UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For The Fiscal Year Ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from ______________ to _____________
Commission file number __________________________
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(Exact name of registrant as specified in its charter)
Colorado 84-0467907
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)
8515 East Orchard Road, Englewood, Colorado 80111
(Address of principal executive offices) (Zip
Code)
(303) 689-4649
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements
for the past 90 days. Yes No X
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K (229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]
As of March 1, 1997, the aggregate market value of the registrant's
voting stock held by non-affiliates of the registrant was $0.
As of March 1, 1997, 7,032,000 shares of the registrant's common
stock were outstanding, all of which were owned by the registrant's
parent company.
Note: This Form 10-K is filed by the registrant only as a
consequence of the sale by the registrant of a market value
adjusted annuity product.
TABLE OF CONTENTS
Page
PART I
Item 1. Business 1
A. Organization and Corporate Structure 1
B. Business of the Company 1
C. Description of Business Units 3
Item 2. Properties 16
Item 3. Legal Proceedings 17
Item 4. Submission of Matters to a Vote of Security Holders 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 17
A. Equity Security Holders and Market Information 17
B. Dividends 17
Item 6. Selected Financial Data 18
Item 7. Management's Discussion and Analysis of Financial
Condition and
Results of Operations 18
A. Company Results of Operations 19
B. Business Unit Results of Operations 21
C. Liquidity and Capital Resources 27
D. Accounting Pronouncements 28
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 54
PART III
Item 10. Directors and Executive Officers of the Registrant 55
A. Identification of Directors 55
B. Identification of Executive Officers 57
i
Item 11. Executive Compensation 59
A. Summary Compensation Table 59
B. Options 60
C. Pension Plan Table 61
D. Compensation of Directors 62
E. Compensation Committee Interlocks and Insider
Participation 63
Item 12. Security Ownership of Certain Beneficial Owners and
Management 64
A. Security Ownership of Certain Beneficial Owners 64
B. Security Ownership of Management 64
Item 13. Certain Relationships and Related Transactions 66
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 66
A. Index to Financial Statements 66
B. Index to Financial Statement Schedules 66
C. Index to Exhibits 67
D. Reports on Form 8-K 67
Signatures 68
ii<PAGE>
PART I
ITEM 1. BUSINESS
A. ORGANIZATION AND CORPORATE STRUCTURE
Great-West Life & Annuity Insurance Company (the "Company") is a
stock life insurance company originally organized under the laws of
the State of Kansas in 1907 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, the Company
redomesticated and is now organized under the laws of the State of
Colorado.
The Company ranks in the top 2% of all U.S. life insurers in terms
of net assets.
The Company is a wholly-owned subsidiary of The Great-West Life
Assurance Company ("Great-West Life"), a Canadian life insurance
company. Great-West Life is a subsidiary of Great-West Lifeco Inc.
("Great-West Lifeco"), a Canadian holding company. Great-West
Lifeco is in turn a subsidiary of Power Financial Corporation
("Power Financial"), a Canadian holding company with substantial
interests in the financial services industry. Power Corporation of
Canada ("Power Corporation"), a Canadian holding and management
company, has voting control of Power Financial. Mr. Paul
Desmarais, through a group of private holding companies, which he
controls, has voting control of Power Corporation.
Common and preferred shares of Great-West Life, Great-West Lifeco,
Power Financial and Power Corporation are traded publicly in
Canada.
B. BUSINESS OF THE COMPANY
The Company 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 in all
states in the United States except New York.
The Company operates in one business segment as a provider of life,
health and annuity products; however, the business operations of
the Company will be discussed in terms of its major business units,
which are:
Employee Benefits
- -
life, health, disability income and 401(k) products for group
clients.
Financial Services
- -
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.
Investment Operations
- -
management of assets, both general funds and separate accounts
which segregate, from the Company's general account, the assets and
liabilities of contractholders of variable products ("Separate
Accounts").
<PAGE>
The table that follows summarizes premiums and deposits for the
years indicated. For further consolidated financial information
concerning the Company, see Item 6 on
page 18 (Selected Financial Data), and Item 8 on page 29 (Financial
Statements and Supplementary Data). For commentary on the
information in the following table, see page 21 (Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Business Unit Results of Operations).
Millions (1)
1996
1995
1994
Employee Benefits
Group Life
$ 121
$ 138
$ 133
Group Health
642
679
638
401(k)
41
30
21
Financial Services
Savings
51
50
40
Individual Insurance
344(2)
171
168
Premium and other income
$ 1,199
$ 1,068
$ 1,000
Deposits for Investment-type
Contracts:
401(k)
$ 34
$ 47
$ 50
Savings
215
364
384
Individual Insurance
566
457
572
Total investment-type deposits
$ 815
$ 868
$ 1,006
Deposits to Separate Accounts:
401(k)
$ 1,109
$ 883
$ 704
Savings
329
282
309
Total separate accounts deposits
$ 1,438
$ 1,165
$ 1,013
ASO equivalents (3)
$ 1,940
$ 2,140
$ 1,907
(1) All information in the above table and other tables herein is
presented in conformity with generally accepted accounting
principles, unless otherwise indicated.
(2) This amount includes the recapture of $164 million of
participating policy reserves previously coinsured with Great-West
Life under a participating life coinsurance agreement.
(3) ASO equivalents generally represent paid claims under minimum
premium and administrative services only contracts, which amounts
approximate the premiums that would have been earned under such
contracts if they had been written as traditional indemnity or HMO
programs.
C. DESCRIPTION OF BUSINESS UNITS
1. Employee Benefits
Principal Products
The Employee Benefits division is responsible for marketing group
life, health, disability income and 401(k) products, primarily to
small and medium sized employers. The Company offers employers a
total benefits approach - an integrated package of comprehensive
employee benefits products and services through a single
administrator. Through integrated pricing, administration and
funding, the Company helps employers provide cost-effective
benefits aimed at attracting and retaining quality employees, while
offering employees benefit choices and the information they need to
make wise decisions.
The Company offers customers a variety of options to help them
maximize the value of their employee benefits investment. This
ranges from fully-insured products, whereby the Company assumes all
or a portion of the health care cost and utilization risk, to
self-funded, whereby the employer assumes all or a significant
portion of the risk. Employee Benefits also provides administration
and claims services and, in many cases, stop-loss insurance
protection, for an appropriate fee or premium charge
(Administrative Services Only plans - "ASO").
The Company offers a full range of managed care products and
services. These products range from Health Maintenance
Organization ("HMO") plans, which provide a high degree of managed
care, to Preferred Provider Organization ("PPO") plans and
Point-of-Service ("POS") plans which offer more flexibility in
provider choice than HMO plans. Because many employers want to
offer employees a choice in health plans while containing costs,
the Company packages managed care health plans as a dual option
package which allows the employer to offer either a PPO/HMO or a
PPO/POS package to their employees. In addition, the Company
maintains a fully insured product to meet customer demand for
traditional health care products.
Under HMO plans, health care for the member is coordinated by a
primary care physician who is responsible for managing all aspects
of the member's care. HMO plans offer a broad scope of benefits
coverage including routine office visits and preventive care, as
well as lower premiums and low copayments which minimize
out-of-pocket costs. Services for care not coordinated with the
primary care physician are not covered, with the exception of
emergency care. There are no claims to file when services are
received through a primary care physician. Physicians are
reimbursed on a monthly capitated rate per HMO patient for most
services.
POS plans also require that a member enroll with a primary care
physician who is responsible for coordinating the member's health
care. Similar to an HMO, members receive the highest benefit
coverage and the lowest out-of-pocket costs when they use their
primary care physician to coordinate their health care. In
contrast to an HMO, members can seek care outside of the primary
physician's direction, at a reduced level of benefits in terms of
increased cost sharing. Some benefits may not be covered outside
the in-network POS plan.
PPO plans offer members a greater choice of physicians and
hospitals. Members do not need to enroll with a primary care
physician - they simply select a contracted PPO provider at the
time of service to receive the highest level of benefits. If
members seek care outside of the PPO network, they receive a lower
level of benefits in terms of increased cost sharing.
A traditional fully insured plan allows complete freedom of choice
for covered services. After meeting an annual deductible, insureds
pay their share of coinsurance for all covered services. These
plans are not typically considered managed care, although they may
include some medical management features, such as inpatient
certification, reasonable and customary charges, and some benefits
for preventive care.
During 1996, the Company continued to develop its managed care
operations, licensing five One Health Plan HMO subsidiaries in
California, Texas, Illinois, Colorado, and Georgia. Through each
One Health Plan subsidiary, the Company centralized all provider
relations and contracting, medical management, member services and
quality assurance for all of the Company's medical members (PPO,
POS, and HMO) in each of those states.
The type of coverage provided by the Company continues to move
toward the higher forms of managed care. As of December 31, 1996,
of the 1,554,142 lives covered, 350,185 were in POS/HMO type plans,
1,003,333 were in PPO plans, and 200,624 were in fully insured
plans. At December 31, 1995, of the 1,621,170 lives covered,
258,930 were in POS/HMO type plans, 1,047,028 were in PPO plans,
and 315,212 were in fully insured plans.
The Company offers group term, whole and universal life insurance.
Sales of group life insurance consist principally of renewable term
coverage, the amounts of which are usually linked to individual
employee wage levels. The following table shows group life
insurance in force prior to reinsurance ceded for the years
indicated:
Years Ended December 31,
Millions
1996
1995
1994
1993
1992
In force, end of year
$49,500
$50,370
$51,051
$39,898
$39,485
The Company's 401(k) product is offered by way of a group fixed and
variable deferred annuity contract. The product provides a variety
of funding and distribution options for employer-approved
retirement plans that qualify under Internal Revenue Code Section
401(k).
The 401(k) product investment options for the contractholder
include guaranteed interest rates for various lengths of time and
variable investment options. For the fully guaranteed option, the
difference between the income earned on investments in the
Company's general account and the interest credited to the
participant's account balance flows through to operating income.
Variable investment options utilize Separate Accounts to provide
contractholders with a vehicle to assume the investment risks.
Assets held under these options are invested, as designated by the
participant, in Separate Accounts which in turn invest in shares of
mutual funds managed by a subsidiary of the Company or by selected
external fund managers. The participant currently has up to 29
different variable investment options.
Of the total 401(k) assets contributed by participants in 1996, 97%
were allocated to variable investment options.
The Company is compensated by the Separate Accounts for bearing
expense risks pertaining to the variable annuity contract, and for
providing administrative services to contractholders. A subsidiary
of the Company also receives fees for serving as an investment
advisor.
Product retention is a key factor for the profitability of the
Company's 401(k) product. The annuity contracts impose a charge
for termination during a certain period of time after the
contract's inception. The charge is determined in accordance with
a formula in the contract. Existing tax penalties on annuity
distributions prior to age 59 1/2 provide an additional
disincentive to premature surrenders of account balances, but do
not impact rollovers to products of competitors.
Employee Benefits introduced a rollover Individual Retirement
Annuity product in 1995, which allows individuals to move
retirement funds from a 401(k) plan to a qualified Individual
Retirement Account.
In the following table, the amount of 401(k) business in force is
measured by the total of individual account balances:
Millions
Year Ended December 31,
Fixed Annuities
Variable Annuities
1992
$ 365
$ 433
1993
357
868
1994
345
1,324
1995
358
2,227
1996
347
3,229
Method of Distribution
Products are sold principally through field representatives and
home office marketing personnel. These individuals work with
independent insurance agents, brokers and consultants who assist in
the production and servicing of business.
Competition
The employee benefits industry is highly competitive. Market share
remains fragmented because of the large number of insurance
carriers, third-party administrators and HMOs serving the various
public and private sectors. No one competitor is dominant across
the country. With managed care enrollment expected to increase
dramatically over the remainder of the decade, many indemnity
carriers are transitioning their members into managed care
products.
The highly competitive marketplace creates pricing pressures which
encourage employers to seek competitive bids each year. Although
most employers are looking for affordably priced employee benefits
products, they want to offer product choice because employee needs
differ. In many cases it is more cost-effective and efficient for
an employer to contract with a carrier such as the Company, which
offers multiple product lines and centralized administration.
In addition to price, there are a number of other factors which
influence employer decision-making. These factors include quality
of services; scope, cost-effectiveness and quality of provider
networks; product responsiveness to customers' needs;
cost-containment services; and effectiveness of marketing and
sales. The Company has 33 sales and service offices located
throughout the United States to service local customer needs. Each
of the Company's sales representative works with local insurance
agents, brokers and consultants to sell and service local
employers.
Reserves
For group whole life and term insurance products, policy reserve
liabilities are equal to the present value of future benefits and
expenses less the present value of future net premiums using best
estimate assumptions for interest, mortality and expenses
(including margins for adverse deviation). For disability waiver
of premium and paid up group whole life contracts, the policy
reserves equal the present value of future benefits and expenses
using best estimate assumptions for interest, mortality and
expenses (including margins for adverse deviation). For group
universal life, the policy reserves equal the accumulated fund
balance (which reflects cumulative deposits plus credited interest
less charges thereon). Reserves for long-term disability products
are established for lives currently in payment status using
standard industry morbidity and experience interest rates. In
addition, reserves are held for lives that have not satisfied their
waiting period and for claims that have been incurred but not
reported.
For medical, dental and vision insurance products, reserves reflect
the ultimate cost of claims including, on an estimated basis, (i)
claims that have been reported but not settled, and (ii) claims
that have been incurred but not reported. Claim reserves are based
upon factors derived from past experience. Reserves also reflect
retrospective experience rating that is done on certain types of
business.
Reserves for investment contracts (401(k) deferred annuities) are
equal to cumulative deposits, less withdrawals and charges, plus
credited interest thereon.
Assumptions for mortality and morbidity experience are periodically
reviewed against published industry data and company experience.
The above mentioned reserves are computed amounts that, with
additions from premiums and deposits to be received, and with
interest on such reserves, are expected to be sufficient to meet
the Company's policy obligations at their maturities, pay expected
death or retirement benefits or surrender requests.
Reinsurance
The Company has a joint venture with New England Life Insurance
Company and its parent company ("New England"). Under reinsurance
agreements, New England issues group life and health and 401(k)
products and then immediately reinsures 50% of its group life and
health business, and nearly 100% of its guaranteed 401(k) business,
with the Company.
2. Financial Services
Principal Products
The Financial Services division markets and administers savings and
life insurance products.
Savings products include (i) individual and group annuity contracts
which offer a variety of funding and distribution options for
personal and employer-sponsored retirement plans that qualify under
Internal Revenue Code Sections 401, 403, 408, and 457, and (ii)
individual and group non-qualified annuity contracts. These
contracts may be immediate or deferred and are offered primarily to
individuals and employers of public and non-profit sector
employees. The Company also provides pension plan administrative
services through a subsidiary company, Financial Administrative
Services Corporation ("FASCorp"), and marketing and communication
services through a subsidiary company, Benefits Communication
Corporation ("BenefitsCorp").
The primary marketing emphasis for the Company's savings products
is the public/non-profit market for defined contribution pension
plans. Defined contribution plans provide for participant accounts
with benefits based upon the value of contributions to, and
investment returns on, the individual's account. This has been the
fastest growing portion of the pension marketplace in recent years.
The Company's variable annuity products provide the opportunity for
contractholders to assume the risks of, and receive all the
benefits from, the investment of retirement assets. The variable
product assets are invested, as designated by the participant, in
Separate Accounts which in turn invest in shares of mutual funds
managed by a subsidiary of the Company or by selected external fund
managers.
Demand for investment diversification for customers and their
participants continued to grow during 1996. The Company continues
to expand the annuity products available through its subsidiary
mutual fund company, Maxim Series Fund, Inc., and arrangements with
external fund managers. This array of funds allows customers to
diversify their investments across a wide range of investment
products, including fixed income, stock, and international equity
fund offerings.
The Company also offers single premium annuities and guaranteed
certificates on a very limited basis, which provide guarantees of
principal and interest with a fixed maturity date.
During the fourth quarter of 1996, the Company entered into a
marketing agreement with Charles Schwab & Co., Inc. to sell
individual fixed and variable qualified and non-qualified deferred
annuities. The variable annuity product offers 21 investment
options. The fixed product is a Guarantee Period Fund which was
established as a non-unitized Separate Account in which the owner
does not participate in the performance of the assets. The assets
accrue solely to the benefit of the Company and any gain or loss in
the Guarantee Period Fund is borne entirely by the Company.
Guarantee period durations of one to ten years are currently being
offered by the Company. Distributions from the amounts allocated
to a Guarantee Period Fund more than six months prior to the
maturity date results in a market value adjustment ("MVA"). The
MVA reflects the relationship as of the time of its calculation
between the current U.S. Treasury Strip ask side yield and the U.S.
Treasury Strip ask side yield at the inception of the contract.
Product retention is a key factor for the profitability of annuity
products. To encourage product retention, annuity contracts
typically impose a surrender charge on policyholder balances
withdrawn for a period of time after the contract's inception. The
period of time and level of the charge vary by product. Existing
tax penalties on annuity distributions prior to age 59 1/2 provide
an additional disincentive to premature surrenders of annuity
balances, but do not impede transfers of those balances to products
of competitors.
Savings products generate earnings from the investment spreads on
the guaranteed investment options and from the fees collected for
mortality and expense risks associated with the variable options.
The Company also receives fees for providing administration
services to contractholders. A subsidiary of the Company receives
fees for serving as an investment advisor.
The Company's annuity products are supported by the general account
assets of the Company for guaranteed investment options, and the
Separate Accounts for the variable investment options.
The amount of annuity products in force is measured by account
balances. The following table shows guaranteed investment contract
and annuity account balances for the years indicated:
Millions
Year Ended December 31,
Guaranteed Investment Contracts
Fixed Annuities
Variable Annuities
1992
$ 1,674
$ 5,433
$ 504
1993
1,263
5,671
812
1994
930
5,672
1,231
1995
664
5,722
1,772
1996
525
5,502
2,256
In addition to providing administrative services to customers of
the Company's annuities, FASCorp also provides comprehensive
third-party administrative and recordkeeping services for other
financial institutions and employer-sponsored retirement plans.
Assets under administration with unaffiliated organizations totaled
$4.4 billion at December 31, 1996.
Life insurance products in force include participating and non
participating term life, whole life, and universal life. These
products were offered primarily to individuals, small businesses
and employer-sponsored groups.
Term life provides coverage for a stated period and pays a death
benefit only if the insured dies within the period. Whole life
provides guaranteed death benefits and level premium payments for
the life of the insured.
Universal life products include a cash value component that is
credited with interest at regular intervals. The Company's
earnings result from the difference between the investment income
and interest credited on customer cash values. Universal life cash
values are charged for the cost of insurance coverage and for
administrative expenses.
At December 31, 1996, the Company had $3.1 billion of policy
reserves on individual insurance products sold to corporations to
provide coverage on the lives of certain employees. Due to
legislation enacted during 1996 which phases out the interest
deductions on policy loans for Corporate-Owned Life Insurance
("COLI") over a two-year period ending 1998, the sales for this
product have essentially ceased. While this curtailment of new
business is expected to have an effect on the results of operations
of the Financial Services division, it is not expected to be
material to the Company's consolidated results of operations,
liquidity or financial condition.
In anticipation of this change in tax laws, the Company has shifted
its emphasis to the more stable market of Bank-Owned Life Insurance
("BOLI"). BOLI was not affected by the legislation. This product
funds long-term benefits for banks.
Sales of life insurance products typically have high initial
marketing expenses. Retention, an important factor in
profitability, is encouraged through product features. For
example, the Company's universal and whole life insurance contracts
typically impose a surrender charge on policyholder balances
withdrawn within the first 10 years of the contract's inception.
The period of time and level of the charge vary by product. In
addition, more favorable credited rates may be offered after
policies have been in force for a period of time. To further
encourage retention, life insurance agents are typically paid
renewal commissions or service fees.
Certain of the Company's life insurance and group annuity products
allow policyowners to borrow against their policies. At December
31, 1996, approximately 5% of outstanding policy loans were on
individual life policies that had fixed interest rates ranging from
5% to 8%. The remaining 95% of outstanding policy loans had
variable interest rates averaging 7.67% at December 31, 1996.
Investment income from policy loans was $175.7 million for the year
ended December 31, 1996.
The following table summarizes changes in life insurance in force
prior to reinsurance ceded for the years indicated:
Years Ended December 31,
Millions
1996
1995
1994
1993
1992
In force, beginning of year
$25,865
$24,877
$20,259
$18,192
$0 (1)
Sales and additions
2,695
2,520
6,302
2,842
18,665
Terminations
1,668
1,532
1,684
775
473
Net
1,027
988
4,618
2,067
18,192
In Force, end of year
26,892
25,865
24,877
20,259
18,192
(1) At December 31, 1992, all participating life insurance and
annuity business previously underwritten by Great-West Life in the
U.S. was transferred to the Company through assumption reinsurance.
At the same time, the Company ceded some of the acquired
participating life insurance reserves back to Great-West Life under
a coinsurance agreement.
Method of Distribution
Financial Services primarily uses its subsidiary, BenefitsCorp, to
distribute pension products to the public/non-profit market.
BenefitsCorp also provides communication and enrollment services to
employers.
Prior to January 1, 1997, life insurance sold to individuals was
distributed through a general agency system. During 1996, the
Company began distributing term, universal and joint survivor life
insurance, as well as individual fixed and variable qualified and
non-qualified deferred annuities, through Charles Schwab and Co.,
Inc.
COLI and BOLI products are currently marketed through one broker.
Competition
The life insurance, savings and investments marketplace is highly
competitive. The Company's competitors include mutual fund
companies, insurance companies, banks, investment advisors, and
certain service and professional organizations. No one competitor
or small number of competitors is dominant. Competition focuses on
service, technology, cost, variety of investment options,
investment performance, product features, price and financial
strength as indicated by ratings issued by nationally recognized
agencies. For more information on the Company's ratings see page
16.
Reserves
Reserves for universal life and interest-sensitive whole life
products are equal to cumulative deposits less withdrawals and
charges plus credited interest. Reserves for all fixed individual
life insurance contracts are computed on the basis of assumed
investment yield, mortality, morbidity and expenses (including a
margin for adverse deviation). These reserves are calculated as
the present value of future benefits (including dividends) and
expenses less the present value of future net premiums. The
assumptions used in calculating the reserves generally vary by
plan, year of issue and policy duration. For all life insurance
contracts (including universal life insurance), reserves are
established for claims that have been incurred but not reported
based on factors derived from past experience.
Reserves for limited payment contracts (immediate annuities with
life contingent payouts) are computed on the basis of assumed
investment yield, mortality, morbidity and expenses. These
assumptions generally vary by plan, year of issue and policy
duration. Reserves for investment contracts (deferred annuities
and immediate annuities without life contingent payouts) are equal
to cumulative deposits plus credited interest less withdrawals and
other charges.
The above-mentioned reserves are computed amounts that, with
additions from premiums and deposits to be received, and with
interest on such reserves, are expected to be sufficient to meet
the Company's policy obligations at their maturities, pay expected
death or retirement benefits or surrender requests.
Reinsurance
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
coinsurance contracts. The Company retains a maximum of $1.5
million of coverage per individual life.
3. Investment Operations
The Company's investment operations division manages the Company's
general and Separate Account funds in support of cash and liquidity
requirements of the Company's insurance and investment products.
Investments under management at year-end 1996 totaled $18.2
billion, comprised of corporate and insurance-related investments
assets ("investment assets") of $12.7 billion and Separate Account
assets of $5.5 billion.
The Company invests in a broad range of asset classes, including
domestic and international fixed maturities and common stocks,
mortgage loans, real estate, and short-term investments. Fixed
maturity investments include publicly traded and private placement
corporate bonds, government bonds, publicly traded and private
placement structured assets and redeemable preferred stocks. The
Company's portfolio of structured assets is primarily invested in
mortgage-backed securities and secondarily in other asset-backed
securities. Mortgage-backed securities include collateralized
mortgage obligations ("CMOs"). CMO holdings are concentrated in
securities with limited prepayment, extension and default risk,
such as planned amortization class bonds.
The Company generally manages the characteristics of its investment
assets, such as liquidity, currency, yield and duration to reflect
the underlying characteristics of related insurance and
contractholder liabilities, which vary among the Company's
principal product lines. The Company observes strict asset and
liability matching guidelines, which are designed to ensure that
the investment portfolio will appropriately meet the cash flow and
income requirements of its liabilities. In connection with its
investment strategy, the Company may use derivative instruments in
hedging applications to manage market risk. Derivative instruments
are not used for speculative purposes. For more information on
derivatives see Note 6 to the financial statements on page 46.
The Company routinely monitors and evaluates the status of its
investments in light of current economic conditions, trends in
capital markets, and other factors. These other factors include
investment size, quality, concentration by industry segment, and
other diversification considerations for fixed maturity
investments, and geographic and property-type considerations for
mortgage loan investments.
The Company's fixed maturity investments constituted 64% of
investment assets as of December 31, 1996. The Company reduces
credit risk for the portfolio as a whole by investing primarily in
investment grade fixed maturities rated by either third-party
rating agencies, or in the case of securities which may not be
rated by third-parties, by the Company (for private investments).
See page 25 for more information on the credit rating of the fixed
maturity portfolio.
The Company's mortgage loan investments constituted 12% of
investment assets as of December 31, 1996. The Company's mortgage
investment policy emphasizes a broadly diversified portfolio of
commercial and industrial mortgages. Mortgage loan investments are
subject to underwriting criteria addressing loan-to-value ratios,
debt service coverage, cash flow, tenant quality, leasing, market,
location, and financial strength of borrower. Since 1986, the
Company has reduced the overall weighting of its mortgage portfolio
with a greater emphasis in bond investments (see Management's
Discussion and Analysis of Financial Condition and Results of
Operations - Investment Operations, on page 24).
At December 31, 1996 only .5% of invested assets were invested in
real estate.
The following table sets forth the distribution of invested assets,
cash and accrued investment income as of the end of the years
indicated:
[Carrying Value in
Millions]
1996
1995
1994
1993
1992
*Debt Securities:
Bonds
U.S. Government
Securities and
obligations of U.S.
Government
Agencies
$ 1,947
$ 1,990
$ 1,672
$ 1,553
$ 1,730
Corporate bonds
6,133
6,168
5,079
5,128
4,510
Foreign governments
119
159
368
375
330
Total
8,199
8,317
7,119
7,056
6,570
Common Stock
20
9
5
3
8
Mortgage loans
1,488
1,713
2,011
2,378
2,713
Real estate
68
61
44
41
63
Policy loans
2,523
2,238
1,905
1,431
1,035
Short-term
investments
419
135
707
683
343
Total investments
12,717
12,473
11,791
11,592
10,732
Cash
125
91
132
86
87
Accrued investment
income
198
212
196
183
169
* The majority (in value) of debt securities are carried at fair
value in 1996, 1995, and 1994 due to the adoption of Statement of
Financial Accounting Standards No. 115 at January 1, 1994.
The following table summarizes investment results of the Company's
continuing operations:
Net Investment Income
Earned Net Investment Income Rate
[Millions]
For the year:
1996
$837
7.07%
1995
835
7.36
1994
768
7.23
1993
792
7.76
1992
661
8.32
4. Regulation
General
The Company must comply with the insurance laws of all
jurisdictions in which it is licensed to do business. Although the
intent of regulation varies, most jurisdictions have laws and
regulations governing rates, solvency, standards of business
conduct and various insurance and investment products. The form
and content of statutory financial reports and the type and
concentration of investments are also regulated.
The Company's operations and accounts are subject to examination by
the Colorado Insurance Division and other regulators at specified
intervals. The latest financial examination by the Colorado
Insurance Division was completed in 1997, and covered the 5-year
period ending December 31, 1995. This examination produced no
significant adverse findings regarding the Company.
Solvency Regulation
The National Association of Insurance Commissioners has adopted
risk-based capital rules for life insurance companies. These rules
recommend a specified level of capital depending upon the types and
quality of investments held, the types of business written, and the
types of liabilities maintained. Depending on the ratio of the
insurer's adjusted capital to its risk based capital, the insurer
could be subject to various regulatory actions ranging from
increased scrutiny to conservatorship. Based on the Company's
December 31, 1996 statutory financial reports, the Company was well
within these rules.
The National Association of Insurance Commissioners Insurance
Regulatory Information System ratios are another set of tools used
by regulators to provide an "early warning" as to when a company
may require special attention. There are twelve categories of
financial data with defined usual ranges for each. For 1996, the
Company was within the usual ranges in all categories.
Insurance Holding Company Regulations
The Company is subject to insurance holding company regulations in
Colorado. These regulations contain certain restrictions and
reporting requirements for transactions between an insurer and its
affiliates, including the payments of dividends. They also
regulate changes in control of an insurance company.
Securities Laws
The Company is subject to various levels of regulation under
federal securities laws. The Company's broker-dealer subsidiaries
are regulated by the Securities and Exchange Commission ("SEC") and
the National Association of Securities Dealers, Inc. The Company's
investment advisor subsidiary is regulated by the SEC. Certain of
the Company's Separate Accounts, mutual funds, and variable
insurance and annuity products, are registered under the Investment
Company Act of 1940 and the Securities Act of 1933.
HMO Regulation
The Company's HMO subsidiaries are subject to regulation by various
government agencies in the states in which they are licensed to do
business. This involves the regulation of solvency, contracts,
rates, quality assurance, minimum levels of benefits, and the
availability and continuity of care.
Guaranty Funds
Under insurance guaranty fund laws existing in all states, insurers
doing business in those states can be assessed (up to prescribed
limits) for certain obligations of insolvent insurance companies.
The Company has established a reserve of $9.1 million as of
December 31, 1996 to cover future assessments of known
insolvencies. The Company has historically recovered more than
half of the guaranty fund assessments through statutorily permitted
premium tax offsets. The Company has a prepaid asset associated
with guaranty fund assessments of $5.6 million at December 31,
1996.
Canadian Regulation
Because the Company is a subsidiary of Great-West Life, which is a
Canadian company, the Office of the Superintendent of Financial
Institutions Canada conducts periodic examinations of the Company
and approves certain investments in subsidiary companies.
5. Ratings
The Company is rated by a number of nationally recognized rating
agencies. The ratings represent the opinion of the rating agencies
on the financial strength of the Company and its ability to meet
the obligations of its insurance policies.
Rating Agency
Measurement
Rating
A.M. Best Company
Financial Condition and Operating Performance
A++ *
Duff & Phelps Corporation
Claims Paying Ability
AAA *
Standard & Poor's Corporation
Claims Paying Ability
AA+ **
Moody's Investors Service
Insurance Financial Strength
Aa2 ***
* Highest ratings available.
** Second highest rating out of 17 rating categories.
*** Third highest rating out of 19 rating categories.
6. Miscellaneous
A portion of the Company's business is "seasonal" in nature in the
sense that reported claims in the group health line of business are
generally higher in the first quarter.
No customer accounted for 10% or more of the Company's consolidated
revenues in 1996. In addition, no unit of the Company's business
is dependent on a single customer or a few customers, the loss of
which would have a significant effect on the Company or any of its
business units. The loss of business from any one, or a few,
independent brokers or agents would not have a material adverse
effect on the Company or any of its business units.
The Company had approximately 4,200 employees at January 1, 1997.
ITEM 2. PROPERTIES
The executive offices of the Company consist of a 517,633 square
foot office complex located in Englewood, Colorado. The office
complex is owned by a subsidiary of the Company. The Company
leases sales and claims offices throughout the United States.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings to which the
Company or any of its subsidiaries is a party or of which any of
their property is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matter was submitted during the fourth quarter of 1996 to a vote
of security holders.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
A. EQUITY SECURITY HOLDERS AND MARKET INFORMATION
All of the Company's outstanding common shares are owned by
Great-West Life. Accordingly, there is no established public
trading market for the Company's common equity.
B. DIVIDENDS
In the two most recent fiscal years, the Company has paid quarterly
dividends on its common shares. Dividends totaled $48,082,915 in
1996 and $39,763,499 in 1995.
Under Colorado law, the Company cannot, without the approval of the
Colorado Commissioner of Insurance, pay a dividend if, as a result
of such payment, the total of all dividends paid in the preceding
twelve months would exceed the greater of (i) 10% of the Company's
surplus as regards policyholders as at the preceding December 31;
or (ii) the Company's net gain from operations as at the preceding
December 31.
ITEM 6. 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 in Item 8 on page 29.
Millions
Years Ended December 31
1996
1995
1994
1993
1992
INCOME STATEMENT DATA
Premiums and other income
$ 1,199
$ 1,067
$ 1,000
$ 696
$ 245
Net investment income
837
835
768
792
661
Realized investment gains (losses)
(21)
8
(72)
25
(4)
Total Revenues
2,015
1,910
1,696
1,513
$ 902
Total benefits and expenses
1,824
$ 1,733
$ 1,593
$ 1,417
$ 844
Income tax expense
56
49
29
31
18
Cumulative effect of adopting
a new accounting method for
income taxes
(23)
Net Income
$ 135
$ 128
$ 74
$ 65
$ 63
BALANCE SHEET DATA
Investment assets
$12,717
$12,473
$11,791
$11,592
$10,732
Separate account assets
5,485
3,999
2,555
1,680
937
Total assets
19,351
17,682
15,616
14,296
12,948
Total policyholder liabilities
11,687
11,492
10,929
10,592
10,352
Total shareholder's equity
1,034
993
777
821
769
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations of the Company for the three years ended
December 31, 1996 follows. In connection with, and because it
desires to take advantage of, the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995, the Company
cautions readers regarding certain forward-looking statements
contained in the following discussion and elsewhere in this report
and in any other statements made by, or on behalf of, the Company,
whether or not in future filings with the SEC. Forward-looking
statements are statements not based on historical information and
which relate to future operations, strategies, financial results,
or other developments. In particular, statements using verbs such
as "expect," "anticipate," "believe," or words of similar import
generally involve forward-looking statements. Without limiting the
foregoing, forward-looking statements include statements which
represent the Company's beliefs concerning future or projected
levels of sales of the Company's products, investment spreads or
yields, or the earnings or profitability of the Company's
activities.
Forward-looking statements are necessarily based upon estimates and
assumptions that are inherently subject to significant business,
economic and competitive uncertainties and contingencies, many of
which are beyond the Company's control and many of which, with
respect to future business decisions, are subject to change. These
uncertainties and contingencies can affect actual results and could
cause actual results to differ materially from those expressed in
any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from
forward-looking statements may depend on numerous foreseeable and
unforeseeable events or developments, some of which may be national
in scope, such as general economic conditions and interest rates,
some of which may be related to the insurance industry generally,
such as pricing competition, regulatory developments and industry
consolidation, and others of which may relate to the Company
specifically, such as credit, volatility and other risks associated
with the Company's investment portfolio, and other factors.
Readers are also directed to consider other risks and uncertainties
discussed in documents filed by the Company with the SEC. The
Company disclaims any obligations to update forward-looking
information.
A. COMPANY RESULTS OF OPERATIONS
1. Comparison of Years Ended December 31, 1996 and 1995
The Company's consolidated net income increased 5% to $134.6
million, when compared to 1995.
Premiums and other income increased 12% from $1,067.4 million in
1995 to $1,199.2 million in 1996. The 1996 premiums included
$164.8 million of reinsurance premium associated with the recapture
of a block of participating individual insurance business from
Great-West Life. This transaction did not impact consolidated net
income, as it was offset by an increase in reserves (see discussion
of policy benefits below). Therefore, premiums and other income
from operations were down from 1995 levels, which reflects a 7%
reduction in group life and health premiums due to high termination
rates associated with price sensitivity and competition from
managed care companies.
Net investment income increased $1.5 million from $835.1 million in
1995 to $836.6 million in 1996. This change reflected an increase
in the amount of invested assets of $243.8 million, which was
largely offset by a lower effective yield on investments purchased
in late 1995 and early 1996. The increase in invested assets is
primarily the result of growth in policy loans on the
Corporate-Owned Life Insurance ("COLI") business.
The Company's realized investment gains (losses) changed from a net
realized gain of $7.5 million in 1995 to a net realized loss of
$21.1 million in 1996. The increase in interest rates in 1996
resulted in realized losses on the sale of fixed maturities
totaling $11.6 million, while lower interest rates contributed to
$28.2 million of fixed maturity gains recorded in 1995. The 50%
improvement in the provision for asset losses helped to partially
offset the fixed maturities capital losses, as the change in
provision was reduced from $22.0 million in 1995 to $10.6 million
in 1996.
Total benefits and expenses includes life and other policy
benefits, increase in reserves, interest paid or credited to
contractholders, expenses, and dividends to policyholders. The
increase of 5% from $1,733.3 million in 1995 to $1,824.3 million in
1996 is primarily the result of the increase in reserves of $164.8
million associated with the recapture of insurance from Great-West
Life. After this adjustment the total benefits and expenses
actually decreased from 1995 to 1996. This is the result of a
reduction in group health claims which is consistent with the
premium decrease discussed previously.
Net income in 1996 also reflects a $25.6 million release of a
previously recorded contingent liability that the Company assumed
from Great-West Life in 1993. The release was triggered by the
resolution of 1988 and 1989 tax issues with the Internal Revenue
Service.
The effective income tax rates were reduced in 1996 by the release
of the contingent liability which was not taxable and in 1995 by
the release of a $13.3 million deferred tax valuation allowance in
a subsidiary investment company.
2. Comparison of Years Ended December 31, 1995 and 1994
The Company's consolidated net income increased 73% in 1995,
compared with 1994. The majority of the increase was in the
Financial Services unit where the asset intensive lines benefited
from a combination of lower mortgage writedowns and capital gains
from sales in the fixed maturities portfolio, as described below.
Premiums and other income increased 7% from $1,000.1 million in
1994 to $1,067.4 million in 1995, as the result of an increase in
group life and health premiums which were augmented by the
acquisition of blocks of business from Confederation Life Insurance
Company and Life of Georgia.
Net investment income increased $67.4 million in 1995 to a total of
$835.1 million reflecting an increase in invested assets from $11.8
billion to $12.5 billion in 1995. The increase was driven by the
growth in policy loans associated with COLI business.
The Company's realized gains (losses) changed from a net realized
loss of $71.9 million in 1994 to a net realized gain of $7.5
million in 1995. The provision for asset losses, included in
realized losses, continued to decline as the $22.0 million in 1995
was $12.2 million lower than the $34.2 million recorded in 1994, as
the mortgage portfolio continued to improve. Interest rates
decreased in 1995, leading to capital gains on the sale of fixed
maturities of $28.2 million which were better than the $39.8
million of losses recorded in 1994.
Total benefits and expenses increased 9% in 1995 to a total of
$1,733.3 million. This increase reflects the growth in the group
life and health block of business, and its impact on the increase
in group health claims and operating expenses.
The effective income tax in 1995 and 1994 was lower than the
statutory rate due to a reduction of $13.3 million and $7.1
million, respectively, in the deferred tax asset valuation
allowance held in a real estate subsidiary.
B. BUSINESS UNIT RESULTS OF OPERATIONS
The following discussion of results from operations is presented in
terms of the major business units of the Company, and the financial
information regarding such business units, described on pages 1 and
2 (Business of the Company).
1. Employee Benefits
401(k) premiums and deposits increased 23% to $1.2 billion in 1996.
Total revenue premium income (including premium equivalents) for
group life and health decreased 9% from 1995 levels, however, the
Company experienced an increase in premium growth during the last
half of 1996. Assets under administration in 401(k) increased 40%
over 1995, to $3.9 billion. Employee benefits operating income
increased in 1996, with favorable mortality and morbidity results,
strong 401(k) asset growth, and effective expense management. The
Company increased expenses to fund HMO development and computer
systems enhancements.
The managed care industry in the United States experienced frequent
acquisitions and mergers in 1996. To position itself for the
future, the Company focused on putting in place the products,
strategies and processes that will strengthen its competitive
position in the evolving managed care environment.
As a result of heightened price sensitivity and competition from
managed care companies, the rate of growth in the Company's life
and health business slowed. New life and health case sales in 1996
of 1,125 were higher than the 1,031 recorded in 1995, however
termination rates were high resulting in a 7% reduction in the
premiums associated with this block of business.
Employers' heightened sensitivity to price has led to a demand for
more tightly controlled managed care plans, which is why HMO
development remains Employee Benefits' most important product
development initiative. In 1996 the Company received state
approval for HMO's in California, Texas, Illinois, Colorado, and
Georgia and applied for licenses in additional states. The Company
also entered into three agreements with other carriers, which will
exclusively market the One Health Plan HMO in various states.
These agreements, and others like them, will augment growth in the
Company's HMO programs in the years to come.
The Company's One Health Plan subsidiary organization will also
play an important role in network contracting and administration
medical management, member services and quality assurance for the
Company's other managed care products. In addition to day-to-day
operations of the HMO, each One Health Plan subsidiary will
administer Preferred Provider Organization ("PPO") and
Point-of-Service ("POS") plan provider networks for the Company and
its joint-venture partner, New England. As well as providing
economies of scale, this "pooling" of PPO, POS, and HMO membership
benefits the Company in negotiating favorable provider
reimbursement arrangements.
The Company experienced a 4% decrease in total covered lives, from
1,621,170 at the end of 1995 to 1,554,142 at year-end 1996.
However, gatekeeper (i.e., POS and HMO) members grew 35% from
258,930 in 1995 to 350,185 in 1996, as employers moved from fully
insured and PPO products. As additional HMO licenses are obtained,
the Company expects this segment of the business to grow.
The number of new 401(k) case sales, including business generated
through the Company's joint venture with New England, continued to
climb to 1,156 in 1996 from 960 in 1995 and 953 in 1994. This
brings the total 401(k) block of business under administration to
4,942 employer groups and more than 350,000 individual
participants.
During 1996, the in-force block of 401(k) business also performed
well, with persistency of 93%. This, combined with a strong stock
market, resulted in a 40% increase in assets under management, to
$3.9 billion.
To promote long-term asset retention, the Company enhanced a number
of products and services during 1996, including prepackaged
"lifestyle" funds (The Profile Series), "Account Credits" for
high-balance accounts, a rollover Individual Retirement Account
product, strong enrollment communications, one-on-one retirement
planning assistance and personal plan illustrations.
In 1997, the Company will continue to enhance managed care programs
and services by furthering HMO development, implementing a new
claims adjudication system, seeking National Committee for Quality
Assurance accreditation and introducing quality assurance programs
and member communication directed at health improvements. The
Company will continue to build on its 401(k) product, placing more
emphasis on participant education and enrollment strategies, as
well as introducing new investment options. Finally, the Company
will introduce a non-qualified deferred compensation program
designed to allow key executives to defer salary for retirement
savings beyond 401(k) contribution limits.
2. Financial Services
Savings
The Company's core savings business is the public/non-profit
("P/NP") pension market, providing investment products,
administrative and communication services to employees of state and
local governments (Internal Revenue Code Section 457 Deferred
Compensation Plans), as well as employees of hospitals and public
school districts (Internal Revenue Code Sections 403(b) Tax
Deferred Annuities and 401(k) Cash or Deferred Arrangements).
Assets under management in the P/NP business, including Separate
Accounts, increased 4.6% during 1996 to $6.6 billion. Much of the
growth came from the variable annuity business, which was driven by
good sales results and strong investment returns in the equity
markets.
The Company's P/NP lives under administration were 462,914 in 1996,
compared to 410,843 in 1995, and 340,079 in 1994. The Company
primarily used BenefitsCorp, its communication and marketing
subsidiary, to sell 12 new large employer (100 lives or larger)
cases and to increase the penetration of existing cases by
enrolling new employees.
The Company experienced a 100% retention rate in P/NP contract
renewals in 1996. The Company attributes part of this customer
loyalty to initiatives to provide high-quality service while
controlling expenses. Unit costs declined 11%, the result of
further automation in policyholder recordkeeping and aggressive
expense management.
The Company continued to limit sales of Guaranteed Investment
Contracts ("GICs") and allow this block of business to contract.
This decision was taken in 1993 in response to the highly
competitive GIC market. As a result, GIC assets decreased 21% in
1996, to $524.6 million, and decreased 29% in 1995.
Customer demand for investment diversification continued to grow
during 1996. New contributions to variable business represented
69% of the total 1996 deposits, compared to 54% in 1995. The
Company continues to expand the investment products available
through its subsidiary mutual fund company, Maxim Series Fund,
Inc., and arrangements with external fund managers. This array of
funds allows customers to diversify their investments across a wide
range of investment products, including fixed income, stock, and
international equity fund offerings.
FASCorp, a subsidiary of the Company formed in 1993, provides
comprehensive administrative and recordkeeping services for
financial institutions and employer-sponsored retirement plans.
FASCorp administered records for more than 7,700 groups in 1996
versus 7,000 in 1995, representing approximately 800,000
participants (700,000 in 1995).
During the fourth quarter of 1996, the Company entered into a
marketing agreement with Charles Schwab & Co., Inc., to sell
individual fixed and variable qualified and non-qualified deferred
annuities. Sales of the products commenced in November 1996,
resulting in variable annuity deposits of $9.3 million during the
last two months of 1996.
Premium deposits associated with the Company's individual deferred
annuities were $5.3 million in 1996, compared to $112.7 million in
1995. The Company discontinued the distribution of the product
early in 1996 with the intention of replacing these sales through
the Charles Schwab distribution channel.
Insurance
Individual life insurance premiums and deposits of $910.1 million
in 1996 increased 45% from 1995 primarily due to the $164.8 million
of reinsurance premium associated with the recapture of a block of
participating individual insurance business from Great-West Life.
The remaining growth was due to BOLI premium.
The Company continued to de-emphasize the development and
distribution of traditional life insurance products, while focusing
on customer retention and expense management. Aggressive expense
management and favorable individual life insurance policy
persistency resulted in unit costs improving significantly during
the year. In late 1996, the Company announced that it would no
longer sell insurance products through general agents. The Company
began test marketing the sale of term, universal, and joint
survivor life insurance products under its marketing agreement with
Charles Schwab & Co., Inc. The results of this test program will
be evaluated in 1997.
As of year end, legislation was in place which phases out the tax
deductibility of interest on policy loans on COLI products during
1997 and 1998. However, the Company has shifted its emphasis from
new sales of COLI business to the more stable BOLI market. This
product provides long term benefits for bank employees and was not
affected by the legislative changes. COLI sales were discontinued
in 1996, but renewal premiums and deposits totaled $370.9 million.
BOLI revenue premiums and deposits increased to $190.5 million
during 1996, compared to $97.2 million in 1995. The Company is
working closely with existing COLI customers to determine the
options available to them. The effect of these legislative changes
is not expected to be material to the Company's operations.
3. Investment Operations
The Company's primary investment objective is to acquire assets
whose durations and cash flows reflect the characteristics of the
Company's liabilities, while meeting industry, size, issuer and
geographic diversification standards. Formal liquidity and credit
quality parameters have also been established.
The Company follows rigorous procedures to control interest rate
risk and observes strict asset and liability matching guidelines.
These guidelines are designed to ensure that even in changing
interest rate environments the Company's assets will always be able
to meet the cash flow and income requirements of its liabilities.
Through dynamic modeling, using state-of-the-art software to
analyze the effects of a wide range of possible market changes upon
investments and policyholder benefits, the Company ensures that its
investment portfolio is appropriately structured to fulfill
financial obligations to its policyholders.
A summary of the Company's invested assets (Millions) follows:
1996
1995
Fixed maturities, available for sale,
at fair value
$6,206
$6,263
Fixed maturities, held at maturity,
at amortized cost
1,993
2,054
Mortgage loans
1,488
1,713
Real estate and common stock
88
70
Short-term investments
419
135
Policy loans
2,523
2,238
$12,717
$12,473
Fixed Maturities
Fixed maturity investments include publicly traded bonds, privately
placed bonds and public and private structured assets. This latter
category contains both asset-backed and mortgage-backed securities,
including collateralized mortgage obligations ("CMOs"). The
Company's strategy related to structured assets is to focus on
those with lower volatility and minimal credit risk. The Company
does not invest in higher risk CMOs such as interest-only and
principal-only strips, and currently has no plans to invest in such
securities.
Private placement investments are generally less marketable than
publicly traded assets, yet they typically offer covenant
protection which allows the Company, if necessary, to take
appropriate action to protect its investment. The Company believes
that the cost of the additional monitoring and analysis required by
private placements is more than offset by their enhanced yield.
One of the Company's primary objectives is to ensure that its fixed
maturity portfolio is maintained at a high average quality, so as
to limit credit risk. In excess of 85% of the value of the
securities in this portfolio are rated by external rating agencies.
If not externally rated, the securities are rated by the Company on
a basis intended to be similar to that of the rating agencies.
The distribution of the fixed maturity portfolio (both available
for sale and held to maturity) by credit rating is summarized as:
Credit Rating
1996
1995
AAA
45.9%
43.9%
AA
8.1
8.0
A
23.7
26.8
BBB
20.9
19.2
BB and Below (non-investment grade)
1.4
2.1
TOTAL
100.0%
100.0%
At December 31, 1996, the Company had one bond in default in the
amount of $8 million, and one potentially problematic bond, with a
carrying value of $6.4 million, which, although current, is judged
by management as likely to require either restructuring or other
types of relief. Both bonds are carried at their estimated net
realizable values. Their combined total of $14.4 million is a
relatively low proportion of the total fixed maturity portfolio
(less than .2%) as the high credit quality of the portfolio limits
the Company's exposure to problematic bonds. At December 31, 1995,
there were no bonds in default and only one potentially problematic
security, with a carrying value of $7.4 million.
Mortgage Loans
During 1996, the mortgage portfolio declined 13% to $1.5 billion,
net of impairment reserves. The Company has not actively sought
new loan opportunities since 1989 and, as such, has experienced an
ongoing reduction in this portfolio's balance.
The Company follows a comprehensive approach to the management of
mortgage loans which includes ongoing analysis of key mortgage
characteristics such as debt service coverage, net collateral cash
flow, property condition, loan to value ratios and market
conditions. Collateral valuations are performed for those
mortgages which, after review, are determined by management to
present possible risks and exposures. These valuations are then
incorporated into the determination of the Company's allowance for
credit losses. Effective January 1, 1995, the Company adopted
Statement of Financial Accounting Standards Nos. 114 and 118 (see
Note 1 to the financial statements - page 38), both of which deal
with accounting for impaired loans (defined as those loans upon
which the Company will likely collect less than all amounts due
according to the contractual terms of the agreement). As the
Company already provided for impairment reserves through its
allowance procedures, the adoption of the new standards had no
material effect upon the Company's financial position.
The average balance of impaired loans continued to remain low at
$39.1 million in 1996 compared with $29.1 million in 1995, and
foreclosures totaled $14.0 million and $37.0 million in 1996 and
1995, respectively. The low levels of problematic mortgages
relative to the Company's overall balance sheet are due to the
ongoing decrease in the size of the mortgage portfolio, the
Company's active loan management program and improvement in market
conditions.
Occasionally, the Company elects to restructure certain loans if
the economic benefits to the Company are believed to be more
advantageous than those achieved by acquiring the collateral
through foreclosure. At December 31, 1996 and 1995, the Company's
loan portfolio included $68.3 million and $89.2 million,
respectively, of non-impaired restructured loans.
Real Estate and Common Stock
The Company's real estate portfolio is composed primarily of
properties acquired through the foreclosure of troubled mortgages.
The Company operates a wholly owned real estate subsidiary which
attempts to maximize the value of these properties through
rehabilitation, leasing and sale. The Company anticipates limited,
if any, investments in voluntary real estate assets during 1997.
The common stock portfolio is composed of mutual fund seed money
and some private equity investments. The Company anticipates a
limited participation in the stock markets in 1997.
Derivatives
The Company uses certain derivatives, such as futures, options, and
swaps, for purposes of hedging interest rate and foreign exchange
risk. These derivatives, when taken alone, may subject the Company
to varying degrees of market and credit risk; however, when used
for hedging, these instruments typically reduce risk. The Company
controls the credit risk of its financial contracts through credit
approvals, limits and monitoring procedures. Note 6 to the
financial statements (page 46) contains a summary of the Company's
outstanding financial hedging derivatives.
Other
General economic conditions improved during 1996, including
improvement or stabilization in many real estate markets. If
present market conditions continue, the Company does not expect to
recognize any asset chargeoffs or restructurings which would result
in a material adverse effect upon the Company's financial condition
in 1997.
C. LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have liquidity requirements that vary
among the principal product lines. Life insurance and pension plan
reserves are primarily long-term liabilities. Accident and health
reserves, including long-term disability, consist of both
short-term and long-term liabilities. Life insurance and pension
plan reserve requirements are usually stable and predictable, and
are supported primarily by long-term, fixed income investments.
Accident and health claim demands are stable and predictable but
generally shorter term, requiring greater liquidity.
Generally, the Company has met its operating requirements by
maintaining appropriate levels of liquidity in its investment
portfolio and utilizing positive cash flows from operations.
Liquidity for the Company has remained strong, as evidenced by
significant amounts of short-term investments and cash, which
totaled $544.2 million and $225.8 million as of December 31, 1996
and 1995, respectively.
During 1996, cash increased $34.2 million to $125.2 million as of
December 31, 1996. This increase primarily reflects the positive
cash flow from operating activities ($712.4 million). The increase
was partially offset by net investment purchases ($127.7 million),
contract withdrawals ($413.6 million), net repurchase agreement
payments ($88.6 million) and payment of dividends on stock ($56.7
million).
During 1995, cash decreased $40.7 million due to contract
withdrawals ($217.2 million), net repurchase agreement payments
($191.2 million), net investment purchases ($27.4 million), and
payment of dividends on stock ($49.0 million). Cash flow from
operating activities was $458.1 million.
The 1994 increase in cash primarily reflects cash flows from
operating activities net of withdrawals and net investment
purchases.
Funds provided from premiums and fees, investment income and
maturities of investment assets are reasonably predictable and
normally exceed liquidity requirements for payment of claims,
benefits and expenses. However, since the timing of available
funds cannot always be matched precisely to commitments, imbalances
may arise when demands for funds exceed those on hand. Also, a
demand for funds may arise as a result of the Company taking
advantage of current investment opportunities. The Company's
capital resources represent funds available for long-term business
commitments and primarily consist of retained earnings and proceeds
from the issuance of commercial paper and equity securities.
Capital resources provide protection for policyholders and the
financial strength to support the underwriting of insurance risks,
and allow for continued business growth. The amount of capital
resources that may be needed is determined by the Company's senior
management and Board of Directors as well as by regulatory
requirements. The allocation of resources to new long-term
business commitments is designed to achieve an attractive return,
tempered by considerations of risk and the need to support the
Company's existing business.
The Company's financial strength provides the capacity and
flexibility to enable it to raise funds in the capital markets
through the issuance of commercial paper. The Company continues
to be well capitalized, with sufficient borrowing capacity to meet
the anticipated needs of its business. The Company had $84.7
million of commercial paper outstanding at December 31, 1996,
compared with $84.9 million at December 31, 1995. The commercial
paper has been given a rating of A-1+ by Standard & Poor's
Corporation and a rating of P-1 by Moody's Investors Service, each
being the highest rating available.
D. ACCOUNTING PRONOUNCEMENTS
In 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to Be Disposed Of."
The implementation of this statement had no material effect on the
Company's results of operations, liquidity or financial condition.
Effective January 1, 1995, the Company adopted 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". 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 condition. See Note 6 to the financial
statements for further information (page 46).
In 1994, the Company implemented SFAS No. 115, "Accounting for
Certain Investments in Debt and Equity Securities". The cumulative
effect as of January 1, 1994 of adopting SFAS No. 115 increased the
opening balance of stockholder's equity by $6.5 million to reflect
the net unrealized gains on securities classified as
available-for-sale (previously carried at the lower of aggregated
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.
During the fourth quarter of 1995, the Financial Accounting
Standards Board issued a guide to implementation of SFAS No. 115,
which permits a one-time opportunity to reclassify securities
subject to SFAS No. 115. Consequently, the Company reassessed the
classification of its investment portfolio in December 1995 and
reclassed securities totaling $2.1 billion from held-to-maturity to
available-for-sale. In connection with this reclassification, an
unrealized gain, net of related policyholder amounts and deferred
income taxes, of $23.4 million was recognized in stockholder's
equity at the date of transfer.
In connection with the employee transfer discussed in Note 2 to the
financial statements on page 42, the Company in 1997 will apply the
provisions of SFAS No. 87, "Employers Accounting for Pensions",
SFAS No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions", and SFAS No. 123, "Accounting for Stock-Based
Compensation". Previously employee expenses (including costs for
benefit plans) were transferred from Great-West Life to the Company
through administrative services agreements. Accordingly, the
implementation of these standards will have no material effect on
the financial results of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's Consolidated Financial Statements for the Years Ended
December 31, 1996, 1995, and 1994 and Independent Auditors' Report,
and certain supplementary financial data, are set out below.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
(A wholly-owned subsidiary of
The Great-West Life Assurance Company)
Consolidated Financial Statements for the
Years Ended December 31, 1996, 1995, and 1994
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, 1996 and 1995, 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,
1996. 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, 1996 and 1995, and the results of their operations and
their cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1997
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1996 AND 1995
(Dollars in Thousands)
ASSETS
1996
1995
INVESTMENTS:
Fixed Maturities:
Held-to-maturity, at amortized cost (fair value $2,041,064 and
$2,158,043)
$ 1,992,681
$ 2,054,204
Available-for-sale, at fair value (amortized cost $6,151,519
and $6,087,969)
6,206,478
6,263,187
Common stock
19,715
9,440
Mortgage loans on real estate, net
1,487,575
1,713,195
Real estate, net
67,967
60,454
Policy loans
2,523,477
2,237,745
Short-term investments, available-for-sale (cost approximates
fair value)
419,008
134,835
Total Investments
12,716,901
12,473,060
Cash
125,182
90,939
Reinsurance receivable
196,958
333,924
Deferred policy acquisition costs
282,780
278,526
Investment income due and accrued
198,441
211,922
Other assets
57,244
40,038
Premiums in course of collection
74,693
85,990
Deferred income taxes
214,404
168,941
Separate account assets
5,484,631
3,998,878
TOTAL ASSETS
$19,351,234
$17,682,218
See notes to consolidated financial statements.
<PAGE>
LIABILITIES AND STOCKHOLDER'S EQUITY
1996
1995
POLICY BENEFIT LIABILITIES:
Policy reserves
$11,022,595
$10,845,935
Policy and contract claims
372,327
359,791
Policyholders' funds
153,867
154,872
Experience refunds
87,399
83,562
Provision for policyholders' dividends
51,279
47,760
GENERAL LIABILITIES:
Due to Parent Corporation
151,431
149,974
Repurchase agreements
286,736
375,299
Commercial paper
84,682
84,854
Other liabilities
488,818
451,555
Undistributed earnings on
participating business
133,255
136,617
Separate account liabilities
5,484,631
3,998,878
Total Liabilities
18,317,020
16,689,097
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
per share, issued, and outstanding
41,800
41,800
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
664,265
657,265
Net unrealized gains on securities available-for-sale, net
14,951
58,763
Retained earnings
226,166
148,261
Total Stockholder's Equity
1,034,214
993,121
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
$19,351,234
$17,682,218
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
REVENUES:
Annuity contract charges and premiums
$91,881
$79,816
$61,122
Life, accident, and health premiums earned (net of
premiums ceded totaling $(104,250), $60,880
and $48,115)
1,107,367
987,611
938,947
Net investment income
836,642
835,046
767,646
Net realized gains (losses) on investments
(21,078)
7,465
(71,939)
2,014,812
1,909,938
1,695,776
BENEFITS AND EXPENSES:
Life and other policy benefits (net of reinsurance
recoveries totaling $52,675, $43,574,
and $18,937)
515,750
557,469
548,950
Increase in reserves
229,198
98,797
64,834
Interest paid or credited to contractholders
561,786
562,263
529,118
Provision for policyholders' share of earnings (losses)
on participating business
(7)
2,027
(725)
Dividends to policyholders
49,237
48,150
42,094
1,355,964
1,268,706
1,184,271
Commissions
106,561
122,926
120,058
Operating expenses
336,719
314,810
261,311
Premium taxes
25,021
26,884
27,402
1,824,265
1,733,326
1,593,042
INCOME BEFORE INCOME TAXES
190,547
176,612
102,734
PROVISION FOR INCOME TAXES:
Current
77,134
88,366
65,070
Deferred
(21,162)
(39,434)
(36,614)
55,972
48,932
28,456
NET INCOME
$134,575
$127,680
$74,278
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
Preferred Stock
Shares
Amount
Common Stock
Shares
Amount
Additional Paid-In Capital
Net Unrealized Gains (Losses)
Retained Earnings (Deficit)
Total
BALANCE, JANUARY 1, 1994
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 realized gains (losses)
137,190
137,190
Dividends
(48,980)
(48,980)
Net income
127,680
27,680
BALANCE, DECEMBER 31, 1995
2,000,800
121,800
7,032,000
7,032
657,265
58,763
148,261
993,121
Change in net unrealized gains (losses)
(43,812)
(43,812)
Capital contributions
7,000
7,000
Dividends
(56,670)
(56,670)
Net income
134,575
134,575
BALANCE, DECEMBER 31, 1996
2,000,800
$121,800
7,032,000
$7,032
$664,265
$14,951
$226,166
$1,034,214
See notes to consolidated financial statements.
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
OPERATING ACTIVITIES:
Net income
$134,575
$127,680
$74,278
Adjustments to reconcile net income to
net cash provided by operating activities:
Gain (loss) allocated to participating policyholders
(7)
2,027
(725)
Amortization of investments
15,518
26,725
36,978
Realized losses (gains) on disposal of investments
and write-downs of mortgage loans and real estate
21,078
(7,465)
71,939
Amortization
49,454
49,464
29,197
Deferred income taxes
(20,258)
(39,763)
(38,631)
Changes in assets and liabilities:
Policy benefit liabilities
358,393
346,975
93,998
Reinsurance receivable
136,966
(38,776)
(25,868)
Accrued interest and other receivables
24,778
(17,617)
(26,032)
Other, net
(8,076)
8,834
96,950
Net cash provided by operating activities
712,421
458,084
312,084
INVESTING ACTIVITIES:
Proceeds from sales, maturities, and
redemptions of investments:
Fixed maturities
Held-to-maturity
Sales
18,821
16,014
Maturities and redemptions
516,838
655,993
1,034,324
Available-for-sale
Sales
3,569,608
4,211,649
1,753,445
Maturities and redemptions
803,369
253,747
141,299
Mortgage loans
235,907
260,960
291,102
Real estate
2,607
4,401
29,868
Common stock
1,888
178
Purchases of investments:
Fixed maturities
Held-to-maturity
(453,787)
(490,228)
(673,567)
Available-for-sale
(4,753,154)
(4,932,566)
(2,606,028)
Mortgage loans
(23,237)
(683)
(9)
Real estate
(15,588)
(5,302)
(9,253)
Common stock
(12,113)
(4,218)
(2,063)
Net cash used in investing activities
(127,662)
(27,426)
(24,690)
(Continued)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Dollars in Thousands)
1996
1995
1994
FINANCING ACTIVITIES:
Contract withdrawals, net of deposits
$(413,568)
$(217,190)
$(238,166)
Due to Parent Corporation
1,457
(9,143)
(13,078)
Dividends paid
(56,670)
(48,980)
(40,438)
Net commercial paper (repayments) borrowings
(172)
(4,832)
89,686
Net repurchase agreements repayments
(88,563)
(191,195)
(39,244)
Capital contributions
7,000
Net cash used in financing activities
(550,516)
(471,340)
(241,240)
NET INCREASE (DECREASE) IN CASH
34,243
(40,682)
46,154
CASH, BEGINNING OF YEAR
90,939
131,621
85,467
CASH, END OF YEAR
$125,182
$90,939
$131,621
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION
Cash paid during the year for:
Income taxes
$103,700
$83,841
$68,892
Interest
15,414
17,016
12,229
See notes to consolidated financial statements.
(Concluded)
<PAGE>
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1996, 1995, AND 1994
(Amounts in Thousands, except Share Amounts)
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 requires 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 in consolidation.
Certain reclassifications have been made to the 1995 and 1994
financial statements to conform with the basis of presentation used
in 1996.
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 are 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 estimated life of the related bonds. Such
amortization is included in net investment income. 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 net
investment 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 judgment 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, net
of costs of disposal. Effective January 1, 1996, the Company
adopted SFAS No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to be Disposed Of". The
implementation of this statement had no material effect on the
Company's financial statements.
4. Investments in common stock are carried at fair value.
5. Policy loans are carried at their unpaid balances.
6. 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 totaled $47,089,
$48,054, and $28,199 in 1996, 1995, and 1994, 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 $5,242,753, and
$4,675,175 at December 31, 1996 and 1995, 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 $5,779,842 and $6,170,760,
at December 31, 1996 and 1995, 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 $3,591,077 and $3,339,316 at December 31, 1996
and 1995, respectively. Participating business approximates 50.3%
of the Company's ordinary life insurance in force and 92.2% of
ordinary life insurance premium income at December 31, 1996.
The liability for undistributed earnings on participating
business was decreased by $3,362 in 1996, which represented $7 of
losses on participating business, a reduction of $2,924 to reflect
the net change in unrealized gains on securities classified as
available-for-sale, net of certain adjustments to policy reserves
and income taxes, and a decrease of $431 due to reinsurance
transactions (See Note 2).
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. 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 6.8% in 1996.
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.
Although realization is not assured, management believes it is more
likely than not that the deferred tax asset, net of a valuation
allowance, will be realized.
Repurchase Agreements and Securities Lending - 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.
The Company will implement Statement of Financial Accounting
Standards (SFAS) No. 125 "Accounting for Transfer and Servicing of
Financial Assets and Extinguishments of Liabilities" in 1998 as it
relates to repurchase agreements and securities lending
arrangements. Management estimates the effect of the change will
not be material.
Derivatives - The Company engages in hedging activities to manage
interest rate and foreign exchange risk (See Note 6).
2. RELATED-PARTY TRANSACTIONS
On October 31, 1996 the Company recaptured certain pieces of
an individual participating insurance block of business previously
reinsured to the Parent Corporation on December 31, 1992. The
Company recorded, at estimated fair value, the following at October
31, 1996 as a result of this transaction:
Assets Liabilities and
Stockholder's Equity
Cash $162,000 Policy reserves $164,839
Mortgages 19,753 Due to parent corporation 9,180
Other 18 Deferred income taxes 1,283
Undistributed earnings on Stockholder's equity 7,000
participating business 431
$182,302 $182,302
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,
1996
1995
1994
Investment management expense (included in net
investment income)
$14,800
$15,182
$13,841
Administrative and underwriting payments
(included in operating expenses)
304,599
301,529
269,020
Effective January 1, 1997 all employees of the U.S. operations of
the Parent Corporation and the related benefit plans were
transferred to the Company. All related employee benefit plan
assets and liabilities were transferred from the Parent Corporation
to the Company with no material impact on the Company's financial
position. There will not be any material effect on the Company's
operating expenses as the costs associated with the employees and
these benefit plans are reflected in the present service
agreements.
At December 31, 1996 and 1995, due to Parent Corporation
includes $31,639 and $27,814 due on demand and $119,792 and
$122,160 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 (7.0% and 6.4% at December 31,
1996 and 1995, 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, 1996 and 1995, reinsurance
receivables with a carrying value of $196,958 and $333,924,
respectively, were due primarily from the Parent Corporation.
Total reinsurance premiums assumed from the Parent Corporation
were $1,693, $1,606 and $2,438, in 1996, 1995, and 1994,
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:
Gross Amount
Ceded Primarily to the Parent Corporation
Assumed Primarily From Other Companies
Net Amount
Percentage of Amount Assumed to Net
December 31, 1996:
Life insurance in force:
Individual
$23,409,823
$5,246,079
$3,482,118
$21,645,862
16.1%
Group
47,682,237
1,817,511
49,499,748
3.7%
Total
$71,092,060
$5,246,079
$5,299,629
$71,145,610
Premiums:
Life insurance
$334,127
$(111,743)
$19,633
$465,503
4.2%
Accident/health
592,577
7,493
56,780
641,864
8.8%
Total
$926,704
$(104,250)
$76,413
$1,107,367
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
4. NET INVESTMENT INCOME
Net investment income is summarized as follows:
Years Ended December 31,
1996
1995
1994
Investment income:
Fixed maturities and short-term investments
$601,913
$591,561
$555,103
Mortgage loans on real estate
140,823
171,008
182,544
Real estate
5,292
3,936
5,700
Policy loans
175,746
163,547
116,060
Other
3,319
927,095
930,052
859,407
Investment expenses, including
interest on amounts charged
by the Parent Corporation
of $11,282, $10,778, and $11,145
90,453
95,006
91,761
Net investment income
$836,642
$835,046
$767,646
5. NET REALIZED GAINS (LOSSES) ON INVESTMENTS
Net realized gains (losses) on investments are as follows:
Years Ended December 31,
1996
1995
1994
Realized gains (losses):
Fixed Maturities
$(11,624)
$28,166
$(39,775)
Mortgage loans on real estate
1,143
1,309
2,120
Real estate
(10)
(102)
Provisions
(10,597)
(22,000)
(34,182)
Net realized gains (losses) on investments
$(21,078)
$7,465
$(71,939)
6. SUMMARY OF INVESTMENTS
Fixed maturities owned at December 31, 1996 are summarized as
follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying Value
Held-to-Maturity:
U.S. Treasury Securities and
obligations of U.S. Government
Agencies:
Collateralized mortgage
obligations
$
$
$
$
$
Direct mortgage pass-through
certificates
Other
10,935
630
106
11,459
10,935
Collateralized mortgage obligations
Public utilities
284,954
12,755
320
297,389
284,954
Corporate bonds
1,634,745
41,195
7,360
1,668,580
1,634,745
Foreign governments
12,577
556
3
13,130
12,577
State and municipalities
49,470
1,051
15
50,506
49,470
$ 1,992,681
$ 56,187
$ 7,804
$ 2,041,064
$1,992,681
Available-for-Sale:
U.S. Treasury Securities and
obligations of U.S.
Government Agencies:
Collateralized mortgage
obligations
$ 658,612
$ 8,058
$ 3,700
$ 662,970
$ 662,970
Direct mortgage pass-through
certificates
844,291
5,093
10,908
838,476
838,476
Other
359,220
596
2,686
357,130
357,130
Collateralized mortgage obligations
614,773
13,619
3,553
624,839
624,839
Public utilities
628,382
6,523
5,375
629,530
629,530
Corporate bonds
2,907,875
56,551
5,250
2,959,176
2,959,176
Foreign governments
110,013
1,762
5,673
106,102
106,102
State and municipalities
28,353
21
119
28,255
28,255
$ 6,151,519
$ 92,223
$ 37,264
$ 6,206,478
$6,206,478
6. SUMMARY OF INVESTMENTS [Continued]
Fixed maturities owned at December 31, 1995 are summarized as
follows:
Amortized Cost
Gross Unrealized Gains
Gross Unrealized Losses
Estimated Fair Value
Carrying 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
Most of the collateralized mortgage obligations consist of
planned amortization classes with final stated maturities of two to
thirty years and average lives of less than one to fourteen 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 totaling $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 calculated at current market
rates on investments of similar quality and term.
The amortized cost and estimated fair value of fixed maturity
investments at December 31, 1996, 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
Amortized Cost
Estimated Fair Value
Available-for-Sale
Amortized Cost
Estimated Fair Value
Due in one year or less
$197,135
$200,356
$294,236
$308,805
Due after one year through five years
840,192
860,192
1,294,892
1,300,473
Due after five years through ten years
621,900
641,103
934,312
940,880
Due after ten years
140,061
145,287
422,179
432,721
Mortgage-backed securities
2,117,676
2,126,285
Asset-backed securities
193,393
194,126
1,088,224
1,097,314
$1,992,681
$2,041,064
$6,151,519
$6,206,478
Proceeds from sales of securities available-for-sale were
$3,569,608, $4,211,649, and $1,753,445 during 1996, 1995, and 1994,
respectively. The realized gains on such sales totaled $24,919,
$39,755, and $7,030 for 1996, 1995, and 1994, respectively. The
realized losses totaled $40,748, $15,516, and $50,612 for 1996,
1995, and 1994, respectively. During 1996, 1995, and 1994
held-to-maturity securities with an amortized cost of $0, $18,087,
and $15,300 were sold due to credit deterioration with
insignificant realized gains and losses.
At December 31, 1996 and 1995, pursuant to fully
collateralized securities lending arrangements, the Company had
loaned $230,419 and $343,351 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 into 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:
December 31, 1996
Notional Amount
Strike/Swap Rate
Maturity
Interest Rate Floor
$100,000
4.5% [LIBOR]
1999
Interest Rate Caps
260,000
11.0% to 11.82%[CMT]
2000 to 2001
Interest Rate Swaps
187,847
6.203% to 9.35%
01/98 to 02/2003
Foreign Currency Exchange
Contracts
61,012
N/A
09/98 to 03/2003
December 31, 1995
Notional Amount
Strike/Swap 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
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, 1996 approximately 32% and 10% of the Company's
mortgage loans were collateralized by real estate located in
California and Michigan, respectively.
The following represents impairments and other information under
SFAS No. 114:
1996
1995
Impaired Loans
Loans with related allowance for credit losses of $2,793 and $654
$16,443
$3,254
Loans with no related allowance for credit losses
31,709
20,424
Average balance of impaired loans during the year
39,064
29,150
Interest income recognized [while impaired]
923
675
Interest income received and recorded [while impaired] using the
cash basis method of recognition
1,130
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 that are not impaired,
aggregated $68,254, and $89,160 at December 31, 1996, and 1995,
respectively.
The following table presents changes in the allowance for
credit losses since January 1, 1995 (date of the adoption of SFAS
No. 114):
1996
1995
Balance, beginning of year
$63,994
$57,987
Provision for loan losses
4,470
15,877
Chargeoffs
(3,468)
(10,480)
Recoveries
246
610
Balance, end of year
$65,242
$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,
1996, commercial paper outstanding has maturities ranging from 49
to 123 days and interest rates ranging from 5.4% to 5.6%. At
December 31, 1995, maturities ranged from 25 to 160 days and
interest rates ranged from 5.7% to 5.9%.
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,
1996
Carrying Amount
Estimated Fair Amount
1995
Carrying Amount
Estimated Fair Value
ASSETS:
Fixed maturities and short-term
investments
$8,618,167
$8,666,550
$8,452,226
$8,556,065
Mortgage loans on real estate
1,487,575
1,506,162
1,713,195
1,749,514
Policy loans
2,523,477
2,523,477
2,237,745
2,237,745
Common stock
19,715
19,715
9,440
9,440
LIABILITIES:
Annuity contract reserves
without life contingencies
5,779,842
5,821,404
6,170,760
6,268,749
Policyholders' funds
153,867
153,867
154,872
154,872
Due to Parent Corporation
151,431
154,479
149,974
152,347
Repurchase agreements
286,736
286,736
375,299
375,299
Commercial paper
84,682
84,682
84,854
84,854
HEDGE CONTRACTS:
Interest rate floor
62
124
84
1,320
Interest rate cap
173
173
90
90
Interest rate swaps
4,746
4,746
10,052
10,052
Foreign currency exchange
contracts
(8,954)
(8,954)
(4,604)
(4,604)
The estimated fair value of financial instruments has been
determined using available market information and appropriate
valuation methodologies. However, considerable judgment 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 policyholders' 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 position for
interest rates swaps are $160 and $0 of unrealized losses in 1996
and 1995, respectively. Included in the net loss position for
foreign currencies exchange contracts are $8,954 and $5,497 loss
exposures in 1996 and 1995, respectively.
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:
1996
1995
1994
Federal tax rate
35.0%
35.0%
35.0%
Change in tax rate resulting from:
Investment income not subject to federal tax
(1.0)
(0.5)
(1.0)
Release of contingent liability
(4.7)
Change in valuation allowance
0.8
(7.8)
(6.9)
State and environmental taxes
0.7
0.7
0.9
Other, net
(1.4)
0.3
(0.3)
Total
29.4%
27.7%
27.7%
Temporary differences which give rise to the deferred tax
assets and liabilities as of December 31, 1996 and 1995 are as
follows:
1996
Deferred Tax Asset
Deferred Tax Liability
1995
Deferred Tax Asset
Deferred Tax Liability
Policyholder reserves
$151,239
$
$162,073
$
Deferred policy acquisition costs
57,031
55,542
Deferred acquisition cost proxy tax
70,413
58,481
Investment assets
35,658
16,372
Net operating loss carryforwards
12,295
17,588
Tax credits and other
5,366
4,786
Subtotal
274,971
57,031
242,928
71,914
Valuation allowance
(3,536)
(2,073)
Total Deferred Taxes
$271,435
$57,031
$240,855
$71,914
Amounts related to investment assets above include $8,530 and
$33,735 related to the unrealized gains on the Company's fixed
maturities available-for-sale at December 31, 1996 and 1995,
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, 1996, the Company's subsidiaries
have approximately $35,128 of net operating loss carryforwards,
expiring through the year 2011. The tax benefit of subsidiaries'
net operating loss carryforwards, net of a valuation allowance of
$1,612 are included in the deferred tax assets.
The Company's valuation allowance was increased/(decreased) in
1996, 1995, and 1994 by $1,463, $(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.
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 the provision, to reflect the resolution of
1988 and l989 tax issues with the Internal Revenue Service (IRS).
Audits of tax years 1990 and 1991 are in the process of being
finalized. The IRS is currently auditing tax years 1992 and 1993.
In the opinion of Company management, the amounts paid or accrued
are adequate; however, it is possible that the Company's accrued
amounts 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.
The dividend rate on the Series B Straps is 5.8% through
December 30, 1997. The Series B STRAPS are redeemable at the
option of the Company on or after December 29, 1997 at a price of
$100,000 per share, plus accumulated and unpaid dividends.
The Company's Series E 7.5% non-cumulative, non-redeemable
preferred shares are redeemable by the Company after April 1, 1999.
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.
The Company received $472 of contributed capital in the form
of deferred tax assets from the Parent Corporation during 1994 in
connection with reinsurance transactions with the Parent.
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:
1996
1995
1994
(Unaudited)
Net Income
$180,635
$114,931
$70,091
Capital and Surplus
713,324
653,479
621,589
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, 1996 were $584,492 and
$182,044 (unaudited), respectively. The Company should be able to
pay up to $182,044 (unaudited) of dividends without regulatory
approval in 1997.
Dividends of $8,587, $9,217, and $7,475, were paid on
preferred stock in 1996, 1995, and 1994, respectively. In
addition, dividends of $48,083, $39,763, and $32,963, were paid on
common stock in 1996, 1995 and 1994, 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.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
In the two most recent fiscal years or any subsequent interim
period, there has been no change in the Company's independent
accountants or resulting disagreements on accounting and financial
disclosure.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
A. IDENTIFICATION OF DIRECTORS
Director
Age
Served as Director From
Principal Occupation(s) For Last Five Years
James Balog (1)(2)
68
1993
Company Director since March 1993; previously Chairman, Lambert
Brussels Capital Corporation (an investment advisory company)
James W. Burns, O.C. (1)(2)
67
1991
Chairman of the Boards of Great-West Lifeco and Great-West Life;
Deputy Chairman, Power Corporation
Orest T. Dackow (1)(2)
60
1991
President and Chief Executive Officer, Great-West Lifeco since
April 1992; previously President, Great-West Life
Paul Desmarais, Jr. (1)(2)
42
1991
Chairman and Co-Chief Executive Officer, Power Corporation;
Chairman, Power Financial
Robert G. Graham (1)(2)
65
1991
Company Director since January 1996; previously Chairman and Chief
Executive Officer, Inter-City Products Corporation (a company
engaged in the manufacture and distribution of air conditioning,
heating and related products)
Robert Gratton (1)(2)
53
1991
Chairman of the Board of the Company; President and Chief Executive
Officer, Power Financial
N. Berne Hart (1)(2)(3)
67
1991
Company Director since February 1992; previously Chairman of the
Board, United Banks of Colorado, Inc. (a multi-bank holding
company)
Kevin P. Kavanagh (1)
64
1986
Company Director since April 1992; previously President and Chief
Executive Officer, Great-West Lifeco
William Mackness (1)(2)
58
1991
Company Director since July 1995; previously Dean, Faculty of
Management, University of Manitoba
William T. McCallum (1)(2)
54
1990
President and Chief Executive Officer of the Company; President and
Chief Executive Officer, United States Operations, Great-West Life
Jerry E.A. Nickerson (3)
60
1994
Chairman of the Board, H.B. Nickerson & Sons Limited (a management
and holding company)
The Honourable
P. Michael Pitfield, P.C., Q.C. (1)(2)
59
1991
Vice-Chairman, Power Corporation; Member of the Senate of Canada
Michel Plessis-Belair, F.C.A. (2)(3)
54
1991
Vice-Chairman and Chief Financial Officer, Power Corporation;
Executive Vice-President and Chief Financial Officer, Power
Financial
Ross J. Turner (1)(2)(3)
66
1991
Chairman, Genstar Investment Corporation (an investment company)
Brian E. Walsh (1)(2)
43
1995
Partner, Trinity L.P. since January 1996 (an investment company);
previously Managing Director and Co-head, Global Investment Bank,
Bankers Trust Company (an investment/commercial bank)
(1) Member of the Executive Committee
(2) Member of the Investment and Credit Committee
(3) Member of the Audit Committee
Unless otherwise indicated, all of the directors 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 are elected annually to serve until the following annual
meeting of shareholders.
The following lists directorships held by the directors of the
Company, on companies whose securities are traded publicly in the
United States or that are investment companies registered under the
Investment Company Act of 1940.
J. Balog
Transatlantic Holdings
Elan plc
W. Mackness
Russel Metals Inc.
J.E.A. Nickerson
Bank of Montreal
R.J. Turner
Guy F. Atkinson Company of California
Rio Algom Limited
B. IDENTIFICATION OF EXECUTIVE OFFICERS
Executive Officer
Age
Served as Executive Officer From
Principal Occupation(s) For Last Five Years
William T. McCallum
President and Chief Executive Officer
54
1982
President and Chief Executive Officer of the Company; President and
Chief Executive Officer, United States Operations, Great-West Life
Dennis Low
Executive Vice President, Financial Services
53
1987
Executive Vice President, Financial Services of the Company and
Great-West Life
Alan D. MacLennan
Executive Vice President, Employee Benefits
53
1984
Executive Vice President, Employee Benefits of the Company and
Great-West Life
Robert D. Bond
Senior Vice President, Financial Services
46
1995
Senior Vice President, Financial Services of the Company and
Great-West Life; prior to May 1992, National Director, Public
Marketing, Aetna Life Insurance Company
John A. Brown
Senior Vice President, Sales, Financial Services
49
1991
Senior Vice President, Sales, Financial Services of the Company and
Great-West Life
John T. Hughes
Senior Vice President, Chief Investment Officer
60
1989
Senior Vice President, Chief Investment Officer of the Company and
Great-West Life
Robert E. Kavanagh
Senior Vice President, Employee Benefits Sales
58
1991
Senior Vice President, Employee Benefits Sales of the Company and
Great-West Life
D. Craig Lennox
Senior Vice President, General Counsel and Secretary
49
1979
Senior Vice President, General Counsel and Secretary of the
Company; Senior Vice President and Chief U.S. Legal Officer,
Great-West Life
James D. Motz
Senior Vice President, Employee Benefits Operations
47
1991
Senior Vice President, Employee Benefits Operations of the Company
and Great-West Life
Douglas L. Wooden
Senior Vice President, Financial Services
40
1990
Senior Vice President, Financial Services of the Company and
Great-West Life
Unless otherwise indicated, all of the 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.
The appointments of executive officers are confirmed annually.
ITEM 11. EXECUTIVE COMPENSATION
A. SUMMARY COMPENSATION TABLE
The following table sets out all compensation paid by Great-West
Life in respect of the individuals who were, at December 31, 1996,
the Chief Executive Officer and the other four most highly
compensated executive officers of the Company (collectively the
"Named Executive Officers") for services rendered to the Company
and its subsidiaries, and Great-West Life, in all capacities for
fiscal years ended 1994, 1995 and 1996 respectively.
SUMMARY COMPENSATION TABLE
Annual compensation (1)
Long-term compensation awards
Name and principal position
Year
Salary ($)
Bonus ($)
Options (2) (#)
W.T. McCallum, President and Chief Executive Officer
1996
561,818
370,500
300,000
1995
523,958
351,000 225,000 (3)
None
1994
476,750
318,500
None
D. Low, Executive Vice President, Financial Services
1996
325,000
146,250
150,000
1995
305,000
150,500
None
1994
285,000
145,500
None
J.T. Hughes, Senior Vice President, Chief Investment Officer
1996
312,000
136,968
80,000
1995
301,000
150,500
None
1994
290,000
145,000
None
A.D. MacLennan, Executive Vice President, Employee Benefits
1996
325,000
115,000
150,000
1995
312,000
125,000
None
1994
265,000
142,500
None
D.L. Wooden, Senior Vice President, Financial Services
1996
287,000
143,500
100,000
1995
275,500
137,500
None
1994
265,000
142,500
None
(1) The aggregate of perquisites and other personal benefits,
securities or property provided to each Named Executive Officer in
1996 did not exceed the lesser of $50,000 and 10% of the total of
the individual's annual salary and bonus.
(2) The options set out are options for common shares of
Great-West Lifeco ("Lifeco Options"). Lifeco Options are granted
by Great-West Lifeco pursuant to the Great-West Lifeco Stock Option
Plan which was approved by the Great-West Lifeco shareholders on
April 24, 1996. Lifeco Options become exercisable 20% per year
commencing on the first anniversary of the date of the grant and
expire 10 years after the date of the grant.
(3) A special one-time bonus payment with respect to long-term
performance.
B. OPTIONS
The following table describes options granted to the Named
Executive Officers during the most recently completed fiscal year.
All options are Lifeco Options granted pursuant to the Great-West
Lifeco Stock Option Plan. Lifeco Options are issued with an
exercise price in Canadian dollars. Canadian dollar amounts have
been translated to U.S. dollars at a rate of 1/1.37.
OPTION GRANTS IN LAST FISCAL YEAR
Individual grants
Name
Options granted (#)
Percent of total options granted to employees in fiscal year
Exercise or base price ($/share)
Expiration date
Potential realizable value at assumed annual rates of stock price
appreciation for option term
5% ($)
10% ($)
W.T. McCallum
300,000
10.42
12.376697
July 22, 2006
2,335,080
5,917,590
D. Low
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795
J.T. Hughes
80,000
2.78
12.376697
July 22, 2006
622,688
1,578,024
A.D. MacLennan
150,000
5.21
12.376697
July 22, 2006
1,167,540
2,958,795
D.L. Wooden
100,000
3.47
12.376697
July 22, 2006
778,360
1,972,530
Prior to April 24,1996, the Named Executive Officers participated
in the Power Financial Employee Share Option Plan pursuant to which
options to acquire commons shares of Power Financial ("PFC
Options") were granted. The following table describes all Lifeco
Options and all PFC Options exercised in 1996, and all unexercised
Lifeco Options and PFC Options held as of December 31, 1996, by the
Named Executive Officers. PFC Options and Lifeco Options are
issued with an exercise price in Canadian dollars. Canadian dollar
amounts have been translated to U.S. dollars at a rate of 1/1.37.
AGGREGATED PFC OPTION AND LIFECO OPTION EXERCISES IN
LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
Name
Shares acquired on exercise (#)
Value realized ($)
Unexercised options at fiscal year-end (#)
Exercisable Unexercisable
Value of unexercised in-the-money options at fiscal year-end ($)
Exercisable Unexerciseable
W.T. McCallum
26,000 (1) 300,000 (2)
658,659 (1) 940,276 (2)
D. Low
6,700 (1)
100,892
37,300 (1) 150,000 (2)
944,922 (1) 470,138 (2)
J.T. Hughes
60,000 (1) 80,000 (2)
1,214,781 (1) 250,740 (2)
A.D. MacLennan
150,000 (2)
470,138 (2)
D.L. Wooden
44,000 (1) 100,000 (2)
911,916 (1) 313,425 (2)
(1) PFC Options granted pursuant to the Power Financial Employee
Share Option Plan.
(2) Lifeco Options granted pursuant to the Great-West Lifeco
Stock Option Plan.
C. PENSION PLAN TABLE
The following table sets out the pension benefits payable to the
Named Executive Officers by Great-West Life or the Company.
PENSION PLAN TABLE
Remuneration ($)
Years of Service
15 20 25 30 35
400,000
120,000 160,000 200,000 240,000 240,000
500,000
150,000 200,000 250,000 300,000 300,000
600,000
180,000 240,000 300,000 360,000 360,000
700,000
210,000 280,000 350,000 420,000 420,000
800,000
240,000 320,000 400,000 480,000 480,000
900,000
270,000 360,000 450,000 540,000 540,000
1,000,000
300,000 400,000 500,000 600,000 600,000
The Named Executive Officers have the following years of service.
Name Years of Service
W.T. McCallum 30
D. Low 31
J.T. Hughes 6
A.D. MacLennan 30
D.L. Wooden 5
For W.T. McCallum, the benefits shown are payable commencing
December 31, 2000, and remuneration is the average of the highest
36 consecutive months of compensation during the last 84 months of
employment. For D. Low, J.T. Hughes, A.D. MacLennan and D.L.
Wooden, the benefits shown are payable upon the attainment of age
62, and 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 subject to deduction
for social security and other retirement benefits.
D. COMPENSATION OF DIRECTORS
1. Great-West Life Directors
The following sets out remuneration paid by Great-West Life to its
directors.
Great-West Life pays an annual fee of $12,500 to each director.
Great-West Life pays an annual fee of $10,000 to the Chairman of
each of the Audit Committee, the Conduct Review Committee and the
Corporate Management Committee, $20,000 to the Chairman of each of
the Canadian Investment and Credit Committee and the United States
Investment and Credit Committee, $25,000 to the Chairman of each of
the Canadian Executive Committee and the United States Executive
Committee, and $25,000 to the Chairman of the Board. With the
exception of the President and Chief Executive Officer of
Great-West Lifeco, the President and Chief Executive Officer of
Great-West Life, and the President and Chief Executive Officer of
the Company, Great-West Life pays a meeting fee of $1,000 to each
director for each meeting of the Board of Directors or a committee
thereof attended. In addition, all directors are reimbursed for
incidental expenses.
In 1996, Great-West Life paid $17,833 to the consulting company of
W. Mackness, a director of Great-West Life, for consulting
services. This arrangement was terminated on April 24, 1996.
The above amounts are paid in the currency of the country of
residence of the director.
2. Directors of the Company
The following sets out remuneration paid by the Company to its
directors.
For each director of the Company who is not also a director of
Great-West Life, the Company pays an annual fee of $12,500, and a
meeting fee of $1,000 for each meeting of the Board of Directors or
a committee thereof attended. With the exception of the President
and Chief Executive Officer of Great-West Lifeco, and the President
and Chief Executive Officer of the Company, for each director of
the Company who is also a director of Great-West Life, the Company
pays a meeting fee of $1,000 for each meeting of the Board of
Directors or a committee thereof attended which is not coincident
with a Great-West Life meeting. In addition, all directors are
reimbursed for incidental expenses.
The above amounts are paid in the currency of the country of
residence of the director.
E. COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Prior to January 1, 1997, all of the Company's executive officers
were employees of Great-West Life (effective January 1, 1997, they
became employees of the Company). For 1996, executive officer
compensation was paid by Great-West Life and compensation was
determined by the United States Executive Committee of the Board of
Directors of Great-West Life (the "U.S. Executive Committee"). The
following individuals served as members of the U.S. Executive
Committee during 1996.
R. Gratton
J.W. Burns
O.T. Dackow
P. Desmarais, Jr.
R.G. Graham
N.B. Hart
K.P. Kavanagh
W. Mackness
W.T. McCallum
P.M. Pitfield
W.T. McCallum, President and Chief Executive Officer of the
Company, is a member of the U.S. Executive Committee. Mr. McCallum
participated in executive compensation matters generally but was
not present when his own compensation was discussed or determined.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
A. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of March 1, 1997, the following sets out the beneficial owners
of more than 5% of the Company's voting securities:
(1) 100% of the Company's 7,032,000 outstanding common shares are
owned by The Great-West Life Assurance Company, 100 Osborne Street
North, Winnipeg, Manitoba, Canada R3C 3A5.
(2) 99.5% of the outstanding common shares of The Great-West Life
Assurance Company are owned by Great-West Lifeco Inc., 100 Osborne
Street North, Winnipeg, Manitoba, Canada R3C 3A5.
(3) 86.5% of the outstanding common shares of Great-West Lifeco
Inc. are owned by Power Financial Corporation, 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(4) 68.1% of the outstanding common shares of Power Financial
Corporation are owned by 171263 Canada Inc., 751 Victoria Square,
Montreal, Quebec, Canada H2Y 2J3.
(5) 100% of the outstanding common shares of 171263 Canada Inc.
are owned by Marquette Communications Corporation, 751 Victoria
Square, Montreal, Quebec, Canada H2Y 2J3.
(6) 100% of the outstanding common shares of Marquette
Communications Corporation are owned by Power Corporation of
Canada, 751 Victoria Square, Montreal, Quebec, Canada H2Y 2J3.
(7) 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.
B. SECURITY OWNERSHIP OF MANAGEMENT
The following table sets out the number of equity securities, and
exercisable options for equity securities, of the Company or any of
its parents or subsidiaries, beneficially owned, as of March 1,
1997, by (i) the directors of the Company; (ii) the Named Executive
Officers; and (iii) the directors and executive officers of the
Company as a group.
Company
The Great-West Life Assurance Company (1)
Great-West Lifeco Inc. (2)
Power Financial Corporation (3)
Power Corporation of Canada (4)
Directors
J. Balog
- -
- -
- -
- -
J. W. Burns
50
56,000
4,000
203,320
164,500 options
O.T. Dackow
16
35,089
5,400
40,000 options
- -
P. Desmarais, Jr.
50
30,000
- -
120,000
188,250 options
R.G. Graham
- -
- -
- -
- -
R. Gratton
- -
165,000
155,000
2,500
150,000 options
N.B. Hart
- -
- -
- -
- -
K. P. Kavanagh
50
23,626
- -
- -
W. Mackness
- -
- -
- -
- -
W.T. McCallum
17
34,202
16,000
52,000 options
- -
J.E.A. Nickerson
- -
- -
- -
- -
P.M. Pitfield
- -
50,000
40,000
80,000
99,500 options
M. Plessis-Belair
- -
10,000
1,000
32,900
58,250 options
R.J. Turner
- -
- -
- -
- -
B.E. Walsh
- -
- -
- -
- -
Named Executive Officers
W.T. McCallum
17
34,200
16,000
52,000 options
- -
D. Low
- -
7,846
74,600 options
- -
J.T. Hughes
- -
4,467
120,000 options
- -
A.D. MacLennan
- -
9,011
- -
- -
D.L. Wooden
- -
- -
88,000 options
- -
Directors and Executive
Officers as a Group
183
484,381
221,400
494,600 options
438,720
660,500 options
(1) All holdings are common shares of The Great-West Life
Assurance Company.
(2) All holdings are common shares of Great-West Lifeco Inc.
(3) All holdings are common shares, or where indicated,
exercisable options for common shares, of Power Financial
Corporation.
(4) All holdings are subordinate voting shares, or where
indicated, exercisable options for subordinate voting shares, of
Power Corporation of Canada.
None of the share holdings set out above exceed 1% of the total
shares of the class outstanding.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
The documents identified below are filed as a part of this report:
Page
A. INDEX TO FINANCIAL STATEMENTS
Independent Auditors' Report On Consolidated Financial
Statements for the Years Ended December 31, 1996, 1995, and
1994 31
Consolidated Balance Sheets as of December 31, 1996 and
1995 32
Consolidated Statements of Income for the Years Ended
December 31, 1996, 1995, and 1994 34
Consolidated Statements of Stockholder's Equity for the Years
Ended December 31, 1996, 1995, and 1994 35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995, and 1994 36
Notes to Consolidated Financial Statements for the Years
Ended December 31, 1996, 1995, and 1994 38
B. INDEX TO FINANCIAL STATEMENT SCHEDULES
Independent Auditors' Report on Schedule I - Summary of
Investments Other Than Investments in Related Parties as of
December 31, 1996 71
Schedule I - Summary of Investments Other Than Investments
in Related Parties as of December 31, 1996 73
<PAGE>
C. INDEX TO EXHIBITS
Exhibit Number
Title
Page
3(i)
Articles of Redomestication of Great-West Life & Annuity Insurance
Company
75
3(ii)
Bylaws of Great-West Life & Annuity Insurance Company
181
21
Subsidiaries of Great-West Life & Annuity Insurance Company
191
24
Directors' Powers of Attorney
193
27
Financial Data Schedule
208
D. REPORTS ON FORM 8-K
No reports on Form 8-K have been filed during the fourth quarter of
1996.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
By: /s/ W.T. McCallum
William T. McCallum
President and Chief Executive Officer
Date: March 27, 1997
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on
behalf of the registrant and in the capacities and on the dates
indicated.
Signature and Title Date
/s/ W.T. McCallum March 27, 1997
William T. McCallum
President and Chief Executive Officer
and a Director
/s/ G.R. Derback March 27, 1997
Glen R. Derback
Vice President and Controller, and
principal financial officer
Signature and Title Date
/s/ James Balog * March 27, 1997
James Balog, Director
/s/ James W. Burns * March 27, 1997
James W. Burns, Director
/s/ Orest T. Dackow * March 27, 1997
Orest T. Dackow, Director
/s/ Paul Desmarais, Jr. * March 27, 1997
Paul Desmarais, Jr., Director
______________________ ____________
Robert G. Graham, Director
/s/ Robert Gratton * March 27, 1997
Robert Gratton, Director
/s/ N. Berne Hart * March 27, 1997
N. Berne Hart, Director
/s/ Kevin P. Kavanagh * March 27, 1997
Kevin P. Kavanagh, Director
/s/ William Mackness * March 27, 1997
William Mackness, Director
/s/ Jerry E.A. Nickerson * March 27, 1997
Jerry E.A. Nickerson, Director
/s/ P. Michael Pitfield * March 27, 1997
P. Michael Pitfield, Director
Signature and Title Date
/s/ Michel Plessis-Belair * March 27, 1997
Michel Plessis-Belair, Director
/s/ Ross J. Turner * March 27, 1997
Ross J. Turner, Director
/s/ Brian E. Walsh * March 27, 1997
Brian E. Walsh, Director
* By: /s/ D. Craig Lennox March 27, 1997
D. Craig Lennox
Attorney-in-fact pursuant to Powers of Attorney filed
herewith.
INDEPENDENT AUDITORS' REPORT ON SCHEDULE I - SUMMARY OF INVESTMENTS
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder
of Great-West Life & Annuity Insurance Company:
We have audited the consolidated financial statements of Great-West
Life & Annuity Insurance Company as of December 31, 1996 and 1995,
and for each of the three years in the period ended December 31,
1996, and have issued our report thereon dated January 25, 1997;
such financial statements and report are included herein. Our
audits also included the financial statement schedule of Great-West
Life & Annuity Insurance Company, listed in Item 14. This
financial statement schedule is the responsibility of the
Corporation's management. Our responsibility is to express an
opinion based on our audits. In our opinion, such financial
statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Deloitte & Touche LLP
DELOITTE & TOUCHE LLP
Denver, Colorado
January 25, 1997
<PAGE>
SCHEDULE I - SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN
RELATED PARTIES AS OF DECEMBER 31, 1996
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SCHEDULE I
SUMMARY OF INVESTMENTS OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1996
Cost
Fair Value
Amount at which Shown in Consolidated Balance Sheet
Fixed maturities ~ Held-to-Maturity:
United States government and government
agencies and authorities
$10,935
$11,459
$10,935
States municipalities and political
subdivisions
49,470
50,506
49,470
Foreign governments
12,577
13,131
12,577
Public utilities
284,954
297,388
284,954
All other corporate bonds
1,634,745
1,668,580
1,634,745
Total fixed maturities
$1,992,681
$2,041,064
$1,992,681
Fixed maturities ~ Available-for-Sale:
United States government and government
agencies and authorities
$1,862,123
$1,858,576
$1,858,576
States municipalities and political
subdivisions
28,353
28,255
28,255
Foreign governments
110,013
106,102
106,102
Public utilities
628,382
629,530
629,530
All other corporate bonds
3,522,648
3,584,015
3,584,015
Total fixed maturities
$6,151,519
$6,206,478
$6,206,478
Equities
Common stocks
Industrial, miscellaneous and all other
$19,715
$19,715
$19,715
Total equity securities
$19,715
$19,715
$19,715
Mortgage loans on real estate
$1,487,575
$1,487,575
Real estate
67,967
67,967
Policy loans
2,523,477
2,523,477
Short-term investments
419,008
419,008
Total investments
$12,661,942
$12,716,901
EXHIBIT 3(i)
ARTICLES OF REDOMESTICATION OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<PAGE>
ARTICLES OF REDOMESTICATION OF
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Appendices 1 through 10, described below and attached hereto, are
the Articles of Redomestication of Great-West Life & Annuity
Insurance Company, as amended.
Appendix 1 - Articles of Redomestication effective September 25,
1990
Appendix 2 - Articles of Amendment to Articles of Redomestication
effective December 17, 1990
Appendix 3 - Articles of Amendment to Articles of Redomestication
effective September 30, 1991
Appendix 4 - Statement of Resolution effective September 30, 1991
Appendix 5 - Articles of Merger effective December 13, 1991
Appendix 6 - Articles of Amendment to Articles of Redomestication
effective
June 30, 1992
Appendix 7 - Articles of Amendment to Articles of Redomestication
effective September 29, 1992
Appendix 8 - Statement of Resolution effective September 29, 1992
Appendix 9 - Articles of Amendment to Articles of Redomestication
effective February 7, 1995
Appendix 10 - Articles of Amendment to Articles of Redomestication
effective May 6, 1996
<PAGE>
Appendix 1
Articles of Redomestication effective September 25, 1990
<PAGE>
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
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.
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.
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.
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
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
By: /s/ W.T. McCallum
William T. McCallum,
President*
ATTEST:
/s/ D.C. Lennox
D. Craig Lennox, Secretary*
*These Articles of Redomestication are verified by the
signatures of the President and Secretary of the Corporation as
provided in the Colorado Corporation Code.
<PAGE>
Appendix 2
Articles of Amendment to Articles of Redomestication
effective December 17, 1990
<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 A attached hereto
was adopted by a vote of the sole shareholder of the Corporation 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
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: December 6, 1990 By: /s/ W.T. McCallum
William T. McCallum, its
Presi-
dent & Chief Executive
Officer
By: /s/ D.C. Lennox
Craig Lennox, its Senior
Vice President, General
Counsel and Secretary
<PAGE>
EXHIBIT A
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
qualifications, 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
distributions 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 provided 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 shares of the
Common Stock, and at every meeting of stockholders of the
corporation (or with respect to any action by 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 stockholders' 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 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 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 Preferred Stock, the
holders of shares of the Common Stock shall be entitled, to the
exclusion of the holders of shares of the Preferred 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 authorized to
divide the authorized shares of Preferred Stock into one or more
series, each of which shall be so designated as to distinguish 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, qualifications, 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
involuntary liquidation;
(d) The amount payable upon shares in event of voluntary
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;
(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 Preferred 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 distribution. 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 distributions
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 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 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 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 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.
<PAGE>
Appendix 3
Articles of Amendment to Articles of Redomestication
effective September 30, 1991
<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
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
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: September 18, 1991 By: /s/ W.T. McCallum
William T. McCallum, its Presi-
dent & Chief Executive Officer
By: /s/ D. Craig Lennox
D. Craig Lennox, its Senior Vice
President, General Counsel and
Secretary
<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
qualifications, 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 distributions 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 provided 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 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 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 Preferred Stock, the
holders of shares of the Common Stock shall be entitled, to the
exclusion of the holders of shares of the Preferred 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 authorized to
divide the authorized shares of Preferred Stock into one or more
series, each of which shall be so designated as to distinguish 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, qualifications, 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
involuntary liquidation;
(d) The amount payable upon shares in event of voluntary
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;
(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 Preferred 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 distribution. 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 distributions 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, 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 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 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 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.
<PAGE>
Appendix 4
Statement of Resolution effective September 30, 1991
<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 authorized 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: /s/ W.T. McCallum
William T. McCallum,
President
and Chief Executive Officer
By: /s/ D.C. Lennox
D. Craig Lennox, Senior
Vice
President, General Counsel
and Secretary
<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 liquidation 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
"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.
"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.
"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 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.
"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.
"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 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 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 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 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
aforedescribed 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 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 canceled, 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.
(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 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;
(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.
(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.
"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
canceled 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.
"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 sell:
(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
(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 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.
(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;
(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.
<PAGE>
Appendix 5
Articles of Merger effective December 13, 1991
<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.
GREAT-WEST LIFE & ANNUITY
INSURANCE COMPANY
Dated: November 22, 1991 By: /s/ W.T. McCallum
William T. McCallum, its
President
& Chief Executive Officer
By: /s/ D.C. Lennox
D. Craig Lennox, its Senior
Vice-
President, General Counsel
and Secretary
<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, 10-3-801, et seq.,
titled Insurance Holding Company Systems, C.R.S. 10-3-101, and
Article 7 of the Colorado Corporate Code.
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. 10-3-801, 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. 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. 7-7-106
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. 7-7-
106, to be filed with the Colorado Insurance Department in
accordance with C.R.S. 10-3-101. 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
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
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 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.
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: /s/ W.T. McCallum
Title: President and Chief Executive Officer
By: /s/ Douglas L. Wooden
Title: Senior Vice-President, Chief
Financial Officer and Treasurer
GREAT-WEST LIFE FINANCIAL
CORP., a Colorado corporation
By: /s/ W.T. McCallum
Title: Executive Vice-President and
Chief Operating Officer
By: /s/ D.C. Lennox
Title: Senior Vice-President and
Secretary
Appendix 6
Articles of Amendment to Articles of Redomestication
effective June 30, 1992
<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: /s/ William T. McCallum
William T. McCallum, President
and Chief Executive Officer
By: /s/ D.C. Lennox
D. Craig Lennox, Senior Vice-
President, General Counsel
and Secretary
<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.
Appendix 7
Articles of Amendment to Articles of Redomestication
effective September 29, 1992
<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: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
By: /s/ D.C. Lennox
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
<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. 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 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 (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, 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 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 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.
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 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 .
<PAGE>
Appendix 8
Statement of Resolution effective September 29, 1992
<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: /s/ W.T. McCallum
William T. McCallum, President
and Chief Executive Officer
By: /s/ D.C. Lennox
D. Craig Lennox, Senior Vice
President, General Counsel
and Secretary
<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. 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;
(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 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 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 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
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 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 redemption 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 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 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.
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
(iii) an acknowledgment 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 certificates 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
(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 determined 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 beat least 25 days prior to the Conversion Date, and
(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 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 statements, 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
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 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 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
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 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.
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 communication 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,
invitations 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.
(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.
ARTICES 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 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 of the affairs of the
Corporation, either voluntary or involuntary, for purposes of this
Article 10.
<PAGE>
Appendix 9
Articles of Amendment to Articles of Redomestication
effective February 7, 1995
<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 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 /s/ W. McCallum
W.T. McCallum, President and
Chief Executive Officer
By /s/ D.C. Lennox
D.C. Lennox, Senior 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, 1994 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>
Appendix 10
Articles of Amendment to Articles of Redomestication
effective May 6, 1996
<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
By /s/ W. McCallum
W.T. McCallum, President and
Chief Executive Officer
By /s/ D.C. Lennox
D.C. Lennox, Senior 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, 1996, 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. 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.
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. 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. 7-4-119 and 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.
**************************
EXHIBIT 21
SUBSIDIARIES OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
<PAGE>
SUBSIDIARIES OF GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
SUBSIDIARY
JURISDICTION OF INCORPORATION OR OGRANIZATION
Benefits Communication Corporation (1)
Delaware
BenefitsCorp Equities, Inc.
Delaware
Confed Admin Services, Inc.
Delaware
Financial Administrative Services Corporation (2)
Colorado
Great-West Benefit Services, Inc.
Delaware
Great-West Realty Investments, Inc.
Delaware
Greenwood Property Corporation
Colorado
GW Capital Management, Inc.
Colorado
GWL Properties, Inc.
Colorado
Maxim Series Fund, Inc.
Maryland
One Corporation
Colorado
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 North Carolina, Inc.
North Carolina
One Health Plan of Texas, Inc.
Texas
One Orchard Equities, Inc.
Colorado
(1) Also doing business as Benefits Insurance Services, Inc.
(2) Also doing business as Financial Administrative Services
Corporation of Colorado.
EXHIBIT 24
DIRECTORS' POWERS OF ATTORNEY
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, James Balog, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ James Balog
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Stephen J. Balog
Signature
Stephen J. Balog
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, James W. Burns, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ J.W. Burns
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Louise D. Auriol
Signature
Louise D. Auriol
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Orest T. Dackow, a Member
of the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ O.T. Dackow
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ R. Schultz
Signature
Richard Schultz
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Paul Desmarais, Jr., a
Member of the Board of Directors of Great-West Life & Annuity
Insurance Company, a Colorado corporation, do hereby constitute and
appoint each of D.C. Lennox and G.R. Derback as my true and lawful
attorney and agent for me and in my name and on my behalf to,
individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of
Directors of Great-West Life & Annuity Insurance Company, on Form
10-K Annual Reports of Great-West Life & Annuity Insurance Company
to be filed with the Securities and Exchange Commission from time
to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of
March, 1997.
/s/ P. Desmarais, Jr.
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Lucie Filteau
Signature
Lucie Filteau
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Robert Gratton, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 11th day of
March, 1997.
/s/ R. Gratton
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Nicole Barolet
Signature
Nicole Barolet
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, N. Berne Hart, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 4th day of
March, 1997.
/s/ N. Berne Hart
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Wilma J. Hart
Signature
Wilma J. Hart
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Kevin P. Kavanagh, a Member
of the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
March, 1997.
/s/ K.P. Kavanagh
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ J.A. Andrew
Signature
John A. Andrew
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, William Mackness, a Member
of the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ W. Mackness
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Carlyle Carey
Signature
Carlyle Carey
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, William T. McCallum, a
Member of the Board of Directors of Great-West Life & Annuity
Insurance Company, a Colorado corporation, do hereby constitute and
appoint each of D.C. Lennox and G.R. Derback as my true and lawful
attorney and agent for me and in my name and on my behalf to,
individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of
Directors of Great-West Life & Annuity Insurance Company, on Form
10-K Annual Reports of Great-West Life & Annuity Insurance Company
to be filed with the Securities and Exchange Commission from time
to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 5th day of
March, 1997.
/s/ W. McCallum
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Joan Preyer
Signature
Joan Preyer
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Jerry E.A. Nickerson, a
Member of the Board of Directors of Great-West Life & Annuity
Insurance Company, a Colorado corporation, do hereby constitute and
appoint each of D.C. Lennox and G.R. Derback as my true and lawful
attorney and agent for me and in my name and on my behalf to,
individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of
Directors of Great-West Life & Annuity Insurance Company, on Form
10-K Annual Reports of Great-West Life & Annuity Insurance Company
to be filed with the Securities and Exchange Commission from time
to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 8th day of
March, 1997.
/s/ J. Nickerson
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Loretta Capwell
Signature
Loretta Capwell
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, P. Michael Pitfield, a
Member of the Board of Directors of Great-West Life & Annuity
Insurance Company, a Colorado corporation, do hereby constitute and
appoint each of D.C. Lennox and G.R. Derback as my true and lawful
attorney and agent for me and in my name and on my behalf to,
individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of
Directors of Great-West Life & Annuity Insurance Company, on Form
10-K Annual Reports of Great-West Life & Annuity Insurance Company
to be filed with the Securities and Exchange Commission from time
to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ P. Michael Pitfield
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Diane Meilleur
Signature
Diane Meilleur
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Michel Plessis-Belair, a
Member of the Board of Directors of Great-West Life & Annuity
Insurance Company, a Colorado corporation, do hereby constitute and
appoint each of D.C. Lennox and G.R. Derback as my true and lawful
attorney and agent for me and in my name and on my behalf to,
individually and without the concurrence of the other attorney and
agent, sign my name, in my capacity as a Member of the Board of
Directors of Great-West Life & Annuity Insurance Company, on Form
10-K Annual Reports of Great-West Life & Annuity Insurance Company
to be filed with the Securities and Exchange Commission from time
to time, and to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 7th day of
March, 1997.
/s/ M. Plessis-Belair
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Danielle Dorocher
Signature
Danielle Dorocher
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Ross J. Turner, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 10th day of
March, 1997.
/s/ R.J. Turner
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ Doreen Cordell
Signature
Doreen Cordell
Name Printed
<PAGE>
POWER OF ATTORNEY
RE
GREAT-WEST LIFE & ANNUITY INSURANCE COMPANY
Know all men by these presents, that I, Brian E. Walsh, a Member of
the Board of Directors of Great-West Life & Annuity Insurance
Company, a Colorado corporation, do hereby constitute and appoint
each of D.C. Lennox and G.R. Derback as my true and lawful attorney
and agent for me and in my name and on my behalf to, individually
and without the concurrence of the other attorney and agent, sign
my name, in my capacity as a Member of the Board of Directors of
Great-West Life & Annuity Insurance Company, on Form 10-K Annual
Reports of Great-West Life & Annuity Insurance Company to be filed
with the Securities and Exchange Commission from time to time, and
to any and all amendments thereto.
IN WITNESS WHEREOF, I have hereunto set my hand this 6th day of
March, 1997.
/s/ B.E. Walsh
Member, Board of Directors of
Great-West Life & Annuity Insurance
Company
Witness:
/s/ R. Pascoe
Signature
Ricardo A. Pascoe
Name Printed
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