
confidential in writing by any other Party hereto (collectively
"confidential information"). Except as permitted by this Agreement,
no Party shall disclose, disseminate or utilize any confidential
information without the express written consent of the affected
Party until such time as such information may come into the public
domain, except as permitted by this Agreement or as otherwise
necessary to service the Contracts and/or respond to appropriate
regulatory authorities. Each Party shall take all reasonable
precautions to prevent the unauthorized disclosure of any
confidential information. Nothing in this Section 8 shall prevent
SCHWAB from using the confidential information pertaining to
existing or prospective Contract owners for marketing purposes. In
no event shall confidential information pertaining to existing or
prospective Contract owners be furnished by GREAT-WEST to any other
company or person (except as required by law or regulation) or be
used to solicit sales of any kind, including but not limited to any
other products, securities or services for a period of two years
following termination of this Agreement. Without limiting the
foregoing, no Party shall disclose any information that another
Party reasonably considers to be proprietary. For purposes of this
Agreement, proprietary information includes, but is not limited to,
computer system and client information. The intent of this Section
8 is that no Party or any affiliate thereof shall utilize, or
permit to be utilized, its knowledge of the other Party that is
derived as a result of the relationship created by this Agreement
and any related agreements, except to the extent necessary by the
terms of this Agreement or the related agreements.
SECTION 9. ARBITRATION
Any controversy or claim arising out of or relating to this
Agreement, or the breach hereof, shall be settled by arbitration
under the rules of the NASD in effect at that time. If the NASD
refuses jurisdiction, or the Parties mutually agree in writing, the
arbitration procedure described herein shall be used. In either
event, the decision of the arbitrator(s) is final and judgment upon
the award rendered may be entered in any court having jurisdiction
thereof.
To initiate arbitration, either GREAT-WEST or SCHWAB shall notify
the other Party in writing of its desire to arbitrate, stating the
nature of its dispute and the remedy sought. The Party to which the
notice is sent shall respond to the notification in writing within
ten (10) days of its receipt.
The arbitration hearing shall be before a panel of three
arbitrators, each of whom must be (1) a present or former officer
of a life insurance or reinsurance company and/or (2) an officer
and principal of a registered Broker-Dealer. The panel must contain
at least one representative from each of (1) and (2). An
arbitrator may not be a present or former director, officer,
employee, attorney, or consultant of GREAT-WEST or SCHWAB or
either's affiliates.
GREAT-WEST and SCHWAB shall each name five (5) candidates to serve
as an arbitrator. GREAT-WEST and SCHWAB shall each choose one
candidate from the other Party's list, and these two candidates
shall serve as the first two arbitrators. GREAT-WEST and SCHWAB
shall each present their initial lists of five (5) candidates by
written notification to the other Party within twenty-five (25)
days of the date of the mailing of the notification initiating the
arbitration. Any subsequent additions to the list which are
required shall be presented within ten (10) days of the date the
naming Party receives notice that a candidate that has been chosen
declines to serve.
The two arbitrators shall then select the third arbitrator from the
eight (8) candidates remaining on the lists of GREAT-WEST and
SCHWAB within fourteen (14) days of the acceptance of their
positions as arbitrators. If the two arbitrators cannot agree on
the choice of a third, then this choice shall be referred back to
the Parties. GREAT-WEST and SCHWAB shall take turns striking the
name of one of the remaining candidates from the initial eight (8)
candidates until only one candidate remains. If the candidate so
chosen shall decline to serve as the third arbitrator, the
candidate whose name was stricken last shall be nominated as the
third arbitrator. This process shall continue until a candidate has
been chosen and accepted. This candidate shall serve as the third
arbitrator. The first turn at striking the name of a candidate
shall belong to the Party that is responding to the other Party's
initiation of the arbitration. Once chosen, the arbitrators are
empowered to decide all substantive and procedural issues by a
majority of votes.
It is agreed that each of the three arbitrators should be impartial
regarding the dispute. Therefore, at no time will either Party
contact or otherwise communicate with any person who is to be or
who has been designated as a candidate to serve as an arbitrator
concerning the dispute, except upon the basis of jointly drafted
communications provide by both Parties to inform those candidates
actually chosen as arbitrators of the nature and facts of the
dispute. Likewise, any written or oral arguments provided to the
arbitrators concerning the dispute shall be coordinated with the
other Party and shall be provided simultaneously to the other Party
or shall take place in the presence of the other Party. Further, at
no time shall any arbitrator be informed that the arbitrator has
been named or chosen by one Party or the other.
The arbitration hearing shall be held on a date fixed by the
arbitrators. In no event shall this date be later than six (6)
months after the appointment of the third arbitrator. As soon as
possible, the arbitrators shall establish pre-arbitration
procedures as warranted by the facts and issues of the particular
case. At least ten (10) days prior to the arbitration hearing, each
Party shall provide the other Party and the arbitrators with a
detailed statement of the facts and arguments it will present at
the arbitration hearing. The arbitrators may consider any relevant
evidence; they shall give the evidence such weight as they deem it
entitled to after consideration of any objections raised concerning
it. The Party initiating the arbitrations shall have the burden of
proving its case by a preponderance of the evidence. Each Party may
examine any witnesses who testify at the arbitration hearing, the
arbitrators shall apportion the costs of arbitration, which shall
include but not be limited to their own fees and expenses, as they
deem appropriate.
SECTION 10. BONDING AND INSURANCE
Each Party shall maintain sufficient fidelity bond coverage
(including coverage for larceny and embezzlement) and errors and
omissions insurance coverage as may be required by applicable law
or as such Party deems necessary in light of its obligations under
this Agreement.
SECTION 11. NOTICES
Any notice required or permitted to be sent under this Agreement
shall be given to the following persons at the following addresses
and facsimile numbers, or such other persons, addresses or
facsimile numbers as the Party receiving such notices or
communications may subsequently direct in writing:
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
8515 East Orchard Road
Englewood, CO 80111
303-689-4356
Dennis Low
CHARLES SCHWAB & CO., INC.
Office of Corporate Counsel
101 Montgomery Street
San Francisco, CA 94104
415-636-6100
Mary Templeton
SECTION 12. TRADEMARKS
12.1 SCHWAB owns all right, title and interest in and to the name,
trademark and service mark "SCHWAB", and SCHWAB owns (or will own
prior to use) all other tradenames, trademarks and service marks
that may be used by SCHWAB in performing SCHWAB's obligations under
this Agreement (collectively with the "SCHWAB" name, trademark and
service mark, the "SCHWAB licensed marks" or the "licensor's
licensed marks"). SCHWAB hereby grants to GREAT-WEST (including
its affiliates) a non-exclusive license to use the SCHWAB licensed
marks in connection with GREAT-WEST's performance of the services
contemplated under this Agreement subject to the terms and
conditions set forth in this Section 2.
12.2 GREAT-WEST owns all right, title and interest in and to the
name, trademark and service mark "Great-West Life & Annuity
Insurance Company", and GREAT-WEST owns (or will own prior to use)
all other tradenames, trademarks and service marks that may be used
by GREAT-WEST in performing GREAT-WEST's obligations under this
Agreement (collectively with the "Great-West Life & Annuity
Insurance Company" name, trademark and service mark, the
"GREAT-WEST licensed marks" or the "licensor's licensed marks").
GREAT-WEST hereby grants to SCHWAB (including its affiliates) a
non-exclusive license to use the GREAT-WEST licensed marks in
connection with SCHWAB's performance of the services contemplated
by this Agreement, subject to the terms and conditions set forth in
this Section 12.
12.3 The grant of license by SCHWAB and GREAT-WEST (each, a
"licensor") to the other and affiliates thereof (the "licensees")
shall terminate automatically when the Contracts cease to be
outstanding or by either Party at its election upon termination of
this Agreement. Upon automatic termination, each licensee shall
cease to use a licensor's licensed marks. Upon GREAT-WEST's
elective termination of this license, SCHWAB (including its
affiliates) shall immediately cease to distribute promotional,
sales or advertising material relating to any Contract and shall
likewise cease any activity that suggests that it has any right
under the GREAT-WEST licensed marks or that it has any association
with GREAT-WEST or any affiliate of GREAT-WEST in connection with
any such Contracts. Similarly, upon SCHWAB's elective termination
of this license, GREAT-WEST (including its affiliates) shall cease
to issue as soon as reasonably practicable, any new Contracts
bearing any of the SCHWAB licensed marks and shall likewise cease
any activity which suggests that it has any right under any of the
SCHWAB licensed marks or that it has any association with SCHWAB or
any affiliate of SCHWAB, except that GREAT-WEST shall have the
right to administer any outstanding Contracts bearing any of the
SCHWAB licensed marks and in connection therewith to use the SCHWAB
licensed marks.
12.4 Notwithstanding any provision in this Agreement to the
contrary, a licensee shall obtain the prior written approval of the
licensor for the public release by such licensee of any materials
bearing the licensor's licensed marks. The licensor's approval
shall not be unreasonably withheld.
12.5 During the term of this grant of license, a licensor may
request that a licensee submit samples of any materials bearing any
of the licensor's licensed marks that were previously approved by
the licensor but, due to changed circumstances, the licensor may
wish to reconsider, or that were not previously approved in the
manner set forth above. If, on the reconsideration or on initial
review, respectively, any such samples fail to meet with the
written approval of the licensor, then the licensee shall
immediately cease distributing such disapproved materials. The
licensor's approval shall not be unreasonably withheld. The
licensee shall obtain the prior written approval of the licensor
for the use of any new materials developed to replace the
disapproved materials, in the manner set forth above.
12.6 Each licensee hereunder: (i) acknowledges and stipulates that
the licensor's licensed marks are valid and enforceable trademarks
and/or service marks and that such licensee does not own the
licensor's licensed marks and claims no rights therein other than
as a licensee under this Agreement; (ii) agrees never to contend
otherwise in legal proceedings or in other circumstances; and (iii)
acknowledges and agrees that the use of the licensor's licensed
marks pursuant to this grant of license shall inure to the benefit
of the licensor.
SECTION 13. MISCELLANEOUS
13.1 Amendment
This Agreement may be amended at any time by a writing executed by
the Parties.
13.2 Non-Assignment
This Agreement shall not be assigned by either Party without the
prior written consent of the other Party, provided, however, that
GREAT-WEST or SCHWAB may subcontract or assign provision of
services to affiliates or subsidiaries, including Financial
Administrative Services Corporation. Such assignment or
subcontracting does not relieve GREAT-WEST or SCHWAB of any
responsibility with regard to its obligations under this Agreement
for such services.
13.3 Governing Law
This Agreement shall be interpreted in accordance with and governed
by the laws of the State of Colorado.
13.4 Survival of Provisions
Sections 2.1(d), 3.1, 4.4, 4.5, 4.6, 5, 6, 8, 9, 10, 12, and 13.7
shall survive termination of this Agreement.
13.5 Severability
Should any provision of this Agreement be held or made invalid by
a court decision, statute, rule, or otherwise, the remainder of
this Agreement shall not be affected thereby.
13.6 Waiver
Any failure or delay by either Party to enforce at any time any of
the provisions of this Agreement, or to exercise any right or
option which is herein provided, or to require at any time the
performance of any of the provisions hereof, shall in no way be
construed to be a waiver of such provision of this Agreement.
13.7 Right to Audit
GREAT-WEST, its employees or authorized representatives may audit,
inspect and examine at reasonable times, during regular business
hours and with at least 24 hours prior notice, all books and
records of SCHWAB and its agents of all transactions arising under
this Agreement. GREAT-WEST agrees to limit its review of the books
and records to the extent necessary and as often as necessary to
fulfill all contractual obligations to the holders of Contracts, to
comply with all legal and regulatory requirements, to meet the
requirements of GREAT-WEST auditors and to ensure compliance with
this Agreement.
SCHWAB, its employees or authorized representatives may audit,
inspect and examine at reasonable times, during regular business
hours and with at least 24 hours prior notice, all books and
records of GREAT-WEST and its agents of all transactions arising
under this Agreement. SCHWAB agrees to limit its review of the
books and records to the extent necessary and as often as necessary
to fulfill all contractual obligations to the holders of Policies,
to comply with all legal and regulatory requirements, to meet the
requirements of SCHWAB auditors and to ensure compliance with this
Agreement.
13.8 Force Majeure
Neither Party shall be liable for damages due to delay or failure
to perform any obligation under this Agreement where such delay or
failure results directly or indirectly from circumstances beyond
the control and without the fault or negligence of such Party.
13.9 Entire Agreement
This Agreement shall be the sole and only agreement between
GREAT-WEST and SCHWAB regarding the distribution of the Contracts,
and it supersedes all prior and contemporaneous agreements
regarding the distribution of the Contracts. This Agreement may not
be amended, supplemented, or modified, except as expressly
permitted herein, without the written agreement of the Parties.
IN WlTNESS WHEREOF, the Parties hereto have executed this Agreement
as of the day and year first written above.
CHARLES SCHWAB & CO., INC. GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
BY: _/s/ Jeff Benton_____________________ BY:_/s/ Dennis
Low_________________
Jeff Benton Dennis Low
Vice President, Annuities Executive Vice
President, Financial Services
and Life Insurance
BY: /s/ D.C. Lennox________________
D.C. Lennox
Sr. Vice President, General Counsel
and Secretary
SCHEDULE 1
SEPARATE ACCOUNTS OF GREAT-WEST
[INFORMATION TO BE PROVIDED]
SCHEDULE 1.1
CONTRACTS AVAILABLE FOR OFFER AND SALE
1. The Schwab Fixed Annuity. Form J426. Single Premium Deferred
Annuity. Not registered with SEC. Exclusive marketing. The
single premium may be allocated to one or more guaranteed
certificate periods, each with an annual effective credited rate of
not less than 3%. This product may be issued as an IRA or
non-qualified contract. This Contract will no longer be offered
for sale once the Flexible Premium Deferred Market Value Adjusted
Annuity is available for sale.
2. The Schwab Variable Annuity. Form J434. Exclusive marketing.
Registered with SEC. Contributions may be allocated among a number
of investment options. The value of the contributions allocated to
the variable annuity option will vary according to the investment
experience of the investment options. Also, contributions may be
allocated to one or more guaranteed certificate periods. If, prior
to maturity of a certificate, the Contract is surrendered in full
or in part or amounts allocated to a certificate are transferred,
a market value adjustment to the Contract value will be made. The
market value adjustment may be a positive or negative adjustment
based on the results of an indexed calculation. This product may
be issued as an IRA or non-qualified contract.
3. The Schwab Retirement Guarantee Annuity. Form J424. Flexible
Premium Deferred Market Value Adjusted Annuity. Exclusive
marketing. Registered with SEC. Contributions may be allocated to
one or more guaranteed certificate periods. If, prior to maturity
of a certificate, the Contract is surrendered in full or in part or
amounts allocated to a certificate are transferred, a market value
adjustment to the Contract value will be made. The market value
adjustment may be a positive or negative adjustment based on the
results of an indexed calculation. This product may be issued as
an IRA or non-qualified contract.
4. Single Premium Immediate Annuity. Non-exclusive
marketing. Not registered with SEC. Form numbers J249, J250,
J251, J252, J253, J254, J234.
SCHEDULE 4.3(a)
New York Subsidiary Incorporation and Licensing Timeline
All times lines are determined from December 5, 1995, unless
otherwise indicated.
Completion of Incorporation of New York City Company 2 - 3
months
Licensing with Insurance Division 8 - 12
months after
incorporation
Product development and approval Begin with
and
contemporaneous with
licensing
Company Operational 1-1-97
(13 - 15 months)
(Schedule is proposed and estimated and will depend, in a large
degree, upon regulatory processing.)
SADM1002:10/09/96
30
ARTICLES OF REDOMESTICATION
OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLE I
NAME
The name of the corporation is Great-West Life & Annuity Insurance
Company.
ARTICLE II
STATE OF ORIGINAL INCORPORATION
The corporation was originally incorporated as the
National Interment Association on March 28, 1907, in the State of
Kansas. The corporation was authorized to do business as an
insurance company in the State of Kansas on April 24, 1907. On
April 19, 1910, the name of the corporation was changed to the
National Industrial Insurance Company. On September 14, 1956, the
name of
the corporation was changed to Liberty Life & Casualty Company,
Inc. On February 15, 1963, the name of the corporation was changed
to Ranger National Life Insurance Company. On May 29, 1980, the
name of the corporation was changed to Insuramerica Corporation. On
April 6, 1982, the name of the corporation was changed to
Great-West Life & Annuity Insurance Company.
ARTICLE III
PERPETUAL DURATION
The corporation shall have perpetual duration.
ARTICLE IV
PURPOSES
A. The business of the corporation is serving as an
insurance company relating to life, accident, and health insurance
formerly under the laws of the State of Kansas and, upon
redomestication to Colorado, under the laws of the State of
Colorado.
B. The corporation shall have the power to issue both
participating and nonparticipating insurance policies.
C. The corporation may engage in any lawful act or activity
for which corporations may be organized under the Colorado
Corporation Code which are not in conflict with the laws of the
State of Colorado applicable to insurance companies or with the
Regulations of the Colorado Commissioner of Insurance.
D. The purpose for which the corporation is being
redomesticated is to carry on, under the laws of the State of
Colorado, the business for which it was incorporated under the laws
of the State of Kansas.
ARTICLE V
REGISTERED OFFICE AND REGISTERED AGENT
The registered office is at 8515 E. Orchard Road,
Englewood, Colorado 80111. The registered agent is Ruth B. Lurie at
said address.
ARTICLE VI
NAMES AND ADDRESSES OF DIRECTORS AND OFFICERS
The following persons shall serve as the directors on the
date
of the redomestication of the corporation.
Frank J. Becker `
2818 West Central
El Dorado, Kansas 67042
Martin B. Dickinson, Jr.
1211 Massachusetts
Lawrence, Kansas 66044
George R. Dinney
2232 Ridge Plaza
Castle Rock, Colorado 80104
Dawn H. Grohs
225 N. Market, Suite 200
Wichita, Kansas 67201
Nelson L. Hartman
520 West 27th
Topeka, Kansas 66601
Kevin P. Kavanagh
100 Osborne North
Winnipeg, Manitoba
Canada R3C 3A5
2
William T. McCallum
8515 E. Orchard Road
Englewood, Colorado 80111
The following persons shall serve as officers on the date
of
the redomestication of the corporation.
William T. McCallum
President and Chief Executive Officer
8515 E. Orchard Road
Englewood, Colorado 80111
David E. Morrison
Senior Vice President and Actuary
100 Osborne North
Winnipeg, Manitoba,
Canada R3C 3A5
Glen R. Derback
Senior Vice President and Treasurer
8515 E. Orchard Road
Englewood, Colorado 80111
John T. Hughes
Sr. V.P., Chief Investment Officer
8515 E. Orchard Road
Englewood, Colorado 80111
D. Craig Lennox
Sr. V. P., General Counsel and Secretary
100 Osborne Street North
Winnipeg, Manitoba,
Canada R3C 3A5
Dennis Low
Senior Vice President, Individual
8515 E. Orchard Road
Englewood, Colorado 80111
Graham R. McDonald
Senior Vice President
8505 E. Orchard Road
Englewood, Colorado 80111
Edward J. Ransby
Senior Vice President, Capital Markets
& Pension Investments
100 Osborne Street North
Winnipeg, Manitoba
Canada R3C 3A5
ARTICLE VII
CUMULATIVE VOTING IN THE ELECTION OF DIRECTORS
Cumulative voting is not allowed in the election of Directors.
3
ARTICLE VIII
PREEMPTIVE RIGHTS FOR SHAREHOLDERS
Ownership of shares of any class of the capital stock of
the
corporation shall not entitle the holders thereof to any preemptive
right to subscribe for or purchase or to have offered to them for
subscription or purchase any additional shares of capital stock of
any class of the corporation or any securities convertible into any
class of capital stock of the corporation, however acquired,
issued, or sold by the corporation, it being the purpose and the
intent that the Board of Directors shall have full right, power,
and authority to offer for subscription or sale or to make any
disposal of any or all unissued shares of the capital stock of the
corporation or any securities convertible into stock or any or all
shares of stock or convertible securities issued and thereafter
acquired by the corporation, for such consideration, not less than
the par value of shares having a par value, in money or property,
as the Board of Directors shall determine.
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The corporation is authorized to issue 5,000,000 shares of
common stock of a par value of $1 (one dollar) per share.
ARTICLE X
PERSONAL LIABILITY OF DIRECTORS
No director of this corporation shall have any personal
liability for monetary damages to the corporation or its
shareholders for breach of his/her fiduciary duty as a director
except that this provision shall not eliminate or limit the
liability of a director to the corporation or its shareholders for
monetary damages for (i) any breach of the director's duty of
loyalty to the corporation or its shareholders, (ii) acts or
omissions not in good faith or which involve intentional misconduct
or a knowing violation of law, (iii) payment of a dividend or
approval of a stock repurchase in contravention of C.R.S. Section 7-5-
114, or (iv) any transaction from which the director derives an
improper personal benefit.
ARTICLE XI
GOVERNING LAW
Upon redomestication of the corporation to the State of
Colorado, the corporation accepts and will be subject to the laws
of the State of Colorado.
4
ARTICLE XII
EFFECTIVE DATE, AMENDMENT AND RESTATEMENT
These Articles of Redomestication become effective
immediately
upon the redomestication of the corporation to the State of
Colorado. They thereafter constitute an amendment and restatement
of all prior Articles of Incorporation of Great West Life & Annuity
Insurance Company under the laws of the State of Kansas.
ARTICLE XIII
SIGNATURES
These Articles of Redomestication are executed on behalf
of
the corporation by its President and its Secretary as evidenced by
their signatures appearing below.
Dated: August 23. 1990
ATTEST:
D. Craig Lennox, Secretary
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
BY:
William T. McCallum, President
These Articles of Redomestication are verified by the
signatures of the President and Secretary of the Corporation as
provided in the Colorado Corporation Code.
RBL0745C. FIN
5
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corpora-
tion") hereby adopts the following Articles of Amendment to
its
Articles of Redomestication:
FIRST: the name of the Corporation is Great-West Life
& Annuity Insurance Company.
SECOND: the amendment set forth on Exhibit A attached
hereto was adopted by a vote of the sole shareholder of the
Corp-
oration on December 6, 1990. The number of shares voted for
the
Amendment was sufficient for approval.
THIRD: the amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corpo-
ration.
FOURTH: the amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: December 6, 1990 By:
William T. McCallum, its
Presi-
dent & Chief; Executive
Officer
By:
Craig Lennox, its Senior
Vice
President, General Counsel
and
Secretary
STATE OF COLORADO )
COUNTY OF ) ss.
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President and Chief Executive Officer of Great-
West Life & Annuity Insurance Company, a Colorado corporation,
and that he signed the foregoing Articles of Amendment to Arti-
cles of Redomestication as his voluntary act and deed, and that
the facts contained therein are true.
In witness whereof, I have hereunto set my hand and
seal this 6th day of December, 1990.
My commission expires:
2
l
Great-West Life & Annuity Insurance Company hereby
amends and restates ARTICLE IX of its Articles of
Redomestication
to read in its entirety as follows:
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital
stock which the corporation is authorized to issue is
100,000,000
shares, of which 50,000,000 shares shall be Common Stock,
of a
par value of $1 (one dollar) per share (the "Common
Stock"), and
50,000,000 shares shall be Preferred Stock, of a par value
of $1
(one dollar) per share (the "Preferred Stock").
A. COMMON STOCK
The powers, designations, preferences and relative,
participating, optional or other special rights (and the
quali-
fications, limitations or restrictions thereof) in respect
of the
Common Stock are as follows:
1. Rank. The Common Stock shall rank junior to the
Preferred Stock with respect to payment of dividends and
distri-
butions on liquidation or dissolution and shall have such
other
qualifications, limitations or restrictions as provided in
this
Article IX.
2. Voting Rights. Except as otherwise expressly pro-
vided by law or as provided for any series of Preferred
Stock by
the board of directors of the corporation in accordance
with this
Article IX, all voting rights shall be vested in the
holders of
shares of the Common Stock, and at every meeting of
stockholders
of the corporation (or with respect to any action by
written
consent in lieu of a meeting of stockholders), each share
of
Common Stock shall be entitled to one vote (whether voted
in
person by the holder thereof or by proxy or pursuant to a
stock-
holders' consent) on all matters to come before such
meeting of
the stockholders of the corporation.
3. Dividend and Liquidation Preference as between the
Common Stock and the Preferred Stock. For so long as any
shares
of Preferred Stock are outstanding, the corporation shall
not
declare, pay or set apart for payment any dividend or other
distribution (other than any dividend or distribution
payable
solely in shares of Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to
dividends and liquidation) in respect of the Common Stock
or any
other stock of the corporation ranking junior to the shares
of
Preferred Stock as to dividends or upon liquidation, or
call for
redemption, redeem, purchase or otherwise acquire for
consider-
ation any shares of the Common Stock or any other stock of
the
corporation ranking junior to the shares of Preferred Stock as to
dividends or upon liquidation, unless (i) full cumulative
dividends on all shares of Preferred Stock for all past dividend
periods have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment of
such dividends, and (ii) the corporation has redeemed the full
number of shares of Preferred Stock, if any, it is then obligated
to redeem in accordance with the terms of any series of Preferred
Stock as fixed by the board of directors of the corporation in
accordance with this Article IX.
4. Assets Remaining After Liquidation. In the event
of the dissolution, liquidation or winding up of the corporation,
whether voluntary or involuntary, after payment in full of the
amounts, if any, required to be paid to the holders of the Pre-
ferred Stock, the holders of shares of the Common Stock shall be
entitled, to the exclusion of the holders of shares of the Pre-
ferred Stock, to share ratably in all remaining assets of the
corporation.
B. PREFERRED STOCK
1. The Preferred Stock may be divided into and issued
in series. The board of directors of the corporation is autho-
rized to divide the authorized shares of Preferred Stock into one
or more series, each of which shall be so designated as to dis-
tinguish the shares thereof from the shares of all other series
and classes. The board of directors of the corporation is
authorized, within any limitations prescribed by law and this
Article IX, to fix and determine the designations, rights, quali-
fications, preferences, limitations and terms of the shares of
any series of Preferred Stock including but not limited to the
following:
(a) The rate of dividend, the time of payment of
dividends, whether dividends are cumulative, and the date
from which any dividends shall accrue;
(b) Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption;
(c) The amount payable upon shares in event of invol-
untary liquidation;
(d) The amount payable upon shares in event of volun-
tary liquidation;
(e) Sinking fund or other provisions, if any, for the
redemption or purchase of shares;
(f) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion;
2
(g) Voting powers, if any; and
(h) Such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as
the board of directors of the corporation may, at the time
so acting, lawfully fix and determine under the laws of the
State of Colorado.
2. No Dividend Preference Between Series of Preferred
Stock. No dividends shall be declared on shares of any series of
Preferred Stock for any dividend period or part thereof unless
full cumulative dividends have been or contemporaneously are
declared on the shares of each other series of Preferred Stock
through the most recent dividend payment date for each such other
series. If at any time any accrued dividends on shares of any
series of Preferred Stock have not been paid in full, then the
corporation will, if paying any dividends on any shares of any
series of Preferred Stock, pay dividends on shares of all series
of Preferred Stock pro rata in proportion to the sums which would
be payable on such series if all accrued but unpaid dividends, if
any, were declared and paid in full. Dividends on any series of
Preferred Stock shall be cumulative only to the extent provided
in the terms of that series.
3. Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, holders of shares
of any series of Preferred Stock shall be entitled to receive,
out of the assets of the corporation available for distribution
to stockholders after satisfying claims of creditors but before
any payment or distribution on the Common Stock or on any other
class of stock ranking junior to the shares of Preferred Stock
upon liquidation, a liquidation distribution per share in the
amount of the liquidation preference fixed or determined in
accordance with the terms of the shares of such series of Pre-
ferred Stock plus, if so provided in such terms, an amount equal
to accumulated and unpaid dividends on each share of such series
(whether or not earned or declared) to the date of such dis-
tribution. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the assets of the
corporation are insufficient to pay in full the holders of shares
of any series of Preferred Stock the preferential amount to which
they are entitled, holders of shares of all series of Preferred
Stock will share ratably in any such distribution of such assets
in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full.
Unless and until payment in full has been made to holders of
shares of all series of Preferred Stock of the liquidation dis-
tributions to which they are entitled as provided in this Article
IX, no dividends or distributions will be made to holders of the
Common Stock or any other stock ranking junior to the shares of
any series of Preferred Stock on liquidation and no purchase,
3
redemption or other acquisition for any consideration by the
corporation will be made in respect of the Common Stock or any
stock ranking junior to the shares of any series of Preferred
Stock upon liquidation. After the payment to all holders of
series of Preferred Stock of the full amount of the liquidation
distributions to which they are entitled pursuant to the
preceding sentences, such holders (in their capacity as such
holders) shall have no right or claim to any of the remaining
assets of the corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the corporation, nor the con-
solidation or merger of the corporation with or into any other
entity, nor the merger or consolidation of any other entity with
or into the corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the
purposes of this Article IX.
4. Conversion Rights. Preferred Stock of any series
may be convertible into shares of any other class or into shares
of any series of the same or any other class, except as may
otherwise be limited by law, if the terms and conditions of such
conversion are fixed and determined by the board of directors of
the corporation in establishing such series of Preferred Stock.
5. Dividend Rate Periods of the Preferred Stock. The
periods during which a dividend rate would be applicable for any
series of the Preferred Stock shall be determined in accordance
with the terms of that series. Such terms may provide that the
board of directors of the corporation shall have the discretion
to establish the duration of the period during which a dividend
rate would be applicable. Such terms may provide that a dividend
rate may be applicable during all or part of the time any shares
of such series are outstanding. If a dividend rate is applicable
during only part of the time any shares of a series are
outstanding, such terms may provide that the board of directors
of the corporation may select, from time to time, one or more
subsequent time periods of the same or varying lengths during
which a dividend rate will be applicable; provided, that the
board of directors of the corporation at the time of establishing
such series shall state in the terms of such series a minimum and
a maximum length for such time periods.
6. Redemption Provisions. (a) Shares of any series
of the Preferred Stock shall be subject to the right of the
corporation to redeem any of such shares if so provided in the
terms of such series. Such terms may provide that the board of
directors of the corporation may change from time to time, the
redemption terms and conditions, including the redemption price,
for shares of such series, provided, that the board of directors
of the corporation at the time of establishing such series shall
4
state in the terms of such series a minimum and a maximum
redemption price.
(b) The corporation shall not purchase or otherwise
acquire any shares of any series of Preferred Stock while any
accumulated and unpaid dividends exist with respect to such
series or any other series of Preferred Stock, unless
contemporaneously with such purchase or acquisition such
accumulated and unpaid dividends are (i) paid or (ii) declared
and a sum sufficient irrevocably deposited with the paying agent
for payment of such dividends; provided, however, that (a) the
corporation may redeem shares of any series of Preferred Stock in
accordance with the terms of such series, and (b) the corporation
may purchase or otherwise acquire shares pursuant to a voluntary
purchase or exchange offer made on an equal basis to all holders
of shares of all series of Preferred Stock.
5
<PAGE>
EXHIBIT A
1. Creation and Designation of Series.
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates four series
of Stated Rate Auction Preferred Stock ("STRAPS"). The four
series are designated as follows: "Stated Rate Auction Preferred
Stock, Series A," consisting of 1,500 shares ("Series A STRAPS"),
"Stated Rate Auction Preferred Stock, Series B," consisting of
1,500 shares ("Series B STRAPS"), "Stated Rate Auction Preferred
Stock, Series C," consisting of 1,500 shares ("Series C STRAPS")
and "Stated Rate Auction Preferred Stock, Series D," consisting
of 1,500 shares ("Series D STRAPS"). Each share of Series A
STRAPS shall be identical and equal in all respects to every
other share of Series A STRAPS, each share of Series B STRAPS,
shall be identical and equal in all respects to every other share
of Series B STRAPS, each share of Series C STRAPS shall be
identical and equal in all respects to every other share of
Series C STRAPS, each share of Series D STRAPS shall be identical
and equal in all respects to every other share of Series D
STRAPS, and the shares of Series A STRAPS, Series B STRAPS,
Series C STRAPS and Series D STRAPS shall, except as expressly
provided in this Statement of Designation, be identical and equal
in all respects. The Series A STRAPS, Series B STRAPS, Series C
STRAPS and Series D STRAPS shall be subject to and governed by
the provisions of the Articles of Redomestication of the
Corporation as amended from time to time in accordance with
applicable law (including, but not limited to, the provisions of
the Articles of Redomestication concerning dividend and liquida-
tion preferences).
2. Definitions.
Unless the context or use indicates another or
different meaning, the following terms shall have the following
meanings, whether used in the singular or plural:
"Affiliate", as used in paragraphs 1 through 7, means
any entity other than the Corporation (i) which owns
beneficially, directly or indirectly, 10% or more of the
outstanding shares of the Common Stock, (ii) which is in control
of the Corporation, as "control" is defined under Section 230.405
of the Rules and Regulations of the Securities and Exchange
Commission, 17 C.F.R. S 230.405, as in effect on the date of this
Statement of Designation, (iii) of which 10% of more of the
outstanding shares of Common Stock, or in which a 10% or greater
general partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any entity described in
clause (i) or (ii) above, or (iv) which is controlled by any
entity described in clause (i) or (ii) above, as "controlled by"
is defined under such Section 230.405.
"Applicable Rate" has the meaning specified in
paragraph 3(c)(i) below.
"Applicable Treasury Rate" on any date, with respect to
any series of STRAPS with a Long-Term Dividend Period, means the
interest equivalent of the rate for direct obligations of the
United States Treasury having an original maturity which is equal
to, or next lower than, the length of such Long-Term Dividend
Period, as published weekly by the Federal Reserve Board in
"Federal Reserve Statistical Release H.15 (519)--Selected
Interest Rates," or any successor publication by the Federal
Reserve Board within five Business Days preceding such date. In
the event that the Federal Reserve Board does not publish such
weekly per annum interest rate, or if the release is not yet
available, the Applicable Treasury Rate will be the arithmetic
mean of the secondary market bid rates as of approximately
3:30 p.m., New York City time, on the Business Day next preceding
such date of the U.S. Government Securities Dealers obtained by
the Auction Agent (in the case of a determination of the
Applicable Treasury Rate on any Auction Date) or the Corporation
(in the case of a determination of such rate on any other day)
for the issue of United States Treasury Bills with a remaining
maturity equal to, or next lower than, the length of such Long-
Term Dividend Period. If any U.S. Government Securities Dealer
does not quote a rate required to determine the Applicable
Treasury Rate, the Applicable Treasury Rate shall be determined
on the basis of the quotation or quotations furnished by the
remaining U.S. Government Securities Dealer or U.S. Government
Securities Dealers and any Substitute U.S. Government Securities
Dealer or Substitute U.S. Government Securities Dealers selected
by the Corporation to provide such rate or rates not being
supplied by any U.S. Government Securities Dealer or
Government Securities Dealers, as the case may be, or, if the
Corporation does not select any such Substitute U.S. Government
Securities Dealer or Substitute U.S. Government Securities
Dealers, by the remaining U.S. Government Securities Dealer or
U.S. Government Securities Dealers; provided that, in the event
the Corporation is unable to cause such quotations to be
furnished to the Auction Agent, (or, if applicable, to the
Corporation) by such sources, the Corporation may cause the
Applicable Treasury Rate to be furnished to the Auction Agent
(or, if applicable, the Corporation) by such alternative source
or sources as the Corporation in good faith deems to be reliable.
For purposes of this definition, the n interest equivalent" of a
rate stated on a discount basis shall be equal to the quotient of
(A) the discount rate divided by (B) the difference between 1.00
and the discount rate.
2
"Auction" means each periodic operation of the Auction
Procedures.
"Auction Agent" means the bank or trust company
appointed as auction agent by a resolution of the Board of
Directors.
"Auction Date" has the meaning specified in
paragraph 8(a) below.
"Auction Procedures" means the procedures set forth in
paragraph 8 below.
"Board of Directors" means the Board of Directors of
the Corporation.
"Business Day" means a day on which the New York Stock
Exchange is open for trading and which is not a Saturday, Sunday
or other day on which commercial banks in The City of New York
are authorized or required by law to close.
"Code" means the Internal Revenue Code of 1986, as
amended.
"Commercial Paper Dealers" means Goldman, Sachs & Co.,
Shearson Lehman Brothers Inc. and Merrill Lynch, Pierce, Fenner &
Smith Incorporated, or in lieu of any thereof, their respective
affiliates or successors, provided that such entity is then a
commercial paper dealer.
"Common Stock" means the common stock, par value $1.00,
of the Corporation.
"Cut-Off Date" means the last day of the first taxable
year of the Corporation as of which the accumulated earnings and
profits of the Corporation, as calculated for federal income tax
purposes, exceed three times the aggregate amount of all
distributions on the STRAPS for such taxable year.
"Date of Original Issue" means the date on which the
Corporation originally issues the shares of STRAPS.
"Default in Preferred Stock Dividends" has the meaning
specified in paragraph 6(c) below.
"Dividend Payment Date" has the meaning specified in
paragraph 3 (b) (vi) below.
"Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
3
"Dividend Period Days has the meaning specified in
paragraph 3 (b) (ix) below.
"Dividend Quarter" has the meaning specified in
paragraph 3 (b) (vi) below.
"Dividends Received Deduction" means, with respect to
any share of STRAPS and any dividend paid thereon to the Holder
of such share, the deduction generally allowed to a corporate
holder of stock in a taxable domestic business corporation in
computing such Holder's taxable income for purposes of the
regular federal corporate income tax under section 243(a)(1) of
the Code, or any successor provision, equal to a percentage rate
multiplied by the dividends (as defined in section 316(a) of the
Code) received on such stock, determined (1) without regard to
the amount of the issuer's stock owned by such Holder and (2)
assuming that any limitations on such deduction based on the
facts or circumstances relating to particular Holders (such as
limitations based on a minimum holding period, the allocation of
interest expense or debt to the purchase of stock, or the
Holder's taxable income or status as a taxpayer) do not apply.
"Eight-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Failure to Deposit" means the failure by the
Corporation to pay to the Paying Agent, not later than noon (A)
on the Business Day next preceding any Dividend Payment Date in
funds available on such Dividend Payment Date in the City of New
York, New York, the full amount of any dividend (whether or not
earned or declared) to be paid on such Dividend Payment Date on
any shares of STRAPS or (B) on the Business Day next preceding
any redemption date in funds available on such redemption date in
the City of New York, New York, the Redemption Price of any
shares of STRAPS to be redeemed on such redemption date, plus
accumulated and unpaid dividends thereon to the redemption date.
In the event that the Corporation is acting as the Paying Agent,
Failure to Deposit shall mean that the Corporation has not, on
the applicable Dividend Payment Date for any Series of STRAPS,
deposited with the United States Postal Service for delivery by
first class mail, postage prepaid, to the registered holders of
the STRAPS, the dividend payment checks with respect to such
Dividend Payment Date.
"Five-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Four-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Gross-Up Payment" means a payment to a Qualified
Investor of an amount which, when taken together with the
4
aggregate Non-Qualifying Distributions paid to such Qualified
Investor during any taxable year ending on or before the Cut-Off
Date, would cause such Qualified Investor's net yield in dollars
(after federal income tax consequences and treating, for purposes
of calculating net yield in dollars, that portion of the Non-
Qualifying Distributions otherwise treated as a return of capital
as capital gain received upon the taxable sales of shares of
STRAPS at the time of such Non-Qualifying Distributions) from the
aggregate of both the Non-Qualifying Distribution and the Gross-
Up Payment to be equal to the net yield in dollars (after federal
income tax consequences) which would have been received by such
Qualified Investor if the amount of the aggregate Non-Qualifying
Distributions treated as a return of capital had instead been
treated as a dividend for federal income tax purposes. Such
Gross-Up Payments shall be calculated (1) without consideration
being given to the time value of money, (2) assuming that no
federal minimum tax or similar tax is imposed with respect to
dividends received from the Corporation, and (3) assuming that
the Qualified Investor is taxable at all times at the maximum
marginal regular federal income tax rate applicable to
corporations in effect during the taxable year in question on the
Non-Qualifying Distributions and the Gross-Up Payment and is able
to take full advantage of the Dividends Received Deduction with
respect to dividends received from the Corporation.
"Holder" means an individual or entity in whose name an
outstanding share of STRAPS is registered on the Stock Books.
"Holders' Dividend Period Notice" has the meaning
specified in paragraph 3 (b) (viii) (B) below.
"Initial Long-Term Dividend Period" means, with respect
to each of the Series A STRAPS, the Series B STRAPS, the Series C
STRAPS and the Series D STRAPS, the period from and including the
Date of Original Issue to and excluding December 31, 1993.
"Long-Term Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Maximum Rate" has the meaning specified in
paragraph 8(a) below.
"Minimum Holding Period" has the meaning specified in
paragraph 3 (b) ( ix) below.
"Moody's" means Moody' 8 Investors Service or any
successor thereto.
"Nine-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
5
"Non-Qualifying Distribution" means a distribution on
the shares of STRAPS with respect to any fiscal year of the
Corporation ended on or before the Cut-Off Date that constitutes,
in whole or in part, a return of capital.
"Normal Dividend Payment Date" has the meaning
specified in paragraph 3 (b) (ii) below.
"Notice of Dividend Period" has the meaning specified
in paragraph 3 (b) (viii) below.
"Notice of Redemption" has the meaning specified in
paragraph 5(e) below.
"Notice of Revocation" has the meaning specified in
paragraph 3 (b) (viii) below.
"One-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"Paying Agent" means the bank or trust company that has
been appointed as paying agent by a resolution of the Board of
Directors, or, if the Corporation shall have elected not to
appoint a bank or trust company as Paying Agent for the initial
Dividend Period with respect to any series of STRAPS, the
Corporation.
"Qualified Investor" means a Holder that is or was a
Holder of the shares of STRAPS of any Series on the record date
for a Non-Qualifying Distribution.
"Rating Agencies," on any date of determination, means
(i) each of Moody's and Standard & Poor's, or (ii) if only one of
such rating agencies is then rating the shares of STRAPS, such
rating agency, or (iii) if neither of such rating agencies is
then rating the shares of STRAPS, any nationally recognized
statistical rating organization designated by the Corporation
with the consent of Goldman, Sachs & Co. provided such consent is
not unreasonably withheld.
"Securities Depository" has the meaning specified in
paragraph 8(a) below.
"Seven-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii ) below.
"Short-Term Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Six-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
6
"Standard & Poor's" means Standard & Poor's Corporation
or any successor thereto.
"Stock Books" means the stock transfer books of the
Corporation maintained by the Paying Agent with respect to the
shares of STRAPS.
"Substitute Commercial Paper Dealers" means The First
Boston Corporation or Morgan Stanley & Co. Incorporated, or in
lieu thereof, their respective affiliates or successors, provided
that such entity is then a commercial paper dealer.
"Substitute U.S. Government Securities Dealers" means
The First Boston Corporation and Morgan Stanley & Co.
Incorporated, or in lieu thereof, their respective affiliates or
successors, provided that such entity is then a U.S. government
securities dealer.
"Ten-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"Thirty-Year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Three-year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii ) below.
"Twenty-year Dividend Period" has the meaning specified
in paragraph 3 (b) (vii) below.
"Two-Year Dividend Period" has the meaning specified in
paragraph 3 (b) (vii) below.
"U.S. Government Securities Dealers" means Goldman,
Sachs & Co., Shearson Lehman Government Securities Incorporated,
Salomon Brothers Inc and Morgan Guaranty Trust Company of New
York, or in lieu of any thereof, their respective affiliates or
successors, provided that such entity is then a government
securities dealer.
"Voting Parity Preferred Stock" has the meaning
specified in paragraph 6(c) below.
"Voting Period" has the meaning specified in paragraph
"60-day "AA" Composite Commercial Paper Rate," on any
date, means (i) the interest equivalent of the 60-day rate on
commercial paper placed on behalf of issuers whose corporate
bonds are rated AA by Standard & Poor's, or the equivalent of
such rating by another nationally recognized statistical rating
organization, as such 60-day rate is made available on a discount
7
basis or otherwise by the Federal Reserve Bank of New York for
the Business Day immediately preceding such date, or (ii) in the
event that the Federal Reserve Bank of New York does not make
available such a rate, then the arithmetic average of the
interest equivalent of the 60-day rate on commercial paper placed
on behalf of such issuers, as quoted on a discount basis or
otherwise by the Commercial Paper Dealers to the Auction Agent
(in the case of determination of the 60-day "AA" Composite
Commercial Paper Rate on any Auction Date) or the Corporation (in
the case of determination of such rate on any other day) as of
the close of business on the Business Day immediately preceding
such date. If any of the Commercial Paper Dealers do not quote a
rate required to determine the 60-day "AA" Composite Commercial
Paper Rate, such 60-day "AA" Composite Commercial Paper Rate
shall be determined on the basis of the quotations or quotations
furnished by the remaining Commercial Paper Dealers or Commercial
Paper Dealer and any Substitute Commercial Paper Dealers or
Substitute Commercial Paper Dealer selected by the Corporation to
provide such quotation not being supplied by any Commercial Paper
Dealer or, if the Corporation does not select any such Substitute
Commercial Paper Dealer or Substitute Commercial Paper Dealers,
by the remaining Commercial Paper Dealers or Commercial Paper
Dealer; provided that, in the event the Corporation is unable to
cause such quotations to be furnished to the Auction Agent (or,
if applicable, to the Corporation) by such sources, the
Corporation may cause the 60-day "AA" Composite Commercial Paper
Rate to be furnished to the Auction Agent (or, if applicable, to
the Corporation) by such alternative source or sources as the
Corporation in good faith deems to be reliable. If the Board of
Directors shall adjust the number of days in a Short-Term
Dividend Period pursuant to paragraph (3)(b)(ix) below, then
(i) if the number of days in a Short-Term Dividend Period after
such adjustment shall be fewer than 70 days, such rate shall be
the interest equivalent of the 60-day rate on such commercial
paper, (ii) if the number of days in a Short-Term Dividend Period
after such adjustment shall be 70 or more days but fewer than 85
days, such rate shall be the arithmetic average of the interest
equivalent of the 60-day and 90-day rates on such commercial
paper, (iii) if the number of days in a Short-Term Dividend
Period shall be 85 or more days but fewer than 99 days, such rate
shall be the interest equivalent of the 90-day rate on such
commercial paper, and (iv) if the number of days in a Short-Term
Dividend Period after such adjustment shall be 99 or more days,
such rate shall be determined on the basis of the interest
equivalent of such commercial paper with a maturity (or an
average maturity of such commercial paper with different
maturities) as nearly as practicable equal to such number of days
in a Short-Term Dividend Period, as determined by the Corporation
in good faith. For purposes of this definition, the "interest
equivalent" of a rate stated on a discount basis shall be equal
to the quotient of (A) the discount rate divided by (B) the
difference between (x) 1.00 and (y) a fraction the numerator of
8
which shall be the product of the discount rate times the number
of days in which such commercial paper matures and the
denominator of which shall be 360.
3. Dividends.
(a) Holders of shares of STRAPS shall be entitled to
receive, when, as and if declared by the Board of Directors, out
of funds legally available therefor, cumulative cash dividends at
the applicable dividend rate determined as set forth in
paragraph 3(c)(i) below, and no more, payable on the respective
dates set forth below. Accrued and unpaid dividends shall not
bear interest.
(b) (i) Dividends on the shares of each series of
STRAPS shall accumulate at the respective Applicable Rates
for such series (whether or not declared) from the Date of
Original Issue.
(ii) During the Initial Long Term Dividend Period,
dividends on the shares of each series of STRAPS shall be
payable quarterly on the last day of each March, June,
September and December of each year, commencing December 31,
1991, and the last dividend during this Period will be
payable on December 30, 1993, unless any such date is not a
Business Day, in which case, dividends on the STRAPS will be
payable on the next succeeding Business Day. Thereafter,
dividends on the shares of each series of STRAPS with a
Short-Term Dividend Period shall be payable, except as
provided below in this paragraph 3(b), on the seventh
Thursday following the immediately preceding Dividend
Payment Date for such series, and dividends on the shares of
each series of STRAPS with a Long-Term Dividend Period shall
be payable, except as provided below in this paragraph 3(b),
on the first day of the fourth month after the commencement
of such Long-Term Dividend Period, on the first day of each
succeeding third month thereafter and on the 49th (in the
case of a One-Year Dividend Period), 102nd (in the case of a
Two-Year Dividend Period), 158th (in the case of a Three-
Year Dividend Period), 206th (in the case of a Four-Year
Dividend Period), 259th (in the case of a Five-Year Dividend
Period), 310th (in the case of a Six-Year Dividend Period),
364th (in the case of a Seven-Year Dividend Period), 416th
(in the case of an Eight-Year Dividend Period), 468th (in
the case of a Nine-Year Dividend Period), 520th (in the case
of a Ten-Year Dividend Period), 1040th (in the case of a
Twenty-Year Dividend Period), or 1560th (in the case of a
Thirty-Year Dividend Period) Thursday after the commencement of
such Long-Term Dividend Period. Each day on which
dividends on shares of a series of STRAPS would be payable as
determined as set forth in this clause (ii) but for the
provisions set
forth below in this paragraph 3(b) is referred to herein as
a "Normal Dividend Payment Date."
(iii) In the case of dividends payable on the
shares of a series of STRAPS with a Short-Term Dividend
Period, if:
(A) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in next-day funds on the dates on which such dividends
are payable and (II) a Normal Dividend Payment Date for
such series is not a Business Day or the day next
succeeding such Normal Dividend Payment Date is not a
Business Day, then dividends shall be payable on the
first Business Day preceding such Normal Dividend
Payment Date that is next succeeded by a Business Day;
or
(B) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in immediately available funds on the dates on which
such dividends are payable (and the Securities
Depository shall have so advised the Auction Agent) and
(II) a Normal Dividend Payment Date for such series is
not a Business Day, then dividends shall be payable on
the first Business Day following such Normal Dividend
Payment Date.
(iv) In the case of dividends payable on the
shares of a series of STRAPS with a Long-Term Dividend
Period (other than the Initial Long-Term Dividend Period),
if:
(A) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in next-day funds on the dates on which such dividends
are payable and (II) a Normal Dividend Payment Date for
such series is not a Business Day or the day next
succeeding such Normal Dividend Payment Date is not a
Business Day, then dividends shall be payable on the
first Business Day following such Normal Dividend
Payment Date that is next succeeded by a Business Day;
or
(B) (I) The Securities Depository shall make
available to its members and participants the amounts
due as dividends on the shares of such series of STRAPS
in immediately available funds on the dates on which
such dividends are payable (and the Securities
Depository shall have so advised the Auction Agent) and
(II) a Normal Dividend Payment Date for such series is
not a Business Day, then dividends shall be payable on
the first Business Day following such Normal Dividend
Payment Date.
(v) Notwithstanding the foregoing, if the date on
which the dividends on the shares of any Series of STRAPS
would be payable as determined as set forth in clauses (ii),
(iii) or (iv) above is a day that would result in the number
of days between successive Auction Dates for such series
(determined by excluding the first Auction Date and
including the second Auction Date) not being at least equal
to the then-current Minimum Holding Period, then dividends
on such shares shall be payable, if either of
clauses (iii)(A) or (iv)(A) above would be applicable to
such series, on the first Business Day following such date
on which dividends would be so payable that is next
succeeded by a Business Day or, if either of
clauses (iii)(B) or (iv)(B) above would be applicable to
such series, on the first Business Day following such day on
which dividends would be so payable, that in either case
results in the number of days between such successive
Auction Dates for such series (determined as set forth
above) being at least equal to the then-current Minimum
Holding Period.
(vi) Each date on which dividends on the shares of
a series of STRAPS shall be payable as determined as set
forth above shall be referred to herein as a "Dividend
Payment Date" for such series. The period from the
preceding Dividend Payment Date to the next Dividend Payment
Date for any series of STRAPS with a Long-Term Dividend
Period is herein referred to as "Dividend Quarter."
Although any particular Dividend Payment Date for a series
of STRAPS may not occur on the originally scheduled Normal
Dividend Payment Date for such series because of the
foregoing provisions, each succeeding Dividend Payment Date
for such series shall be, subject to such provision, the
date determined as set forth in clause (ii) above as if all
preceding Dividend Payment Dates had occurred on their
respective originally scheduled Normal Dividend Payment
Dates.
(vii) After the Initial Long-Term Dividend Period
for each series of STRAPS, each subsequent Dividend Period
for such series will be, at the option of the Corporation by
action of its Board of Directors, a period of 49 days (each
such 49-day period, subject to any adjustment as a result of
a change in law lengthening the Minimum Holding Period as
provided in clause (ix) below, being referred to herein as a
"Short-Term Dividend Period"), 49 weeks (a "One-Year
11
Dividend Period"), 102 weeks (a "Two-Year Dividend Period"),
158 weeks (a "Three-Year Dividend Period"), 206 weeks (a
"Four-Year Dividend Period"), 259 weeks (a "Five-Year
Dividend Period"), 310 weeks (a "Six-Year Dividend Period"),
364 weeks (a "Seven-Year Dividend Period"), 416 weeks (an
"Eight-Year Dividend Period"), 468 weeks (a "Nine-Year
Dividend Period"), 520 weeks (a "Ten-Year Dividend Period"),
1040 weeks (a "Twenty-Year Dividend Period") or 1560 weeks
(a "Thirty-Year Dividend Period") (each such One-Year
Dividend Period, Two-Year Dividend Period, Three-Year
Dividend Period, Four-Year Dividend Period, Five-Year
Dividend Period, Six-Year Dividend Period, Seven-Year
Dividend Period, Eight-Year Dividend Period, Nine-Year
Dividend Period, Ten-Year Dividend Period, Twenty-Year
Dividend Period and Thirty-Year Dividend Period, together
with the Initial Long-Term Dividend Periods being referred
to herein as a "Long-Term Dividend Period," and each such
Short-Term Dividend Period and Long-Term Dividend Period,
being referred to herein as a "Dividend Period"). After the
Initial Long-Term Dividend Period for a series of STRAPS,
each successive Dividend Period for such series will
commence on the Dividend Payment Date ending the preceding
Dividend Period and will end (i) in the case of any series
of STRAPS with a Short-Term Dividend Period, on the next
Dividend Payment Date for such series and (ii) in the case
of any series of STRAPS with a Long-Term Dividend Period, on
the 49th (in the case of a One-Year Dividend Period), 102nd
(in the case of a Two-Year Dividend Period), 158th (in the
case of a Three-Year Dividend Period), 206th (in the case of
a Four-Year Dividend Period), 259th (in the case of a Five-
Year Dividend Period), 310th (in the case of a Six-Year
Dividend Period, 364th (in the case of a Seven-Year Dividend
Period, 416th (in the case of an Eight-Year Dividend Period,
468th (in the case of a Nine-Year Dividend Period, 520th (in
the case of a Ten-Year Dividend Period), 1040th (in the case
of a Twenty-Year Dividend Period), or 1560th (in the case of
a Thirty-Year Dividend Period) Thursday thereafter.
(viii) (A) On or prior to the 10th day but not more
than 30 days prior to an Auction Date for any series of
STRAPS, the Corporation shall, in accordance with the action
of its Board of Directors, by telephonic and written notice
(a "Notice of Dividend Period") to the Auction Agent and the
Securities Depository, specify the length of the next
succeeding Dividend Period for such series and, in
accordance with Section 5(b) hereof, the redemption
provisions that will apply to the series of STRAPS for such
Dividend Period; provided, that, with respect to any Auction
Date for any series of STRAPS occurring during a Short-Term
Dividend Period, the Corporation may not select a Long-Term
Dividend Period for such series (and any such notice shall
be null and void) unless Sufficient Clearing Bids were made
in the last occurring Auction for such series and full
cumulative dividends for all series of STRAPS payable prior
to such date have been paid in full. Any Notice of Dividend
Period may be revoked by the Corporation by action of its
Board of Directors by giving telephonic or written notice (a
"Notice of Revocation") to the Auction Agent and the
Securities Depository not less than two hours prior to the
Submission Deadline (as defined in paragraph 8 hereof) on
the related Auction Date, in which case the next Dividend
Period shall be a Short-Term Dividend Period. If the
Corporation does not give a Notice of Dividend Period with
respect to the next succeeding Dividend Period for any
series of STRAPS by the 10th day prior to the Auction Date
for such series, or gives a Notice of Revocation with
respect thereto, such next succeeding Dividend Period will
be a Short-Term Dividend Period. In addition, in the event
the Corporation has selected a Long-Term Dividend Period in
any Notice of Dividend Period with respect to the next
succeeding Dividend Period for any series of STRAPS, but
Sufficient Clearing Bids are not made in the related Auction
for such series or such Auction is not held for any reason,
such next succeeding Dividend Period will, notwithstanding
such Notice of Dividend Period, be a Short-Term Dividend
Period and the Corporation may not again select a Long-Term
Dividend Period (and any such Notice of Dividend Period
shall be null and void) for such series until Sufficient
Clearing Bids have been made in an Auction with respect to a
Short-Term Dividend Period for such series.
(B) At least 30 days prior to the initial
Auction Date with respect to any series of STRAPS, the
Corporation shall cause to be mailed by first-class mail,
postage prepaid, to each Holder of shares of such series as
its name and address appears on the Stock Books, a written
notice of the commencement of the next succeeding Dividend
Period (a "Holders' Dividend Period Notice"). The Holders'
Dividend Period Notice shall set forth, among other things:
(1) the date and day of the week of the initial
Auction Date, and, if then known, the length of the next
succeeding Dividend Period and the redemption provisions
applicable to such series of STRAPS for such Dividend
Period;
(2) the then-current credit ratings of the STRAPS;
(3) the name and address of the initial Broker-
Dealer or Broker-Dealers who will solicit bids for the
Auction for such series of STRAPS;
(4) the name and address of the Auction Agent;
(5) the name and address of the Securities
Depository;
(6) the names and addresses of members of or
participants in the Securities Depository who have consented
to be appointed to act on behalf of the Holders of the
STRAPS;
(7) that each Holder must deposit the certificates
representing the shares of STRAPS of such series in exchange
for evidence of such shares of STRAPS thereafter to be held
in book entry form by the Securities Depository;
(8) that unless a Holder submits a Bid or a Hold
Order with respect to each share of STRAPS of such series
held by such Holder, the Auction Agent will deem a Sell
Order to have been submitted by such Holder with respect to
any shares of STRAPS of such series not covered by a Bid or
Hold Order; and
(9) that each Holder must appoint a member of or
participant in the Securities Depository in order (x) to
submit Bids in the initial Auction and (y) to receive
payment for any shares of STRAPS such Holder sells in the
initial Auction.
(ix) Notwithstanding the foregoing, in the event
of a change in law altering the minimum holding period (the
"Minimum Holding Period") required for corporate taxpayers
generally to be entitled to the dividends received deduction
for federal income tax purposes in respect of dividends
(other than extraordinary dividends) paid on preferred stock
held by non-affiliated corporations, the Board of Directors
shall adjust the number of days in a Short-Term Dividend
Period commencing after the effective date of such change in
law such that the number of days (such number of days
without giving effect to the exceptions referred to above
being hereinafter referred to as "Dividend Period Days") in
a Short-Term Dividend Period shall equal or exceed the
Minimum Holding Period; provided that the number of Dividend
Period Days shall not exceed by more than nine days the
length of such Minimum Holding Period and in no event shall
be less than 15 days, and will be evenly divisible by seven.
Upon any such change in the number of days in a Short-Term
Dividend Period as a result of a change in law, the
Corporation shall cause to be mailed notice of such change
by first-class mail, postage prepaid, to the Auction Agent,
the Paying Agent and each Holder at such Holder's address as
it appears on the Stock Books, and to the Rating Agencies.
(x) Not later than noon on the Business Day
immediately preceding each Dividend Payment Date with
14
respect to which dividends on any shares of STRAPS have been
declared, the Corporation shall irrevocably deposit with the
Paying Agent sufficient funds for the payment of such
dividends and shall give the Paying Agent irrevocable
instructions to apply such funds and, if applicable, the
income and proceeds therefrom, to the payment of such
dividends.
(xi) Each dividend on the shares of any series of
STRAPS declared by the Board of Directors shall be paid to
Holders of such shares as such Holders' names appear on the
Stock Books on the related record date, which shall be (A)
during the Initial Long-Term Dividend Period for each series
of STRAPS, the opening of business on the fifteenth day of
the calendar month which next precedes the Dividend Payment
Date for such dividend, or if such day is not a Business
Day, on the next succeeding Business Day, and (B)
thereafter, the opening of business on the Business Day
immediately preceding the Dividend Payment Date for such
dividend. Subject to paragraph 3(d)(i) below, dividends on
the shares of any series of STRAPS in arrears for any past
Dividend Period (and for any Dividend Quarter during a Long-
Term Dividend Period) may be declared by the Board of
Directors and paid on any date fixed by the Board of
Directors, on a regular Dividend Payment Date or otherwise,
to Holders of such shares as such Holders' names appear on
the Stock Books on the related record date fixed by the
Board of Directors, which shall not be more than 15 days
before the date fixed for the payment of such dividends.
(c) (i) Subject to paragraph 3 (c) ( ii), (I) during the
Initial Long Term Dividend Period, the dividend rate per
annum applicable to each series of STRAPS shall be 8.0%, and
(II) the dividend rate on the shares of each series of
STRAPS (the "Applicable Rate") for each subsequent Dividend
Period shall be the rate per annum determined for such
series pursuant to the operation of the Auction Procedures
set forth in paragraph 8 below. Notwithstanding the
foregoing, in the event (A) that an Auction with respect to
any Dividend Period for any series is not held for any
reason (including the existence of a Failure to Deposit on
the Auction Date with respect to such Dividend Period), then
the next succeeding Dividend Period shall be a Short-Term
Dividend Period, and the dividend rate on the shares of such
series for such Dividend Period shall be equal to the
Maximum Rate on the Auction Date with respect to such
Dividend Period, provided that if an Auction is not held due
to the existence of a Failure to Deposit which is not cured
within three Business Days, the dividend rate will be as
provided in the immediately following clause (B), or (B) any
Failure to Deposit shall have occurred and the amounts to be
paid by the Corporation to the Paying Agent shall not have
1S
been paid within three Business Days following the Failure
to Deposit (or, in the event that the Corporation shall act
as the Paying Agent, the checks for such amounts shall not
have been deposited with the United States Postal Service
for delivery to the registered holders within three Business
Days following the Failure to Deposit), (w) Auctions for all
series of STRAPS will be suspended, (x) each Dividend Period
for each series of STRAPS commencing after the occurrence of
a Failure to Deposit shall be a Short-Term Dividend Period,
(y) the dividend rate on the shares of each series of STRAPS
for each Short-Term Dividend Period or part thereof
commencing thereafter shall be equal to 250% of the 60-day
"AA" Composite Commercial Paper Rate on the first day of
each such Dividend Period and (z) if such Failure to Deposit
occurs during a Long-Term Dividend Period with respect to
any series of STRAPS, then, for each series of STRAPS for
which a Long-Term Dividend Period is then applicable, the
dividend rate on the shares of such series of STRAPS for
each Dividend Quarter or part thereof commencing thereafter
until the Dividend Quarter within such Dividend Period
commencing after such Failure to Deposit has been cured will
be equal to 250% of the Applicable Treasury Rate on the
Auction Date for such Series (or, in the case of the Initial
Long-Term Dividend Period, on the date of issuance of such
Series). Any Failure to Deposit shall be deemed cured if
the Corporation shall have paid to the Paying Agent (or, in
the event that the Corporation shall act as the Paying
Agent, have deposited checks for such amounts with the
United States Postal Service for delivery by first class
mail, postage prepaid, to the registered holders) (i) all
accumulated and unpaid dividends on the shares of STRAPS of
each series to but excluding the immediately preceding
Dividend Payment Date therefor, including the full amount of
any dividends to be paid in respect of the Dividend Period
(or Dividend Quarter) with respect to which such failure
occurred and (ii) without duplication, the redemption price,
plus accumulated and unpaid dividends thereon to the
redemption date, of any shares of STRAPS called for
redemption. Notwithstanding the foregoing, if the Company
shall have cured a Failure to Deposit by making the
afore described payment to the Paying Agent, the Paying Agent
will give notice of such cure to the holders of the STRAPS
and (i) Auctions will resume, (ii) the Applicable Rate for
each Series for each Dividend Period commencing thereafter
will be determined thereafter as if such Failure to Deposit
had not occurred and (iii) in the case of each Series with a
Long-Term Dividend Period, the Applicable Rate for each
Dividend Quarter therefor commencing thereafter will equal
the Applicable Rate for such Series in effect prior to the
occurrence of such Failure to Deposit.
(ii) The amount of dividends per share of any
series of STRAPS during any Long-Term Dividend Period
(including the Initial Long-Term Dividend Period) shall be
computed on the basis of a year consisting of twelve 30-day
months. The amount of dividends per share of any series of
STRAPS payable for each Short-Term Dividend Period for such
series will be computed by multiplying the Applicable Rate
for such series for such Dividend Period by a fraction, the
numerator of which shall be the number of days in such
Dividend Period (determined by including the first day
thereof and excluding the last day thereof) during which
such share was outstanding and the denominator of which
shall be 360, and multiplying the result by $100,000.
Provisions regarding the dividend preferences and
rights of the Holders of STRAPS are set forth in Article IX
of the Articles of Redomestication of the Corporation.
(d) If any notice given by the Corporation pursuant
to paragraph 7(c) states that any distributions made by the
Corporation to Holders as dividends during any taxable year
were Non-Qualifying Distributions, the Corporation shall,
within 30 days of the date of such notice make a Gross-Up
Payment to each Qualified Investor.
4. Liquidation Rights.
(a) In the event of any liquidation, dissolution or
winding up of the affairs of the Corporation, whether voluntary
or involuntary, Holders shall be entitled to receive, out of the
assets of the Corporation available for distribution to
stockholders after satisfying claims of creditors but before any
payment or distribution on the Common Stock or on any other class
of stock ranking junior to the shares of STRAPS upon liquidation,
a liquidation distribution in the amount of $100,000 per share
plus an amount equal to accumulated and unpaid dividends on each
share (whether or not earned or declared) to the date of such
distribution. Additional provisions regarding the preferences
and rights of the Holders of STRAPS to receive liquidating
distributions are set forth in Article IX of the Articles of
Redomestication of the Corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the Corporation, nor the
consolidation or merger of the Corporation with or into any other
entity, nor the merger or consolidation of any other entity with
or into the Corporation, shall be deemed to be a liquidation,
dissolution, or winding up of the affairs of the Corporation,
either voluntary or involuntary, for purposes of this paragraph
4.
5. Redemption.
Shares of STRAPS shall be redeemable by the Corporation
as provided below:
(a) The Corporation may, at its option, out of funds
legally available therefor, upon at least 15 but not more than
45 days' notice pursuant to a Notice of Redemption, redeem the
shares of any series of STRAPS, as a whole or in part (I) during
the Initial Long-Term Dividend Period for such series, on the
second Business Day preceding the last Dividend Payment for such
Initial Long-Term Dividend Period, (II) during a Short-Term
Dividend Period for such series, on the second Business Day
preceding any Dividend Payment Date for such series and
(III) during any Long-Term Dividend Period other than the Initial
Long-Term Dividend Period for such series, on the second Business
Day preceding the last Dividend Payment Date for such Long-Term
Dividend Period, in each case at a redemption price equal
to $100,000 per share plus an amount equal to the accumulated and
unpaid dividends on such shares (whether or not earned or
declared) to the redemption date.
(b) In addition, the Corporation may, at its option,
out of funds legally available therefor, during any Long-Term
Dividend Period with respect to any series of STRAPS other than
an Initial Long-Term Dividend Period, upon at least 15 but not
more than 45 days' notice pursuant to a Notice of Redemption,
redeem the shares of such series as a whole or from time to time
in part, pursuant to redemption provisions applicable to such
Long-Term Dividend Period selected by the Corporation by action
of its Board of Directors and specified in the Notice of Dividend
Period with respect to such Long-Term Dividend Period pursuant to
paragraph 3(b)(viii); Provided, that the redemption price so
selected by the Corporation shall be at least $100,000 per share,
and no more than $250,000 per share, plus any accumulated and
unpaid dividends thereon.
(c) In the event that fewer than all of the
outstanding shares of STRAPS are to be redeemed, the Corporation
may, at its option, determine to redeem all or a portion of the
shares of one series of STRAPS without redeeming shares of another
series, and/or may select by lot or other such method as the
Corporation shall deem to be fair and equitable the shares of
(d) Notwithstanding the other provisions of this
paragraph 5, the Corporation shall not redeem any shares of STRAPS
unless all accumulated and unpaid dividends on all outstanding
shares of STRAPS for all applicable past Dividend Periods (and all
past Dividend Quarters during any Long-Term Dividend Period) shall
have been or are contemporaneously paid or declared and a sum
18
sufficient irrevocably deposited with the Paying Agent for payment
of such dividends.
(e) Whenever shares of STRAPS are to be redeemed, the
Corporation shall cause to be mailed, within the time period
specified in paragraphs 5(a) or 5(b) above, a written notice of
redemption (a "Notice of Redemption") by first-class mail, postage
prepaid, to each Holder of shares of STRAPS to be redeemed as its
name and address appear on the Stock Books and to the Paying Agent.
Each Notice of Redemption shall state (A) the redemption date,
(B) the redemption price, (C) the series and number of shares of
such series of STRAPS to be redeemed and, in the event of
redemption of less than all of the outstanding shares of STRAPS of
a series, identification (by certificate number or otherwise) of
the shares of STRAPS to be redeemed, (D) the place or places where
shares of STRAPS to be redeemed are to be surrendered for payment
of the redemption price, (E) that dividends on the shares of STRAPS
to be redeemed will cease to accumulate on such redemption date and
(F) if applicable, that the Holders of shares of STRAPS being
called for redemption will not be entitled to participate, with
respect to such shares, in any Auction held subsequent to the date
of such Notice of Redemption. No defect in the Notice of
Redemption or in the mailing or publication thereof shall affect
the validity of the redemption proceedings, except as required by
applicable law. A Notice of Redemption shall be deemed given on
the day that it is mailed in accordance with the first sentence of
this paragraph 5(e).
(f) On or after the redemption date, each Holder of
shares of STRAPS that were called for redemption shall surrender
the certificate or other instrument evidencing such shares properly
endorsed in blank for transfer or accompanied by proper instruments
of assignment or transfer in blank, and bearing all necessary
transfer tax stamps thereto affixed and cancelled,
to the Corporation at the place designated in the Notice of
Redemption and shall then be entitled to receive payment of the
redemption price for such shares. If less than all of the shares
represented by one share certificate or other instrument are to be
redeemed, the Corporation shall issue a new share certificate for
the shares not redeemed.
(g) Not later than the close of business on the Business
Day immediately preceding the redemption date, the Corporation
shall irrevocably deposit with the Paying Agent sufficient funds
to redeem the shares of STRAPS to be redeemed and shall give the
Paying Agent irrevocable instructions to apply such funds and, if
applicable, the income and proceeds therefrom, to the payment of
the redemption price.
(h) If the Corporation shall have given or caused to
be given a Notice of Redemption as aforesaid, shall have
irrevocably deposited with the Paying Agent a sum sufficient to
redeem the shares of STRAPS as to which such Notice of Redemption
was given and shall have given the Paying Agent irrevocable
instructions and authority to pay the redemption price to the
Holders of such shares, then on the date of such deposit (or, if
no such deposit shall have been made, then on the date fixed for
redemption, unless the Corporation shall have defaulted in making
payment of the redemption price), all rights of the Holders of
such shares by reason of their ownership of such shares (except
their right to receive the redemption price thereof, but without
interest) shall terminate, and such shares shall no longer be
deemed outstanding for any purpose, including, without
limitation, the right of the Holders of such shares to vote on
any matter or to participate in any subsequent Auctions. In
addition, any shares of STRAPS as to which a Notice of Redemption
has been given by the Corporation will be deemed to be not
outstanding for purposes of any Auction held subsequent to the
date of such Notice of Redemption. The Corporation shall be
entitled to receive, from time to time, from the Paying Agent,
the income, if any, derived from the investment of monies and/or
other assets deposited with it (to the extent that such income is
not required to pay the redemption price of the shares to be
redeemed), and the Holders of shares to be redeemed shall have no
claim to any such income. In case the Holder of any shares
called for redemption shall not claim the redemption price for
his shares within two years after the redemption date, the Paying
Agent shall, upon demand, pay over to the Corporation such amount
remaining on deposit and the Paying Agent shall thereupon be
relieved of all responsibility to the Holder with respect to such
shares, and such Holder shall thereafter look only to the
Corporation for payment of the redemption price of such shares.
(i) Nothing in this paragraph 5 shall limit any right
of the Corporation to purchase or otherwise acquire outside of
any Auction any shares of any series of Preferred Stock from any
holder thereof who consents to such purchase or other
acquisition, except as provided in Article IX of the Articles of
Redomestication of the Corporation.
(j) The Corporation shall not give a Notice of
Redemption unless at the time of giving of such notice the
Corporation shall in good faith believe that it will have
sufficient funds to effect the redemption of all of the shares of
STRAPS to be redeemed pursuant to such notice. The giving of a
Notice of Redemption shall obligate the Corporation to redeem the
shares of STRAPS specified in such Notice of Redemption on the
terms and conditions specified therein.
6. Voting Rights.
(a) General. Holders shall have no voting rights,
either general or special, except as provided by applicable law
or specified in this paragraph 6.
20
(b) Right to Vote in Certain Events. In addition to
any other vote or consent of Shareholders of the Corporation then
required by applicable law or by the Articles of Redomestication
of the Corporation, so long as any shares of a series of STRAPS
remain outstanding, the Corporation shall not, without the
affirmative vote or consent of the holders of at least two-thirds
of the shares of such series of the STRAPS outstanding at that
time, given in person or by proxy, either in writing or at a
meeting (i) authorize, create or issue, or increase the
authorized or issued amount, of any class or series of stock
ranking prior to such series of STRAPS with respect to payment of
dividends or the distribution of assets on liquidation,
dissolution or winding up of the Corporation, or reclassify any
authorized stock of the Corporation into any such shares, or
create, authorize or issue any obligations or security
convertible into or evidencing the right to purchase any such
shares, or (ii) amend, alter or repeal any of the provisions of
the Corporation's Articles of Redomestication of the Corporation
or this Statement of Designation so as to adversely affect any
right, preference, privilege or voting power of such series of
the STRAPS; provided, however, that any increase in the amount of
the authorized preferred stock or the creation or issuance of any
series of preferred stock or any increase in the amount of
authorized shares of such series or of any other series of
preferred stock, in each case ranking on a parity with or junior
to each series of the STRAPS with regard to dividends, or upon
liquidation, dissolution or winding up of the Corporation, shall
not be deemed to adversely affect such rights, preferences,
privileges or voting powers.
(c) During any period (a "Voting Period") when a
"Default in Preferred Dividends" (as hereinafter defined) shall
exist on the shares of any series of the STRAPS, or any series of
preferred stock ranking on a parity with the shares of the STRAPS
as to dividends or upon liquidation, dissolution or winding up of
the Corporation and the terms of which expressly provide that
such shares are "Voting Parity Preferred Stock" within the
meaning of this paragraph and voting rights thereunder are then
exercisable (all such shares, and all shares of each series of
the STRAPS, being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number of
members of the Board of Directors shall automatically be
increased by two. The two vacancies so created shall be filled
by the vote of the holders of the Voting Parity Preferred Stock,
voting together as a single class without regard to series, to
the exclusion of the holders of the Common Stock of the
Corporation and any other class or series of stock other than
Voting Parity Preferred Stock. A "Default in Preferred Stock
Dividends" shall be deemed to have occurred whenever the amount
of unpaid accumulated dividends upon any series of the Voting
Parity Preferred Stock through the last preceding dividend period
therefor shall be equivalent to six quarterly dividends (which,
21
with respect to any series of the STRAPS or any other series of
Voting Parity Preferred Stock, shall be deemed to be dividends
with respect to a number of dividend periods containing not less
than 540 days) or more, and, having so occurred, such default
shall be deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned or
declared) on all shares of all Voting Parity Preferred Stock of
each and every series then outstanding shall have been paid to
the end of the last preceding dividend period. Upon the
termination of a Voting Period, the voting rights described in
this paragraph 6(c) shall cease, subject always, however, to
revesting of such voting rights in the holders of Voting Parity
Preferred Stock upon the further occurrence of a Default in
Preferred Dividends. If any Voting Period shall have terminated
before the holders of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this paragraph 6(c), the
holders of such Voting Parity Preferred Stock shall be deemed not
to have acquired such voting rights.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall call
or cause to be called a special meeting of the holders of
the Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such holders
not less than 10 nor more than 45 days after the date such
notice is given. If the Corporation does not call or cause
to be called such a special meeting, it may be called by any
of such holders on like notice. The record date for
determining the holders of Voting Parity Preferred Stock
entitled to notice of and to vote at such meeting shall be
the close of business on the Business Day preceding the day
on which such notice is mailed. At any such special meeting
and at each meeting of stockholders held during a Voting
Period at which directors are to be elected, removed or
replaced, the holders of the Voting Parity Preferred Stock
of all series, voting together as a single class (to the
exclusion of the holders of all other securities and classes
of capital stock of the Corporation), voting by a majority
of the votes of shares present in person or by proxy, shall
be entitled to elect two directors. In regard to such
elections, each share of STRAPS, and each share of any other
Voting Parity Preferred Stock, shall be entitled to one vote
on the basis of each $100,000 of liquidation preference
(excluding amounts in respect of accumulated and unpaid
dividends). Cumulative voting in such elections shall not
be permitted. Shares of Voting Parity Preferred Stock then
outstanding, present in person or represented by proxy,
representing one-third of the votes of the Voting Parity
Preferred Stock, will constitute a quorum for the election
of directors. Notice of all meetings at which holders of
the Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any such
meeting or adjournment thereof in the absence of a quorum,
holders of shares of Voting Parity Preferred Stock
representing a majority of the votes present in person or
represented by proxy shall have the power to adjourn the
meeting for the election of directors without notice, other
than an announcement at the meeting, until a quorum is
present. If any Voting Period shall terminate after the
notice of special meeting provided for in this
paragraph 6(d)(i) has been given but before the special
meeting shall have been held, the Corporation shall, as soon
as practicable after such termination, mail or cause to be
mailed to the holders of the Voting Parity Preferred Stock a
notice of cancellation of such special meeting.
(ii) The term of office of all persons who are
directors of the Corporation at the time of a special
meeting of the holders of the Voting Parity Preferred Stock
to elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors. The persons elected by holders of the
Voting Parity Preferred Stock, together with the incumbent
directors elected by the holders of the Common Stock, shall
constitute the duly elected directors of the Corporation.
(iii) Simultaneously with the expiration of a
Voting Period, the term of office of the directors elected
by the holders of the Voting Parity Preferred Stock shall
terminate, the persons who shall have been elected by the
holders of the Common Stock (or by the Board of Directors
prior to the beginning of the Voting Period) and who are
incumbent shall constitute the directors of the Corporation,
and the voting rights of the holders of the Voting Parity
Preferred Stock to elect directors shall cease.
(iv) For so long as a Voting Period continues,
the directors elected by the holders of the Voting Parity
Preferred Stock may be removed without cause by, and shall
not be removed without cause except by, the vote of the
holders of record of the outstanding shares of Voting Parity
Preferred Stock, voting together as a single class without
regard to series, at a meeting of the stockholders, or of
the holders of shares of Voting Parity Preferred Stock,
called for such purpose. So long as a Voting Period
continues, (A) any vacancy in the office of a director
elected by the holders of the Voting Parity Preferred Stock
may be filled (except as provided in the following clause
(B)) by the person appointed by an instrument in writing
signed by the remaining director elected by the holders of
the Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining director
elected by the holders of the Voting Parity Preferred Stock,
by vote of the holders of the outstanding shares of Voting
Parity Preferred Stock, voting together as a single class
without regard to series, at a meeting of the stockholders
or at a meeting of the holders of shares of Voting Parity
Preferred Stock called for such purpose, and (B) in the case
of the removal of any director elected by the holders of the
Voting Parity Preferred Stock, the vacancy may be filled by
the person elected by the vote of the holders of the
outstanding shares of Voting Parity Preferred Stock, voting
together as a single class without regard to series, at the
same meeting at which such removal shall be voted or at any
subsequent meeting.
(e) Additional Vote. If any matter (including,
without limitation, election, removal or replacement of
directors) requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of all
Preferred Stock of the Corporation, whether pursuant to the
provisions of such series, all such series or such Preferred
Stock or pursuant to the provisions of the Articles of
Redomestication of the Corporation or pursuant to applicable law,
and if any shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates, then the
following additional consent or vote will be required: the same
consent or affirmative vote of shares otherwise required, except
that shares of STRAPS held by the Corporation and/or its
Affiliates shall be deemed not to be outstanding for purposes of
such additional consent or vote; provided, such additional
consent or vote will not be applicable if all outstanding shares
of the STRAPS of such series (in the case of a class vote of such
series) or of all series of STRAPS (in the case of a vote of all
series of STRAPS) are held by the Corporation and/or its
Affiliates.
7. Miscellaneous Provisions Relating to Dividends.
(a) Maintaining Shares of STRAPS in Book Entry Form.
Promptly after receiving the Holders' Dividend Period Notice
specified in paragraph 3(b)(viii), each Holder of shares of the
related series of STRAPS shall take such actions and shall
execute and deliver such documents and agreements as the
Corporation shall have reasonably requested in such Holders'
Dividend Period Notice, which actions, documents and/or
agreements may include but shall not be limited to the following:
(i) appointing a participant in or agent member
of the Securities Depository to act on its behalf;
24
(ii) delivering an executed copy of the
Purchaser's Letter, as described in paragraph 8(a), to
the Auction Agent; and
(iii) if the customary procedures of the
Securities
Depository shall so require, surrendering the
certificates representing the shares of STRAPS of such
series to the Corporation, the Auction Agent, the
Paying Agent or the Securities Depository, as described
in the Holders' Dividend Period Notice.
(b) Initial Auctions.
(i) At least 30 days prior to the initial
Auction
for Series A STRAPS, the Corporation will:
(A) appoint a bank or trust company to act
as the Auction Agent and enter into an Auction
Agency Agreement with such bank or trust company
to conduct Auctions for the STRAPS pursuant to the
Auction procedures set forth in paragraph 8
hereof; and
(B) request one or more broker-dealers to
enter into Broker-Dealer Agreements with the
Auction Agent and to solicit bids for the shares
of STRAPS in the initial Auction for each series
and each subsequent Auction therefor.
(ii) At least 30 days prior to the initial Auction
any series of STRAPS, the Corporation will:
(A) request The Depository Trust Company
(HDTC") to act as the Securities Depository to
maintain the shares of STRAPS of such series in
book entry form for the account of each Holder's
agent member which in turn will maintain records
of the Holder's beneficial ownership and, if DTC
declines to act as the Securities Depository, use
its best efforts to appoint another securities
depository or bank or trust company to act in such
capacity; and
(B) if the Corporation theretofore has
acted
as the Paying Agent with respect to such series,
appoint a bank or trust company to act as the
Paying Agent and enter into a Paying Agency
Agreement with such bank or trust company to make
dividend and redemption payments in accordance
with the provisions of this Statement of
Designation.
25
(c) (i) Annual Notice Concerning Return of Capital.
The Corporation shall, on or before January 31 of each year
prior to the Cut-Off Date, cause to be mailed by first-class
mail, postage prepaid, to each Holder a written notice
stating whether, to the best of its knowledge, based upon
information then available to the Corporation, any
distributions made as dividends on the shares of STRAPS
during the previous taxable year constituted Non-Qualifying
Distributions. In issuing such notice and making such
determination, the Corporation shall be entitled to rely
conclusively on the advice of its legal counsel and
independent public accountants. The Corporation may correct
any information in such notice that it determines to be
inaccurate by mailing in the same manner a corrected notice,
in which case such corrected notice shall be the notice
delivered under this provision.
(ii) The Corporation shall, promptly after the
occurrence thereof, cause to be mailed, by first-class mail,
postage prepaid, to the Paying Agent and each registered
Holder of shares of STRAPS, a written notice stating that it
has determined that the Cut-Off Date has occurred.
8. Auction Procedures.
(a) Certain Definitions. Capitalized terms not
defined in this paragraph 8 shall have the respective meanings
specified in paragraph 1 through paragraph 7 above. As used in
this paragraph 8, the following terms shall have the following
meanings, unless the context otherwise requires, and all defined
terms, unless the context otherwise requires, shall be deemed to
refer to Series A STRAPS, Series B STRAPS, Series C STRAPS or
Series D STRAPS, as the case may be:
"Affiliate" means any Person known to the Auction
Agent
to be controlled by, in control of, or under common control
with, the Corporation.
"Agent Member" means the member of the Securities
Depository that will act on behalf of a Bidder and/or an
Existing Holder.
"Auction" means the periodic operation of the
procedures set forth in this paragraph 8.
"Auction Date" means the Business Day next preceding
the first day of a Dividend Period.
"Available STRAPS" has the meaning specified in
paragraph 8(d)(i) below.
26
"Bid" has the meaning specified in paragraph 8(b)(i)
below.
"Bidder" has the meaning specified in paragraph
8(b)(i)
below.
"Broker-Dealer" means any broker-dealer, or other
entity permitted by law to perform the functions required of
a Broker-Dealer in this paragraph 8, that is a member of, or
a participant in, the Securities Depository, that has been
selected by the Corporation and that has entered into a
Broker-Dealer Agreement with the Auction Agent that remains
effective.
"Broker-Dealer Agreement" means an agreement between
the Auction Agent and a Broker-Dealer pursuant to which such
Broker-Dealer agrees to follow the procedures specified in
this paragraph 8.
"Existing Holder", when used with respect to shares
of
STRAPS, means a Person who has executed a Purchaser's Letter
and is listed as the Existing Holder of such shares of
STRAPS in the records of the Auction Agent.
"Hold Order" has the meaning specified in paragraph
8(b)(i) below.
"Maximum Rate", means, on any date of determination,
with respect to a series of STRAPS with a Short-Term
Dividend Period, the percentage of the 60-day "AA" Composite
Commercial Paper Rate in effect on such date, and with
respect to a series of the STRAPS with a Long-Term Dividend
Period, the percentage of the Applicable Treasury Rate in
effect on such date, determined as set forth below based on
the Prevailing Credit Ratings of the STRAPS on the Business
Day immediately preceding such date of determination:
Prevailing Credit Ratings of STRAPS
Percentage
AA/ aa or Above . . . . . . . . . . . . . . . 125%
A/a . . . . . . . . . . . . . . . . . . . . . 150%
BBB / baa . . . . . . . . . . . . . . . . . . 175%
BB/ba . . . . . . . . . . . . . . . . . . . . 200%
Below BB/ba . . . . . . . . . . . . . . . . . 250%
Unless the context otherwise requires, "Maximum Rate," when
used in this paragraph 8, shall mean the Maximum Rate on the
Auction Date.
"Order" has the meaning specified in paragraph
8(b)(i)
below.
"Outstanding," with respect to shares of STRAPS,
means,
as of any date, shares of STRAPS theretofore issued by the
Corporation except, without duplication, (A) any shares of
STRAPS theretofore cancelled or delivered to the Auction
Agent for cancellation, or redeemed by the Corporation, (B)
except as provided in paragraph 5 above, any shares of
STRAPS as to which a Notice of Redemption shall have been
given by the Corporation, (C) any shares of STRAPS as to
which the Corporation or any Affiliate shall be an Existing
Holder and (D) any shares of STRAPS represented by any
certificate which has been replaced by a new certificate
executed and delivered by the Corporation.
"Person" means and includes an individual, a
partnership, a corporation, a trust, an unincorporated
association, a joint venture or other entity or a government
or an agency or political subdivision thereof.
"Potential Holder" means any Person, including any
Existing Holder, (A) who shall have executed a Purchaser's
Letter and (B) who may be interested in acquiring shares of
STRAPS (or, in the case of an Existing Holder, additional
shares of STRAPS).
"Prevailing Credit Ratings" means (A) AA/aa or above
if
the shares of STRAPS have ratings of AA- or better by
Standard & Poor's and "aa3 n or better by Moody's or the
equivalent of either or both of such ratings by the
applicable Rating Agencies, (B) if not AA/aa or above, then
A/a if the shares of STRAPS have a rating of A- or better by
Standard & Poors and "a3" or better by Moody's or the
equivalent of either or both of such ratings by the
applicable Rating Agencies, (C) if not AA/aa or above or
A/a, then BBB/baa, if the shares of STRAPS have ratings of
BBB- or better by Standard & Poor's and "baa3" or better by
Moody's or the equivalent of either or both of such ratings
by the applicable Rating Agencies, (D) if not AA/aa or
above, A/a, or BBB/baa, then BB/ba if the shares of STRAPS
have a rating of BB- or better by Standard & Poor's and
Hba3 H or better by Moody's or the equivalent of either or
both of such ratings by the applicable Rating Agencies, and
(E) if not AA/aa or above, A/a, BBB/baa or BB/ba, then below
BB/ba. In the event of credit ratings in different
categories, the lower credit rating shall control.
"Purchaser's Letter" means a purchaser's letter in
which a Person agrees, among other things, to offer to
purchase, purchase, offer to sell and/or sell shares of
STRAPS as set forth in this paragraph 8.
28
"Securities Depository" means the securities
depository
appointed as such by the Corporation pursuant to paragraph
7(b) that agrees to follow the procedures required to be
followed by such securities depository in connection with
shares of STRAPS.
"Sell Order" has the meaning specified in paragraph
8(b)(i) below.
"STRAPS" means Series A STRAPS, Series B STRAPS,
Series
C STRAPS or Series D STRAPS, as the case may be.
"Submission Deadline" means 1:00 p.m., New York City
Time, on any Auction Date or such other time on any Auction
Date by which Broker-Dealers are required to submit Orders
to the Auction Agent as from time to time specified by the
Auction Agent, with the consent of the Corporation, which
consent shall not be unreasonably withheld.
"Submitted Bid" has the meaning specified in
paragraph
8(d)(i) below.
"Submitted Hold Order" has the meaning specified in
paragraph 8(d)(i) below.
"Submitted Order" has the meaning specified in
paragraph 8(d)(i) below.
"Submitted Sell Order" has the meaning specified in
paragraph 8(d)(i) below.
"Sufficient Clearing Bids" has the meaning specified
in
paragraph 8(d)(i) below.
"Winning Bid Rate" has the meaning specified in
paragraph 8(d)(i) below.
(b) Orders by Existing Holders and Potential Holders.
(i) On or prior to the Submission Deadline on each
Auction Date:
(A) each Existing Holder may submit to a Broker-
Dealer information as to:
(1) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder desires to continue to
hold without regard to the Applicable Rate for the
next succeeding Dividend Period;
(2) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder desires to continue to
hold, provided that the Applicable Rate for the
next succeeding Dividend Period shall not be less
than the rate per annum specified by such Existing
Holder; and/or
(3) the number of Outstanding shares,
if any, of STRAPS held by such Existing Holder
which such Existing Holder offers to sell without
regard to the Applicable Rate for the next
succeeding Dividend Period; and
(B) each Broker-Dealer, using a list of Potential
Holders that shall be maintained by such Broker-Dealer in
good faith for the purpose of conducting a competitive
Auction, shall contact Potential Holders, including Persons
who are not Existing Holders, on such list to determine the
number of Outstanding shares, if any, of STRAPS which each
such Potential Holder offers to purchase, provided that the
Applicable Rate for the next succeeding Dividend Period
shall not be less than the rate per annum specified by such
Potential Holder.
For the purposes hereof, the communication to a Broker-Dealer
of the information referred to in clause (A) or (B) of this
paragraph 8(b)(i) is hereinafter referred to as an "Order" and
each Existing Holder and each Potential Holder placing an Order
is hereinafter referred to as a "Bidder"; an Order containing the
information referred to in clause (A)(1) of this paragraph
8(b)(i) is hereinafter referred to as a "Hold Order"; an Order
containing the information referred to in clause (A)(2) or (B) of
this paragraph 8(b)(i) is hereinafter referred to as a "Bid"; and
an Order containing the information referred to in clause (A)(3)
of this paragraph 8(b)(i) is hereinafter referred to as a "Sell
Order".
(ii) (A) A Bid by an Existing Holder shall constitute
an irrevocable offer to
(1) the number of Outstanding shares of
STRAPS specified in such Bid if the Applicable Rate
determined on such Auction Date shall be less than the
rate specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of STRAPS determined as set forth in
paragraph 8(e)(i)(D) if the Applicable Rate determined
on such Auction Date shall be equal to the rate
specified in such Bid; or
30
(3) such number or a lesser number of
Outstanding shares of STRAPS to be determined as set
forth in paragraph 8(e)(ii)(C) if the rate specified in
such Bid shall be higher than the Maximum Rate and
Sufficient Clearing Bids have not been made.
(B) A Sell Order by an Existing Holder shall
constitute an irrevocable offer to sell:
(1) the number of Outstanding shares of
STRAPS specified in such Sell Order; or
(2) such number or a lesser number of
Outstanding shares of STRAPS as set forth in paragraph
8(e)(ii)(C) if Sufficient Clearing Bids have not been
made.
(C) A Bid by a Potential Holder shall constitute
an irrevocable offer to purchase:
(1) the number of Outstanding shares of
STRAPS specified in such Bid if the Applicable Rate
determined on such Auction Date shall be higher than
the rate specified in such Bid; or
(2) such number or a lesser number of
Outstanding shares of STRAPS as set forth in paragraph
8(e)(i)(E) if the Applicable Rate determined on such
Auction Date shall be equal to the rate specified in
such Bid.
(c) Submission of Orders by Broker-Dealers to Auction
Agent.
(i) Each Broker-Dealer shall submit in writing to
the Auction Agent prior to the Submission Deadline on each
Auction Date all Orders obtained by such Broker-Dealer and
shall specify with respect to each Order;
(A) the name of the Bidder placing such
Order;
(B) the aggregate number of Outstanding
shares of STRAPS that are the subject of such Order;
(C) to the extent that such Bidder is an
Existing Holder:
(1) the number of Outstanding shares,
if any, of STRAPS subject to any Hold Order placed
by such Existing Holder; and
(2) the number of Outstanding shares,
if any, of STRAPS subject to any Bid placed by
such Existing Holder and the rate specified in
such Bid; and
(3) the number of Outstanding shares,
if any, of STRAPS subject to any Sell Order placed
by such Existing Holder; and
(D) to the extent that such Bidder is a
Potential Holder, the rate specified in such Potential
Holder's Bid.
(ii) If any rate specified in any Bid contains
more than three digits to the right of the decimal point,
the Auction Agent shall round such rate up to the next
highest one-thousandth (.001) of 1%.
(iii) (A) With respect to an Auction for a
Dividend Period immediately succeeding a Long-Term Dividend
Period and for each Auction thereafter until an Auction
occurs at which Sufficient Clearing Bids exist, if a Bid or
a Hold Order covering all of the Outstanding shares of
STRAPS held by an Existing Holder is not submitted to the
Auction Agent prior to the Submission Deadline, the Auction
Agent shall deem a Sell Order to have been submitted on
behalf of such Existing Holder covering the number of
Outstanding shares of STRAPS held by such Existing Holder
not subject to a Bid or Hold Order submitted to the Auction
Agent and (B) with respect to any other Auction, if an Order
or Orders covering all of the Outstanding shares of STRAPS
held by an Existing Holder is not submitted to the Auction
Agent prior to the Submission Deadline, the Auction Agent
shall deem a Hold Order to have been submitted on behalf of
such Existing Holder covering the number of Outstanding
shares of STRAPS held by such Existing Holder and not
subject to Orders submitted to the Auction Agent.
(iv) If one or more Orders covering in the
aggregate more than the number of Outstanding shares of
STRAPS held by an Existing Holder are submitted to the
Auction Agent, such Order or Orders shall be considered
valid as follows and in the following order of priority:
(A) any Hold Order submitted on behalf of
such Existing Holder shall be considered valid up to
and including the number of Outstanding shares of
STRAPS held by such Existing Holder; provided that if
more than one Hold Order is submitted on behalf of such
Existing Holder and the number of shares of STRAPS
subject to such Hold Orders exceeds the number of
Outstanding shares of STRAPS held by such Existing
32
Holder, the number of shares of STRAPS subject to such
Hold Orders shall be reduced pro rata so that such Hold
Orders shall cover the number of Outstanding shares of
STRAPS held by such Existing Holder;
(B) (1) any Bid shall be considered valid
up to and including the excess of the number of
Outstanding shares of STRAPS held by such Existing
Holder over the number of shares of STRAPS subject to
Hold Orders referred to in paragraph 8(c)(iv)(A),
(2) subject to subclause (1) above, if
more than one Bid specifying the same rate is submitted
on behalf of such Existing Holder and the number of
Outstanding shares of STRAPS subject to such Bids is
greater than such excess, the number of shares of
STRAPS subject to such Bids shall be reduced pro rata
so that such Bids shall cover the number of shares of
STRAPS equal to such excess, and
(3) subject to subclause (1) above, if
more than one Bid specifying different rates is
submitted on behalf of such Existing Holder, such Bids
shall be considered valid in the ascending order of
their respective rates and in any such event the
number, if any, of such Outstanding shares subject to
Bids not valid under this clause (B) shall be treated
as the subject of a Bid by a Potential Holder; and
(C) any Sell Order shall be considered valid
up to and including the excess of the number of
Outstanding shares of STRAPS held by such Existing
Holder over the number of shares of STRAPS subject to
Hold Orders referred to in paragraph 8(c)(iv)(A) and
Bids referred to in paragraph 8(c)(iv)(B).
(v) If more than one Bid is submitted on behalf
of any Potential Holder, each Bid submitted shall be a
separate Bid with the rate and the number of shares of
STRAPS therein specified.
(d) Determination of Sufficient Clearing Bids, Winning
Bid Rate and Applicable Rate.
(i) The Auction Agent shall assemble all Orders
submitted or deemed submitted to it by the Broker-Dealers
(each such Order as submitted or deemed submitted by a
Broker-Dealer being hereinafter referred to individually as
a "Submitted Hold Order," a "Submitted Bid" or a "Submitted
Sell Order," as the case may be, or as a "Submitted Order")
and shall, after the Submission Deadline on each Auction
Date, determine:
(A) the excess of the total number of
Outstanding shares of STRAPS over the number of
Outstanding shares of STRAPS that are the subject of
Submitted Hold Orders (such excess being hereinafter
to as the "Available STRAPS");
(B) from the Submitted Orders whether:
(1) the number of Outstanding shares of
STRAPS that are the subject of Submitted Bids by
Potential Holders specifying one or more rates
equal to or lower than the Maximum Rate exceeds or
is equal to:
(2) the sum of (x) the number of
Outstanding shares of STRAPS that are the subject
of Submitted Bids by Existing Holders specifying
one or more rates higher than the Maximum Rate and
(y) the number of Outstanding shares of STRAPS
that are the subject of Submitted Sell Orders (if
such excess or such equality exists (other than
because the number of shares of STRAPS in
subclauses (x) and (y) above are each zero because
all of the Outstanding shares of STRAPS are the
subject of Submitted Hold Orders), such Submitted
Bids in subclause (1) above being hereinafter
referred to collectively as "Sufficient Clearing
Bids"); and
(C) If Sufficient Clearing Bids have been
made, the lowest rate specified in the Submitted Bids
(the "Winning Bid Rate") that, if:
(1) each Submitted Bid from Existing
Holders specifying such lowest rate and all other
Submitted Bids from Existing Holders specifying
lower rates were rejected, thus entitling such
Existing Holders to continue to hold the shares of
STRAPS that are the subject of such Submitted
Bids, and
(2) each Submitted Bid from Potential
Holders specifying such lowest rate and all other
Submitted Bids from Potential Holders specifying
lower rates were accepted, thus requiring such
Potential Holders to purchase the shares of STRAPS
that are the subject of such Submitted Bids,
would result in the number of shares subject to all
Submitted Bids specifying such lowest rate or such
lower rates being not less than the Available STRAPS.
34
(ii) Promptly after the Auction Agent has made the
determinations pursuant to paragraph 8(d)(i), the Auction
Agent shall advise the Corporation of the Maximum Rate and
the Applicable Rate for the next succeeding Dividend Period,
which shall be determined as follows:
(A) If Sufficient Clearing Bids have been
made, the Applicable Rate for the next succeeding
Dividend Period shall be equal to the Winning Bid Rate
so determined;
(B) If Sufficient Clearing Bids have not
been made (other than because all the Outstanding
shares of STRAPS are the subject of Submitted Hold
Orders), in an Auction for a Short-Term Dividend Period
(regardless of whether such Dividend Period is a Short-
Term Dividend Period because the Corporation did not
submit a Notice of Dividend Period, selected a Short-
Term Dividend Period in its Notice of Dividend Period
or submitted a Notice of Revocation earlier than two
hours prior to the Submission Deadline or because
Sufficient Clearing Bids did not exist at the previous
Auction) or if the Auction is not held for any reason,
(i) notwithstanding any Notice of Dividend Period
submitted with respect thereto, such next succeeding
Dividend Period will be a Short-Term Dividend Period
and (ii) the Applicable Rate for the next succeeding
Dividend Period will be the Maximum Rate on the Auction
Date for a Short-Term Dividend Period;
(C) If Sufficient Clearing Bids have not
been made (other than because all of the Outstanding
shares of STRAPS are the subject of Submitted Hold
Orders) in an Auction for a Long-Term Dividend Period
or if the Auction is not held for any reason, then (i)
notwithstanding any Notice of Dividend Period submitted
with respect thereto, such next succeeding Dividend
Period will be a Short-Term Dividend Period, (ii) the
Applicable Rate for the next succeeding Dividend Period
will be the Maximum Rate on the Auction Date for a
Short-Term Dividend Period and (iii) the Corporation
may not again give a Notice of Dividend Period
selecting a Long-Term Dividend Period until Sufficient
Clearing Bids have been made with respect to a Short-
Term Dividend Period; or
(D) if all of the Outstanding shares of
STRAPS are the subject of Submitted Hold Orders, the
Applicable Rate for the next succeeding Dividend Period
shall be equal to (i) for a Short-Term Dividend Period,
59% of the 60-day "AA" Composite Commercial Paper Rate
on the date of such Auction or (ii) for a Long-Term
Dividend Period, 50% of the Applicable Treasury Rate on
the date of such Auction.
(e) Acceptance and Rejection of Submitted Bids and
Submitted Sell Orders and Allocation of Shares. Based on the
determinations made pursuant to paragraph 8(d)(i), the Submitted
Bids and Submitted Sell Orders shall be accepted or rejected and
the Auction Agent shall take such other action as set forth
below:
(i) If Sufficient Clearing Bids have been made,
subject to the provisions of paragraph 8(e)(iv) and
paragraph 8(e)(v), Submitted Bids and Submitted Sell Orders
shall be accepted or rejected in the following order of
priority and all Submitted Bids to the extent not accepted
as provided in this clause (i) shall be rejected:
(A) the Submitted Sell Orders of Existing
Holders shall be accepted and the Submitted Bid of each
of the Existing Holders specifying any rate that is
higher than the Winning Bid Rate shall be accepted,
thus requiring each such Existing Holder to sell the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(B) the Submitted Bid of each of the
Existing Holders specifying any rate that is lower than
the Winning Bid Rate shall be rejected, thus entitling
each such Existing Holder to continue to hold the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(C) the Submitted Bid of each of the
Potential Holders specifying any rate that is lower
than the Winning Bid Rate shall be accepted, thus
requiring each such Potential Holder to purchase the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid;
(D) the Submitted Bid of each of the
Existing Holders specifying a rate that is equal to the
Winning Bid Rate shall be rejected, thus entitling each
such Existing Holder to continue to hold the
Outstanding shares of STRAPS that are the subject of
such Submitted Bid, unless the number of Outstanding
shares of STRAPS that are the subject of such Submitted
Bids shall be greater than the number of shares of
STRAPS ("remaining shares") equal to the excess of the
Available STRAPS over the number of shares of STRAPS
subject to Submitted Bids described in paragraph
8(e)(i)(B) and paragraph 8(e)(i)(C), in which event the
Submitted Bids of each such Existing Holder shall be
accepted, and each such Existing Holder shall be
required to sell Outstanding shares of STRAPS, but only
in an amount equal to the difference between (1) the
number of Outstanding shares of STRAPS then held by
such Existing Holder subject to such Submitted Bid and
(2) the number of shares of STRAPS obtained by
multiplying (x) the number of the remaining shares by
(y) a fraction, the numerator of which shall be the
number of Outstanding shares of STRAPS held by such
Existing Holder subject to such Submitted Bid and the
denominator of which shall be the sum of the number of
Outstanding shares of STRAPS subject to such Submitted
Bids made by all such Existing Holders that specified a
rate equal to the Winning Bid Rate; and
(E) the Submitted Bid of each of the
Potential Holders specifying a rate that is equal to
the Winning Bid Rate shall be accepted but only in an
amount equal to the number of Outstanding shares of
STRAPS obtained by multiplying (x) the difference
between the Available STRAPS and the number of
Outstanding shares of STRAPS subject to Submitted Bids
described in paragraph 8(e)(i)(B), paragraph 8(e)(i)(C)
and paragraph 8(e)(i)(D) by (y) a fraction, the
numerator of which shall be the number of Outstanding
shares of STRAPS subject to such Submitted Bid and the
denominator of which shall be the sum of the number of
Outstanding shares of STRAPS subject to such Submitted
Bids made by all such Potential Holders that specified
rates equal to the Winning Bid Rate.
(ii) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding shares of
STRAPS are subject to Submitted Hold Orders) in an Auction
for a Short-Term Dividend Period (regardless of whether such
Dividend Period is a Short-Term Period because the
Corporation did not submit a Notice of Dividend Period,
selected a Short-Term Dividend Period in its Notice of
Dividend Period or submitted a Notice of Revocation earlier
than two hours prior to the Submission Deadline or because
Sufficient Clearing Bids did not exist at the previous
Auction), subject to the provisions of paragraph 8(e)(iv),
Submitted Orders shall be accepted or rejected as follows in
the following order of priority and all Submitted Bids to
the extent not accepted as provided in this clause (ii)
shall be rejected:
(A) the Submitted Bid of each Existing
Holder specifying any rate that is equal to or lower
than the Maximum Rate shall be rejected, thus entitling
such Existing Holder to continue to hold the shares of
STRAPS that are the subject of such Submitted Bid;
37
(B) the Submitted Bid of each Potential
Holder specifying any rate that is equal to or lower
than the Maximum Rate shall be accepted, thus requiring
such Potential Holder to purchase the shares of STRAPS
that are the subject of such Submitted Bid; and
(C) the Submitted Bid of each Existing
Holder specifying any rate that is higher than the
Maximum Rate shall be accepted, thus requiring each
such Existing Holder to sell the Outstanding shares of
STRAPS that are the subject of such Submitted Bid, and
the Submitted Sell Order of each Existing Holder shall
be accepted, in both cases only in an amount equal to
the difference between (1) the number of Outstanding
shares of STRAPS then held by such Existing Holder
subject to such Submitted Bid or Submitted Sell Order
and (2) the number of shares of STRAPS obtained by
multiplying (x) the difference between the Available
STRAPS and the aggregate number of shares of STRAPS
subject to Submitted Bids described in paragraph
8(e) (ii)(A) and paragraph 8(e) (ii) (B) by (y) a
fraction, the numerator of which shall be the number of
Outstanding shares of STRAPS held by such Existing
Holder subject to such Submitted Bid or Submitted Sell
Order and the denominator of which shall be the number
of Outstanding shares of STRAPS subject to all such
Submitted Bids and Submitted Sell Orders.
(iii) If Sufficient Clearing Bids have not been
made (other than because all of the Outstanding shares of
STRAPS are subject to Submitted Hold Orders) in an Auction
for a Long-Term Dividend Period:
(A) Each Existing Holder that placed a
Submitted Bid or a Submitted Hold Order (regardless of
the rate specified therein) will continue to hold all
Outstanding shares of STRAPS held by such Existing
Holder immediately prior to the applicable Auction;
(B) Each Submitted Bid placed by a Potential
Holder will be rejected;
(C) The next succeeding Dividend Period will
be a Short-Term Dividend Period; and
(D) The Corporation may not again give a
Notice of Dividend Period selecting a Long-Term
Dividend Period (and any such notice shall be null and
void) until Sufficient Clearing Bids have been made in
an Auction with respect to a Short-Term Dividend
Period.
(iv) If, as a result of the procedures described
in paragraph 8(e)(i) and paragraph 8(e)(ii), any Existing
Holder would be entitled or required to sell, or any
Potential Holder would be entitled or required to purchase,
a fraction of a share of STRAPS on any Auction Date, the
Auction Agent shall, in such manner as, in its sole
discretion, it shall determine, round up or down the number
of shares of STRAPS to be purchased or sold by any Existing
Holder or Potential Holder on such Auction Date so that the
number of shares purchased or sold by each Existing Holder
or Potential Holder on such Auction Date shall be whole
shares of STRAPS.
(v) If, as a result of the procedures described
in paragraph 8(e)(i), any Potential Holder would be entitled
or required to purchase less than a whole share of STRAPS on
any Auction Date, the Auction Agent shall, in such manner
as, in its sole discretion, it shall determine, allocate
shares for purchase among Potential Holders so that only
whole shares of STRAPS are purchased on such Auction Date by
any Potential Holder, even if such allocation results in one
or more of such Potential Holders not purchasing shares of
STRAPS on such Auction Date.
(vi) Based on the results of each Auction, the
Auction Agent shall determine the number of shares of STRAPS
to be purchased and the aggregate number of shares of STRAPS
to be sold by Potential Holders and Existing Holders on
whose behalf each Broker-Dealer submitted Bids or Sell
Orders, and, with respect to each Broker-Dealer, to the
extent that such aggregate number of shares to be purchased
and such aggregate number of shares to be sold differ,
determine to which other Broker-Dealer or Broker-Dealers
acting for one or more purchasers such Broker Dealer shall
deliver, or from which other Broker-Dealer or Broker-Dealers
acting for one or more sellers such Broker-Dealer shall
receive, as the case may be, Outstanding shares of STRAPS.
(vii) In no circumstance shall an Existing Holder
be required to sell shares of STRAPS that are subject to a
Hold Order submitted (or deemed to be submitted) by such
Existing Holder.
(f) Miscellaneous. The Board of Directors may
interpret the provisions of this paragraph 8 to resolve any
inconsistency or ambiguity. Neither the Corporation nor any
Affiliate shall submit any Order in any Auction. At the time of
the initial Auction for any Series of STRAPS, all of the
Outstanding shares of such series of STRAPS shall, to the extent
then required by the Securities Depository, be represented by a
single certificate, registered in the name of the nominee of the
Securities Depository. Neither the Corporation nor any of its
agents, including, without limitation, the Auction Agent, shall
have any liability with respect to the failure of a Potential
Holder, Existing Holder or Agent Member to deliver, or to pay
for, shares of STRAPS sold or purchased in an Auction or
otherwise.
(g) Headings of Subdivisions. The headings of the
various subdivisions of this paragraph 8 are for convenience of
reference only and shall not affect the interpretation of any of
the provisions hereof.
40
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING FOUR SERIES OF PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a Colorado
corporation (the "Corporation"), hereby submits the following
statement for the purpose of establishing and designating four
series of preferred stock and fixing and determining the relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity
Insurance Company.
2. On September 18, 1991, the following resolution
establishing and designating four series of shares of the
Corporation's preferred stock was duly adopted by the Board of
Directors of the Corporation pursuant to authority conferred upon
the Board by the Corporation's Articles of Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes four series of
Stated Rate Auction Preferred Stock in
accordance with the terms set forth in
Exhibit A attached hereto [a copy of which is
attached to this Statement of Resolution and
is incorporated herein by this reference],
and authorizes the officers of the
Corporation to file this resolution with the
Colorado Secretary of State in accordance
with the Colorado Corporation Code.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: September 18, 1991 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
COUNTY OF
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President of Great-West Life & Annuity Insurance
Company, a Colorado corporation, and that he signed the foregoing
Statement of Resolution Establishing Four Series of Preferred
Stock as his voluntary act and deed, and that the facts contained
therein are true.
In witness whereof, I have hereunto set my hand and
seal this 18th day of September, 1991.
Notary Public
My commission expires:
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado
corporation, hereby consents to the following corporate action
which shall, pursuant to Section 7-4-122 of the Colorado
Corporation Code, have the same force and effect as unanimous
action taken at a duly called and held meeting of shareholders:
"Resolved, that the Amendment to the Articles
of Redomestication of GWL&A, in the form
attached hereto, and the filing thereof with
the appropriate government authorities, are
hereby approved."
September 18, 1991 GREAT-WEST LIFE FINANCIAL
CORP.
Per:
O.T. Dackow, President and
Chief Executive Officer
Per:
W. T. McCallum, Executive
Vice President and
Chief Executive Officer
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the "Corpora-
tion") hereby adopts the following Articles of Amendment to its
Articles of Redomestication:
FIRST: the name of the Corporation is Great-West Life
& Annuity Insurance Company.
SECOND: the amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the Corp-
oration on September 18, 1991. The number of shares voted for
the Amendment was sufficient for approval.
THIRD: the amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the Corpo-
ration.
FOURTH: the amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: September 18, 1991 By:
William T. McCallum, its Presi-
dent & Chief Executive Officer
By:
D. Craig Lennox, its Senior Vice
President, General Counsel and
Secretary
<PAGE>
STATE OF COLORADO )
COUNTY
Before me, , a notary
public, personally appeared William T. McCallum, who acknowledged
that he is the President of Great-West Life & Annuity Insurance
Company, a Colorado corporation, and that he signed the foregoing
Articles of Amendment to Articles of Redomestication as his
voluntary act and deed, and that the facts contained therein are
true.
In witness whereof, I have hereunto set my hand and
seal this 18th day of September, 1991.
Notary Public
My commission expires:
<PAGE>
Exhibit
1
Great-West Life & Annuity Insurance Company hereby
amends and restates ARTICLE IX of its Articles of Redomestication
to read in its entirety as follows:
ARTICLE IX
AUTHORIZED CAPITAL STOCK
The total number of shares of all classes of capital
stock which the corporation is authorized to issue is 100,000,000
shares, of which 50,000,000 shares shall be Common Stock, of a
par value of $1 (one dollar) per share (the "Common Stock"), and
50,000,000 shares shall be Preferred Stock, of a par value of $1
(one dollar) per share (the "Preferred Stock").
A. COMMON STOCK
The powers, designations, preferences and relative,
participating, optional or other special rights (and the quali-
fications, limitations or restriction6 thereof) in respect of the
Common Stock are as follows:
1. Rank. The Common Stock shall rank junior to the
Preferred Stock with respect to payment of dividends and distri-
bution6 on liquidation or dissolution and shall have such other
qualifications, limitations or restrictions as provided in this
Article IX.
2. Voting Rights. Except as otherwise expressly pro-
vided by law or as provided for any series ff Preferred Stock by
the board of directors of the corporation in accordance with this
Article IX, all voting rights shall be vested in the holders of
shares of the Common Stock, and at every meeting of stockholders
of the corporation (or with respect to any action by written
consent in lieu of a meeting of stockholders), each share of
Common Stock shall be entitled to one vote (whether voted in
person by the holder thereof or by proxy or pursuant to a stock-
holders' consent) on all matters to come before such meeting of
the stockholders of the corporation.
3. Dividend and Liquidation Preference as between the
Common Stock and the Preferred Stock. For 80 long as any shares
of Preferred Stock are outstanding, the corporation shall not
declare, pay or set apart for payment any dividend or other
distribution (other than any dividend or distribution payable
solely in shares of Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock as to
dividends and liquidation) in respect of the Common Stock or any
other stock of the corporation ranking junior to the shares of
Preferred Stock as to dividends or upon liquidation, or call for
redemption, redeem, purchase or otherwise acquire for consider-
ation any shares of the Common Stock or any other stock of the
<PAGE>
corporation ranking junior to the shares of Preferred Stock as to
dividends or upon liquidation, unless (i) full cumulative
dividends on all shares of Preferred Stock for all past dividend
periods have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment of
such dividends, and (ii) the corporation has redeemed the full
number of shares of Preferred Stock, if any, it is then obligated
to redeem in accordance with the terms of any series of Preferred
Stock as fixed by the board of directors of the corporation in
accordance with this Article IX.
4. Assets Remaining After Liquidation. In the event
of the dissolution, liquidation or winding up of the corporation,
whether voluntary or involuntary, after payment in full of the
amounts, if any, required to be paid to the holders of the Pre-
ferred Stock, the holders of shares of the Common Stock shall be
entitled, to the exclusion of the holders of shares of the Pre-
ferred Stock, to share ratably in all remaining assets of the
corporation.
B. PREFERRED STOCK
1. The Preferred Stock may be divided into and issued
in series. The board of directors of the corporation is autho-
rized to divide the authorized shares of Preferred Stock into one
or more series, each of which shall be 60 designated as to dis-
tinguish the shares thereof from the shares of all other series
and classes. The board of directors of the corporation is
authorized, within any limitations prescribed by law and this
Article IX, to fix and determine the designations, rights, quali-
fications, preferences, limitations and terms of the shares of
any series of Preferred Stock including but not limited to the
following:
(a) The rate of dividend, the time of payment of
dividends, whether dividends are cumulative, and the date
from which any dividends shall accrue;
(b) Whether shares may be redeemed, and, if so, the
redemption price and the terms and conditions of redemption;
(c) The amount payable upon shares in event of
invol-
untary liquidation;
(d) The amount payable upon shares in event of
volun-
tary liquidation;
(e) Sinking fund or other provisions, if any, for
the
redemption or purchase of shares;
(f) The terms and conditions on which shares may be
converted, if the shares of any series are issued with the
privilege of conversion;
2
<PAGE>
(g) Voting powers, if any; and
(h) Such other terms, qualifications, privileges,
limitations, options, restrictions, and special or relative
rights and preferences, if any, of shares of such series as
the board of directors of the corporation may, at the time
so acting, lawfully fix and determine under the laws of the
State of Colorado.
2. No Dividend Preference Between Series of Preferred
Stock. No dividends shall be declared on shares of any series of
Preferred Stock for any dividend period or part thereof unless
full cumulative dividends have been or contemporaneously are
declared on the shares of each other series of Preferred Stock
through the mo t recent dividend payment date for each such other
series. If at any time any accrued dividends on shares of any
series of Preferred Stock have not been paid in full, then the
corporation will, if paying any dividends on any shares of any
series of Preferred Stock, pay dividends on shares of all series
of Preferred Stock pro rata in proportion to the sums which would
be payable on such series if all accrued but unpaid dividends, if
any, were declared and paid in full. Dividends on any series of
Preferred Stock shall be cumulative only to the extent provided
in the terms of that series.
3. Liquidation Preference. (a) In the event of any
liquidation, dissolution or winding up of the affairs of the
corporation, whether voluntary or involuntary, holders of shares
of any series of Preferred Stock shall be entitled to receive,
out of the assets of the corporation available for distribution
to stockholders after satisfying claims of creditors but before
any payment or distribution on the Common Stock or on any other
class of stock ranking junior to the shares of Preferred Stock
upon liquidation, a liquidation distribution per share in the
amount of the liquidation preference fixed or determined in
accordance with the terms of the shares of such series of Pre-
ferred Stock plus, if so provided in such terms, an amount equal
to accumulated and unpaid dividends on each share of such series
(whether or not earned or declared) to the date of such dis-
tribution. If upon any voluntary or involuntary liquidation,
dissolution or winding up of the corporation, the assets of the
corporation are insufficient to pay in full the holders of shares
of any series of Preferred Stock the preferential amount to which
they are entitled, holders of shares of all series of Preferred
Stock will share ratably in any such distribution of such assets
in accordance with the respective amounts which would be payable
on such shares if all amounts payable thereon were paid in full.
Unless and until payment in full has been made to holders of
shares of all series of Preferred Stock of the liquidation dis-
tributions to which they are entitled as provided in this Article
IX, no dividends or distributions will be made to holders of the
Common Stock or any other stock ranking junior to the shares of
any series of Preferred Stock on liquidation and no purchase,
3
<PAGE>
redemption or other acquisition for any consideration by the
corporation will be made in respect of the Common Stock or any
stock ranking junior to the shares of any series of Preferred
Stock upon liquidation. After the payment to all holders of
series of Preferred Stock of the full amount of the liquidation
distributions to which they are entitled pursuant to the
preceding sentences, such holders (in their capacity as such
holders) shall have no right or claim to any of the remaining
assets of the corporation.
(b) Neither the sale, lease or exchange (for cash,
stock, securities or other consideration) of all or substantially
all of the property and assets of the corporation, nor the con-
solidation or merger of the corporation with or into any other
entity, nor the merger or con601idation of any other entity with
or into the corporation, shall be deemed to be a dissolution,
liquidation or winding up, voluntary or involuntary, for the
purposes of this Article IX.
4. Conversion Rights. Preferred Stock of any series
may be convertible into shares of any other class or into shares
of any series of the same or any other class, except as may
otherwise be limited by law, if the terms and conditions of such
conversion are fixed and determined by the board of directors of
the corporation in establishing such series of Preferred Stock.
5. Dividend Rate Periods of the Preferred Stock. The
periods during which a dividend rate would be applicable for any
series of the Preferred Stock shall be determined in accordance
with the terms of that series. Such terms may provide that the
board of directors of the corporation shall have the discretion
to establish the duration of the period during which a dividend
rate would be applicable. Such terms may provide that a dividend
rate may be applicable during all or part of the time any shares
of such series are outstanding. If a dividend rate is applicable
during only part of the time any shares of a series are
outstanding, such terms may provide that the board of directors
of the corporation may select, from time to time, one or more
subsequent time periods of the same or varying lengths during
which a dividend rate will be applicable; provided, that the
board of directors of the corporation at the time of establishing
such series shall state in the terms of such series a minimum and
a maximum length for such time periods.
6. Redemption Provisions. (a) Shares of any series
of the Preferred Stock shall be subject to the right of the
corporation to redeem any of such shares if so provided in the
terms of such series. Such terms may provide that the board of
directors of the corporation may change from time to time, the
redemption terms and conditions including the redemption price,
for shares of such series, provided, that the board of directors
of the corporation at the time of establishing such series shall
4
<PAGE>
state in the terms of such series a minimum and a maximum
redemption price.
(b) The corporation shall not purchase or otherwise
acquire any shares of any series of Preferred Stock while any
accumulated and unpaid dividends exist with respect to such
series or any other series of Preferred Stock, unless
contemporaneously with such purchase or acquisition such
accumulated and unpaid dividends are (i) paid or (ii) declared
and a sum sufficient irrevocably deposited with the paying agent
for payment of such dividends; provided, however, that the
corporation may purchase or otherwise acquire shares pursuant to
a voluntary purchase or exchange offer made on an equal basis to
all holders of shares of all series of Preferred Stock.
5
<PAGE>
Mr. Bruce N. Smith, Deputy Commissioner
Colorado Insurance Division
303 West Colfax, 5th Floor
Denver, CO 80204
October 16, 1991
Re: Great-West Life & Annuity Insurance Company
Amendment to Articles of Redomestication
and Statement of Resolution
Dear Mr. Smith:
On October 9, 1991, I filed with your office a certified
copy of Great-West Life & Annuity Insurance
Company's ("Company") Articles of Amendment to Articles of
Redomestication and Statement of Resolution
establishing four series of preferred stock as set forth in
Exhibit A attached thereto. The Secretary of State's
certification is dated October 2, 1991, File #911078115.
In order to complete our corporate records, I would
appreciate, by your signature below, or by any
other appropriate certification from the Insurance Division,
affirmative indication that the Company has met
all requirements of Section 10-3-101(3) as to the filings of
Amended Articles of Incorporation and that thee
Commissioner, with the advice of the Attorney General, finds
the Company's Articles of Amendment to
Articles of Redomestication and Statement of Resolution to
be legally adopted and in due legal form and not
in conflict with the provisions of law governing the
Company.
Sincerely,
Ruth B. Lurie
Vice President and
Counsel
APPROVED:
COLORADO INSURANCE DIVISION
By:
Printed Name &
title: Bruce Smith. Deputy Commissioner
Date:
<PAGE>
pc: Frank Dino, Chief of Corporate Affairs, State of
Colorado Division of Insurance, 303 West Colfax
Avenue, Suite 500, Denver, Colorado 80204
<PAGE>
Great -West
LIFE & ANNUITY INSURANCE COMPANY
HAND DELIVERED
Bruce Smith, Deputy Commissioner
State of Colorado Division of Insurance
Department of Regulatory Agencies
First Western Plaza
303 West Colfax Avenue, Suite 500
Denver, Colorado 80204
Dear Mr. Smith:
September 19, 1991
I am writing on behalf of Great-West Life & Annuity
Insurance
Company ("GWL&A") in connection with the contemplated
issuance by
GWL&A of preferred shares later this month to Great-West Life
Financial Corp. ("Financial"). This filing is a replacement,
with
minor changes as noted below, for the July 23, 1991 filing.
We have enclosed three executed copies of (1) an amendment
to
the Articles of Redomestication of GWL&A, and three executed
copies
of (2) a Statement of Resolution, each of which is to be
filed with
the Colorado Secretary of State before the new preferred
shares are
issued. Each of these documents has been approved by the
Board of
Directors of GWL&A. These documents are quite similar to
corresponding documents submitted to you last December in
connection with a proposed sale of preferred shares by GWL&A
which
was never consummated.
The enclosed amendment to the Articles is identical to the
amendment submitted last December, except that paragraph 6(a)
has
been modified to provide that no series of preferred stock is
to be
redeemed while a dividend arrearage exists with respect to
any
other series.
The enclosed Statement of Resolution contains various
technical changes from the version submitted last December
and, in
addition, specifies the 8.0% dividend rates which will apply
to the
new preferred shares through the end of 1993. Thereafter, the
dividend rate will be set in accordance with the auction
process.
Colorado counsel for the Company (Dennis Jackson and Mark
Levy
of the Denver firm of Holland & Hart) has participated in the
preparation of the enclosed amendment to Articles and
Statement of
Resolution, and, upon issuance of the new preferred shares,
will
<PAGE>
Bruce Smith, Deputy Commissioner
September 19, 1991
Page 2
render an opinion that they have been validly authorized and issued
under Colorado corporate law.
Of course, despite the complicated mechanics, the new
preferred shares will be equity, and the general preferences of the
new preferred stock with respect to dividends and distributions on
liquidation will be the same as the preferences which would be
applicable to more traditional preferred stock.
The following changes have been made to the July 23 filing:
(1) ARTICLES OF AMENDMENT TO ARTICLES OF
REDOMESTICATION. SECOND. Exhibit A has been changed to
Exhibit 1. to avoid confusion with the Statement of
Resolution Exhibit.
(2) The statutory reference on the Statement of
Resolution has been corrected to read "Section 7-4-102 of
the Colorado Corporation Code," and
(3) Statement of Resolution changes:
(a) p. 9 - changes of initial payment date to
January 1, 1992
(b) p. 15 - the dividend rate is changed to 8% per
annum during the initial long term dividend
period
(c) p. 19 - correction of typographical error.
I would be pleased to answer any questions you may have
concerning the enclosed documents.
Sincerely,
Ruth B. Lurie
Vice President, Counsel
and Associate Secretary
RBL1178C. krlm
Enclosures (to Mr. Dino only)
pc\enc: Frank Dino, Chief of Corporate Affairs, State of Colorado
Division of Insurance, 303 West Colfax Avenue, Suite 500,
Denver, Colorado 80204
<PAGE>
Bruce Smith, Deputy Commissioner
September 19, 1991
Page 3
RBL1178C. knm
bpc: Dennis Jackson, Esq., Holland & Hart, Attorneys at Law,
P. O. Box 8749, Denver, Colorado 80201-8749
Don Stern, Esq., Cleary, Gottlieb, Steen & Hamilton,
One Liberty Plaza, New York, New York 10006
D. Craig Lennox, Sr. V.P., General Counsel & Sec'y, GWL&A,
6T2
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLES OF MERGER
Pursuant to the Provisions of the Colorado
Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Merger:
FIRST: Pursuant to C.R.S. Section 7-7-106, the plan of
merger, attached as Exhibit A, and incorporated into and
made a
part of these Articles of Merger, was approved by unanimous
vote of
the Board of Directors of the Corporation on October 22,
1991.
SECOND: The plan of merger was approved by unanimous
vote of the Board of Directors of Great-West Life Financial
Corp.
("Financial Corp."), the parent corporation and holder of
6,468,217
shares of the Corporation's common stock prior to the
merger, which
stock (1) constitutes more than ninety percent (90%) of the
outstanding shares of common stock of the Corporation, (2)
is the
only class of stock eligible to vote on this issue, and (3)
the
vote of which is sufficient to approve the plan of merger.
THIRD: The Great-West Life Assurance Company ("Great-
West Life"), is the owner of 613,965 shares of the common
stock of
Financial Corp., which number represents all of the issued
and
outstanding shares of Financial Corp. The Board of
Directors of
Great-West Life, acting on its behalf as sole shareholder
of
Financial Corp., has (1) waived prior mailing of the plan
of
merger, and (2) voted unanimously to approve the plan of
merger on
October 24, 1991.
FOURTH: The plan of merger was delivered to Financial
Corp., the parent corporation and shareholder of the
Corporation,
on October 21, 1991.
FIFTH: The Articles of Redomestication of the
Corporation, as amended, to the extent that they are not
affected
by these Articles of Merger, remain unchanged.
SIXTH: These Articles of Merger are to become effective
on December 13, 1991, unless sooner withdrawn by a proper
filing of
a certificate of withdrawal prior to or on such date.
SEVENTH: After the effective date of the merger, the
surviving corporation is Great-West Life & Annuity
Insurance
Company.
<PAGE>
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: November 22, 1991
STATE OF COLORADO )
COUNTY OF ARAPAHOE
By:
William T. McCallum, its President
& Chief Executive Officer
By:
D. Craig Lennox, its Senior Vice-
President, General Counsel
and Secretary
Before me, , a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Merger Amending Articles of Redomestication as his voluntary act
and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and
affixed my
official seal this day of , 1991.
Notary Public
My Commission Expires:
<PAGE>
PLAN AND AGREEMENT OF MERGER
This PLAN AND AGREEMENT OF MERGER ("Agreement") is to be
effective as of December 13, 1991, by and between GREAT-WEST
LIFE
& ANNUITY INSURANCE COMPANY, a Colorado domestic insurance
company
("GWL&A"), and GREAT-WEST LIFE FINANCIAL CORP., a Colorado
holding
company ("Financial Corp."). GWL&A and Financial Corp. shall
sometimes be referred to collectively as the "Constituent
Corporations."
RECITALS
A. GWL&A is a wholly-owned subsidiary of Financial Corp.
As
of the date hereof, GWL&A has 50,000,000 shares of stock
authorized, $1.00 par value, of which 6,468,217 shares are
currently issued and outstanding.
B. Financial Corp. is an insurance holding company wholly
owned by The Great-West Life Assurance Company, a Canadian
corporation ("GWL"), with 100,000,000 shares of stock
authorized,
no par value, with 613,965 shares currently issued and
outstanding.
C. The purpose of this Agreement is to reposition certain
United States operating subsidiaries of GWL as directly owned
subsidiaries of GWL&A.
D. In order to accomplish this, the Boards of Directors of
the Constituent Corporations deem it advisable and in the best
interests of both such corporations and their stockholders
that
Financial Corp. merge with and into GWL&A. The surviving
corporation shall be GWL&A.
NOW, THEREFORE, in consideration of the premises and the
mutual covenants and agreements hereinafter set forth, and for
the
purpose of stating the terms and conditions of the merger, it
is
agreed, subject to the terms and conditions hereinafter set
forth,
as follows:
1. MERGER AND EFFECTIVE DATE. In accordance with the
provisions of the laws of Colorado and subject to the terms
and
conditions of this Agreement, Financial Corp. shall be merged
with
and into GWL&A. The effect of the merger shall be as
prescribed by
Colorado law, and the effective date of the merger shall be
December 13, 1991. The merger shall take place pursuant to the
requirements of Colorado Revised Statutes, Section 10-3-801, et
seq.,
titled Insurance Holding Company Systems, C.R.S. Section 10-3-101,
and
Article 7 of the Colorado Corporate Code.
-1-
<PAGE>
2. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION.
2.1 Directors. The directors of GWL&A in office on the
effective date of the merger shall be the directors of GWL&A
and
shall hold office for the terms for which they have been
elected
until their successors are duly elected and qualified pursuant
to
the bylaws of GWL&A.
2.2 Officers and Committees. All persons who, on the
effective date of the merger, are officers or members of any
committee of GWL&A shall, after the effective date, hold the
same
office in GWL&A as they theretofore held in GWL&A, subject to
the
provisions of the bylaws of GWL&A.
3. CONDITIONS PRECEDENT TO MERGER. The merger shall not be
effective unless and until the following conditions have been
fulfilled:
3.1 Compliance with Holding Company Requirements. The
requirements of C.R.S. S10-3-801, et seq., have been complied
with
and approval of the Colorado Division of Insurance has been
obtained or an exemption therefrom under C.R.S.
Section 10-3-803(8)(C) has
been obtained.
3.2 Shareholder Approval. The merger has been submitted to
and duly approved by The Great-West Life Assurance Company
("GWL")
as the shareholder of Financial Corp.
3.3 Procedure. The procedure established in C.R.S.
S7-7-106
for merging a parent and corporation, including adopting
Articles
of Merger, has been complied with.
3.4 State Regulatory Matters. When all necessary corporate
and other consents, authorizations and approvals of this
Agreement
have been obtained and provided that this Agreement has not
been
terminated, the Constituent Corporations will each cause a
copy of
this Agreement, with officers' certificates of each
Constituent
Corporation along with Articles of Merger pursuant to C.R.S.
S7-7-
106, to be filed with the Colorado Insurance Department in
accordance with C.R.S. S10-3-101. Upon attaining approval of
the
Colorado Department, the Articles of Merger along with the
Plan and
Agreement of Merger shall be filed with the Secretary of State
of
Colorado. The filing of such documents will be coordinated and
accomplished on the same date. Thereafter and without any
further
act or deed, Financial Corp. shall be merged into GWL&A, which
shall continue its corporate existence under the laws of the
State
of Colorado.
3.5 Tax Matters. The merger will qualify as a
reorganization
within the meaning of Section 368 of the Internal Revenue Code
of
1986, as amended (the "Code"). GWL&A shall continue the same
-2-
<PAGE>
business and operations in which it is currently engaged, without
substantial modifications.
4. CONVERSION OF SECURITIES UPON MERGER. On the effective
date, GWL&A will transfer ownership of the 6,468,217 shares of
GWL&A owned by Financial Corp. to GWL in consideration of the
surrender by GWL to GWL&A of the 613,965 shares representing all of
the issued and outstanding shares of stock in Financial Corp.
5. EFFECT OF MERGER. On the effective date, Financial
Corp.
and GWL&A shall be a single corporation, the separate existence of
Financial Corp. shall cease and, in accordance with the terms of
this Agreement, GWL&A shall possess all of the rights, privileges,
powers, immunities and franchises, of both a public and a private
nature, all property, real, personal and mixed, and all and every
other interest of each of the Constituent Corporations, as
effectually as did the respective Constituent Corporations. All
debts due to either of the Constituent Corporations on whatever
account, including stock subscriptions and all other things in
action belonging to each Constituent Corporation shall be vested in
GWL&A without further act or deed. The title to any real estate or
interest therein, vested by deed or otherwise in either of the
Constituent Corporations, shall not revert or be in any way
impaired by reason of the merger. Neither the rights of creditors
nor any liens upon the property of either of the Constituent
Corporations shall be impaired by the merger, and all debts,
liabilities, obligations, restrictions, disabilities and duties of
each of said Constituent Corporations shall thenceforth attach to
GWL&A and may be enforced against it to the same extent as if the
same had been incurred or contracted by it. Any claim existing or
action or proceeding pending by or against either of said
Constituent Corporations may be prosecuted as if the merger had not
taken place or GWL&A may be substituted in its place.
6. TERMINATION OR P0STPONMENT OF MERGER. Notwithstanding
any of the provisions of this Agreement, at any time prior to the
effective date, and notwithstanding the approval hereof by GWL as
the sole shareholder of the Financial Corp., the Board of Directors
of either of the Constituent Corporations may cause the merger and
all transactions contemplated by this Agreement to be abandoned or
delayed for any reason that such Board may deem sufficient and
proper.
7. GENERAL PROVISIONS.
7.1 Further Instruments. Each party shall execute and
deliver all further instruments, documents and papers, and shall
perform any and all acts necessary, to give full force and effect
to all of the terms and provisions of this Agreement
7.2 Severability. If any provision of this Agreement, as
applied to any party or to any circumstance, shall be found by a
<PAGE>
court of competent jurisdiction to be void, invalid or
unenforceable, the same shall in no way affect any other provision
of this Agreement, the application of any such provision in any
other circumstance, or the validity or enforceability of this
Agreement.
7.3 Notices. All notices, statements or demands shall be
in
writing and shall be served in person, by telegraph, by express
mail, by certified mail or by private overnight delivery. Service
shall be deemed conclusively made (a) at time of service, if
personally served, (b) at the time (as confirmed in writing by the
telegraphic agency) of delivery thereof to the addressee, if served
telegraphically, (c) twenty-four (24) hours after deposit in the
United States mail, properly addressed and postage prepaid, if
served by express mail, (d) five (5) days after deposit in the
United States mail, properly addressed and postage prepaid, return
receipt requested, if served by certified mail and (e) twenty-four
(24) hours after delivery by the party giving the notice, statement
or demand to the private overnight deliverer, if served by private
overnight delivery.
Any notice or demand to either of the Constituent
Corporations shall be given to:
Great-West Life & Annuity Insurance Company
Attn: William T. McCallum, President
and Chief Executive Officer
8515 E. Orchard Road
Englewood, Colorado 80112
Great-West Life Financial Corp.
Attn: D. Craig Lennox, Sr. Vice President
and Secretary
8515 E. Orchard Road
Englewood, Colorado 80112
Any party may, by virtue of written notice in compliance with this
Paragraph, alter or change the address or the identity of the
person to whom any notice, or copy thereof, is to be sent.
7.4 Waivers. A waiver by any party of any of the terms
and
conditions of this Agreement in any one instance shall not be
deemed or construed to be a waiver of such term or condition for
the future, or of any subsequent breach thereof, nor shall it be
deemed a waiver of performance of any other obligation hereunder.
7.5 Entire Agreement. This Agreement contains the entire
understanding of the parties hereto relating to the subject matter
hereof and supersedes all prior and collateral agreements,
understandings, statements and negotiations of the parties. Each
party acknowledges that no representations, inducements, promises,
or agreements, oral or written, with reference to the subject
-4-
<PAGE>
matter hereof have been made other than as expressly set forth
herein.
7.6 Successors and Assigns. This Agreement shall be
binding
upon and shall inure to the benefit of the parties hereto and their
respective estates, successors, legal or personal representatives,
heirs, distributees, designees and assigns.
7.7 Governing Law. This Agreement shall be governed by
and
construed in accordance with the laws of the State of Colorado.
7.8 Gender and Number. In all matters of interpretation,
whenever necessary to give effect to any provision of this
Agreement, each gender shall include the other, the singular shall
include the plural, and the plural shall include the singular.
7.9 Paragraph and Subparagraph Headings. The titles of
the
paragraphs of this Agreement are for convenience only and shall not
in any way affect the interpretation of any provision or condition
of this Agreement.
7.10 Third Parties. Except as may be expressly set forth
herein, the parties hereto do not intend to confer any rights or
remedies upon any person other than the parties hereto.
7.11 Legal Action. In the event of any litigation between
or
among the parties hereto respecting or arising out of this
Agreement, the prevailing party or parties shall be entitled to
recover reasonable attorneys' fees and costs, whether or not such
litigation proceeds to final judgment or determination.
7.12 Counterparts. This Agreement may be executed in
counterparts which, taken together, shall constitute the whole of
the Agreement as between the parties.
-5
<PAGE>
IN WITNESS WHEREOF, the parties have executed this
Agreement
the day and year first above written.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY, a
Colorado
corporation
By:
Title: President and Chief
Executive Officer
By:
Senior Vice-President,
Chief
Title: Financial Officer
and Treasurer
GREAT-WEST LIFE FINANCIAL
CORP., a Colorado
corporation
By:
Executive
Vice-President and
Title: Chief
Operating Officer
By:
Senior
Vice-President and
Title: Secretary
-6
<PAGE>
MERGER CONSOLIDATION
CANCELLATION OF LIMITED PARTNERSHIP DUE TO MERGER
DOMESTIC FOREIGN PROFIT XXXX NONPROFIT
GREAT-WEST LIFE FINANCIAL CORP. DP881105091
-
A COLORADO CORPORATION
INTO
GREAT-WEST-LIFE & ANNUITY INSURANCE COMPANY IC871033618
A COLORADO INSURANCE CORPORATION
Delayed Effective date - 12/13/91
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: June 16, 1992 By:
William T. McCallum, President
and Chief Executive Officer
By:
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires:
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
June 16, 1992
THE GREAT-WEST LIFE ASSURANCE
COMPANY
Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado corporation,
hereby consents to the following corporate action which shall,
pursuant to Section 7-4-122 of the Colorado Corporation Code, have
the same force and effect as unanimous action taken at a duly
called and held meeting of shareholders.
RESOLVED, that the Amendment to the Articles of
Redomestication of GWL&A, in the form attached hereto as
Exhibit 1, and the filing thereof with the appropriate
government authorities, are hereby approved.
THE GREAT-WEST LIFE ASSURANCE
COMPANY
June 16, 1992 Per:
O.T. Dackow, President
Per:
D.L. Wooden, Senior Vice-
President and
Chief Financial Officer
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendment set forth on Exhibit 1 attached
hereto was adopted by a vote of the sole shareholder of the
Corporation on June 16, 1992. The number of shares voted
for the
amendments was sufficient for approval.
THIRD: The Amendment does not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The Amendment does not effect a change in the
amount of stated capital of the Corporation.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum, President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice-
President, General Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President of Great-West Life & Annuity Insurance Company, a
Colorado corporation, and that he signed the foregoing, Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires: September 11, 1994
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Dona J. Reichelt, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice-President, General Counsel and Secretary of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this
16th day of June, 1992.
Notary Public
My commission expires: September 11, 1994
<PAGE>
EXHIBIT 1
Great-West Life & Annuity Insurance Company hereby amends
parts of its Articles of Redomestication consisting of the
Statement of Resolution Establishing Four Series of Preferred
Stock dated as of September 18, 1991 and filed with the Secretary
of State of Colorado on September 30, 1991 (the "Statement") as
follows:
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to
read in its entirety as follows:
"Initial Long-Term Dividend Period" means (i) with
respect to the Series A STRAPS, Series C STRAPS and Series D
STRAPS, the period from and including the respective Dates
of Original Issues for such series to and excluding
December 31, 1993, and (ii) with respect to the Series B
STRAPS, the period from and including the Date of Original
Issue for such series to and excluding December 31, 1995.
2. The first sentence of paragraph 3(b)(ii) of the
Statement is hereby amended to read as follows:
(ii) During the Initial Long-Term Dividend Period,
dividends on the shares of each series of STRAPS shall be
payable quarterly on the last day of each March, June,
September and December of each year, and the last dividend
during this Period will be payable on the last day of the
Initial Long-Term Dividend Period for such series, unless
any such date is not a Business Day, in which case dividends
on the STRAPS will be payable on the next succeeding
Business Day.
3. The first sentence of paragraph 3(c)(i) of the
Statement is hereby amended to read as follows:
(c) (i) Subject to paragraph 3(c)(ii), (I) during the
Initial Long-Term Dividend Period for each series of STRAPS,
the respective dividend rates per annum applicable to such
series shall be as follows: Series A, Series C and
Series D, 8% and Series B, 7%; and (II) the respective
dividend rates on the shares of each series of STRAPS (the
"Applicable Rate") for each subsequent Dividend Period shall
be the rate per annum determined for such series pursuant to
the operation of the Auction Procedures set forth in
paragraph 8 below.
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity Insurance Company ("GWL&A"), a Colorado
corporation, hereby consents to the following corporate action
which shall, pursuant to section 7-4-122 of the Colorado
Corporation Code, have the same force and effect as unanimous
action taken at a duly called and held meeting of shareholders:
RESOLVED, that the Amendments to the Articles
of Redomestication of GWL&A, in the form
attached hereto as Exhibits 1 and 2 (which
concern preferred stock), and the filing
thereof with the appropriate government
authorities, are hereby approved.
September 15, 1992 THE GREAT-WEST LIFE ASSURANCE
COMPANY
By: O.T. Dackow, President
By: D. L. Wooden, Senior
Vice-President
and Chief Financial Officer
<PAGE>
CONSENT TO CORPORATE ACTION BY THE SHAREHOLDER
OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
The undersigned, constituting the sole shareholder of Great-West
Life & Annuity
Insurance Company ("GWL&A"), a Colorado corporation, hereby
consents to the
following corporate action which shall, pursuant to section 7-4-122
of the
Colorado Corporation Code, have the same force and effect as
unanimous action
taken at a duly called and held meeting of shareholders:
RESOLVED, that the Amendments to the Articles of
Redomestication
of GWL&A, in the form attached hereto as Exhibits 1 and 2
(which
concern preferred shares), and the filing thereof with the
appropriate
government authorities, are hereby approved.
September 15, 1992
THE GREAT-WEST LIFE ASSURANCE COMPANY
By:
Name: O.T. Dackow
Title: President
Name:
Title:
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendments set forth on Exhibit 1 and
Exhibit 2 attached hereto were adopted by a vote of the sole
shareholder of the Corporation on September 15, 1992. The
number
of shares voted for the Amendments was sufficient for
approval.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The amendments do not effect a change in the
amount of stated capital of the Corporation.
Dated: September 15, 1992 THE GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum,
President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
-2-
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby
amends the following parts of the terms for four series of Stated
Rate Option Preferred Stock as set forth in the Statement of
Resolution Establishing Four Series of Preferred Stock dated as
of September 18, 1991 and filed with the Secretary of State of
Colorado on September 30, i991:
Paragraphs 6(c), 6(d) and 6(e) are hereby amended to
read in their entirety as follows:
(c) Default in Dividend.
(i) During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of any series of the
STRAPS, or any class or series of preferred stock
ranking on a parity with the shares of the STRAPS as to
dividends or upon liquidation, dissolution or winding
up of the Corporation and the terms of which expressly
provide that such shares are "Voting Parity Preferred
Stock" within the meaning of this paragraph and voting
rights thereunder are then exercisable (all such
shares, and all shares of each series of the STRAPS,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to any series of
STRAPS shall be deemed to have occurred whenever the
amount of unpaid accumulated dividends upon such series
through the last preceding dividend period therefor
shall be equivalent to six quarterly dividends (which,
with respect to any series of the STRAPS, shall be
deemed to be dividends with respect to a number of
dividend periods containing not less than 540 days) or
more, and, having so occurred, such default shall be
<PAGE>
deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned
or declared) on all shares of all STRAPS of each and
every series then outstanding shall have been paid to
the end of the last preceding dividend period.
"Defaulted Voting Parity Preferred Stock" at any time
shall mean those classes and series of Voting Parity
Preferred Stock in respect of which, at or prior to
such time, a Default in Preferred Dividends has
occurred and of which the holders are entitled at that
time by the terms of such Voting Parity Preferred Stock
to elect directors of the Corporation. Upon the
termination of a Voting Period with respect to any
class or series of Defaulted Voting Parity Preferred
Stock, the voting rights described in this paragraph
6(c) shall cease for such class or series of Defaulted
Voting Parity Preferred Stock, subject always, however,
to revesting of such voting rights in the holders of
such Voting Parity Preferred Stock upon the further
occurrence of a Default in Preferred Dividends. If any
Voting Period shall have terminated before the holders
of a class or series of Voting Parity Preferred Stock
shall have exercised the voting rights provided in this
paragraph 6(c), the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(ii) If the holders of any class or series of
Defaulted Voting Parity Preferred Stock (the "first
Defaulted Voting Parity Preferred Stock") have elected
one or more directors prior to the happening of the
default or event permitting the holders of any other
class or series of Defaulted Voting Parity Preferred
Stock to elect directors, then the directors so
previously elected will be deemed to have been elected
by and on behalf of the holders of such other class or
series of Defaulted Voting Parity Preferred Stock as
well as the first Defaulted Voting Parity Preferred
Stock, without prejudice to the right of the holders of
such other class or series to vote for directors if
such previously elected directors shall resign, cease
to serve or stand for reelection while the holders of
such other class or series are entitled to vote. If
the holders of any first Defaulted Voting Parity
Preferred Stock are entitled to elect in excess of two
directors, the holders of such other class or series
shall not participate in the election of more than two
such directors.
(iii) No shares of any Defaulted Voting
Parity Preferred Stock held by the Corporation or any
of the Corporation's Affiliates shall be voted, or
counted in determining a quorum, for the election,
-2-
<PAGE>
removal or replacement of any director elected by any
Defaulted Voting Parity Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall
call or cause to be called a special meeting of the
holders of Defaulted Voting Parity Preferred Stock by
mailing or causing to be mailed a notice of such
special meeting to such holders not less than 10 nor
more than 45 days after the date such notice is given.
If the Corporation does not call or cause to be called
such a special meeting, it may be called by any of such
holders on like notice. The record date for
determining the holders of Defaulted Voting Parity
Preferred Stock entitled to notice of and to vote at
such meeting shall be the close of business on the
Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each
meeting of stockholders held during a Voting Period at
which directors are to be elected, removed or replaced,
the holders of Defaulted Voting Parity Preferred Stock,
voting together as a single class (to the exclusion of
the holders of all other securities, series and classes
of capital stock of the Corporation), voting by a
majority of the votes of shares present in person or by
proxy, shall be entitled to elect two directors. In
regard to such elections, holders of shares of
Defaulted Voting Parity Preferred Stock shall be
entitled to one or more votes and/or a fractional vote
on the basis of one vote for each $100,000 of
liquidation preference (excluding amounts in respect of
accumulated and unpaid dividends) attributable to such
shares. Cumulative voting in such elections shall not
be permitted. Shares of Defaulted Voting Parity
Preferred Stock then outstanding, present in person or
represented by proxy, representing one-third of the
votes of the Defaulted Voting Parity Preferred Stock,
will constitute a quorum for the election of directors.
Notice of all meetings at which holders of Defaulted
Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any
such meeting or adjournment thereof in the absence of a
quorum, holders of shares of Defaulted Voting Parity
Preferred Stock representing a majority of the votes
present in person or represented by proxy shall have
the power to adjourn the meeting for the election of
directors without notice, other than an announcement at
the meeting, until a quorum is present. If any Voting
Period shall terminate after the notice of special
meeting provided for in this paragraph 6(d)(i) has been
given but before the special meeting shall have been
-3-
<PAGE>
held, the Corporation shall, as soon as practicable
after such termination, mail or cause to be mailed to
the holders of Defaulted Voting Parity Preferred Stock
a notice of cancellation of such special meeting.
(ii) The term of office of all persons who
are directors of the Corporation at the time of a
special meeting of the holders of Defaulted Voting
Parity Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting
by such holders of the two additional directors.
(iii) Simultaneously with the expiration of a
Voting Period for all classes and series of Defaulted
Voting Parity Preferred Stock, the term of office of
the directors elected by the holders of Defaulted
Voting Parity Preferred Stock shall terminate, the
other persons who shall have been elected by the
holders of stock of the Corporation (or by the Board of
Directors prior to the beginning of the Voting Period)
and who are incumbent shall constitute the directors of
the Corporation, and the voting rights of the holders
of Voting Parity Preferred Stock to elect directors
shall cease.
(iv) For so long as a Voting Period
continues, the directors elected at any time by the
holders of Defaulted Voting Parity Preferred Stock may
be removed without cause by, and shall not be removed
without cause except by, the vote of the holders of
record of the outstanding shares of Defaulted Voting
Parity Preferred Stock at any subsequent time, voting
together as a single class without regard to class or
series, at a meeting of the stockholders, or of the
holders of shares of Defaulted Voting Parity Preferred
Stock, called for such purpose. So long as a Voting
Period continues, (A) any vacancy in the office of a
director elected by the holders of Defaulted Voting
Parity Preferred Stock may be filled (except as
provided in the following clause (B)) by the person
appointed by an instrument in writing signed by the
remaining director elected by the holders of Defaulted
Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
-4-
<PAGE>
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
(e) Additional Vote. If any matter (excluding
the election, removal or replacement of directors)
requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of
all Preferred Stock of the Corporation, whether
pursuant to the provisions of such series, all such
series or such Preferred Stock or pursuant to the
provisions of the Articles of Redomestication of the
Corporation or pursuant to applicable law, and if any
shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates,
then the following additional consent or vote will be
required: the same consent or affirmative vote of
shares otherwise required, except that shares of STRAPS
held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such
additional consent or vote: provided, such additional
consent or vote will not be applicable if all
outstanding shares of the STRAPS of such series (in the
case of a class vote of such series) or of all series
STRAPS (in the case of a vote of all series of STRAPS)
are held by the Corporation and/or its Affiliates.
238850.3
-5-
<PAGE>
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding, the
corporation shall not declare, pay or set apart for payment
any dividend or other distribution (other than any dividend
or distribution payable solely in shares of Common Stock or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as to
which dividends are cumulative for all past dividend periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment
of such dividends, and (ii) the corporation has redeemed the
full number of shares of Preferred Stock, if any, it is then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on shares
of any series of Preferred Stock for any dividend period or
part thereof unless full cumulative dividends have been or
contemporaneously are declared on the shares of each other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date for
each such other series. If at any time any accrued
dividends on shares of any series of Preferred Stock as to
which dividends are cumulative (a "cumulative series") have
not been paid in full, then the corporation will, if paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series .
0216633.01 2
<PAGE>
9/10/92
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding, the
corporation shall not declare, pay or set apart for payment
any dividend or other distribution (other than any dividend
or distribution payable solely in shares of Common Stock or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, or call for redemption,
redeem, purchase or otherwise acquire for consideration any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as to
which dividends are cumulative for all past dividend periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the payment
of such dividends, and (ii) the corporation has redeemed the
full number of shares of Preferred Stock, if any, it is then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on shares
of any series of Preferred Stock for any dividend period or
part thereof unless full cumulative dividends have been or
contemporaneously are declared on the shares of each other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date for
each such other series of Preferred Stock as to
which dividends are cumulative (a "cumulative series") have
not been paid in full, then the corporation will, if paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series.
0216633.
<PAGE>
STATEMENT OF RESOLUTION
ESTABLISHING SERIES E PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a Colorado
corporation (the "Corporation"), hereby submits the following
statement for the purpose of establishing and designating one
series of preferred stock and fixing and determining the relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity Insurance Company.
2. On September 15, 1992, the following resolution
establishing and designating one series of shares of the
Corporation's preferred stock was duly adopted by the Board of
Directors of the Corporation pursuant to authority conferred upon
the Board by the Corporation's Articles of Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes a series of
Non-Cumulative Perpetual Preferred Stock,
Series E, in accordance with the terms set
forth in Exhibit A attached hereto [a copy of
which is attached to this Statement of
Resolution and is incorporated herein by this
reference], and authorizes the officers of
the Corporation to file this resolution with
the Colorado Secretary of State in accordance
with the Colorado Corporation Code.
Dated: September 15, 1992 GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By:
William T. McCallum, President
and Chief Executive Officer
BY:
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
238830 .
<PAGE>
STATE OF COLORADO )
) ss.
CoUNTY OF ARAPAHOE)
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Statement of Resolution Establishing Series
E Preferred Stock as his voluntary act and deed, and that the
facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE)
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Statement of
Resolution Establishing Series E Preferred Stock as his voluntary
act and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
238830.
<PAGE>
EXHIBIT A
STATEMENT OF RESOLUTION ESTABLISHING
A SERIES OF PREFERRED STOCK
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
PREFERRED STOCK, SERIES E
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates a fifth
series of Preferred Stock, designated as the Non-Cumulative
Perpetual Preferred Stock, Series E (hereinafter referred to as
the "Series E Preferred Stock") consisting of 2,000,000 shares of
Preferred Stock The Series E Preferred Stock shall be subject
to and governed by the provisions of the Articles of
Redomestication of the Corporation as amended from time to time
in accordance with applicable law (including, but not limited to,
the provisions of the Articles of Redomestication concerning
dividend and liquidation preferences) and shall, in addition to
the rights, privileges, restrictions and conditions stated in
such Articles of Redomestication for the Preferred Stock as a
class, have the following rights, privileges, restrictions and
conditions
ARTICLE 1
INTERPRETATION AND APPLICATION
1.1 Definitions
(a) "Affiliate," as used herein, means any entity other
than the Corporation (i) which owns beneficially,
directly or indirectly 10% or more of the outstanding
shares of the Common Stock, (ii) which is in control of
the Corporation, as "control" is defined under
Section 230.405 of the Rules and Regulations of the
Securities and Exchange Commission, 17 C.F.R.
Section 230.405, as in effect on the date of this Statement,
(iii) of which 10% or more of the outstanding shares of
common stock, or in which a 10% or greater general
partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any entity
described in clause (i) or (ii) above, or (iv) which
controlled by any entity described in clause (i) or
(ii) above, as "controlled by" is defined under such
Section 230.405
(b) "Common Stock" shall mean the shares of common stock,
par value $1.00, in the capital of the Corporation;
<PAGE>
(c) "Corporation's Conversion Notice" shall have the
meaning ascribed thereto in subsection 3.2(b) hereof;
(d) "Conversion Number" shall mean the number of shares of
Common Stock which are to be issued on a conversion of
one share of the Series E Preferred Stock, which shall
be either the Negotiated Conversion Number or the
Formula Conversion Number:
(e) "Formula Conversion Number" shall mean the number of
shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.6 hereof;
(f) "Holder's Conversion Notice" shall have the meaning
ascribed thereto in subsection 4.2(a) hereof; and
(g) "Negotiated Conversion Number" shall mean that number
of shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.5 hereof.
1.2 Regulatory Approvals
Notwithstanding anything to the contrary contained
herein, the Corporation shall not redeem, purchase for
cancellation or otherwise retire, reduce or make any return of
capital in respect of any Series E Preferred Stock or exercise
its option to convert the Series E Preferred Stock into shares of
common stock or modify the rights, privileges, restrictions or
conditions of the Series E Preferred Stock unless the same is in
accordance with the Colorado law and all the necessary or
appropriate consents of the Colorado Insurance Division and other
regulatory authorities having jurisdiction have been obtained
prior thereto.
ARTICLE 2
DIVIDENDS
2.1 Dividend Payment Dates and Dividend Periods
The dividend payment dates (the "Dividend Payment
Dates") in respect of the dividends payable on the Series E
Preferred Stock shall be the last day of each of the months of
March, June, September and December in each year. A Dividend
Period shall mean the period from and including the date of issue
of the Series E Preferred Stock to but excluding the first
Dividend Payment Date and, thereafter, the period from and
<PAGE>
including each Dividend Payment Date to but excluding the next
succeeding Dividend Payment Date.
2.2 Payment of Dividends
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors of the Corporation,
out of moneys of the Corporation properly applicable to the
payment of dividends, non-cumulative cash dividends (the
"Quarterly Dividends") payable, with respect to each Dividend
Period, on the Dividend Payment Date immediately following the
end of such Dividend Period, the first of such dividends to be
payable on December 31, 1992 and to be in an amount per share
determined in accordance with section 2.3 hereof. For all
subsequent Dividend Periods, dividends, subject to section 2.3
hereof, as and when declared by the board of directors of the
Corporation, out of moneys of the Corporation properly applicable
to the payment of dividends, shall be paid in an amount per share
of Series E Preferred Stock equal to $0.39188.
2.3 Dividend for other than a Full Dividend Period
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors, out of moneys of the
Corporation properly applicable to the payment of dividends,
non-cumulative cash dividends for any period which is less than a
full Dividend Period as follows:
(a) an initial dividend per share in respect of the period
from and including the date of the initial issue of the
Series E Preferred Stock to but excluding December 31,
1992 (the "Initial Dividend Period") equal to $0.57976;
and
(b) a dividend in an amount per share with respect to any
Series E Preferred Stock:
(i) which is issued, redeemed or purchased by the
Corporation or converted during any Dividend
Period; or
(ii) where the assets of the Corporation are
distributed in the liquidation, dissolution or
winding up of the Corporation to the holders of
the Series E Preferred Stock with an effective
date during any Dividend Period;
equal to the amount obtained (rounded to five decimal
places) when $1.5675 is multiplied by a fraction of
which the numerator is the number of days in such
<PAGE>
Dividend Period that such share has been outstanding
(excluding the date of issue, redemption, purchase or
conversion or the effective date for the distribution
of assets) and the denominator of which is the number
of days in the year in which such Dividend Period
falls.
2.4 Payment Procedure
The Corporation shall pay the dividends on the Series E
Preferred Stock to the holders of record thereof at the close of
business on the second business day immediately preceding the
relevant Dividend Payment Date (less any tax required to be
deducted or withheld by the Corporation) by check drawn on a bank
or trust company and payable in lawful money of the United States
at any branch of such bank or trust company in the United States.
The delivery or mailing of any check to a holder of Series E
Preferred Stock shall be a full and complete discharge of the
Corporation's obligation to pay the dividends to such holder
(plus any tax required to be and in fact deducted and withheld
therefrom and remitted to the proper taxing authority) unless
such check is not honored when presented for payment. Dividends
which are represented by a check which has not been presented to
the Corporation's bankers for payment or that otherwise remain
unclaimed for a period of two years from the date on which they
were declared to be payable may be reclaimed (including without
limitation by cancellation of any check) and after such
reclaiming the holders of Series E Preferred Stock entitled to
the funds so reclaimed shall look only to the Corporation for
such payment, without interest.
ARTICLE 3
REDEMPTION, CONVERSION AND PURCHASE
3.1 General
(a) Subject to the Articles of Redomestication and to the
extent permitted by applicable law, the Series E
Preferred Stock may be redeemed, converted or purchased
by the Corporation as provided in this Article 3 and
Article 4 but not otherwise.
(b) For the purposes hereof, the Common Stock of the
Corporation (the "Common Stock") shall mean (i) such
common stock as currently constituted and (ii) any
shares attributable to such common stock and resulting
from a reclassification of the common stock of the
Corporation or from a capital reorganization of the
Corporation or a consolidation or merger of the
Corporation with or into any other corporation (other
<PAGE>
than a capital reorganization, consolidation or merger
which does not result in any reclassification of the
common stock or a change of the common stock into other
stock, shares or securities).
3.2 Redemption and Conversion Rights
(a) The Series E Preferred Stock shall not be redeemable
prior to April 1, 1999. The Corporation may, upon
giving notice as hereinafter provided, redeem on or
after April 1, 1999 at any time the whole or from time
to time any part of the then outstanding Series E
Preferred Stock, by the payment of an amount in cash
for each share of Series E Preferred Stock so redeemed
equal to the sum of $20.90 plus an amount equal to all
declared and unpaid dividends thereon up to but
excluding the date fixed for redemption (the
"Redemption Price").
(b) The Series E Preferred Stock shall not be convertible
at the option of the Corporation prior to April 1,
1999. Subject to compliance with the rights,
privileges, restrictions and conditions of the Common
Stock and receipt of any required regulatory approval,
the Corporation may, by giving notice as hereinafter
provided (the "Corporation's Conversion Notice"),
convert the whole or from time to time any part of the
then outstanding Series E Preferred Stock into fully
paid and non-assessable shares of Common Stock on the
basis that the Series E Preferred Stock of each holder
called for conversion by the Corporation will be
converted into (subject to that exception as to
fractions contained in section 3.7 hereof) that number
(the "Conversion Number") of shares of Common Stock
determined pursuant to Article 4 and that the Formula
Conversion Number as provided in section 4.6 shall be
used for this purpose.
(c) If less than all of the outstanding Series E Preferred
Stock are to be redeemed or converted, the shares to be
redeemed or converted shall be selected by lot, pro
rata (disregarding fractions) or in such other manner
as the board of directors or a committee thereof in its
sole discretion shall by resolution determine.
3.3 Manner of Redemption or Conversion
(a) Notice of redemption or conversion of Series E
Preferred Stock shall be given by the Corporation not
less than 25 nor more than 60 calendar days prior to
the date fixed for redemption and not less than 35 nor
more than 60 calendar days prior to the date fixed for
-5
<PAGE>
conversion, to each holder of Series E Preferred Stock
to be redeemed or converted, as the case may be. Such
notice shall set out (i) the date (the "Redemption
Date" or the "Conversion Date", as the case may be) on
which the redemption or conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder to whom it is addressed is to be redeemed or
converted, the number of shares of Series E Preferred
Stock so held which are to be redeemed or converted;
(iii) whether the Corporation shall redeem or convert
such Series E Preferred stock; (iv) the Redemption
Price or the method of determining the Conversion
Number, as the case may be; and (v) where the Series E
Preferred Stock is to be converted into Common Stock,
the advice that such Common Stock will be registered in
the name of the registered holder of the Series E
Preferred Stock to be converted unless the Corporation
receives from such holder, on or before the tenth
calendar day prior to the Conversion Date (the
"Transferee Notice Date"), at the head office of the
Corporation, written notice in a form and executed in a
manner satisfactory to the Corporation directing the
Corporation to register such Common Stock in some other
name or names (the "Transferee") and stating the name
or names (with addresses) accompanied by payment to the
Corporation of any transfer tax that may be payable by
reason thereof and a written declaration of such
matters as may be required by law in order to determine
the entitlement of such Transferee to hold such Common
Stock.
(b) In the case of a redemption, on and after the
Redemption Date the Corporation shall pay or cause to
be paid to the holders of the Series E Preferred Stock
so called for redemption the Redemption Price therefor
on presentation and delivery at the head office of the
Corporation or such other place or places in the United
States designated in the notice referred to in
subsection 3.3(a), of the certificate or certificates
representing the Series E Preferred Stock so called for
redemption. Such payment shall be made by check and
shall be a full and complete discharge of the
Corporation's obligation to pay the Redemption Price
owed to the holders of Series E Preferred Stock so
called for redemption unless the check is not honored
when presented for payment. From and after the
Redemption Date, the holders of Series E Preferred
Stock called for redemption shall cease to be entitled
to dividends or to exercise any of the rights of
holders of Series E Preferred Stock in respect of such
shares except the right to receive therefor the
Redemption Price, provided that if payment of such
-6
<PAGE>
Redemption Price is not duly made in accordance with
the provisions hereof, then the rights of such holders
shall remain unimpaired.
(c) In the case of a redemption, the Corporation shall have
the right at any time after mailing a notice of redemp-
tion to deposit irrevocably (subject to the repayment
right set forth below in this subsection) the aggregate
Redemption Price of the Series E Preferred Stock
thereby called for redemption, or such part thereof as
at the time of deposit has not been claimed by the
holders entitled thereto, in a special account with a
bank or trust company designated by the Corporation for
the holders of such shares, and upon such deposit being
made or upon the date fixed for redemption, whichever
is the later, the Series E Preferred Stock in respect
of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each holder
thereof shall be limited to receiving, without
interest, his proportionate part of the Redemption
Price so deposited upon presentation and surrender of
the certificates representing the Series E Preferred
Stock so redeemed. Any interest on any such deposit
shall belong to the Corporation. Redemption moneys
which remain unclaimed for a period of two years from
the Redemption Date shall be repaid to the Corporation,
and after such repayment, the holders of Series E
Preferred Stock entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such
payment, without interest.
d) In the case of a conversion of Series E Preferred Stock
into Common Stock, on and after the Conversion Date the
Corporation shall deliver the Conversion Number of
Common Stock on presentation and delivery by the
holders at the head office of the Corporation or such
other place or places in the United States designated
in the notice referred to in subsection 3.3(a), of the
certificate or certificates representing the Series E
Preferred Stock so called for conversion. The
Corporation shall deliver or cause to be delivered
certificates representing such Common Stock registered
in the name of the holders of Series E Preferred Stock
to be converted, or as such holders shall have directed
as aforesaid. Series E Preferred Stock so converted
shall be converted effective on the Conversion Date.
From and after the Conversion Date, the holders of
Series E Preferred stock so converted who have not
presented and delivered the certificate or certificates
representing such shares as herein required shall cease
to be entitled to dividends on such Series E Preferred
Stock or to exercise any of the rights of holders of
-7-
<PAGE>
Series E Preferred Stock in respect of such shares
except the right to receive a certificate for the
Conversion Number of Common Stock and any payment with
respect to a fraction of a share of Series E Preferred
Stock.
(e) If less than all the Series E Preferred Stock
represented by any certificate shall be redeemed or
converted, a new certificate for the balance shall be
issued without cost to the holder.
3.4 Purchase
The Corporation may purchase at any time all or from
time to time any part of the outstanding Series E Preferred Stock
in the open market (including purchases through or from an
investment dealer or firm holding membership on a stock exchange)
or pursuant to tenders received by the Corporation upon an
invitation for tenders addressed to all holders of the Series E
Preferred Stock, at a price per share in each case not exceeding
the applicable Redemption Price at the time of purchase plus
costs of purchase. If upon any invitation for tenders the
Corporation receives tenders for Series E Preferred Stock at the
same price in an aggregate number greater than the number for
which the Corporation is prepared to accept tenders, the shares
to be purchased shall be selected from the shares offered at such
price as nearly as may be pro rata (to the nearest 10 shares)
according to the number of shares of Series E Preferred Stock
offered in each such tender, in such manner as the board of
directors or a committee thereof in its sole discretion shall by
resolution determine. If part only of the Series E Preferred
Stock represented by any certificate shall be issued
without cost to the holder.
3.5 Conversion into Another Series of Preferred Stock
To the extent permitted by applicable law and the
Articles of Redomestication and by-laws of the corporation, and
with any required approval of the Colorado Insurance Division,
the Corporation may at any time on or after September 30, 1997,
designate a further series of preferred stock of the same class
as the Series E Preferred Stock which qualifies as regulatory
capital for Canadian insurance law purposes (the "New Preferred
Stock") and notify the holders of Series E Preferred Stock that
they have the right pursuant to the terms of the Series E
Preferred Stock, at their option, to convert their Series E
Preferred Stock into fully paid and non-assessable New Preferred
Stock on a share for share basis on a date specified by the
Corporation in such notice (the "Exchange Date"). Such notice
shall provide the details of the terms and conditions of the New
Preferred Stock and instructions on how to convert Series E
<PAGE>
Preferred Stock into New Preferred Stock and shall be accompanied
by the proper form of instrument of surrender.
3.6 Manner of Conversion into Another
Series of Preferred Stock
Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation on or prior to the
Exchange Date the certificate or certificates representing the
Series E Preferred Stock to be so converted accompanied by a
written instrument of surrender in form satisfactory to the
Corporation and duly executed by the registered holder of the
Series E Preferred Stock represented by the certificate or
certificates so surrendered in which instrument the holder may
elect to convert all or a portion of the Series E Preferred Stock
represented by such certificate or certificates into New
Preferred Stock.
The Corporation shall, on presentation and delivery at
the head office of the Corporation or such other place or places
in the United States as the Corporation may agree of the
certificate or certificates representing the Series E Preferred
Stock to be converted, issue and deliver or cause to be delivered
as soon as is reasonably practicable after the Exchange Date a
certificate or certificates representing the New Preferred Stock
into which such Series E Preferred Stock have been converted.
Such certificate or certificates shall be registered in the name
of the holder of the Series E Preferred Stock so converted or in
such name or names as the holder may specify in the written
instrument accompanying the Series E Preferred Stock to be
converted. The Series E Preferred Stock so converted shall be
converted, and the holder thereof shall become a holder of record
of New Preferred Stock, effective on the Exchange Date. The
provisions of subsection 3.3(e) shall apply, mutatis mutandis, in
the event of a conversion into New Preferred Stock of less than
all of the Series E Preferred Stock represented by a particular
share certificate.
3.7 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock, the Corporation shall adjust such
fractional interest by payment by check in an amount equal to the
value of such fractional interest computed on the basis of $20.90
divided by the Conversion Number determined in respect of the
relevant Conversion Date.
-9-
<PAGE>
ARTICLE 4
HOLDER'S CONVERSION RIGHT
4.1 Conversion Right
Subject to the option of the Corporation in section 4.3
hereof and to the provisions of section 1.2 hereof, each share of
Series E Preferred Stock shall, on and after September 30, 1993,
at the option of the holder, be convertible on the last day of
March, June, September and December in each year (a "permitted
conversion date") into (subject to the exception as to fractions
contained in section 4.4) that number of shares of fully paid and
non-assessable Common Stock as is equal to the Conversion Number.
The holder of Series E Preferred Stock to be converted is
entitled to receive any dividend which has been declared and is
payable on the date of such conversion.
Not less than 90 nor more than 120 calendar days prior
to September 30, 1999, the Corporation shall give to the
registered holders of the Series E Preferred Stock notice of the
conversion right containing instructions to such holders as to
the method by which such conversion right may be exercised, as
set out in section 4.2. However, a failure to give such notice
shall not affect the conversion rights of the Series E Preferred
Stock.
4.2 Manner of Conversion
(a) Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation not less
than 55 calendar days prior to the date (which must be
a permitted conversion date) fixed for conversion by
such holder the certificate or certificates for the
Series E Preferred Stock to be converted with the
notice of conversion on the reverse side thereof (the
"Holder's Conversion Notice") duly completed. Subject
to section 4.3 and to the right to accept an offer to
convert Series E Preferred Stock into New Preferred
Stock under section 3.5, such Conversion Notice shall
be irrevocable and shall set out:
(i) the date (the "Conversion Date") on which the
conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder by whom such notice is given is to be
converted, the number of shares of Series E
Preferred Stock so held which are to be converted:
and
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(iii) an acknowledgement that the Common Stock into
which the Series E Preferred Stock is to be
converted is to be registered in the name of the
registered holder of the Series E Preferred Stock
to be converted unless such holder, on or before
the tenth calendar day prior to the Conversion
Date (the "Transferee Notice Date") provides to
the Corporation written notice in the form and
executed in a manner satisfactory to the
Corporation directing the Corporation to register
such Common Stock in some other name or names (the
"Transferee") and stating the name or names (with
addresses) accompanied by payment to the
Corporation of any transfer tax that may be
payable by reason thereof and a written
declaration of any matters as may be required by
law in order to determine the entitlement of such
Transferee to hold such common Stock.
(b) Subject to section 4.3 hereof, the Corporation shall,
on presentation and delivery at the head office of the
corporation or such other place or places in the United States as
the Corporation may agree of the certificate or certificates
representing the Series E Preferred Stock so surrendered for
conversion, issue and deliver or cause to be delivered certifi-
cates representing the number of whole shares of Common Stock
into which such Series E Preferred Stock is to be converted,
registered in the name of the holder of the Series E Preferred
Stock to be converted, or as such holder shall have directed as
aforesaid, as the case may be, on the Conversion Date. The
Series E Preferred Stock so converted shall be converted, and the
holder thereof shall become a holder of Common Stock of record,
effective on the Conversion Date.
(c) If less than all the Series E Preferred Stock
represented by any certificate shall be converted, a new
certificate for the balance shall be issued without cost to the
holder.
4.3 Option of the Corporation
Prior to any Conversion Date, the Corporation may, by
notice given not less than 35 calendar days before such
Conversion Date to all holders who have given a Conversion
Notice,
(a) redeem on the Conversion Date all but not less than all
of the Series E Preferred Stock forming the subject
matter of the applicable Conversion Notice at the
Redemption Price provided for in Article 3 hereof; or
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(b) request such holders to sell on the Conversion Date
such Series E Preferred Stock to another purchaser or
purchasers in the event that a purchaser or purchasers
willing to purchase all but not less than all of such
Series E Preferred Stock at a price equal to the
Redemption Price is or are found by the Corporation and
such holders shall sell such Series E Preferred Stock
at a price equal to the Redemption Price to such
purchaser or purchasers.
Any such redemption or purchase shall be made on the Conversion
Date by mailing a check of the Corporation or the Corporation's
causing such purchaser to mail a check (as the case may be) in an
amount equal to the Redemption Price to the holder of the
Series E Preferred Stock entitled thereto. The provisions of
subsection 3.3(e) shall apply, mutatis mutandis, in the event of
a redemption or purchase of less than all the Series E Preferred
Stock represented by a particular share certificate. The
Series E Preferred Stock so purchased or redeemed shall not be
converted on the Conversion Date. In the event that for any
reason the redemption or purchase provided for in this section is
not effected in respect of a share or shares of Series E
Preferred Stock on the Conversion Date, the option of the
Corporation in respect of such Series E Preferred Stock shall
lapse and such Series E Preferred Stock shall be deemed to have
been converted on the Conversion Date.
4.4 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock under this Article 4, the Corporation
shall adjust such fractional interest by the payment by check in
an amount equal to the value of such fractional interest computed
on the basis of $20.90 divided by the Conversion Number deter-
mined in respect of the relevant Conversion Date.
4.5 Negotiated Conversion Number
(a) No later than 10 days following the receipt of a
Holder's Conversion Notice, the Corporation may notify
the holders of the Series E Preferred Stock, or such
holders as have delivered a Holder's Conversion Notice,
of a proposed Conversion Number in connection with the
conversion of the Series E Preferred Stock into Common
Stock. Such notification to holders shall also:
(i) specify a date by which each holder must notify
the Corporation in writing of its acceptance of
the proposed Conversion Number, if such holder
intends to accept such number, which date shall be
at least 25 days prior to the Conversion Date, and
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(ii) specify that the proposed Conversion Number
shall
become effective for the purposes of
determining
the number of Common Stock to be issued upon
the
conversion of the Series E Preferred Stock
only if
all of the holders of Series E Preferred
Stock who
have delivered a Holder's Conversion Notice
accept
such number.
(b) If, by the time prescribed in clause (a)(i), all
of the
holders of Series E Preferred Stock who have
delivered
a Holder's Conversion Notice have accepted the
proposed
Conversion Number, as evidenced by notice in
writing to
the Corporation, and at least 20 days prior to the
Conversion Date the Corporation has notified all
of
such holders that each of them has agreed with the
Corporation as to such number, then such
Conversion
Number (the "Negotiated Conversion Number") shall
apply
for the purposes of determining the number of
shares of
Common Stock to be issued upon the conversion of
the
Series E Preferred Stock in respect of the
Holder's
Conversion Notice then outstanding in accordance
with
the provisions of section 4.7 hereof.
4.6 Formula Conversion Number
(a) Subject to the provisions of subsection (b)
hereof, the
Corporation shall determine a Conversion Number
(the
"Formula Conversion Number") which shall be equal
to
the quotient obtained when (i) an amount equal to
the
total assets minus all preferred stock minus
undistributed participating policyholder earnings
as
shown on the Corporation's balance sheet as at the
end
of the most recently completed calendar quarter,
prepared in accordance with U.S. generally
accepted
accounting principles as in effect at the time of
determination and applicable to the Corporation,
is
divided by (ii) the number of shares of Common
Stock
outstanding, on a fully diluted basis (excluding
any
shares issuable upon conversion of the Series E
Preferred Stock), at such quarter-end.
(b) In the event that the Corporation proposes to
utilize
the Formula Conversion Number, it shall so notify
all
of the holders of Series E Preferred Stock (in the
case
of the issuance of a Corporation's Conversion
Notice)
or each holder of Series E Preferred Stock who has
submitted a Holder's Conversion Notice, not less
than 5
days prior to the Conversion Date, that the
Corporation
intends to use the Formula Conversion Number in
respect
of such Conversion Date and notifying such holders
of
the basis upon which such Number has been
determined.
The Corporation will, if requested by any holder
of
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Series E Preferred Stock converting the same into
Common Stock, provide such holder with a letter
from
the auditors of the Corporation stating that: (i)
if
the above-referenced quarter-end is not also the
end of
a fiscal year of the Corporation, (A) on the basis
of a
review of such unaudited quarter-end financial
state-
ments, nothing has come to the attention of the
auditors that cause them to believe that the
unaudited
financial statements for the completed quarter
referenced above are not in conformity with
generally
accepted accounting principles, and (B) in using
the
numbers contained in such unaudited quarter-end
financial statements and information provided by
the
Corporation's management, the auditors have
recalculated the Financial Conversion Number and
found
it to be accurate or (ii) if the above-referenced
quarter is the end of a fiscal year of the
Corporation,
(A) the auditors indicate that they have issued
their
opinion on the audited financial statement for
such
fiscal year and (B) in using the numbers contained
in
such audited financial statements and information
provided by the Corporation's management, the
auditors
have recalculated the Financial Conversion Number
and
found it to be accurate.
4.7 Conversion Ratio
Each share of Series E Preferred Stock shall be
convertible into that number of shares of Common Stock which
is
equal to the Conversion Number, with the result of such
calculation being rounded down to the nearest share of
Common
Stock. For these purposes, the Conversion Number shall be
the
Negotiated Conversion Number agreed to in accordance with
the
provisions of section 4.5 hereof with respect to shares of
Series E Preferred Stock subject to a Holder's Conversion
Notice
or, if no such number be agreed upon, the Formula Conversion
Number determined pursuant to the provisions of section 4.6
hereof.
4.8 Reservation of Shares
The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its
authorized
Common Stock, for the purpose of effecting the conversion of
shares of Series E Preferred Stock, at least the full number
of
shares of Common Stock then deliverable upon conversion of
all
shares of Series E Preferred Stock then outstanding on the
basis
of the Formula Conversion Number.
4.9 Governmental Approvals
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If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series E Preferred Stock
require registration with or approval of any governmental
authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may
be.
ARTICLE 5
VOTING RIGHTS
5.1 No Voting
Except as required by law and except as otherwise
provided herein or in the Corporation's Articles of
Redomestication, the holders of Series E Preferred Stock shall
have no voting rights and shall not be entitled as such to
receive notice of or to attend any meeting of shareholders of the
Corporation.
5.2 Default in Dividend
(a) The shares of Series E Preferred Stock are intended to
be "Voting Parity Preferred Stock" as that term is used
in the Voting Rights of Stated Rate Auction Preferred
Stock, Series A through Series D, of the Corporation
(the "STRAPS"). During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of Series E
Preferred Stock, or any class or series of preferred
stock ranking on a parity with the shares of Series E
Preferred Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation and the
terms of which expressly provide that such shares are
"Voting Parity Preferred Stock" within the meaning of
this paragraph or the terms of the STRAPS and voting
rights thereunder are then exercisable (all such
shares, and all shares of Series E Preferred Stock,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
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"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to Series E Preferred
Stock shall be deemed to have occurred whenever the
Corporation fails to declare and pay the whole amount
of Quarterly Dividend for any Dividend Period on or
before the last day of such Dividend Period, and,
having so occurred, such default shall be deemed to
exist thereafter until, but only until, the Corporation
declares and pays the full amount of Quarterly Dividend
for a Dividend Period. At such time as the Corporation
may again fail to declare the full amount of any
Quarterly Dividend upon any Series E Preferred Stock
for any Dividend Period, a "Default in Preferred
Dividends" shall again have occurred. "Defaulted
Voting Parity Preferred Stock" at any time shall mean
those classes and series of Voting Parity Preferred
Stock in respect of which, at or prior to such time, a
Default in Preferred Dividends has occurred and of
which the holders are entitled at that time by the
terms of such Voting Parity Preferred Stock to elect
directors of the Corporation. Upon the termination of
a Voting Period with respect to any class or series of
Defaulted Voting Parity Preferred Stock, the voting
rights described in this section 5.2 shall cease for
such class or series of Defaulted Voting Parity
Preferred Stock, subject always, however, to revesting
of such voting rights in the holders of such Voting
Parity Preferred Stock upon the further occurrence of a
Default in Preferred Dividends. If any Voting Period
shall have terminated before the holders of a class or
series of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this
section 5.2, the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(b) If the holders of any class or series of Defaulted
Voting Parity Preferred Stock (the "first Defaulted
Voting Parity Preferred Stock") have elected one or
more directors prior to the happening of the default or
event permitting the holders of any other class or
series of Defaulted Voting Parity Preferred Stock to
elect directors, then the directors so previously
elected will be deemed to have been elected by and on
behalf of the holders of such other class or series of
Defaulted Voting Parity Preferred Stock as well as the
first Defaulted Voting Parity Preferred Stock, without
prejudice to the right of the holders of such other
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class or series to vote for directors if such
previously elected directors shall resign, cease to
serve or stand for reelection while the holders of such
other class or series are entitled to vote. If the
holders of any first Defaulted Voting Parity Preferred
Stock are entitled to elect in excess of two directors,
the holders of such other class or series shall not
participate in the election of more than two such
directors.
(c) No shares of any Defaulted Voting Parity Preferred
Stock held by the Corporation or any of the
Corporation's Affiliates shall be voted, or counted in
determining a quorum, for the election, removal or
replacement of any director elected by any Defaulted
Voting Parity Preferred Stock.
5.3 Voting Procedures
(a) As soon as practicable after the commencement of a
Voting Period, the Corporation shall call or cause to
be called a special meeting of the holders of Defaulted
Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such
holders not less than 10 nor more than 45 days after
the date such notice is given. If the Corporation does
not call or cause to be called such a special meeting,
it may be called by any of such holders on like notice.
The record date for determining the holders of
Defaulted Voting Parity Preferred Stock entitled to
notice of and to vote at such meeting shall be the
close of business on the Business Day preceding the day
on which such notice is mailed. At any such special
meeting and at each meeting of stockholders held during
a Voting Period at which directors are to be elected,
removed or replaced, the holders of Defaulted Voting
Parity Preferred Stock, voting together as a single
class (to the exclusion of the holders of all other
securities, series and classes of capital stock of the
Corporation), voting by a majority of the votes of
shares present in person or by proxy, shall be entitled
to elect two directors. In regard to such elections,
each holder of shares of Defaulted Voting Parity
Preferred Stock shall be entitled to one or more votes
and/or a fractional vote on the basis of one vote for
each $100,000 of liquidation preference (excluding
amounts in respect of accumulated and unpaid dividends)
attributable to such shares. Cumulative voting in such
elections shall not be permitted. Shares of Defaulted
Voting Parity Preferred Stock then outstanding, present
in person or represented by proxy, representing
one-third of the votes of the Defaulted Voting Parity
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Preferred Stock, will constitute a quorum for the
election of directors. Notice of all meetings at which
holders of Defaulted Voting Parity Preferred Stock of
any series shall be entitled to vote will be given to
such holders at their addresses as they appear on the
Stock Books. At any such meeting or adjournment
thereof in the absence of a quorum, holders of shares
of Defaulted Voting Parity Preferred Stock representing
a majority of the votes present in person or
represented by proxy shall have the power to adjourn
the meeting for the election of directors without
notice, other than an announcement at the meeting,
until a quorum is present. If any Voting Period shall
terminate after the notice of special meeting provided
for in this section 5.3 has been given but before the
special meeting shall have been held, the Corporation
shall, as soon as practicable after such termination,
mail or cause to be mailed to the holders of Defaulted
Voting Parity Preferred Stock a notice of cancellation
of such special meeting.
(b) The term of office of all persons who are directors of
the Corporation at the time of a special meeting of the
holders of Defaulted Voting Parity Preferred Stock to
elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors.
(c) Simultaneously with the expiration of a Voting Period
for all classes and series of Defaulted Voting Parity
Preferred Stock, the term of office of the directors
elected by the holders of Defaulted Voting Parity
Preferred Stock shall terminate, the other persons who
shall have been elected by the holders of stock of the
Corporation (or by the Board of Directors prior to the
beginning of the Voting Period) and who are incumbent
shall constitute the directors of the Corporation, and
the voting rights of the holders of Voting Parity
Preferred Stock to elect directors shall cease.
(d) For so long as a Voting Period continues, the directors
elected at any time by the holders of Defaulted Voting
Parity Preferred Stock may be removed without cause by,
and shall not be removed without cause except by, the
vote of the holders of record of the outstanding shares
of Defaulted Voting Parity Preferred Stock at any
subsequent time, voting together as a single class
without regard to class or series, at a meeting of the
stockholders, or of the holders of shares of Defaulted
Voting Parity Preferred Stock, called for such purpose.
So long as a Voting Period continues, (A) any vacancy
in the office of a director elected by the holders of
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Defaulted Voting Parity Preferred Stock may be filled
(except as provided in the following clause (B)) by the
person appointed by an instrument in writing signed by
the remaining director elected by the holders of
Defaulted Voting Parity Preferred Stock and filed with
the Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
5.4 Additional Vote
If any matter (excluding the election, removal or
replacement of directors) requires the consent or affirmative
vote of shares of Series E Preferred Stock or of all Preferred
Stock of the Corporation, whether pursuant to the provisions of
such Series or such Preferred Stock or pursuant to the provisions
of the Articles of Redomestication of the Corporation or pursuant
to applicable law, and if any shares of Series E Preferred Stock
entitled to vote are held by the Corporation or by any of its
Affiliates, then the following additional consent or vote will be
required: the same consent or affirmative vote of shares
otherwise required, except that shares of Series E Preferred
Stock held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such additional
consent or vote; provided, such additional consent or vote will
not be applicable if all outstanding shares of Series E Preferred
Stock are held by the Corporation and/or its Affiliates.
ARTICLE 6
ISSUE PRICE
The price or consideration for which each share of
Series E Preferred Stock shall be issued is $20.90 and, upon
payment of such price, each such share shall be issued as fully
paid and non-assessable.
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ARTICLE 7
NOTICE AND INTERPRETATION
7.1 Notices
(a) Any notice, check, invitation for tenders or other
Communication from the Corporation herein provided for
shall be sufficiently given if delivered or if sent by
first class unregistered mail, postage prepaid, to the
holders of the Series E Preferred Stock at their
respective addresses appearing on the books of the
Corporation or, in the event of the address of any of
such holders not so appearing, then at the last address
of such holder known to the Corporation. Except for
notices required by law, accidental failure to give
such notice, invitation for tenders or other communica-
tion to one or more holders of the Series E Preferred
Stock shall-not affect the validity of the notices,
invitations for tenders or other communications
properly given or any action taken pursuant to such
notice, invitation for tenders or other communication
but, upon such failure being discovered, the notice,
invitation for tenders or other communication, as the
case may be, shall be sent forthwith to such holder or
holders.
(b) If any notice, check, invitation for tenders or other
communication from the Corporation given to a holder of
Series E Preferred Stock pursuant to paragraph (a) is
returned on three consecutive occasions because he
cannot be found, the Corporation shall not be required
to give or mail any further notices, checks, invita-
tions for tenders or other communications, to such
shareholder until another address for such shareholder
is made known to the Corporation.
7.2 Interpretation
(a) In the event that any day on which any dividend on the
Series E Preferred Stock is payable or on or by which
any other action is required to be taken hereunder is
not a business day, then such dividend shall be payable
or such other action shall be required to be taken on
or before the next succeeding day that is a business
day. A "business day" means a day other than a
Saturday, a Sunday or any other day that is a legal
holiday on which banking institutions in the place
where the Corporation has its head office are closed.
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(b) All references herein to a holder of Series E Preferred
stock shall be interpreted as referring to a registered
holder of the Series E Preferred Stock.
ARTICLE 8
CERTAIN MODIFICATIONS
In addition to any other vote or consent of
shareholders of the Corporation then required by applicable law
or by the Articles of Redomestication of the Corporation, subject
to any regulatory consents referred to in section 1.2 hereof, so
long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, without the prior
approval of the holders of Series E Preferred Stock outstanding
at that time, given in accordance with Article 9 below in person
or by proxy, either in writing or at a meeting (i) authorize,
create or issue, or increase the authorized or issued amount, of
any class or series of stock ranking prior to Series E Preferred
Stock with respect to payment of dividends or the distribution of
assets on liquidation, dissolution or winding up of the
Corporation, or reclassify any authorized stock of the
Corporation into any such shares, or create, authorize or issue
any obligations or security convertible into or evidencing the
right to purchase any such shares, or (ii) amend, alter or repeal
any of the provisions of the Corporation's Articles of
Redomestication of the Corporation or this Statement of
Designation so as to adversely affect any right, preference,
privilege or voting power of Series E Preferred Stock: provided,
however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any series of
preferred stock or any increase in the amount of authorized
shares of such series or of any other series of preferred stock,
in each case ranking on a parity with or junior to Series E
Preferred Stock with regard to dividends, or upon liquidation,
dissolution or winding up of the Corporation (which includes
without limitation any shares of the same class of preferred
stock as the Series E Preferred Stock, whether or not providing
for cumulative dividends), shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers.
ARTICLE 9
APPROVAL OF SERIES E PREFERRED STOCKHOLDERS
When holders of Series E Preferred Stock are voting
separately as a class, any approval of the holders of Series E
Preferred Stock with respect to any and all matters referred to
herein or of any other matters requiring the consent of the
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holders of the Series E Preferred Stock may be given in such
manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution signed by
the holders of a majority of the outstanding Series E Preferred
Stock (or, if required at that time by applicable law, signed by
all holders of the outstanding Series E Preferred Stock) or
passed by the affirmative vote of a majority of the votes cast by
the holders of Series E Preferred Stock who voted in respect of
the resolution at a general meeting of the holders of the
Series E Preferred Stock duly called for that purpose and held
upon at least 10 days notice at which the holders of at least
one-third of the outstanding Series E Preferred Stock (which
shall constitute a quorum) are present in person or represented
by proxy. The proxy rules applicable to the giving of notice of
and the formalities to be observed in respect of the conduct of,
any such meeting or any adjourned meeting shall be those from
time to time prescribed by the Articles of Redomestication and
by-laws of the Corporation with respect to meetings of the
holders of Preferred Stock, or if not so prescribed, as required
by the Colorado Corporation Code or by such other federal or
state legislation as may be applicable in the circumstances.
Subject to Article 5 hereof, on every vote taken at every meeting
of holders of Series E Preferred Stock, each holder of Series E
Preferred Stock entitled to vote thereat shall be entitled to one
vote for each share of Series E Preferred Stock held.
ARTICLE 10
RIGHTS ON LIQUIDATION
In the event of the liquidation, dissolution or
winding-up of the affairs of the Corporation, whether voluntary
or involuntary, the holders of Series E Preferred Stock shall be
entitled to receive, out of assets of the Corporation available
for distribution to stockholders after satisfying claims of
creditors but before any payment or distribution on the Common
Stock or on any other class of stock ranking junior to the shares
of Series E Preferred Stock upon liquidation, a liquidation
distribution in the amount of S20.90 per share plus an amount
equal to all dividends declared and unpaid on each share to the
date of such distribution. Additional provisions regarding the
preferences and rights of holders of Series E Preferred Stock to
receive liquidating distributions are set forth in Article IX of
the Articles of Redomestication of the Corporation. Neither the
sale, lease or exchange (for cash, stock, securities or other
consideration) of all or substantially all of the property and
assets of the Corporation, nor the consolidation or merger of the
Corporation with or into any other entity, nor the merger or
consolidation of any other entity with or into the Corporation,
shall be deemed to be a liquidation, dissolution, or winding up
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of the affairs of the Corporation, either voluntary or
involuntary, for purposes of this Article 10.
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STATEMENT OF RESOLUTION
ESTABLISHING SERIES E PREFERRED STOCK
Pursuant to Section 7-4-102 of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company, a
Colorado
corporation (the "Corporation"), hereby submits the
following
statement for the purpose of establishing and designating
one
series of preferred stock and fixing and determining the
relative
rights and preferences thereof.
1. The name of the Corporation is Great-West Life &
Annuity Insurance Company.
2. On September 15, 1992, the following resolution
establishing and designating one series of shares of the
Corporation's preferred stock was duly adopted by the
Board of
Directors of the Corporation pursuant to authority
conferred upon
the Board by the Corporation's Articles of
Redomestication:
RESOLVED, that the Board of Directors
hereby creates and establishes a series of
Non-Cumulative Perpetual Preferred Stock,
Series E, in accordance with the terms set
forth in Exhibit A attached hereto [a copy of
which is attached to this Statement of
Resolution and is incorporated herein by this
reference], and authorizes the officers of
the Corporation to file this resolution with
the Colorado Secretary of State in accordance
with the Colorado Corporation Code.
Dated: September 15, 1992 GREAT-WEST LIFE &
ANNUITY
INSURANCE COMPANY
By:
William T. McCallum,
President
and Chief Executive
Officer
By:
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared William T. McCallum, who acknowledged that he
is the President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Florence A. Aston, a notary public,
personally appeared D. Craig Lennox, who acknowledged that he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Articles of
Amendment to Articles of Redomestication as his voluntary act and
deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires: 4/26/93
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<PAGE>
EXHIBIT A
STATEMENT OF RESOLUTIONS ESTABLISHING
A SERIES OF PREFERRED STOCK
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
PREFERRED STOCK, SERIES E
RIGHTS, PRIVILEGES, RESTRICTIONS AND CONDITIONS
The Board of Directors of Great-West Life & Annuity
Insurance Company (the "Corporation") hereby creates a fifth
series of Preferred Stock, designated as the Non-Cumulative
Perpetual Preferred Stock, Series E (hereinafter referred to
as
the "Series E Preferred Stock") consisting of 2,000,000
shares of
Preferred Stock The Series E Preferred Stock shall be
subject
to and governed by the provisions of the Articles of
Redomestication of the Corporation as amended from time to
time
in accordance with applicable law (including, but not
limited to,
the provisions of the Articles of Redomestication concerning
dividend and liquidation preferences) and shall, in addition
to
the rights, privileges, restrictions and conditions stated
in
such Articles of Redomestication for the Preferred Stock as
a
class, have the following rights, privileges, restrictions
and
conditions
ARTICLE 1
INTERPRETATION AND APPLICATION
1.1 Definitions
(a) "Affiliate," as used herein, means any entity
other
than the Corporation (i) which owns beneficially,
directly or indirectly, 10% or more of the
outstanding
shares of the Common Stock, (ii) which is in
control of
the Corporation, as "control" is defined under
Section 230.405 of the Rules and Regulations of
the
Securities and Exchange Commission, 17 C.F.R.
Section 230.405, as in effect on the date of this
Statement,
(iii) of which 10% or more of the outstanding
shares of
common stock, or in which a 10% or greater general
partnership or joint venture interest, is owned
beneficially, directly or indirectly, by any
entity
described in clause (i) or (ii) above, or (iv)
which is
controlled by any entity described in clause (i)
or
(ii) above, as "controlled by" is defined under
such
Section 230.405.
(b) "common Stock" shall mean the shares of common
stock,
par value $1.00, in the capital of the
Corporation;
<PAGE>
(c) "Corporation's Conversion Notice" shall have the
meaning ascribed thereto in subsection 3.2(b) hereof;
(d) "Conversion Number" shall mean the number of shares of
Common Stock which are to be issued on a conversion of
one share of the Series E Preferred Stock, which shall
be either the Negotiated Conversion Number or the
Formula Conversion Number;
(e) "Formula Conversion Number" shall mean the number of
shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.6 hereof;
(f) "Holder's Conversion Notice" shall have the meaning
ascribed thereto in subsection 4.2(a) hereof; and
(g) "Negotiated Conversion Number" shall mean that number
of shares of Common Stock used in connection with the
conversion of Series E Preferred Stock into Common
Stock determined in accordance with the provisions of
section 4.5 hereof.
1.2 Regulatory Approvals
Notwithstanding anything to the contrary contained
herein, the Corporation shall not redeem, purchase for
cancellation or otherwise retire, reduce or make any return of
capital in respect of any Series E Preferred Stock or exercise
its option to convert the Series E Preferred Stock into shares of
common stock or modify the rights, privileges, restrictions or
conditions of the Series E Preferred Stock unless the same is in
accordance with the Colorado law and all the necessary or
appropriate consents of the Colorado Insurance Division and other
regulatory authorities having jurisdiction have been obtained
prior thereto.
ARTICLE 2
DIVIDENDS
2.1 Dividend Payment Dates and Dividend Periods
The dividend payment dates (the "Dividend Payment
Dates") in respect of the dividends payable on the Series E
Preferred Stock shall be the last day of each of the months of
March, June, September and December in each year. A Dividend
Period shall mean the period from and including the date of issue
of the Series E Preferred Stock to but excluding the first
Dividend Payment Date and, thereafter, the period from and
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<PAGE>
including each Dividend Payment Date to but excluding the next
succeeding Dividend Payment Date.
2.2 Payment of Dividends
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors of the Corporation,
out of moneys of the Corporation properly applicable to the
payment of dividends, non-cumulative cash dividends (the
"Quarterly Dividends") payable, with respect to each Dividend
Period, on the Dividend Payment Date immediately following the
end of such Dividend Period, the first of such dividends to be
payable on December 31, 1992 and to be in an amount per share
determined in accordance with section 2.3 hereof. For all
subsequent Dividend Periods, dividends, subject to section 2.3
hereof, as and when declared by the board of directors of the
Corporation, out of moneys of the Corporation properly applicable
to the payment of dividends, shall be paid in an amount per share
of Series E Preferred Stock equal to $0.39188.
2.3 Dividend for other than a Full Dividend Period
The holders of Series E Preferred Stock shall be
entitled to receive, and the Corporation shall pay thereon, as
and when declared by the board of directors, out of moneys of the
Corporation properly applicable to the payment of dividends,
non-cumulative cash dividends for any period which is less than a
full Dividend Period as follows:
(a) an initial dividend per share in respect of the period
from and including the date of the initial issue of the
Series E Preferred Stock to but excluding December 31,
1992 (the "Initial Dividend Period") equal to $0.57976;
and
(b) a dividend in an amount per share with respect to any
Series E Preferred Stock:
(i) which is issued, redeemed or purchased by the
Corporation or converted during any Dividend
Period; or
(ii) where the assets of the Corporation are
distributed in the liquidation, dissolution or
winding up of the Corporation to the holders of
the Series E Preferred Stock with an effective
date during any Dividend Period;
equal to the amount obtained (rounded to five decimal
places) when $1.5675 is multiplied by a fraction of
which the numerator is the number of days in such
-3-
<PAGE>
Dividend Period that such share has been outstanding
(excluding the date of issue, redemption, purchase or
conversion or the effective date for the distribution
of assets) and the denominator of which is the number
of days in the year in which such Dividend Period
falls.
2.4 Payment Procedure
The Corporation shall pay the dividends on the Series E
Preferred Stock to the holders of record thereof at the close of
business on the second business day immediately preceding the
relevant Dividend Payment Date (less any tax required to be
deducted or withheld by the Corporation) by check drawn on a bank
or trust company and payable in lawful money of the United States
at any branch of such bank or trust company in the United States.
The delivery or mailing of any check to a holder of Series E
Preferred Stock shall be a full and complete discharge of the
Corporation's obligation to pay the dividends to such holder
(plus any tax required to be and in fact deducted and withheld
therefrom and remitted to the proper taxing authority) unless
such check is not honored when presented for payment. Dividends
which are represented by a check which has not been presented to
the Corporation's bankers for payment or that otherwise remain
unclaimed for a period of two years from the date on which they
were declared to be payable may be reclaimed (including without
limitation by cancellation of any check) and after such
reclaiming the holders of Series E Preferred Stock entitled to
the funds so reclaimed shall look only to the Corporation for
such payment, without interest.
ARTICLE 3
REDEMPTION, CONVERSION AND PURCHASE
3.1 General
(a) Subject to the Articles of Redomestication and to the
extent permitted by applicable law, the Series E
Preferred Stock may be redeemed, converted or purchased
by the Corporation as provided in this Article 3 and
Article 4 but not otherwise.
(b) For the purposes hereof, the Common Stock of the
Corporation (the "Common Stock") shall mean (i) such
common stock as currently constituted and (ii) any
shares attributable to such common stock and resulting
from a reclassification of the common stock of the
Corporation or from a capital reorganization of the
Corporation or a consolidation or merger of the
Corporation with or into any other corporation (other
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<PAGE>
than a capital reorganization, consolidation or
merger
which does not result in any reclassification of
the
common stock or a change of the common stock into
other
stock, shares or securities).
3.2 Redemption and Conversion Rights
(a) The Series E Preferred Stock shall not be
redeemable
prior to April 1, 1999. The Corporation may, upon
giving notice as hereinafter provided, redeem on or
after April 1, 1999 at any time the whole or from
time
to time any part of the then outstanding Series E
Preferred Stock, by the payment of an amount in
cash
for each share of Series E Preferred Stock so
redeemed
equal to the sum of $20.90 plus an amount equal to
all
declared and unpaid dividends thereon up to but
excluding the date fixed for redemption (the
"Redemption Price").
(b) The Series E Preferred Stock shall not be
convertible
at the option of the Corporation prior to April 1,
1999. Subject to compliance with the rights,
privileges, restrictions and conditions of the
Common
Stock and receipt of any required regulatory
approval,
the Corporation may, by giving notice as
hereinafter
provided (the "Corporation's Conversion Notice"),
convert the whole or from time to time any part of
the
then outstanding Series E Preferred Stock into
fully
paid and non-assessable shares of Common Stock on
the
basis that the Series E Preferred Stock of each
holder
called for conversion by the Corporation will be
converted into (subject to that exception as to
fractions contained in section 3.7 hereof) that
number
(the "Conversion Number") of shares of Common Stock
determined pursuant to Article 4 and that the
Formula
Conversion Number as provided in section 4.6 shall
be
used for this purpose.
(c) If less than all of the outstanding Series E
Preferred
Stock are to be redeemed or converted, the shares
to be
redeemed or converted shall be selected by lot, pro
rata (disregarding fractions) or in such other
manner
as the board of directors or a committee thereof in
its
sole discretion shall by resolution determine.
3.3 Manner of Redemption or Conversion
(a) Notice of redemption or conversion of Series E
Preferred Stock shall be given by the Corporation
not
less than 25 nor more than 60 calendar days prior
to
the date fixed for redemption and not less than 35
nor
more than 60 calendar days prior to the date fixed
for
<PAGE>
conversion, to each holder of Series E Preferred Stock
to be redeemed or converted, as the case may be. Such
notice shall set out (i) the date (the "Redemption
Date" or the "Conversion Date", as the case may be) on
which the redemption or conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder to whom it is addressed is to be redeemed or
converted, the number of shares of Series E Preferred
Stock so held which are to be redeemed or converted:
(iii) whether the Corporation shall redeem or convert
such Series E Preferred stock; (iv) the Redemption
Price or the method of determining the Conversion
Number, as the case may be; and (v) where the Series E
Preferred Stock is to be converted into Common Stock,
the advice that such Common Stock will be registered in
the name of the registered holder of the Series E
Preferred Stock to be converted unless the Corporation
receives from such holder, on or before the tenth
calendar day prior to the Conversion Date (the
"Transferee Notice Date"), at the head office of the
Corporation, written notice in a form and executed in a
manner satisfactory to the Corporation directing the
Corporation to register such Common Stock in some other
name or names (the "Transferee") and stating the name
or names (with addresses) accompanied by payment to the
Corporation of any transfer tax that may be payable by
reason thereof and a written declaration of such
matters as may be required by law in order to determine
the entitlement of such Transferee to hold such Common
Stock.
(b) In the case of a redemption, on and after the
Redemption Date the Corporation shall pay or cause to
be paid to the holders of the Series E Preferred Stock
so called for redemption the Redemption Price therefor
on presentation and delivery at the head office of the
Corporation or such other place or places in the United
States designated in the notice referred to in
subsection 3.3(a), of the certificate or certificates
representing the Series E Preferred Stock so called for
redemption. Such payment shall be made by check and
shall be a full and complete discharge of the
Corporation's obligation to pay the Redemption Price
owed to the holders of Series E Preferred Stock so
called for redemption unless the check is not honored
when presented for payment. From and after the
Redemption Date, the holders of Series E Preferred
Stock called for redemption shall cease to be entitled
to dividends or to exercise any of the rights of
holders of Series E Preferred Stock in respect of such
shares except the right to receive therefor the
Redemption Price, provided that if payment of such
<PAGE>
Redemption Price is not duly made in accordance with
the provisions hereof, then the rights of such holders
shall remain unimpaired.
(c) In the case of a redemption, the Corporation shall have
the right at any time after mailing a notice of redemp-
tion to deposit irrevocably (subject to the repayment
right set forth below in this subsection) the aggregate
Redemption Price of the Series E Preferred Stock
thereby called for redemption, or such part thereof as
at the time of deposit has not been claimed by the
holders entitled thereto, in a special account with a
bank or trust company designated by the Corporation for
the holders of such shares, and upon such deposit being
made or upon the date fixed for redemption, whichever
is the later, the Series E Preferred Stock in respect
of which such deposit shall have been made shall be
deemed to be redeemed and the rights of each holder
thereof shall be limited to receiving, without
interest, his proportionate part of the Redemption
Price so deposited upon presentation and surrender of
the certificates representing the Series E Preferred
Stock so redeemed. Any interest on any such deposit
shall belong to the Corporation. Redemption moneys
which remain unclaimed for a period of two years from
the Redemption Date shall be repaid to the Corporation,
and after such repayment, the holders of Series E
Preferred Stock entitled to the funds so repaid to the
Corporation shall look only to the Corporation for such
payment, without interest.
(d) In the case of a conversion of Series E Preferred Stock
into Common Stock, on and after the Conversion Date the
Corporation shall deliver the Conversion Number of
Common Stock on presentation and delivery by the
holders at the head office of the Corporation or such
other place or places in the United States designated
in the notice referred to in subsection 3.3(a), of the
certificate or certificates representing the Series E
Preferred Stock so called for conversion. The
Corporation shall deliver or cause to be delivered
certificates representing such Common Stock registered
in the name of the holders of Series E Preferred Stock
to be converted, or as such holders shall have directed
as aforesaid. Series E Preferred Stock so converted
shall be converted effective on the Conversion Date.
From and after the Conversion Date, the holders of
Series E Preferred stock so converted who have not
presented and delivered the certificate or certificates
representing such shares as herein required shall cease
to be entitled to dividends on such Series E Preferred
Stock or to exercise any of the rights of holders of
<PAGE>
Series E Preferred Stock in respect of such shares
except the right to receive a certificate for the
Conversion Number of Common Stock and any payment
with
respect to a fraction of a share of Series E
Preferred
Stock.
(e) If less than all the Series E Preferred Stock
represented by any certificate shall be redeemed
or
converted, a new certificate for the balance shall
be
issued without cost to the holder.
3.4 Purchase
The Corporation may purchase at any time all or from
time to time any part of the outstanding Series E Preferred
Stock
in the open market (including purchases through or from an
investment dealer or firm holding membership on a stock
exchange)
or pursuant to tenders received by the Corporation upon an
invitation for tenders addressed to all holders of the Series
E
Preferred Stock, at a price per share in each case not
exceeding
the applicable Redemption Price at the time of purchase plus
costs of purchase. If upon any invitation for tenders the
Corporation receives tenders for Series E Preferred Stock at
the
same price in an aggregate number greater than the number for
which the Corporation is prepared to accept tenders, the
shares
to be purchased shall be selected from the shares offered at
such
price as nearly as may be pro rata (to the nearest 10 shares)
according to the number of shares of Series E Preferred Stock
offered in each such tender, in such manner as the board of
directors or a committee thereof in its sole discretion
shall by
resolution determine. If part only of the Series E Preferred
Stock represented by any certificate shall be purchased, a
new
certificate for the balance of such shares shall be issued
without cost to the holder.
3.5 Conversion into Another Series of Preferred Stock
To the extent permitted by applicable law and the
Articles of Redomestication and by-laws of the corporation,
and
with any required approval of the Colorado Insurance
Division,
the Corporation may at any time on or after September 30,
1997,
designate a further series of preferred stock of the same
class
as the Series E Preferred Stock which qualifies as
regulatory
capital for Canadian insurance law purposes (the "New
Preferred
Stock") and notify the holders of Series E Preferred Stock
that
they have the right pursuant to the terms of the Series E
Preferred Stock, at their option, to convert their Series E
Preferred Stock into fully paid and non-assessable New
Preferred
Stock on a share for share basis on a date specified by the
Corporation in such notice (the "Exchange Date"). Such
notice
shall provide the details of the terms and conditions of the
New
Preferred Stock and instructions on how to convert Series E
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<PAGE>
Preferred Stock into New Preferred Stock and shall be accompanied
by the proper form of instrument of surrender.
3.6 Manner of Conversion into Another
Series of Preferred Stock
Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation on or prior to the
Exchange Date the certificate or certificates representing the
Series E Preferred Stock to be so converted accompanied by a
written instrument of surrender in form satisfactory to the
Corporation and duly executed by the registered holder of the
Series E Preferred Stock represented by the certificate or
certificates so surrendered in which instrument the holder may
elect to convert all or a portion of the Series E Preferred Stock
represented by such certificate or certificates into New
Preferred Stock.
The Corporation shall, on presentation and delivery at
the head office of the Corporation or such other place or places
in the United States as the Corporation may agree of the
certificate or certificates representing the Series E Preferred
Stock to be converted, issue and deliver or cause to be delivered
as soon as is reasonably practicable after the Exchange Date a
certificate or certificates representing the New Preferred Stock
into which such Series E Preferred Stock have been converted.
Such certificate or certificates shall be registered in the name
of the holder of the Series E Preferred Stock so converted or in
such name or names as the holder may specify in the written
instrument accompanying the Series E Preferred Stock to be
converted. The Series E Preferred Stock so converted shall be
converted, and the holder thereof shall become a holder of record
of New Preferred Stock, effective on the Exchange Date. The
provisions of subsection 3.3(e) shall apply, mutatis mutandis, in
the event of a conversion into New Preferred Stock of less than
all of the Series E Preferred Stock represented by a particular
share certificate.
3.7 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock, the Corporation shall adjust such
fractional interest by payment by check in an amount equal to the
value of such fractional interest computed on the basis of $20.90
divided by the Conversion Number determined in respect of the
relevant Conversion Date.
<PAGE>
ARTICLE 4
HOLDER'S CONVERSION RIGHT
4.1 Conversion Right
Subject to the option of the Corporation in section 4.3
hereof and to the provisions of section 1.2 hereof, each share of
Series E Preferred Stock shall, on and after September 30, 1999,
at the option of the holder, be convertible on the last day of
March, June, September and December in each year (a "permitted
conversion date") into (subject to the exception as to fractions
contained in section 4.4) that number of shares of fully paid and
non-assessable Common Stock as is equal to the Conversion Number.
The holder of Series E Preferred Stock to be converted is
entitled to receive any dividend which has been declared and is
payable on the date of such conversion.
Not less than 90 nor more than 120 calendar days prior
to September 30, 1999, the Corporation shall give to the
registered holders of the Series E Preferred Stock notice of the
conversion right containing instructions to such holders as to
the method by which such conversion right may be exercised, as
set out in section 4.2. However, a failure to give such notice
shall not affect the conversion rights of the Series E Preferred
Stock.
4.2 Manner of Conversion
(a) Series E Preferred Stock may be converted by the holder
of such shares tendering to the Corporation not less
than 55 calendar days prior to the date (which must be
a permitted conversion date) fixed for conversion by
such holder the certificate or certificates for the
Series E Preferred Stock to be converted with the
notice of conversion on the reverse side thereof (the
"Holder's Conversion Notice") duly completed. Subject
to section 4.3 and to the right to accept an offer to
convert Series E Preferred Stock into New Preferred
Stock under section 3.5, such Conversion Notice shall
be irrevocable and shall set out:
(i) the date (the "Conversion Date") on which the
conversion is to take place;
(ii) unless all the Series E Preferred Stock held by
the holder by whom such notice is given is to be
converted, the number of shares of Series E
Preferred Stock so held which are to be converted;
and
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<PAGE>
(iii) an acknowledgement that the Common Stock into
which the Series E Preferred Stock is to be
converted is to be registered in the name of the
registered holder of the Series E Preferred Stock
to be converted unless such holder, on or before
the tenth calendar day prior to the Conversion
Date (the "Transferee Notice Date") provides to
the Corporation written notice in the form and
executed in a manner satisfactory to the
Corporation directing the Corporation to register
such Common Stock in some other name or names (the
"Transferee") and stating the name or names (with
addresses) accompanied by payment to the
Corporation of any transfer tax that may be
payable by reason thereof and a written
declaration of any matters as may be required by
law in order to determine the entitlement of such
Transferee to hold such common Stock.
(b) Subject to section 4.3 hereof, the Corporation shall,
on presentation and delivery at the head office of the
corporation or such other place or places in the United States as
the Corporation may agree of the certificate or certificates
representing the Series E Preferred Stock so surrendered for
conversion, issue and deliver or cause to be delivered certifi-
cates representing the number of whole shares of Common Stock
into which such Series E Preferred Stock is to be converted,
registered in the name of the holder of the Series E Preferred
Stock to be converted, or as such holder shall have directed as
aforesaid, as the case may be, on the Conversion Date. The
Series E Preferred Stock so converted shall be converted, and the
holder thereof shall become a holder of Common Stock of record,
effective on the Conversion Date.
(c) If less than all the Series E Preferred Stock
represented by any certificate shall be converted, a new
certificate for the balance shall be issued without cost to the
holder.
4.3 Option of the Corporation
Prior to any Conversion Date, the Corporation may, by
notice given not less than 35 calendar days before such
Conversion Date to all holders who have given a Conversion
Notice,
(a) redeem on the Conversion Date all but not less than all
of the Series E Preferred Stock forming the subject
matter of the applicable Conversion Notice at the
Redemption Price provided for in Article 3 hereof; or
<PAGE>
(b) request such holders to sell on the Conversion Date
such Series E Preferred Stock to another purchaser or
purchasers in the event that a purchaser or purchasers
willing to purchase all but not less than all of such
Series E Preferred Stock at a price equal to the
Redemption Price is or are found by the Corporation and
such holders shall sell such Series E Preferred Stock
at a price equal to the Redemption Price to such
purchaser or purchasers.
Any such redemption or purchase shall be made on the Conversion
Date by mailing a check of the Corporation or the Corporation's
causing such purchaser to mail a check (as the case may be) in an
amount equal to the Redemption Price to the holder of the
Series E Preferred Stock entitled thereto. The provisions of
subsection 3.3(e) shall apply, mutatis mutandis, in the event of
a redemption or purchase of less than all the Series E Preferred
Stock represented by a particular share certificate. The
Series E Preferred Stock so purchased or redeemed shall not be
converted on the Conversion Date. In the event that for any
reason the redemption or purchase provided for in this section is
not effected in respect of a share or shares of Series E
Preferred Stock on the Conversion Date, the option of the
Corporation in respect of such Series E Preferred Stock shall
lapse and such Series E Preferred Stock shall be deemed to have
been converted on the Conversion Date.
4.4 Avoidance of Fractional Shares
In any case where a fraction of a share of Common Stock
would otherwise be issuable on conversion of one or more shares
of Series E Preferred Stock under this Article 4, the Corporation
shall adjust such fractional interest by the payment by check in
an amount equal to the value of such fractional interest computed
on the basis of $20.90 divided by the Conversion Number deter-
mined in respect of the relevant Conversion Date.
4.5 Negotiated Conversion Number
(a) No later than 10 days following the receipt of a
Holder's Conversion Notice, the Corporation may notify
the holders of the Series E Preferred Stock, or such
holders as have delivered a Holder's Conversion Notice,
of a proposed Conversion Number in connection with the
conversion of the Series E Preferred Stock into Common
Stock. Such notification to holders shall also:
(i) specify a date by which each holder must notify
the Corporation in writing of its acceptance of
the proposed Conversion Number, if such holder
intends to accept such number, which date shall be
at least 25 days prior to the Conversion Date, and
<PAGE>
(ii) specify that the proposed Conversion Number shall
become effective for the purposes of determining
the number of Common Stock to be issued upon the
conversion of the Series E Preferred Stock only if
all of the holders of Series E Preferred Stock who
have delivered a Holder's Conversion Notice accept
such number.
(b) If, by the time prescribed in clause (a)(i), all of the
holders of Series E Preferred Stock who have delivered
a Holder's Conversion Notice have accepted the proposed
Conversion Number, as evidenced by notice in writing to
the Corporation, and at least 20 days prior to the
Conversion Date the Corporation has notified all of
such holders that each of them has agreed with the
Corporation as to such number, then such Conversion
Number (the "Negotiated Conversion Number") shall apply
for the purposes of determining the number of shares of
Common Stock to be issued upon the conversion of the
Series E Preferred Stock in respect of the Holder's
Conversion Notice then outstanding in accordance with
the provisions of section 4.7 hereof.
4.6 Formula Conversion Number
(a) Subject to the provisions of subsection (b) hereof, the
Corporation shall determine a Conversion Number (the
"Formula Conversion Number") which shall be equal to
the quotient obtained when (i) an amount equal to the
total assets minus all preferred stock minus
undistributed participating policyholder earnings as
shown on the Corporation's balance sheet as at the end
of the most recently completed calendar quarter,
prepared in accordance with U.S. generally accepted
accounting principles as in effect at the time of
determination and applicable to the Corporation, is
divided by (ii) the number of shares of Common Stock
outstanding, on a fully diluted basis (excluding any
shares issuable upon conversion of the Series E
Preferred Stock), at such quarter-end.
(b) In the event that the Corporation proposes to utilize
the Formula Conversion Number, it shall so notify all
of the holders of Series E Preferred Stock (in the case
of the issuance of a Corporation's Conversion Notice)
or each holder of Series E Preferred Stock who has
submitted a Holder's Conversion Notice, not less than 5
days prior to the Conversion Date, that the Corporation
intends to use the Formula Conversion Number in respect
of such Conversion Date and notifying such holders of
the basis upon which such Number has been determined.
The Corporation will, if requested by any holder of
<PAGE>
Series E Preferred Stock converting the same into
Common Stock, provide such holder with a letter from
the auditors of the Corporation stating that: (i) if
the above-referenced quarter-end is not also the end of
a fiscal year of the Corporation, (A) on the basis of a
review of such unaudited quarter-end financial state-
ments, nothing has come to the attention of the
auditors that cause them to believe that the unaudited
financial statements for the completed quarter
referenced above are not in conformity with generally
accepted accounting principles, and (B) in using the
numbers contained in such unaudited quarter-end
financial statements and information provided by the
Corporation's management, the auditors have
recalculated the Financial Conversion Number and found
it to be accurate or (ii) if the above-referenced
quarter is the end of a fiscal year of the Corporation,
(A) the auditors indicate that they have issued their
opinion on the audited financial statement for such
fiscal year and (B) in using the numbers contained in
such audited financial statements and information
provided by the Corporation's management, the auditors
have recalculated the Financial Conversion Number and
found it to be accurate.
4.7 Conversion Ratio
Each share of Series E Preferred Stock shall be
convertible into that number of shares of Common Stock which is
equal to the Conversion Number, with the result of such
calculation being rounded down to the nearest share of Common
Stock. For these purposes, the Conversion Number shall be the
Negotiated Conversion Number agreed to in accordance with the
provisions of section 4.5 hereof with respect to shares of
Series E Preferred Stock subject to a Holder's Conversion Notice
or, if no such number be agreed upon, the Formula Conversion
Number determined pursuant to the provisions of section 4.6
hereof.
4.8 Reservation of Shares
The Corporation shall at all times reserve and keep
available, free from preemptive rights, out of its authorized
Common Stock, for the purpose of effecting the conversion of
shares of Series E Preferred Stock, at least the full number of
shares of Common Stock then deliverable upon conversion of all
shares of Series E Preferred Stock then outstanding on the basis
of the Formula Conversion Number.
4.9 Governmental Approvals
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<PAGE>
If any shares of Common Stock to be reserved for the
purpose of conversion of shares of Series E Preferred Stock
require registration with or approval of any governmental
authority under any federal or state law before such shares may
be validly issued or delivered upon conversion, then the
Corporation will in good faith and as expeditiously as possible
endeavor to secure such registration or approval, as the case may
be.
ARTICLE 5
VOTING RIGHTS
5.1 No Voting
Except as required by law and except as otherwise
provided herein or in the Corporation's Articles of
Redomestication, the holders of Series E Preferred Stock shall
have no voting rights and shall not be entitled as such to
receive notice of or to attend any meeting of shareholders of the
corporation.
5.2 Default in Dividend
(a) The shares of Series E Preferred Stock are intended to
be "Voting Parity Preferred Stock" as that term is used
in the Voting Rights of Stated Rate Auction Preferred
Stock, Series A through Series D, of the Corporation
(the " STRAPS n ) . During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of Series E
Preferred Stock, or any class or series of preferred
stock ranking on a parity with the shares of Series E
Preferred Stock as to dividends or upon liquidation,
dissolution or winding up of the Corporation and the
terms of which expressly provide that such shares are
"Voting Parity Preferred Stock" within the meaning of
this paragraph or the terms of the STRAPS and voting
rights thereunder are then exercisable (all such
shares, and all shares of Series E Preferred Stock,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock. A
<PAGE>
"Default in Preferred Dividends" means any default or
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to Series E Preferred
Stock shall be deemed to have occurred whenever the
Corporation fails to declare and pay the whole amount
of Quarterly Dividend for any Dividend Period on or
before the last day of such Dividend Period, and,
having so occurred, such default shall be deemed to
exist thereafter until, but only until, the Corporation
declares and pays the full amount of Quarterly Dividend
for a Dividend Period. At such time as the Corporation
may again fail to declare the full amount of any
Quarterly Dividend upon any Series E Preferred Stock
for any Dividend Period, a "Default in Preferred
Dividends" shall again have occurred. "Defaulted
Voting Parity Preferred Stock" at any time shall mean
those classes and series of Voting Parity Preferred
Stock in respect of which, at or prior to such time, a
Default in Preferred Dividends has occurred and of
which the holders are entitled at that time by the
terms of such Voting Parity Preferred Stock to elect
directors of the Corporation. Upon the termination of
a Voting Period with respect to any class or series of
Defaulted Voting Parity Preferred Stock, the voting
rights described in this section 5.2 shall cease for
such class or series of Defaulted Voting Parity
Preferred Stock, subject always, however, to revesting
of such voting rights in the holders of such Voting
Parity Preferred Stock upon the further occurrence of a
Default in Preferred Dividends. If any Voting Period
shall have terminated before the holders of a class or
series of Voting Parity Preferred Stock shall have
exercised the voting rights provided in this
section 5.2, the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(b) If the holders of any class or series of Defaulted
Voting Parity Preferred Stock (the "first Defaulted
Voting Parity Preferred Stock") have elected one or
more directors prior to the happening of the default or
event permitting the holders of any other class or
series of Defaulted Voting Parity Preferred Stock to
elect directors, then the directors so previously
elected will be deemed to have been elected by and on
behalf of the holders of such other class or series of
Defaulted Voting Parity Preferred Stock as well as the
first Defaulted Voting Parity Preferred Stock, without
prejudice to the right of the holders of such other
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<PAGE>
class or series to vote for directors if such
previously elected directors shall resign, cease to
serve or stand for reelection while the holders of such
other class or series are entitled to vote. If the
holders of any first Defaulted Voting Parity Preferred
Stock are entitled to elect in excess of two directors,
the holders of such other class or series shall not
participate in the election of more than two such
directors.
(c) No shares of any Defaulted Voting Parity Preferred
Stock held by the Corporation or any of the
Corporation's Affiliates shall be voted, or counted in
determining a quorum, for the election, removal or
replacement of any director elected by any Defaulted
Voting Parity Preferred Stock.
5.3 Voting Procedures
(a) As soon as practicable after the commencement of a
Voting Period, the Corporation shall call or cause to
be called a special meeting of the holders of Defaulted
Voting Parity Preferred Stock by mailing or causing to
be mailed a notice of such special meeting to such
holders not less than 10 nor more than 45 days after
the date such notice is given. If the Corporation does
not call or cause to be called such a special meeting,
it may be called by any of such holders on like notice.
The record date for determining the holders of
Defaulted Voting Parity Preferred Stock entitled to
notice of and to vote at such meeting shall be the
close of business on the Business Day preceding the day
on which such notice is mailed. At any such special
meeting and at each meeting of stockholders held during
a Voting Period at which directors are to be elected,
removed or replaced, the holders of Defaulted Voting
Parity Preferred Stock, voting together as a single
class (to the exclusion of the holders of all other
securities, series and classes of capital stock of the
Corporation), voting by a majority of the votes of
shares present in person or by proxy, shall be entitled
to elect two directors. In regard to such elections,
each holder of shares of Defaulted Voting Parity
Preferred Stock shall be entitled to one or more votes
and/or a fractional vote on the basis of one vote for
each Sloo , ooo of liquidation preference (excluding
amounts in respect of accumulated and unpaid dividends)
attributable to such shares. Cumulative voting in such
elections shall not be permitted. Shares of Defaulted
Voting Parity Preferred Stock then outstanding, present
in person or represented by proxy, representing
one-third of the votes of the Defaulted Voting Parity
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<PAGE>
Preferred Stock, will constitute a quorum for the
election of directors. Notice of all meetings at which
holders of Defaulted Voting Parity Preferred Stock of
any series shall be entitled to vote will be given to
such holders at their addresses as they appear on the
Stock Books. At any such meeting or adjournment
thereof in the absence of a quorum, holders of shares
of Defaulted Voting Parity Preferred Stock representing
a majority of the votes present in person or
represented by proxy shall have the power to adjourn
the meeting for the election of directors without
notice, other than an announcement at the meeting,
until a quorum is present. If any Voting Period shall
terminate after the notice of special meeting provided
for in this section 5.3 has been given but before the
special meeting shall have been held, the Corporation
shall, as soon as practicable after such termination,
mail or cause to be mailed to the holders of Defaulted
Voting Parity Preferred Stock a notice of cancellation
of such special meeting.
(b) The term of office of all persons who are directors of
the Corporation at the time of a special meeting of the
holders of Defaulted Voting Parity Preferred Stock to
elect directors shall continue, notwithstanding the
election at such meeting by such holders of the two
additional directors.
(c) Simultaneously with the expiration of a Voting Period
for all classes and series of Defaulted Voting Parity
Preferred Stock, the term of office of the directors
elected by the holders of Defaulted Voting Parity
Preferred Stock shall terminate, the other persons who
shall have been elected by the holders of stock of the
Corporation (or by the Board of Directors prior to the
beginning of the Voting Period) and who are incumbent
shall constitute the directors of the Corporation, and
the voting rights of the holders of Voting Parity
Preferred Stock to elect directors shall cease.
(d) For so long as a Voting Period continues, the directors
elected at any time by the holders of Defaulted Voting
Parity Preferred Stock may be removed without cause by,
and shall not be removed without cause except by, the
vote of the holders of record of the outstanding shares
of Defaulted Voting Parity Preferred Stock at any
subsequent time, voting together as a single class
without regard to class or series, at a meeting of the
stockholders, or of the holders of shares of Defaulted
Voting Parity Preferred Stock, called for such purpose.
So long as a Voting Period continues, (A) any vacancy
in the office of a director elected by the holders of
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<PAGE>
Defaulted Voting Parity Preferred Stock may be filled
(except as provided in the following clause (B)) by the
person appointed by an instrument in writing signed by
the remaining director elected by the holders of
Defaulted Voting Parity Preferred Stock and filed with
the Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
5.4 Additional Vote
If any matter (excluding the election, removal or
replacement of directors) requires the consent or affirmative
vote of shares of Series E Preferred Stock or of all Preferred
Stock of the Corporation, whether pursuant to the provisions of
such Series or such Preferred Stock or pursuant to the provisions
of the Articles of Redomestication of the Corporation or pursuant
to applicable law, and if any shares of Series E Preferred Stock
entitled to vote are held by the Corporation or by any of its
Affiliates, then the following additional consent or vote will be
required: the same consent or affirmative vote of shares
otherwise required, except that shares of Series E Preferred
Stock held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such additional
consent or vote; provided, such additional consent or vote will
not be applicable if all outstanding shares of Series E Preferred
Stock are held by the Corporation and/or its Affiliate.
ARTICLE 6
ISSUE PRICE
The price or consideration for which each share of
Series E Preferred Stock shall be issued is $20.90 and, upon
payment of such price, each such share shall be issued as fully
paid and non-assessable.
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<PAGE>
ARTICLE 7
NOTICE AND INTERPRETATION
7.1 Notices
(a) Any notice, check, invitation for tenders or other
Communication from the Corporation herein provided for
shall be sufficiently given if delivered or if sent by
first class unregistered mail, postage prepaid, to the
holders of the Series E Preferred Stock at their
respective addresses appearing on the books of the
Corporation or, in the event of the address of any of
such holders not so appearing, then at the last address
of such holder known to the Corporation. Except for
notices required by law, accidental failure to give
such notice, invitation for tenders or other communica-
tion to one or more holders of the Series E Preferred
Stock shall-not affect the validity of the notices,
invitations for tenders or other communications
properly given or any action taken pursuant to such
notice, invitation for tenders or other communication
but, upon such failure being discovered, the notice,
invitation for tenders or other communication, as the
case may be, shall be sent forthwith to such holder or
holders.
(b) If any notice, check, invitation for tenders or other
communication from the Corporation given to a holder of
Series E Preferred Stock pursuant to paragraph (a) is
returned on three consecutive occasions because he
cannot be found, the Corporation shall not be required
to give or mail any further notices, checks, invita-
tions for tenders or other communications, to such
shareholder until another address for such shareholder
is made known to the Corporation.
<PAGE>
Interpretation
(a) In the event that any day on which any dividend on the
Series E Preferred Stock is payable or on or by which
any other action is required to be taken hereunder is
not a business day, then such dividend shall be payable
or such other action shall be required to be taken on
or before the next succeeding day that is a business
day. A "business day" means a day other than a
Saturday, a Sunday or any other day that is a legal
holiday on which banking institutions in the place
where the Corporation has its head office are closed.
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<PAGE>
(b) All references herein to a holder of Series E Preferred
stock shall be interpreted as referring to a registered
holder of the Series E Preferred Stock.
ARTICLE 8
CERTAIN MODIFICATIONS
In addition to any other vote or consent of
shareholders of the Corporation then required by applicable law
or by the Articles of Redomestication of the Corporation, subject
to any regulatory consents referred to in section 1.2 hereof, so
long as any shares of Series E Preferred Stock remain
outstanding, the Corporation shall not, without the prior
approval of the holders of Series E Preferred Stock outstanding
at that time, given in accordance with Article 9 below in person
or by proxy, either in writing or at a meeting (i) authorize,
create or issue, or increase the authorized or issued amount, of
any class or series of stock ranking prior to Series E Preferred
Stock with respect to payment of dividends or the distribution of
assets on liquidation, dissolution or winding up of the
Corporation, or reclassify any authorized stock of the
Corporation into any such shares, or create, authorize or issue
any obligations or security convertible into or evidencing the
right to purchase any such shares, or (ii) amend, alter or repeal
any of the provisions of the Corporation's Articles of
Redomestication of the Corporation or this Statement of
Designation so as to adversely affect any right, preference,
privilege or voting power of Series E Preferred Stock: provided,
however, that any increase in the amount of the authorized
preferred stock or the creation or issuance of any series of
preferred stock or any increase in the amount of authorized
shares of such series or of any other series of preferred stock,
in each case ranking on a parity with or junior to Series E
Preferred Stock with regard to dividends, or upon liquidation,
dissolution or winding up of the Corporation (which includes
without limitation any shares of the same class of preferred
stock as the Series E Preferred Stock, whether or not providing
for cumulative dividends), shall not be deemed to adversely
affect such rights, preferences, privileges or voting powers.
ARTICLE 9
APPROVAL OF SERIES E PREFERRED STOCKHOLDERS
When holders of Series E Preferred Stock are voting
separately as a class, any approval of the holders of Series E
Preferred Stock with respect to any and all matters referred to
herein or of any other matters requiring the consent of the
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<PAGE>
holders of the Series E Preferred Stock may be given in
such
manner as may then be required by law, subject to a minimum
requirement that such approval be given by resolution
signed by
the holders of a majority of the outstanding Series E
Preferred
Stock (or, if required at that time by applicable law,
signed by
all holders of the outstanding Series E Preferred Stock) or
passed by the affirmative vote of a majority of the votes
cast by
the holders of Series E Preferred Stock who voted in
respect of
the resolution at a general meeting of the holders of the
Series E Preferred Stock duly called for that purpose and
held
upon at least 10 days notice at which the holders of at
least
one-third of the outstanding Series E Preferred Stock
(which
shall constitute a quorum) are present in person or
represented
by proxy. The proxy rules applicable to the giving of
notice of
and the formalities to be observed in respect of the
conduct of,
any such meeting or any adjourned meeting shall be those
from
time to time prescribed by the Articles of Redomestication
and
by-laws of the Corporation with respect to meetings of the
holders of Preferred Stock, or if not so prescribed, as
required
by the Colorado Corporation Code or by such other federal
or
state legislation as may be applicable in the
circumstances.
Subject to Article 5 hereof, on every vote taken at every
meeting
of holders of Series E Preferred Stock, each holder of
Series E
Preferred Stock entitled to vote thereat shall be entitled
to one
vote for each share of Series E Preferred Stock held.
ARTICLE 10
RIGHTS ON LIQUIDATION
In the event of the liquidation, dissolution or
winding-up of the affairs of the Corporation, whether
voluntary
or involuntary, the holders of Series E Preferred Stock
shall be
entitled to receive, out of assets of the Corporation
available
for distribution to stockholders after satisfying claims
of
creditors but before any payment or distribution on the
Common
Stock or on any other class of stock ranking junior to the
shares
of Series E Preferred Stock upon liquidation, a
liquidation
distribution in the amount of $20.90 per share plus an
amount
equal to all dividends declared and unpaid on each share
to the
date of such distribution. Additional provisions regarding
the
preferences and rights of holders of Series E Preferred
Stock to
receive liquidating distributions are set forth in Article
IX of
the Articles of Redomestication of the Corporation.
Neither the
sale, lease or exchange (for cash, stock, securities or
other
consideration) of all or substantially all of the property
and
assets of the Corporation, nor the consolidation or merger
of the
Corporation with or into any other entity, nor the merger
or
consolidation of any other entity with or into the
Corporation,
shall be deemed to be a liquidation, dissolution, or
winding up
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<PAGE>
of the affairs of the Corporation, either voluntary or
involuntary, for purposes of this Article 10.
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Corporation
Code, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West
Life & Annuity Insurance Company.
SECOND: The Amendments set forth on Exhibit 1 and
Exhibit 2 attached hereto were adopted by a vote of the sole
shareholder of the Corporation on September 15, 1992. The
number
of shares voted for the Amendments was sufficient for
approval.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
FOURTH: The amendments do not effect a change in the
amount of stated capital of the Corporation.
Dated: September 15, 1992 THE GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By
William T. McCallum,
President
and Chief Executive
Officer
D. Craig Lennox, Senior
Vice
President, General
Counsel
and Secretary
<PAGE>
STATE OF COLORADO )
) ss.
COUNTY OF )
Before me, , a notary public,
personally appeared William T. McCallum, who acknowledged
that he
is the President and Chief Executive Officer of Great-West
Life &
Annuity Insurance Company, a Colorado corporation, and that
he
signed the foregoing Statement of Resolution Establishing
Series
E Preferred Stock as his voluntary act and deed, and that
the
facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 5th day of September, 1992.
Notary Public
My commission expires:
STATE OF COLORADO )
) ss.
COUNTY OF )
Before me, , a notary
public,
personally appeared D. Craig Lennox, who acknowledged that
he is
the Senior Vice President, General Counsel and Secretary of
Great-West Life & Annuity Insurance Company, a Colorado
corporation, and that he signed the foregoing Statement of
Resolution Establishing Series E Preferred Stock as his
voluntary
act and deed, and that the facts contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 15th day of September, 1992.
Notary Public
My commission expires:
238830. -2-
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby
amends the following parts of the terms for four series of
Stated
Rate Option Preferred Stock as set forth in the Statement of
Resolution Establishing Four Series of Preferred Stock dated
as
of September 18, 1991 and filed with the Secretary of State
of
Colorado on September 30, 1991:
Paragraphs 6(c), 6(d) and 6(e) are hereby amended to
read in their entirety as follows:
(c) Default in Dividend.
(i) During any period (a "Voting Period")
when a "Default in Preferred Dividends" (as hereinafter
defined) shall exist on the shares of any series of the
STRAPS, or any class or series of preferred stock
ranking on a parity with the shares of the STRAPS as to
dividends or upon liquidation, dissolution or winding
up of the Corporation and the terms of which expressly
provide that such shares are "Voting Parity Preferred
Stock" within the meaning of this paragraph and voting
rights thereunder are then exercisable (all such
shares, and all shares of each series of the STRAPS,
being hereinafter referred to collectively as the
"Voting Parity Preferred Stock"), the authorized number
of members of the Board of Directors shall
automatically be increased by two. The two vacancies
so created shall be filled by the vote of the holders
of the "Defaulted Voting Parity Preferred Stock" as
hereinbelow defined, voting together as a single class
without regard to class or series, to the exclusion of
the holders of the Common Stock of the Corporation and
any other class or series of stock other than such
shares of Defaulted Voting Parity Preferred Stock.
"Default in Preferred Dividends" means any default
event specified in the terms of any class of preferred
stock or series of preferred stock by reason of which
the holders of such preferred stock are entitled to
elect directors of the Corporation. A "Default in
Preferred Dividends" with respect to any series of
STRAPS shall be deemed to have occurred whenever the
amount of unpaid accumulated dividends upon such series
through the last preceding dividend period therefor
shall be equivalent to six quarterly dividends (which,
with respect to any series of the STRAPS, shall be
deemed to be dividends with respect to a number of
dividend periods containing not less than 540 days) or
more, and, having so occurred, such default shall be
<PAGE>
deemed to exist thereafter until, but only until, all
accumulated and unpaid dividends (whether or not earned
or declared) on all shares of all STRAPS of each and
every series then outstanding shall have been paid to
the end of the last preceding dividend period.
"Defaulted Voting Parity Preferred Stock" at any time
shall mean those classes and series of Voting Parity
Preferred Stock in respect of which, at or prior to
such time, a Default in Preferred Dividends has
occurred and of which the holders are entitled at that
time by the terms of such Voting Parity Preferred Stock
to elect directors of the Corporation. Upon the
termination of a Voting Period with respect to any
class or series of Defaulted Voting Parity Preferred
Stock, the voting rights described in this paragraph
6(c) shall cease for such class or series of Defaulted
Voting Parity Preferred Stock, subject always, however,
to revesting of such voting rights in the holders of
such Voting Parity Preferred Stock upon the further
occurrence of a Default in Preferred Dividends. If any
Voting Period shall have terminated before the holders
of a class or series of Voting Parity Preferred Stock
shall have exercised the voting rights provided in this
paragraph 6(c), the holders of such class or series of
Voting Parity Preferred Stock shall be deemed not to
have acquired such voting rights.
(ii) If the holders of any class or series of
Defaulted Voting Parity Preferred Stock (the "first
Defaulted Voting Parity Preferred Stock") have elected
one or more directors prior to the happening of the
default or event permitting the holders of any other
class or series of Defaulted Voting Parity Preferred
Stock to elect directors, then the directors so
previously elected will be deemed to have been elected
by and on behalf of the holders of such other class or
series of Defaulted Voting Parity Preferred Stock as
well as the first Defaulted Voting Parity Preferred
Stock, without prejudice to the right of the holders of
such other class or series to vote for directors if
such previously elected directors shall resign, cease
to serve or stand for reelection while the holders of
such other class or series are entitled to vote. If
the holders of any first Defaulted Voting Parity
Preferred Stock are entitled to elect in excess of two
directors, the holders of such other class or series
shall not participate in the election of more than two
such directors.
(iii) No shares of any Defaulted Voting
Parity Preferred Stock held by the Corporation or any
of the Corporation's Affiliates shall be voted, or
counted in determining a quorum, for the election,
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<PAGE>
removal or replacement of any director elected by any
Defaulted Voting Parity Preferred Stock.
(d) Voting Procedures.
(i) As soon as practicable after the
commencement of a Voting Period, the Corporation shall
call or cause to be called a special meeting of the
holders of Defaulted Voting Parity Preferred Stock by
mailing or causing to be mailed a notice of such
special meeting to such holders not less than 10 nor
more than 45 days after the date such notice is given.
If the Corporation does not call or cause to be called
such a special meeting, it may be called by any of such
holders on like notice. The record date for
determining the holders of Defaulted Voting Parity
Preferred Stock entitled to notice of and to vote at
such meeting shall be the close of business on the
Business Day preceding the day on which such notice is
mailed. At any such special meeting and at each
meeting of stockholders held during a Voting Period at
which directors are to be elected, removed or replaced,
the holders of Defaulted Voting Parity Preferred Stock,
voting together as a single ^lass (to the exclusion of
the holders of all other securities, series and classes
of capital stock of the Corporation), voting by a
majority of the votes of shares present in person or by
proxy, shall be entitled to elect two directors. In
regard to such elections, holders of shares of
Defaulted Voting Parity Preferred Stock shall be
entitled to one or more votes and/or a fractional vote
on the basis of one vote for each $100,000 of
liquidation preference (excluding amounts in respect of
accumulated and unpaid dividends) attributable to such
shares. Cumulative voting in such elections shall not
be permitted. Shares of Defaulted Voting Parity
Preferred Stock then outstanding, present in person or
represented by proxy, representing one-third of the
votes of the Defaulted Voting Parity Preferred Stock,
will constitute a quorum for the election of directors.
Notice of all meetings at which holders of Defaulted
Voting Parity Preferred Stock of any series shall be
entitled to vote will be given to such holders at their
addresses as they appear on the Stock Books. At any
such meeting or adjournment thereof in the absence of a
quorum, holders of shares of Defaulted Voting Parity
Preferred Stock representing a majority of the votes
present in person or represented by proxy shall have
the power to adjourn the meeting for the election of
directors without notice, other than an announcement at
the meeting, until a quorum is present. If any Voting
Period shall terminate after the notice of special
meeting provided for in this paragraph 6(d)(i) has been
given but before the special meeting shall have been
-3-
<PAGE>
held, the Corporation shall, as soon as practicable
after such termination, mail or cause to be mailed to
the holders of Defaulted Voting Parity Preferred Stock
a notice of cancellation of such special meeting.
(ii) The term of office of all persons who
are directors of the Corporation at the time of a
special meeting of the holders of Defaulted Voting
Parity Preferred Stock to elect directors shall
continue, notwithstanding the election at such meeting
by such holders of the two additional directors.
(iii) Simultaneously with the expiration of a
Voting Period for all classes and series of Defaulted
Voting Parity Preferred Stock, the term of office of
the directors elected by the holders of Defaulted
Voting Parity Preferred Stock shall terminate, the
other persons who shall have been elected by the
holders of stock of the Corporation (or by the Board of
Directors prior to the beginning of the Voting Period)
and who are incumbent shall constitute the directors of
the Corporation, and the voting rights of the holders
of Voting Parity Preferred Stock to elect directors
shall cease.
(iv) For so long as a Voting Period
continues, the directors elected at any time by the
holders of Defaulted Voting Parity Preferred Stock may
be removed without cause by, and shall not be removed
without cause except by, the vote of the holders of
record of the outstanding shares of Defaulted Voting
Parity Preferred Stock at any subsequent time, voting
together as a single class without regard to class or
series, at a meeting of the stockholders, or of the
holders of shares of Defaulted Voting Parity Preferred
Stock, called for such purpose. So long as a Voting
Period continues, (A) any vacancy in the office of a
director elected by the holders of Defaulted Voting
Parity Preferred Stock may be filled (except as
provided in the following clause (B)) by the person
appointed by an instrument in writing signed by the
remaining director elected by the holders of Defaulted
Voting Parity Preferred Stock and filed with the
Corporation or, in the event there is no remaining
director elected by the holders of Defaulted Voting
Parity Preferred Stock, by vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at a meeting of the stockholders or
at a meeting of the then holders of shares of Defaulted
Voting Parity Preferred Stock called for such purpose,
and (B) in the case of the removal of any director
elected by the holders of Defaulted Voting Parity
Preferred Stock, the vacancy may be filled by the
-4-
<PAGE>
person elected by the vote of the holders of the
outstanding shares of Defaulted Voting Parity Preferred
Stock, voting together as a single class without regard
to class or series, at the same meeting at which such
removal shall be voted or at any subsequent meeting.
(e) Additional Vote. If any matter (excluding
the election, removal or replacement of directors)
requires the consent or affirmative vote of shares of
any series of STRAPS, of all series of STRAPS, or of
all Preferred Stock of the Corporation, whether
pursuant to the provisions of such series, all such
series or such Preferred Stock or pursuant to the
provisions of the Articles of Redomestication of the
Corporation or pursuant to applicable law, and if any
shares of any series of STRAPS entitled to vote are
held by the Corporation or by any of its Affiliates,
then the following additional consent or vote will be
required: the same consent or affirmative vote of
shares otherwise required, except that shares of STRAPS
held by the Corporation and/or its Affiliates shall be
deemed not to be outstanding for purposes of such
additional consent or vote; provided, such additional
consent or vote will not be applicable if all
outstanding shares of the STRAPS of such series (in the
case of a class vote of such series) or of all series
STRAPS (in the case of a vote of all series of STRAPS)
are held by the Corporation and/or its Affiliates.
Z38850 .3
<PAGE>
Fs
Exhibit 2
Great-West Life & Annuity Insurance Company hereby
amends parts of ARTICLE IX of its Articles of Redomestication
as
follows:
1. Article IX, Section A, paragraph 3 is hereby
amended to read in its entirety as follows:
3. Dividend and Liquidation Preference as
between the Common Stock and the Preferred Stock. For so
long as any shares of Preferred Stock are outstanding,
the
corporation shall not declare, pay or set apart for
payment
any dividend or other distribution (other than any
dividend
or distribution payable solely in shares of Common Stock
or
any other stock of the corporation ranking junior to the
shares of Preferred Stock as to dividends and
liquidation)
in respect of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred
Stock
as to dividends or upon liquidation, or call for
redemption,
redeem, purchase or otherwise acquire for consideration
any
shares of the Common Stock or any other stock of the
corporation ranking junior to the shares of Preferred
Stock
as to dividends or upon liquidation, unless (i) full
cumulative dividends on all shares of Preferred Stock as
to
which dividends are cumulative for all past dividend
periods
have been (a) paid or (b) declared and a sum sufficient
irrevocably deposited with the paying agent for the
payment
of such dividends, and (ii) the corporation has redeemed
the
full number of shares of Preferred Stock, if any, t is
then
obligated to redeem in accordance with the terms of any
series of Preferred Stock as fixed by the board of
directors
of the corporation in accordance with this Article IX.
2. Article IX, Section B, paragraph 2 is hereby
amended to read in its entirety as follows:
2. No Dividend Preference Between Series of
Preferred Stock. No dividends shall be declared on
shares
of any series of Preferred Stock for any dividend period
or
part thereof unless full cumulative dividends have been
or
contemporaneously are declared on the shares of each
other
series of Preferred Stock as to which dividends are
cumulative through the most recent dividend payment date
for
each such other series. If at any time any accrued
dividends on shares of any series of Preferred Stock as
to
which dividends are cumulative (a "cumulative series")
have
not been paid in full, then the corporation will, if
paying
any dividends on any shares of any cumulative series of
<PAGE>
Preferred Stock, pay dividends on shares of all cumulative
series of Preferred Stock pro rata in proportion to the sums
which would be payable on such cumulative series if all
accrued but unpaid dividends, if any, through the most
recent dividend payment date were declared and paid in full.
Dividends on any series of Preferred Stock shall be
cumulative only to the extent provided in the terms of that
series.
~b
0216633.01 2
<PAGE>
ARTICLES OF AMENDMENT
APPROVED AS
TO FORM
ASSISTANT
ATT0RNEY GENERAL
DATE
Pursuant to the provisions of the Colorado Business
Corporation Act, Great-West Life & Annuity Insurance Company
(the
"Corporation") hereby adopts the following Articles of
Amendment
to its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West Life &
Annuity Insurance Company.
SECOND: The amendments to the Articles of Redomestication
set forth on Exhibit 1 attached hereto were adopted on
January
24, 1995 by the sole shareholder of the Corporation, as
prescribed by the Colorado Business Corporation Act. The
number
of shares voted for the amendments was sufficient for
approval.
The number of votes cast for the amendments by each voting
group
entitled to vote separately on the amendments was sufficient
for
approval by that voting group.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
Dated: January 24, 1995
GREAT-WEST LIFE & ANNUITY
INSURANCE
COMPANY
By
W.T. McCallum, President
and
Chief Executive Officer
D.C. Lennox, Senior Vice
Vice
President, General Counsel
and
Secretary
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby amends,
as set forth below, parts of its Articles of Redomestication
consisting of the Statement of Resolution Establishing Four
Series of Preferred Stock dated as of September 18, 1991 and
filed with the Secretary of State of Colorado on September 30,
1991, as amended by Articles of Amendment to Articles of
Redomestication dated as of June 16, 1992 and filed with the
Secretary of State of Colorado on June 30, 1992, and by Articles
of Amendment to Articles of Redomestication, dated September 15,
1992 and filed with the Secretary of State of Colorado on
September 29, 1992 (as so amended, "the Statement").
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to
read in its entirety as follows:
"'Initial Long-Term Dividend Period' means (i) with
respect to the Series A STRAPS, Series C STRAPS and
Series D STRAPS, the period from and including the
respective Dates of Original Issue for such series to
and excluding December 31, 2002 and (ii) with respect
to Series B STRAPS, the period from and including the
Date of Original Issue for such series to and excluding
December 31, 1995."
2. Clause (I) of paragraph 3(c)(i) of the Statement is
hereby amended to read in its entirety as follows:
"(I) during the Initial Long-Term Dividend Period for
each series of STRAPS, the respective dividend rates
per annum applicable to such series shall be as
follows: Series A, C and D: 8% to and excluding
December 31, 1993, 4.05% from December 31, 1993 to and
excluding February 18, 1994, 4.29% from February 18,
'994 to and excluding April 8, 1994, 4.7E% from April
8, 1994 to and excluding May 27, 1994, 5.46% from May
27, 1994 to and excluding July 15, 1994, 5.16% from
July 15, 1994 to and excluding September 2, 1994, 6.00%
from September 2, 1994 to and excluding October 21,
1994, 6.29% from October 21, 1994 to and excluding
December 9, 1994, 7.58% from December 9, 1994 to and
excluding January 27, 1995, and 7.30% for the balance
of such Period; and Series B: 7% throughout such
Period; and..."
<PAGE>
)
COUNTY OF ARAPAHOE ) ss.
STATE OF COLORADO )
Before me, Diane Herwitz, a notary public, personally
appeared William T. McCallum, who acknowledged that he is the
President and Chief Executive Officer of Great-West Life &
Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the
facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 24th day of January, 1995.
Notary Public
My commission expires: 4-27-91
STATE OF COLORADO )
) ss.
COUNTY OF ARAPAHOE )
Before me, Diane Herwitz, a notary public, personally
appeared D. Craig Lennox, who acknowledged that he is the Senior
Vice President, General Counsel and Secretary of Great-West Life
& Annuity Insurance Company, a Colorado corporation, and that he
signed the foregoing Articles of Amendment to Articles of
Redomestication as his voluntary act and deed, and that the
facts
contained therein are true.
In witness whereof, I have hereunto set my hand and seal
this 24th day of January, 1995.
Notary Public
My commission expires: 4-27-97
2
<PAGE>
ARTICLES OF AMENDMENT
TO ARTICLES OF REDOMESTICATION
Pursuant to the provisions of the Colorado Business
Corporation Act, Great-West Life & Annuity Insurance Company (the
"Corporation") hereby adopts the following Articles of Amendment to
its Articles of Redomestication:
FIRST: The name of the Corporation is Great-West Life &
Annuity Insurance Company.
SECOND: The amendments to the Articles of Redomestication set
forth on Exhibit 1 attached hereto were adopted on April 22, 1996
by the sole shareholder of the Corporation, as prescribed by the
Colorado Business Corporation Act. The number of shares voted for
the amendments was sufficient for approval. The number of votes
cast for the amendments by each voting group entitled to vote
separately on the amendments was sufficient for approval by that
voting group.
THIRD: The amendments do not effect an exchange,
reclassification, or cancellation of issued shares of the
Corporation.
Dated: April 22, 1996 GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
W.T.McCallum, President and
Chief Executive Officer
D.C. Lennox, Senior Vice
President, General Counsel and
Secretary
<PAGE>
Exhibit 1
Great-West Life & Annuity Insurance Company hereby amends, as
set forth below, parts of its Articles of Redomestication
consisting of the Statement of Resolution Establishing Four Series
of Preferred Stock dated as of September 18, 1991 and filed with
the Secretary of State of Colorado on September 30, 1991, as
amended by Articles of Amendment to Articles of Redomestication
dated as of June 16, 1992 and filed with the Secretary of State of
Colorado on June 30, 1992, by Articles of Amendment to Articles of
Redomestication dated September 15, 1992 and filed with the
Secretary of State of Colorado on September 29, 1992, and by
Articles of Amendment to Articles of Redomestication dated January
24, 1995 and filed with the Secretary of State of Colorado on
February 7, 1995 (as so amended, "the Statement").
1. The definition of "Initial Long-Term Dividend Period"
contained in paragraph 2 of the Statement is hereby amended to read
in its entirety as follows:
"'Initial Long-Term Dividend Period' means (i) with
respect to the Series A STRAPS, Series C STRAPS and
Series D STRAPS, the period from and including the
respective Dates of Original Issue for such series to and
excluding December 31, 2002 and (ii) with respect to
Series B STRAPS, the period from and including the Date
of Original Issue for such series to and excluding
December 31, 1997."
2. Clause (I) of paragraph 3(c)(i) of the Statement is
hereby amended to read in its entirety as follows:
"(I) during the Initial Long-Term Dividend Period for
each series of STRAPS, the respective dividend rates per
annum applicable to such series shall be as follows:
Series A, C and D: 8% to and excluding December 31,
1993, 4.05% from December 31, 1993 to and excluding
February 18, 1994, 4.29% from February 18, 1994 to and
excluding April 8, 1994, 4.75% from April 8, 1994 to and
excluding May 27, 1994, 5.46% from May 27, 1994 to and
excluding July 15, 1994, 5.16% from July 15, 1994 to and
excluding September 2, 1994, 6.00% from September 2, 1994
to and excluding October 21, 1994, 6.29% from October 21,
1994 to and excluding December 9, 1994, 7.58% from
December 9, 1994 to and excluding January 27, 1995, and
7.30% for the balance of such Period; and Series B: 7%
to and excluding December 31, 1995, 7.16% from December
31, 1995 to and excluding February 16, 1996, 6.59% from
February 16, 1996 to and excluding April 5, 1996, 6.79%
from April 5, 1996 to and excluding May 24, 1996, and
5.80% for the balance of such Period; and..."
BYLAWS OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
ARTICLE I
SHAREHOLDERS' MEETING
SECTION 1. Annual Meeting. The Annual Meeting of the Shareholders
for the election of the Directors and for the transaction of any
other business pertaining to the corporation (whether or not stated
in the notice of the meeting) shall be held at such time, date and
place as the Board of Directors, by resolution, shall determine and
set forth in the notice of the meeting.
SECTION 2. Special Meetings. Special Meetings of the Shareholders
shall be called whenever ordered by the Chairman of the Board, the
President, a quorum of the Board of Directors, or the holders of at
least one-quarter (1/4) of the total amount of stock issued and
outstanding. Notice of the meeting may be waived and neither the
business to be transacted at, nor the purpose of the meeting, need
be specified in the waiver of notice. In the absence of waiver of
notice, the purposes for which the meeting is called shall be
stated in the notice and no other corporate action shall be taken
without the consent of all Shareholders entitled to vote.
SECTION 3. Place of Meetings. All meetings of the Shareholders
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place or places, within or without the
State of Colorado, as shall from time to time be designated by the
Board of Directors.
SECTION 4. Notice of Meetings. Notice of all meetings, regular or
special, shall be given by mailing to each Shareholder entitled to
vote thereat, directed to his address as it appears on the records
of the corporation, at least ten days and not more than fifty days
before such meeting, a written or printed notice of the time,
place, and purpose or purposes thereof.
SECTION 5. Quorum. The holders of a majority of the outstanding
stock of the corporation entitled to vote, represented in person or
by proxy, shall constitute a quorum for all purposes. In the
absence of a quorum, the Shareholders entitled to vote thereat,
represented in person or by proxy, may adjourn the meeting to a day
certain.
SECTION 6. Voting. At all meetings of Shareholders each share of
stock held by a Shareholder, represented in person or by proxy,
shall be entitled to one vote. Proxies shall be in writing and
shall be signed by the Shareholder. Two judges of election shall
be appointed by the Chairman of the meeting at any Shareholders'
Meeting at which judges are required. The Directors shall be
elected by ballot, and each full-paid share of stock shall be
entitled to one vote. Shares may be voted by proxy, signed by the
person legally entitled to vote the same. Each Shareholder shall
have the right to cast as many votes in the aggregate as shall
equal the number of shares of stock held by him, multiplied by the
number of Directors to be elected.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. Number and Authority. The business and property of
this corporation shall be conducted and managed by a Board of
Directors consisting of not more than 25 Directors and not less
than 5 Directors, the exact number thereof to be fixed and
determined by action taken from time to time by the Board of
Directors.
SECTION 2. Election. At each annual meeting of Shareholders, the
Shareholders shall elect Directors to hold office until the next
succeeding annual meeting. Each Director shall hold office for the
term for which he is elected and until his successor has been
elected and qualified, subject to removal as hereinafter provided.
SECTION 3. Removal and Vacancies. Any or all Directors may be
removed at any time, with or without cause, by a majority vote of
the Shareholders who shall thereupon elect a successor Director or
Directors to fill the vacancy or vacancies -- and in which case the
election of such successor Directors may be at a Special Meeting of
Shareholders called for such purpose. A vacancy in the Board of
Directors, other than one occurring by reason of removal by
Shareholders, shall be filled by the Board of Directors to serve
until the next annual meeting of the Shareholders. Where the
number of Directors is increased additional Directors may be
elected by the Board of Directors to serve until the next annual
meeting of the Shareholders.
SECTION 4. Regular Meeting. The Regular Meeting of the Board of
Directors shall be held immediately following the Annual Meeting of
the Shareholders.
SECTION 5. Special Meetings. Special Meetings of the Board of
Directors may be called by order of the Chairman of the Board, the
President, or the Secretary.
SECTION 6. Place of Meetings. Meetings of the Board of Directors
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place within or without the State of
Colorado as may be designated in the notice thereof.
SECTION 7. Notice of Meetings. Notice of meetings of the Board of
Directors, except the regular meeting of the Board, shall be given
by mailing to each member at least two days before such meeting, a
written or printed notice of the time, and place thereof. Such
notice may also be given by telegram sent at least one day before
such meeting.
SECTION 8. Business Transacted at Meetings. Any business may be
transacted and any corporate action taken at any meeting of the
Board of Directors whether stated in the notice of such meeting or
not, except as otherwise expressly required by law.
SECTION 9. Quorum. A majority of the number of Directors fixed by
Section 1 shall constitute a quorum for the transaction of business
at any meeting of the Board of Directors, but if less than such
majority is present at a meeting, a majority of the Directors
present may adjourn the meeting from time to time without further
notice, for a period not to exceed 60 days at any one adjournment.
SECTION 10. Interest of Directors. Except as prohibited by
statute, any Director may vote or act on behalf of the corporation
in contracting with any other company although he may be a
Shareholder, Director, or Officer of such other company.
SECTION 11. Indemnification of Directors. The corporation may, by
resolution of the Board of Directors, indemnify and save harmless
out of the funds of the corporation to the extent permitted by
applicable law, any Director, Officer, or employee of the
corporation or any member or officer of any Committee, and his
heirs, executors, and administrators, from and against all claims,
liabilities, costs, charges, and expenses whatsoever that any such
Director, Officer, employee, or any such member or officer sustains
or incurs in or about any action, suit, or proceeding that is
brought, commenced, or prosecuted against him for or in respect of
any act, deed, matter, or thing whatsoever, made, done, or
permitted by him in or about the execution of the duties of his
office or employment with the corporation, in or about the
execution of his duties as a Director or Officer of another company
which he so serves at the request and on behalf of the corporation,
or in or about the execution of his duties as a member or officer
of any such Committee, and all other claims, liabilities, costs,
charges, and expenses that he sustains or incurs, in or about or in
relation to any such duties or the affairs of the corporation, the
affairs of such other company which he so serves or the affairs of
such Committee, except such claims, liabilities, costs, charges, or
expenses as are occasioned by his own willful neglect or default.
The corporation may, by resolution of the Board of Directors,
indemnify and save harmless out of the funds of the corporation to
the extent permitted by applicable law, any Director, Officer, or
employee of any subsidiary corporation of the corporation on the
same basis and within the same constraints as described in the
preceding sentence.
ARTICLE III
EXECUTIVE COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from
its own number an Executive Committee, to serve at the pleasure of
the Board, consisting of not less than three members, the exact
number to be fixed and determined by action taken from time to time
by the Board of Directors. The Executive Committee shall elect
from among its members a Chairman, and shall appoint a Secretary.
SECTION 2. Powers of the Executive Committee. The Executive
Committee shall have and may exercise all the powers of the Board
with respect to the conduct and management of the business and
property of the Company, except that the Executive Committee shall
not have power to declare dividends on or distributions of the
capital stock of the corporation, amend the Bylaws, fill vacancies
in the Committee or the Board of Directors, or exercise any powers
prohibited by C.R.S. Section 7-5-107 or which the Board of Directors may
from time to time, by proper resolution, reserve to itself.
SECTION 3. Meetings. The Committee may determine the times and
places for the holding of meetings. The Committee shall prepare
regular minutes of the transactions at its meetings and shall cause
them to be recorded in books kept for that purpose. All actions of
the Committee shall be reported to the Board of Directors at its
next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Executive Committee
shall be held at the office of the corporation in Englewood,
Colorado, or at such other place, within or without the State of
Colorado, as may be designated in the notice or waiver of notice of
the meeting.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least two days before such
meeting, a written or printed notice of the time and place thereof.
Such notice may also be given by telegram at least one day before
such meeting.
SECTION 6. Quorum. A quorum shall consist of two members of the
Committee.
<PAGE>
ARTICLE IV
INVESTMENT AND CREDIT COMMITTEE
SECTION 1. Membership. The Board of Directors shall elect from
its own number an Investment and Credit Committee, to serve at the
pleasure of the Board, consisting of not less than three members,
the exact number to be fixed and determined by action taken from
time to time by the Board of Directors. The Investment and Credit
Committee shall elect from among its members a Chairman, and shall
appoint a Secretary.
SECTION 2. Powers of the Investment and Credit Committee. The
Investment and Credit Committee shall have the authority to approve
the investments of the funds of the corporation, except for all or
any part of that authority which the Board of Directors may from
time to time, by proper resolution, reserve to itself.
SECTION 3. Meetings. The Committee may determine the times and
places for the holding of meetings. The Committee shall prepare
regular minutes of the transactions at its meetings and shall cause
them to be recorded in books kept for that purpose. All actions of
the Committee shall be reported to the Board of Directors at its
next meeting succeeding the date of such action.
SECTION 4. Place of Meetings. Meetings of the Investment and
Credit Committee shall be held at the office of the corporation in
Englewood, Colorado, or at such other place, within or without the
State of Colorado, as may be designated in the notice thereof.
SECTION 5. Notice of Meetings. Notice of all meetings shall be
given by mailing to each member at least two days before such
meetings, a written or printed notice of the time and place
thereof. Such notice may also be given by telegram at least one
day before such meetings.
SECTION 6. Quorum. A quorum shall consist of three members of the
Committee.
ARTICLE V
OFFICERS
SECTION 1. Duties in General. All Officers of the corporation, in
addition to the duties prescribed by the Bylaws, shall perform such
duties in the conduct and management of the business and property
of the corporation as may be determined by the Board of Directors.
In the case of more than one person holding an office of the same
title, any one of them may perform the duties of the office except
insofar as the Board of Directors, or the President may otherwise
direct.
SECTION 2. Number and Designation. The Officers of the
corporation shall be a Chairman of the Board, a President, one or
more Vice Presidents, one or more Secretaries, one or more
Treasurers, one or more Assistant Secretaries, one or more
Assistant Treasurers, and such other Officers and Committees as the
Board of Directors may from time to time deem advisable. It shall
be permissible for the same person to hold more than one office,
except that the offices of President and Secretary shall not be
held by the same person.
SECTION 3. Election and Term of Office. The Board of Directors
shall elect from their number a President and Vice President, and
shall appoint a Secretary, Treasurer, and such other Officers as
shall be prescribed in the Bylaws, and shall fill any vacancy that
may occur.
SECTION 4. Chairman of the Board. The Chairman of the Board of
Directors shall preside at all meetings of the Shareholders and at
all meetings of the Board and shall perform such other duties as
the Board of Directors may from time to time prescribe.
SECTION 5. President. The President, in the absence of the
Chairman of the Board, shall preside at all meetings of the
Shareholders and of the Board of Directors. He shall have the
powers and perform the duties usually pertaining to the Office of
President.
SECTION 6. Vice Presidents. The Vice Presidents shall have such
powers and perform such duties as may be assigned to them from time
to time by the Board of Directors or by the President. The Board
of Directors or the President may from time to time determine the
order of priority as between two or more Vice Presidents.
SECTION 7. Secretary. The Secretary shall keep the minutes of the
meetings of the Shareholders, of the Board of Directors, and of the
Executive and Investment Committees; shall issue notices of
meetings; shall have custody of the corporation's seal and
corporate books and records; shall have charge of the issuance,
transfer, and cancellation of stock certificates; shall have
authority to attest and affix the corporate seal of any instruments
executed on behalf of the corporation; and shall perform such other
duties as are incident to his office and as are required by the
Board of Directors or the President.
SECTION 8. Assistant Secretaries. The Assistant Secretaries in
order of their priority shall, in the absence or disability of the
Secretary, perform the duties and exercise the powers of the
Secretary, and shall have such other powers and perform such other
duties as may be assigned to them from time to time by the Board of
Directors or the President.
SECTION 9. Treasurer. The Treasurer shall have custody of the
funds and securities of the corporation and shall deposit the same
in such banks or depositories as the Board of Directors or the
President may direct. The Treasurer may, under the direction of
the Board of Directors, disburse all monies and sign checks or
other instruments drawn on or payable out of the funds of the
corporation, which, however, shall be countersigned by the
President, a Vice President, the Secretary, or an Assistant
Secretary, or an Assistant Treasurer. He shall also make such
transfers of the securities of the corporation as may be ordered by
the Board of Directors or the President. In general, the Treasurer
shall perform all of the duties incident to his office and such
other duties as are required of him by the Board of Directors or
the President.
SECTION 10. Assistant Treasurers. The Assistant Treasurers in
order of their priority shall, in the absence or disability of the
Treasurer, perform the duties and exercise the powers of the
Treasurer, and shall have such other powers and perform such other
duties as may be assigned to them from time to time by the Board of
Directors or the President.
SECTION 11. Other Officers. Other Officers who may from time to
time be elected by the Board of Directors shall have such powers
and perform such duties as may be assigned to them by the Board of
Directors or the President.
SECTION 12. Compensation. The compensation of the Officers shall
be fixed by the Chairman of the Board and the President.
SECTION 13. Emergency Management Committee. Notwithstanding
anything to the contrary contained in these Bylaws, during any
period of emergency as contemplated by C.R.S. Section 7-5-118 or when the
Board of Directors shall be unable to function by reason of
vacancies therein and there shall be no Director remaining and able
to fill such vacancies, the first two of the following who are
readily available shall constitute an Emergency Management
Committee:
(a) Vice Presidents in order of priority based upon their
period of service in such offices;
(b) Other Officers in order of priority based upon their
period of service in such offices.
The Emergency Management Committee shall manage and control the
business and property of the corporation and shall have and
exercise all of the powers, rights, and prerogatives of the
corporation until a Board of Directors shall have been duly
constituted. The decisions of the Committee shall be final and
shall be superior to the decisions of any other Officer of the
corporation.
In addition to, and not in modification or limitation of, its
authority as stated above, the Emergency Management Committee shall
have the power and authority:
(a) To call meetings of Shareholders whether Annual or
Special;
(b) To elect and appoint Officers to fill vacancies;
(c) To make rules and regulations of procedure for its
operation.
Any vacancy which occurs on the Emergency Management Committee
shall be filled by the next Vice President or other Officers (as
the case may be) in order of priority as provided above.
ARTICLE VI
CAPITAL STOCK
SECTION 1. Certificates. Every Shareholder shall be entitled at
his request to a certificate signed by the President or a Vice
President, and also by the Secretary or an Assistant Secretary or
the Treasurer or an Assistant Treasurer and under the seal of the
corporation, certifying the number of shares to which he is
entitled.
SECTION 2. Transfers. Transfers of stock may be made on the books
of the corporation only by the holder thereof in person or by his
attorney duly authorized thereto in writing and upon surrender and
cancellation of the certificate therefor duly assigned or
accompanied by a duly executed stock power.
SECTION 3. Lost or Destroyed Certificates. The Board of Directors
may order a new certificate to be issued in place of a certificate
lost or destroyed upon proof of such loss or destruction and upon
tender to the corporation by the Shareholder of a bond in such
amount and in such form and with or without surety as may be
ordered, indemnifying the corporation against any liability, claim,
loss, cost, or damage by reason of such loss or destruction and the
issuance of a new certificate.
SECTION 4. Dividends. Dividends may be declared from the legally
available surplus of the corporation at such times and in such
amounts as the Board of Directors may determine. Such dividends on
the capital stock of the corporation may not be declared by a
committee of the Board.
ARTICLE VII
CORPORATE FUNDS
SECTION 1. Deposits. Checks, drafts, bills, notes, negotiable
instruments or any other orders for the payment of money or
evidence of indebtedness payable to and received by the corporation
may be endorsed for deposit to the credit of the corporation by
such Officers or agents of the corporation as the Board of
Directors may determine and may be endorsed for deposit to the
credit of agents of the corporation in such manner as the Board of
Directors may direct.
SECTION 2. Withdrawals. All disbursements of the funds of the
corporation shall be made by check, draft, or other order signed by
such Officers or other persons as the Board of Directors may from
time to time authorize to sign the same.
ARTICLE VIII
MISCELLANEOUS PROVISIONS
SECTION 1. Voting Stock of Other Corporations. The President, any
Vice President, or any other Officer designated by the Board of
Directors may execute in the name of the corporation and attach the
corporate seal to any proxy or power of attorney authorizing the
proxy or proxies or attorney or attorneys named therein to vote the
stock of any corporation held in this corporation on any matter on
which such stock may be voted. If any stock owned by this
corporation is held in any name other than the name of this
corporation, instructions as to the manner in which such stock is
to be voted on behalf of this corporation may be given to the
holder of record by the President, any Vice President, or any other
Officer designated by the Board of Directors.
SECTION 2. Notices. Any notice under these Bylaws may be given by
mail by depositing the same in a post office or postal letter box
or postal mail chute in a sealed postpaid wrapper addressed to the
person entitled thereto at his address as the same appears upon the
books or records of the corporation or at such other address as may
be designated by such person except that notice which may be given
by telegram may be telegraphed to such person at such address; and
such notice shall be deemed to be given at the time such notice is
mailed or telegraphed.
SECTION 3. Waiver of Notice. Any Shareholder, Director, or member
of the Executive or Investment Committees may at any time waive any
notice required to be given under these Bylaws in accordance with
the provisions of C.R.S. Section 7-4-119 and Section 7-5-108, including written
waiver executed before, at, or after the meeting or by presence at
the meeting.
ARTICLE IX
AMENDMENTS
The Bylaws may be amended in whole or in part by the Board of
Directors. No Bylaws shall be in conflict with the laws of the
State of Colorado or with the Regulations of the Colorado
Commissioner of Insurance.
ARTICLE X
EFFECTIVE DATE AND RESTATEMENT
These Bylaws become effective immediately upon the redomestication
of the corporation from the State of Kansas to the State of
Colorado. They thereafter constitute an amendment and restatement
of all prior Bylaws of the corporation under the laws of the State
of Kansas.
**************************
SUBSIDIARIES OF REGISTRANT
JURISDICTION OF
INCORPORATION OR
SUBSIDIARY ORGANIZATION
GWL Properties Inc. Colorado
Maxim Series Fund, Inc. Maryland
Financial Administrative Services
Corporation1 Colorado
One Corporation2 Colorado
Great-West Benefit Services, Inc. Delaware
GW Capital Management, Inc. Colorado
Confed Admin Services, Inc. Delaware
Benefits Communication Corporation3 Delaware
Westkin Properties Ltd. California
Great-West Realty Investments, Inc. Delaware
BenefitsCorp Equities, Inc. Delaware
Private Healthcare Systems, Inc. Delaware
One Health Plan of California, Inc. California
One Health Plan of Colorado, Inc. Colorado
One Health Plan of Georgia, Inc. Georgia
One Health Plan of Illinois, Inc. Illinois
One Health Plan of Texas, Inc. Texas
One Orchard Equities, Inc. Colorado
1 Also doing business as Financial Administrative Services
Corporation of Colorado.
2 Formerly, Employee Benefit Services, Inc.
3 Also doing business as Benefits Insurance Services, Inc.
Independent Auditors' Consent
We consent to the use in this Pre-Effective Amendment No. 2 to
theRegistration Statement of Great-West Life & Annuity Insurance
Company on Form S-1 of our report dated January 19, 1996, appearing
in the Prospectus, which is part of this Registration Statement. We also
consent to the reference to us under the headings "Experts" in such
Prospectus.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
October 28, 1996
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
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<INCOME-CONTINUING> 98,670
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