April 1, 1996
Via EDGAR
Securities and Exchange Commission
450 5th Street NW
Washington, DC 20549
Re: Commission File No. 0-14391
Annual Report on Form 10-K
For Year Ended December 31, 1995
To whom it may concern:
Transmitted via EDGAR, for filing, is the Form 10-K Annual Report of
American Travellers Corporation (the "Company") for the year ended
December 31, 1995 (the "Form 10-K"). A filing fee of $250.00 has
previously been paid in accordance with the provisions of Rule 13 a-1 of
the Securities Exchange Act of 1934, as amended. Manually signed
signature pages for the Form 10-K, the independent accountant's report
on the Company's financial statements and the consent included in
Exhibit 23 have been executed prior to the time of the electronic filing
and will be retained by the Company for a period of five years.
The Company's financial statements do not reflect any change from the
preceding year in any accounting principles or practices or in the
method of applying any such principles or practices.
If you have any questions regarding this filing, please call the
undersigned at (215) 244-1600.
Sincerely yours,
/s/ Benedict J. Iacovetti
Benedict J. Iacovetti
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10 - K
(Mark One)
1 Annual report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Fiscal Year Ended December 31, 1995.
0 Transition report pursuant to section 13 or 15 of the Securities
Exchange Act of 1934 For the transition periods _____ to _____.
Commission File Number 0-14391
AMERICAN TRAVELLERS CORPORATION
(Exact name of Registrant as specified in its charter)
PENNSYLVANIA 23-1738097
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3220 Tillman Drive, Bensalem, Pennsylvania 19020
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (215) 244-1600
Securities registered pursuant to section 12(b) of the Act: None
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $.01 Par Value
6.5% Convertible Subordinated Debentures 2005
(Title of Class)
Indicate by check mark whether 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 1 NO 0
Indicate by check mark if disclosure of delinquent filers pursuant
to Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. 1
The aggregate market value of Registrant's Common Stock, $.01 par
value (its only voting stock), held by non-affiliates as of March 8,
1996, was $296,465,070.
The number of shares outstanding of Registrant's Common Stock as
of March 8, 1996, was 15,885,947 (as adjusted for the Company's 3-for-2
stock split declared March 4, 1996 for shareholders of record on March
20, 1996, payable on April 10, 1996.)
Documents Incorporated By Reference
Portions of the Registrant's definitive Proxy Statement to be filed with
the Securities and Exchange Commissions on or before April 29, 1996, are
incorporated by reference for the purpose of supplying Part III of this
report. Exhibit index begins on page 57.
Table of Contents
PART I
PAGE
Item 1. Business 1
Item 2. Properties 16
Item 3. Legal Proceedings 16
Item 4. Submission of Matters to a Vote of Security Holders 17
Item 4a. Executive Officers of the Registrant 17
PART II
Item 5. Market for Registrant's Common Equity and Related
Stockholder Matters 18
Item 6. Selected Financial Data 20
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 21
Item 8. Financial Statements and Supplementary Data 28
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 54
Item 11. Executive Compensation 54
Item 12. Security Ownership of Certain Beneficial Owners
and Management 54
Item 13. Certain Relationships and Related Transactions 54
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports 54
on Form 8-K
PART I
Item 1. Business
General
The Company is a leading marketer and underwriter of long term care
insurance, having been a pioneer in this rapidly growing market. The
Company's long term care products consist of both nursing home and home
health care policies which provide limited benefit payments primarily to
senior citizens. The Company also markets and underwrites other
supplemental accident and health insurance policies, as well as life
insurance. As of December 31, 1995, the Company's long term care
products accounted for 89.3% of its total annualized premiums in force
of $371.8 million. The Company has experienced substantial growth in
both premiums and net income, which have increased from 1993 through
1995 at compounded annual rates of 28.3% and 27.3%, respectively.
The Company is licensed to market its products in 46 states, the
District of Columbia, and the U.S. and British Virgin Islands. Products
are sold primarily through a network of over 20,100 independent agents.
Operations are conducted through the Company's insurance subsidiaries,
American Travellers Life Insurance Company ("ATL"), United General Life
Insurance Company ("UGL")and American Accident and Health Insurance
Company, to be renamed "American Travellers Insurance Company of New
York" ("ATICNY"), and through its insurance agency subsidiary, American
Travellers Insurance Services Company, Inc. ("ATIS").
Long Term Care Insurance Industry
The market for long term care insurance offers, in management's
opinion, significant potential as consumers grow more aware of the need
for products such as those offered by the Company. Currently, most
individuals who require long term care either pay for the care with
their own or family member resources or obtain public assistance through
Medicaid which requires that the individual meet certain poverty levels
in terms of both income and assets. Long term care insurance provides an
attractive alternative to self-funding for those individuals whose
financial status makes them ineligible for public assistance programs.
Consumer demand for long term care insurance was insignificant until
about 1986 but has steadily increased since that time. Market data from
the Health Insurance Association of America, an independent insurance
industry association, indicate that cumulative sales increased from
815,000 policies through 1987 to a total of 3.42 million policies by the
end of 1993. Management expects continuing growth in the long term care
insurance market as the result of various factors, including:
Expansion of the elderly population.
U.S. Census Bureau data indicate that the over age 65 population, which
approximated 32 million in 1990, is expected to reach 65 million by
2030, and 95 million by the year 2050.
Increasing consumer awareness of the need for long term care insurance.
Based on management's experience, most people, prior to the mid 1980s,
underestimated their risk of needing long term care or believed that
Medicare covered the cost of this care. However, a report published by
the United States Department of Health and Human Services ("HHS")
indicates that individuals who reach the age of 65 have a 43% chance of
requiring long term care at some time during the remainder of their
lives, and Medicare only covers a small portion of the cost of this
care. In recent years, awareness of the need for private insurance
coverage has increased as media attention has focused on the problem of
financing the costs of long term care.
Lack of current market penetration.
Penetration of the long term care insurance market is very low.
According to data published by HHS, less than one percent of long term
care costs are currently funded by private insurance.
Cost of care.
Long term care is expensive. The average 1992 cost of nursing home and
home health care was approximately $31,000 and $20,000 per year,
respectively. Many people deplete a significant amount of their
financial resources to pay for this care. Long term care insurance is a
cost effective alternative.
Changing family support systems.
Long term care services are likely to be in greater demand as a result
of ongoing change in the family support system in our society. Family
members will be less able to care for elderly parents as a result of
conflicting demands of child care on single parent families, an increase
in the number of dual career families and a growing number of families
whose members are geographically separated.
Improved products.
Early generation long term care products were more restrictive than
those currently marketed in terms of both the breadth of benefits
offered and the requirements related to benefit eligibility. For
example, benefits were typically limited to skilled or intermediate care
services and policyholders had to satisfy a prior hospitalization
requirement. Newer products provide benefits for a full range of long
term care services and have fewer restrictions.
Lack of suitable alternatives to long term care insurance.
Management believes that private long term care insurance is an
attractive solution to the problem of financing the costs of long term
care. Medicare covers only a small portion of these expenses and
Medicaid is available only to those people who qualify by reason of
financial status. In addition, Medicaid planning, whereby assets are
transferred to others either directly or through trusts in order to
qualify for Medicaid benefits, was made more difficult by the Omnibus
Budget Reconciliation Act of 1993, which increased the restrictions on
asset transfers in determining eligibility for Medicaid qualification.
At the present time, it does not appear likely that any national health
reform will include expanded coverage for long term care.
Strategy
The Company's objective is to maintain and enhance its current
position as a leader in the long term care insurance marketplace. The
Company plans to continue its aggressive pursuit of new long term care
sales without compromising the integrity of its underwriting or claim
standards and while maintaining strict control over marketing and home
office expenses. To meet these objectives, the Company is pursuing a
strategy that combines the following key elements:
Expanding market breadth and penetration.
The Company is currently licensed to market its products in 46 states,
the District of Columbia and the U.S. and British Virgin Islands. The
Company, as of July 1995, has begun marketing its products in New
Jersey, and intends in the near future to enter the New York market.
New Jersey and New York are each considered by management to offer
significant opportunities for sales growth. In December 1995, ATL
purchased ATICNY, which will allow the Company access to the New York
market after regulatory approval of products and policy forms. The New
York market represents the third largest market for the Company's
products with approximately 2.4 million senior citizens. The Company is
also continuing its efforts to broaden its marketing within those key
states where it is already licensed.
Increasing the size and productivity of the Company's independent agent
network.
The Company has expanded its network of independent agents from
approximately 11,500 in 1990 to over 20,100 as of December 31, 1995, due
in major part to its well designed, easy to market products, its
competitive commission structure and its agent training and support
systems. The Company's home office marketing staff has successfully
recruited new agents through promotional mailings, telephone contacts
and face-to-face presentations. In certain territories, the Company has
utilized the services of marketing general agents to recruit independent
agents on its behalf. The Company provides assistance to its agents
through the use of comprehensive educational materials, product training
seminars and by maintaining a responsive agency service department. The
Company regularly monitors the productivity of its agents and
discontinues its relationship with unproductive agents.
Developing new products.
Management believes that on-going new product introductions provide
motivation for its agents and serve to differentiate the Company's
products from those of its principal competitors. Accordingly, the
Company is continually introducing new products and revising existing
products to improve overall marketability and better meet the long term
care needs of its current and potential customers. During the past three
years the Company has introduced more than 10 new long term care
products.
Enhancing underwriting and claims operations.
The Company utilizes centralized underwriting and claims administration
operations in its home office in order to maintain both efficiency and
strict quality control. Management believes it has significantly
improved the Company's risk selection process by developing more refined
underwriting procedures, including enhanced telephone and face-to-face
interviews conducted by professionals, such as nurses or paramedics,
enabling it to more accurately assess an applicant's functional and
cognitive abilities. The Company has also improved its claims
administration process by establishing a home office "Care Management
Unit" within the claims department. The Care Management Unit, which is
staffed by registered nurses, reviews, on a selective basis, the plans
of care under which policyholders are receiving services, and provides
claimants with advice regarding the types of care and service which are
available in the policyholders' communities.
Achieving additional economies of scale.
The Company has in place an operational infrastructure that permits it
to effectively administer its increasing volume of business. This
infrastructure has allowed the Company to reduce general and
administrative costs as a percentage of total premiums as the Company
has grown. As a percentage of total premiums, general and administrative
expenses have declined to 9.2% in 1995 from 11.3% in 1994 and 13.3% in
1993. To the extent the Company is able to continue this growth, it
expects to achieve additional benefits from economies of scale.
Acquiring existing blocks of policies.
The Company pursues opportunities to acquire existing blocks of in-
force policies from other companies to the extent that the underlying
policy benefits and underwriting standards are consistent with those of
the Company. Acquiring existing business on favorable terms enables the
Company to increase its business in force without incurring the
relatively higher first year commission and administrative expenses
associated with sales of new policies by its own agents. Since 1988, the
Company has completed eight such acquisitions, including the JC Penney
Insurance Companies ("JCP") long term care insurance acquisition in
October 1994 and the Transport Holdings Inc.("Transport") long term care
insurance acquisition in December 1995. JCP included approximately
20,000 policies with $25 million in annualized premiums at acquisition
and Transport included approximately 97,000 policies with $96 million in
annualized premium at acquisition. Management intends to continue to
evaluate appropriate acquisition opportunities as they arise. However,
there can be no assurance that any such opportunities will arise or that
the Company will complete any such acquisitions.
Maintaining a conservative investment policy.
The Company has maintained and intends to continue to pursue a
conservative policy of investment in a diversified portfolio of medium
term investment grade fixed income securities. As of December 31, 1995,
all of the Company's investment assets were fixed income securities and
over 99% of the Company's portfolio consisted of fixed income
investments rated "BBB" or better by Standard and Poor's ("S&P"), and
its S&P weighted average credit rating was "AA+."
Product Lines
The Company's primary focus has been, and continues to be, the sale of
long term care insurance. As of December 31, 1995, 89.3% of the
Company's annualized premium in force was attributable to long term care
insurance, including nursing home care and home health care policies.
The Company's other lines of insurance include (i) Medicare supplement,
(ii) hospital indemnity, (iii) cancer, (iv) disability income, (v)
various accident and health riders, and (vi) life insurance. Coverage is
generally provided on an individual rather than on a group basis.
Most policies provide for guaranteed renewability, whereby the Company
may not refuse to renew the policy or any group of policies (except for
nonpayment of premiums). The Company does, however, have the right to
increase premium rates based upon claim experience. Rate increases must
apply to all policies underwritten on the same policy form in a given
state, and are subject to the approval of the applicable insurance
regulatory authority.
The following two tables, which include JCP and Transport, set forth
annualized premiums and number of policies in force by policy type for
the last three fiscal years:
Annualized Premiums in Force
(Dollars in millions)
As of December 31,
1995 1994 1993
Long term care:
Nursing home care $257.1 $149.4 $101.4
Home health care 75.0 49.1 35.4
Total long term care 332.1 198.5 136.8
Medicare supplement 22.2 25.8 32.0
Hospital indemnity 7.2 7.7 8.1
Life insurance 8.8 7.3 4.3
All other insurance 1.5 1.6 2.4
Total annualized premiums in force $371.8 $240.9 $183.6
Number of Policies and Riders in Force
(In thousands)
As of December 31,
1995 1994 1993
Long term care:
Nursing home care 263.1 143.4 102.0
Home health care 89.2 63.4 47.0
Total long term care 352.3 206.8 149.0
Medicare supplement 21.3 25.8 31.1
Hospital indemnity 29.4 34.8 43.3
Life insurance 22.0 18.7 11.0
All other insurance 8.6 9.7 9.6
Total policies and riders in force 433.6 295.8 244.0
Long Term Care Insurance
The Company's long term care products generally fall into one of three
categories: (i) nursing home care coverage, (ii) home health care
coverage, or (iii) a combination of both nursing home and home health
care benefits. Nursing home care coverage primarily provides for a fixed
indemnity benefit during periods of covered nursing home confinement.
Home health care coverage primarily provides for benefit payments based
on expenses incurred, subject to maximum hourly or daily limits.
The Company offers a wider variety of long term care products than its
competitors. Products are offered with various benefit configurations
and are designed to be affordable and useful to a wide spectrum of
policyholders. Some products also provide benefits for such expenses as
prescription drugs that are prescribed for use while the policyholder is
confined in a nursing home or is receiving home health care, ambulance
service and homemaker services. In addition, some policies include a
rider, known as the "Alternative Plan of Care," that provides benefits
for facilities or services other than nursing home care to the extent
the insured would otherwise have required nursing home confinement. For
example, benefits may be provided to enable an insured to make a
modification to his or her residence, such as the construction of an
entrance ramp to aid in mobility. Benefits under the Alternative Plan of
Care do not exceed the benefits that would have been paid had the
insured entered a nursing home and are paid pursuant to an agreement,
made at the time of claim, among the insured, the insured's physician
and the Company.
Both nursing home and home health care policies are available with a
wide-range of benefit amounts and benefit period options. Daily benefits
are available in increments up to a maximum of $200 per day, payable for
periods that range from one year to lifetime. Premium rates are based
upon the age of the insured at issue and the level of benefits selected.
Most policies contain pre-existing condition limitations that generally
preclude benefits for care necessitated by pre-existing conditions
unless the care commences more than six months following the effective
date of the policy.
Policyholders generally qualify for benefits in any one of three ways:
(i) by demonstrating an inability to perform two or more activities of
daily living (ADL's) consisting of bathing, eating, dressing, toileting
and transferring to or from a bed or chair; (ii) by demonstrating that a
cognitive impairment exists; or (iii) by a physician's certification of
medical necessity.
Medicare Supplement Insurance
The Company's Medicare supplement policies provide various levels of
coverage for deductibles, coinsurance amounts and certain other expenses
not covered under the federal Medicare program. Prior to 1992, the
Company actively marketed Medicare supplement insurance in order to
attract new agents to the long term care marketplace. This practice was
necessary during the 1980s, when long term care insurance was
essentially a new concept and most agents serving the senior citizen
market were primarily marketers of Medicare supplement insurance. New
sales of Medicare supplement policies have been negligible since 1992
when management decided to de-emphasize this product line.
Hospital Indemnity Insurance
The Company's hospital indemnity coverage generally provides for a
fixed benefit payable during periods of hospital confinement. Benefits
typically range from $25 to $200 per day and are payable for periods of
hospitalization ranging from 26 weeks to lifetime. Premium rates are
based on the age of the applicant at issue.
Life Insurance
The Company offers two whole life insurance policies designed to
provide coverage for funeral and other final expenses. This coverage is
usually sold in conjunction with other insurance offered by the Company.
One of the plans is available to persons up to age 80. Both policies
have maximum face amounts of $10,000.
Other Insurance
Cancer Coverage
The Company provides coverage for room and board, surgery, radiation
and chemotherapy for insureds hospitalized due to cancer. Coverages have
predetermined maximums based on the benefit plan selected. Premium rates
are based on the age of the applicant at issue.
Disability Income
The Company issues a disability income policy to members of the
Veterans of Foreign Wars of Pennsylvania. This policy provides a monthly
benefit in the event an insured becomes disabled due to sickness or
injury. Benefits, which are subject to an elimination period, range from
$200 to $800 per month and are payable for benefit periods of 6, 12 or
24 months. Premium rates are based on the age and occupation of the
applicant at the time of issue.
Riders and Other Accident and Health Insurance
The Company underwrites a variety of benefit riders to its long term
care and hospital indemnity policies. The riders provide various types
of coverage, including coverage for certain inpatient and outpatient
hospital expenses, cancer treatment, nursing home care, prescription
drugs and home health care. All benefits are subject to specified
limits.
Marketing
Policies are marketed primarily through a network of over 20,100
independent agents. Products are also marketed, but to a lesser extent,
by sponsored agents through ATIS, the Company's insurance agency
subsidiary, and by sponsored agents who market products to members of
the Veterans of Foreign Wars of Pennsylvania, an organization which
endorses the Company's products.
In most cases, independent agents do not produce business exclusively
for the Company and are free to contract with other carriers, including
competing carriers. These agents are responsible for generating their
own leads. By contrast, sponsored agents produce business only for the
Company, are provided with leads and receive lower commissions than do
independent agents.
The Company recruits independent agents primarily through the efforts
of its home office marketing staff. The recruiting effort includes
promotional mailings, telephone follow-ups and face-to-face contacts. In
addition to direct home office recruiting, marketing general agents are
utilized, within certain territories, to recruit independent agents on
behalf of the Company. Once recruited, whether by the Company or by
marketing general agents, independent agents enter into direct contracts
and maintain a direct relationship with the Company. No agent has any
underwriting authority and independent agents are not normally provided
with an exclusive territory. Independent agents are generally free to
recruit sub-agents to sell the Company's policies, although most operate
solely as personal producers. Sub-agents do not contract directly with
the Company. The Company continuously monitors the productivity of its
agents and regularly removes unproductive agents from its force.
The Company pays commissions to independent agents at levels that it
believes are competitive with the commissions offered by other carriers
marketing similar policies. The independent agent's right to renewal
commissions is vested and such commissions are paid as long as policies
continue in force.
The Company provides assistance to its agents through the use of
educational materials, product training, marketing seminars and a home
office agency service department. The staff of this department is
trained to provide assistance with product information as well as with
underwriting and claim service. The Company also maintains a regional
office in Florida, which was opened in 1990 to provide service to both
agents and policyholders and to assist with marketing in that state.
The following table sets forth, by state, the percentages of total new
premiums written during each of the periods indicated:
Geographic Distribution of New Premiums Collected by State
Year ended December 31,
1995 1994 1993
Florida 20.6% 20.7% 20.3%
Pennsylvania 7.8% 9.1% 12.4%
Illinois 6.4% 7.0% 7.9%
California 6.1% 5.9% 2.7%
Ohio 4.5% 5.5% 6.0%
Missouri 3.9% 3.8% 3.8%
Washington 3.8% 2.6% 2.2%
Arizona 3.5% 4.0% 3.7%
Texas 3.3% 2.4% 2.3%
Indiana 3.2% 3.1% 3.3%
Nebraska 2.5% 2.9% 3.4%
Kansas 2.5% 2.1% 1.7%
Iowa 2.5% 2.5% 2.7%
Tennessee 2.4% 1.7% 1.2%
Georgia 2.2% 2.3% 2.3%
Other 24.8% 24.4% 24.1%
Total 100.0% 100.0% 100.0%
Independent agents accounted for approximately 97.3% of total new
business in 1995 and 97.7% in 1994. The top ten independent agencies
accounted for approximately 9.3% of new business in 1995 and 11.3% in
1994. The largest single independent agency accounted for approximately
1.3% of such new business in 1995 and 1.6% in 1994.
Underwriting
The Company fully underwrites each application prior to policy issue
in order to manage its risk exposure and minimize any questions that
could arise at the time of claim with regard to coverage for pre-
existing conditions. The underwriting department is responsible for
determining whether an application is accepted or declined. The
underwriting process consists of a review of the information contained
in the application in conjunction with information obtained through
telephone or in-person interviews and, when necessary, a review of
medical records. The Company does not issue policies to individuals it
considers to have an unacceptably high risk of needing nursing home
confinement or home health care.
The Company's policies are available to individuals aged 18 through
99, although virtually all of the Company's policies are issued to
individuals between the ages of 60 and 85. Applications are accepted or
rejected based on an underwriter's assessment of the applicant's health
status and functional and cognitive abilities. The Company requires that
complete medical information be included in the application and
generally verifies this information through telephone interviews with
the applicant. In many cases the Company utilizes face-to-face
interviews conducted by health care professionals, such as nurses or
paramedics. Attending physician statements and hospital records are
obtained when deemed necessary. Physical examinations are not required
as a part of the underwriting process.
Future Policy Benefits and Claims Reserves
The Company is required to maintain reserves equal to the probable
ultimate liability for claims and related claims expenses with respect
to all policies in force. Reserves, which are computed by the Company's
consulting actuary, are established for (i) claims that have been
reported but have not yet been paid, (ii) claims that have been incurred
but are not yet reported, and (iii) all future policy benefits not yet
the subject of claims.
The amount of reserves relating to reported and unreported claims
incurred is determined by periodically evaluating historical claims
experience and statistical information with respect to the probable
number and magnitude of such claims. The Company compares actual with
anticipated claims experience and adjusts its reserve estimates on the
basis of these comparisons.
In addition to reserves for incurred claims, reserves also are
established for future policy benefits. This reserve component is
determined using generally accepted actuarial assumptions and methods. A
provision for future policy benefits is required because claim risk
increases with the age of policyholders while premiums are paid on a
level (rather than increasing) premium basis.
The Company's long term care experience, most of which is based on
nursing home care products, is limited relative to that which typically
exists in more traditional lines of insurance, such as life insurance,
for which more actuarial data is available. The Company began offering
nursing home care policies in 1979 but did not generate a significant
amount of premium in this product line until 1983. Thereafter, premium
generated in the nursing home care product line increased at a rapid
pace. The Company currently has approximately 12 years of significant
claims experience with respect to this product line, and reserves for
these policies are based primarily upon this experience.
The Company's claims experience in the home health care product line
is more limited than its nursing home care claims experience. The
Company began offering home health care coverage in 1988. Since that
time, there has been a significant increase in the number of home health
care policies written by the Company. Management believes that sales of
home health care coverage will continue at a rapid pace.
An important distinction exists between nursing home care and home
health care policies as to the relative degree to which individuals may
be inclined to utilize nursing home care versus home health care
benefits. Most individuals are highly disinclined to being confined to a
nursing home. Such confinement is, therefore, usually a last resort
considered only after all other possibilities have been exhausted. By
contrast, receiving care in one's home is usually more acceptable.
Accordingly, management believes that the potential for adverse claims
experience exists to a greater degree with home health care insurance
than with nursing home care insurance. The Company utilizes both its own
experience and other industry-wide data in the computation of reserves
for the home health care product line.
Newer generation long term care products, developed as a result of
changing market conditions or regulatory requirements, incorporate more
benefits with fewer limitations and restrictions. These on-going product
enhancements tend to further limit the Company's ability to rely fully
on its historical claims experience for the development of new premium
rates and computation of reserves. During 1992 the Company expanded its
issue age limit from age 84 to age 99 and also eliminated the use of
sub-standard rating tables, a change which permits certain applicants to
qualify for a lower premium rate than was previously available. Certain
of these changes, principally the increase in the issue age limit and
the elimination of substandard rating categories, may expose the Company
to additional risk. Management believes, but there can be no assurance,
that the additional risk accompanying these changes will be moderated by
a combination of increased volume and improved underwriting techniques.
The Company's reserve methodology and overall claim and future benefit
reserves, are reviewed annually by an independent actuarial firm. While
management believes that reserves are adequate to cover all policy
liabilities, there can be no assurance that reserves are adequate, or
that future claims experience will be similar to, or accurately
predicted by, past or current claims experience.
Claims Administration
The claims administration process includes verification of coverage,
analysis of medical records, interpretation of policy language and
computation and payment of benefits. In some cases the Company utilizes
a process it refers to as "Care Management" which attempts to control
claim costs, particularly in the home health care area, as well as to
provide policyholders with advice as to how best to utilize those
services that are available, at little or no cost, in their communities.
This process is conducted by a separate division of the Claims
Department staffed by registered nurses. The Company utilizes the
services of a consulting physician for advice and direction with regard
to medical matters as they relate to the claims administration process.
Certain claim activities are facilitated by the Company's computer
system which provides coverage information, claims history, and, in the
case of Medicare supplement claims, aids in the calculation of benefits.
Investments
The Company invests in securities and other investments authorized by
applicable state laws and regulations and follows an investment policy
designed to maximize yield to the extent consistent with liquidity
requirements and preservation of assets.
The Company invests in investment grade securities with the highest
yield to maturity possible in consideration of liquidity needs. In the
fourth quarter of 1995, the Company elected to make its entire portfolio
"available for sale," to allow the Company the flexibility to adjust its
portfolio holdings in response to changing market conditions and other
factors. During 1995 the Company increased its position in mortgage-
backed securities, all of which are highly liquid public issues, to
$183.9 million from $10.0 million in 1994. As of December 31, 1995, the
average duration of the Company's fixed income investment portfolio was
approximately five years. As of December 31, 1995, all of the Company's
investments were fixed income securities, and over 99% of the Company's
portfolio consisted of fixed income investments rated "BBB" or better by
S&P, with a weighted average credit rating of "AA+."
Management believes that its investment policy results in an
appropriate matching of investment maturities with the anticipated
payments of policy liabilities. The Company has not purchased any equity
securities or made any real estate investments during the last five
years. The Company holds no derivative financial instruments. As of
December 31, 1995 and 1994, the Company did not have any individual
investments in corporate securities which exceeded 10% of shareholders'
equity nor were there any non-income producing investments.
The following table contains certain information concerning the
composition of the investment portfolio of the Company at fair value.
Investment Portfolio
(At Fair Value)
(Dollars in thousands)
As of December 31, 1995
Amount Pct.
Fixed income investments:
United States Government issues $ 136,456 23.4%
Mortgage-backed securities 183,917 31.6%
States and political subdivisions 80,350 13.8%
Public utilities 19,133 3.3%
All other corporate bonds 162,765 27.8%
Mortgage loan 447 0.1%
Total $ 583,068 100.0%
Fixed income maturities:
One year or less $ 46,425 8.0%
Over one year through five years 104,890 18.0%
Over five years 247,836 42.5%
Mortgage-backed securities 183,917 31.5%
Total $ 583,068 100.0%
Credit quality of fixed income investments-S&P ratings:
AAA $ 398,037 68.2%
AA+, AA, AA- 73,258 12.5%
A+, A, A- 97,298 16.7%
BBB+, BBB, BBB- 13,093 2.3%
BB+, BB, BB- 888 0.2%
Not Rated-Mortgage loan 447 0.1%
Not Rated-Other 47 0.0%
Total $ 583,068 100.0%
Investment Portfolio
(At Fair Value)
(Dollars in thousands)
As of December 31, 1994
Amount Pct.
Fixed income investments:
United States Government issues $ 49,742 21.7%
Mortgage-backed securities 9,939 4.3%
States and political subdivisions 91,378 39.9%
Public utilities 12,701 5.6%
All other corporate bonds 65,211 28.5%
Mortgage loan -- 0.0%
Total $ 228,971 100.0%
Fixed income maturities:
One year or less $ 26,693 11.7%
Over one year through five years 118,809 51.9%
Over five years 73,530 32.1%
Mortgage-backed securities 9,939 4.3%
Total $ 228,971 100.0%
Credit quality of fixed income investments-S&P ratings:
AAA $ 137,968 60.3%
AA+, AA, AA- 35,673 15.6%
A+, A, A- 48,850 21.3%
BBB+, BBB, BBB- 5,400 2.3%
BB+, BB, BB- 1,030 0.5%
Not Rated-Mortgage loan -- 0.0%
Not Rated-Other 50 0.0%
Total $ 228,971 100.0%
During 1993, the Company began purchasing tax-free municipal
securities which provided superior after-tax yields when compared to
taxable securities of similar quality and maturity. The Company
continued this practice into 1994 but, beginning in the fourth quarter
of 1994, the Company changed its investment criteria to include the
purchase of taxable securities in response to its changing tax planning
requirements. The Company intends to sell these tax-free municipal
bonds in 1996.
Investments are supervised by an investment committee comprised of
three Company officers, including the Chief Executive Officer. Effective
July 1, 1995 the Company's investments were placed under the management
of an independent professional asset management company, which selects
specific investments based on the Company's investment policies.
Competition
The Company operates in a highly competitive industry. Many insurance
companies are licensed to sell accident and health insurance. These
include substantially all of the major carriers in the United States.
Many of these companies specialize in accident and health insurance and
many have considerably greater financial resources and larger networks
of agents than the Company. Many insurers offer long term care policies
similar to those offered by the Company and utilize similar marketing
techniques. The Company actively competes with these insurers in
attracting and retaining agents by offering competitive products and
commission rates and quality underwriting and claims
service.
Flexibility and a heightened sensitivity to changes in the marketplace
are critical to maintaining competitiveness in the long term care
industry. Management believes that ongoing product enhancements,
specialized focus in the industry and operating efficiencies distinguish
it from its larger competitors and enable it to react swiftly to change
and allow it to compete more effectively.
Regulation
The Company's principal insurance subsidiary, ATL, is chartered and
licensed in Pennsylvania as a stock life insurance company, and is
licensed to conduct business in 44 other states, the District of
Columbia and the U.S. and British Virgin Islands. The Company's Texas
domiciled insurance subsidiary, UGL, is licensed to conduct insurance
business in 9 states. ATL is licensed in all states where UGL is
licensed. ATICNY is licensed solely in New York. None of the Company's
insurance subsidiaries is licensed in Connecticut, New Hampshire, Rhode
Island, or Vermont.
The Pennsylvania Insurance Department and insurance regulatory
authorities in other jurisdictions have broad administrative and
enforcement powers relating to the granting and revoking of licenses to
transact insurance business, the licensing of agents, the regulation of
premium rates and trade practices, the content of advertising material,
the form and content of insurance policies and financial statements and
the nature of permitted investments. Pennsylvania and other states
require insurance companies to maintain minimum capital and surplus as
well as reserves which are calculated in accordance with prescribed
statutory accounting practices. The insurance companies are subject to
periodic financial and market conduct examinations.
In recent years, there has been considerable legislative and
regulatory activity, at both the state and federal levels, with regard
to long term care and Medicare supplement insurance. Most states mandate
minimum benefit standards and loss ratios for long term care insurance
policies and for other accident and health insurance policies. Five
states in which the Company does business have also adopted standards
relating to agent compensation for long term care insurance. In
addition, federal legislative consideration is given, from time to time,
to the adoption of minimum standards for long term care insurance
policies. To date no such federal legislation has been adopted.
The Company is generally required to maintain, with respect to its
individual long term care policies, minimum anticipated loss ratios over
the entire period of coverage of not less than 60%. With respect to its
Medicare supplement policies, the Company is generally required to
attain and maintain an actual loss ratio, after three years, of not less
than 65%. The Company provides, to the insurance departments of all
states in which it conducts business, annual calculations that
demonstrate compliance with required minimum loss ratios for both long
term care and Medicare supplement insurance. These calculations are
prepared utilizing statutory lapse and interest rate assumptions. In the
event the Company has failed to maintain minimum mandated loss ratios,
it could be required to provide retrospective refunds and/or prospective
rate reductions. Such an event could adversely affect liquidity and
results of operations. The Company believes that it is currently in
compliance with all applicable mandated minimum loss ratios.
The payment of dividends by the insurance companies is also subject to
certain regulatory restrictions. Under Pennsylvania law, ATL is
permitted to pay, after 30 days advance notice to the Pennsylvania
Insurance Commissioner and during which time the Commissioner has not
disapproved such payment, cash or property dividends within any 12-month
period in an amount up to the greater of: (i) 10% of ATL's surplus as
shown in its most recent annual statement on file with the Pennsylvania
Insurance Department; or (ii) the net income from operations shown in
such statement. UGL, under Texas law, and ATICNY, under New York law,
are subject to similar dividend restrictions.
Proposed Legislation
Legislative consideration has been given, from time to time, to the
adoption of a national health insurance program. For example, in
September 1993, the Clinton administration introduced its proposed
"Health Security Act". The administration appears to have abandoned this
proposal at this time, although it is possible that new proposals will
be introduced during 1996 or at a later time. In management's opinion,
the Health Security Act did not contain significant long term care
coverage. The Company's operations could, however, be adversely affected
to the extent that such a program, if adopted, did provide significant
coverage for long term care. Management believes, however, that full
coverage for long term care would be highly unlikely under a national
program and that any such program would be so structured as to cover
less than 100% of long term care costs, thereby enabling a market for
supplemental long term care insurance to continue. Other pending
legislation would permit premiums paid for long term care insurance to
be treated as deductible medical expenses. While there is no assurance
that such proposals will become law, such Congressional efforts serve to
enhance the marketplace by increasing the general public's awareness of
the need for private long term care insurance.
In addition, from time to time, the NAIC reviews and revises its model
minimum long term care insurance benefit and loss ratio standards.
During 1993, the NAIC adopted model language that requires long term
care policies to include a nonforfeiture benefit. Mandated
nonforfeiture benefits are intended to protect policyholders against
lapsing without value, but would result in higher priced policies. The
NAIC also adopted, during 1994, a new model standard which requires that
all prospectively issued long term care policies provide for "rate
stabilization" which would limit premium rate increases. The rate
stabilization requirement, to the extent adopted by states, could limit
the Company's ability to obtain timely and/or sufficient rate increases
when required due to adverse claims experience. To the best of
management's knowledge and belief, no state currently requires either
rate stabilization or the mandatory inclusion of a nonforfeiture
benefit.
A.M. Best's Rating
ATL is rated "A-(Excellent)" by A.M. Best. A.M. Best's ratings are
based on its review of companies' financial condition and operating
performance. A.M. Best's classifications are "A++ and A+ (Superior)", "A
and A- (Excellent)", "B++ and B+ (Very Good)", "B and B- (Good)", "C++
and C+ (Fair)", "C and C- (Marginal)", "D (Below Minimum Standards)", "E
(Under State Supervision)", and "F (In Liquidation)", for the 1995
edition. "NA" ratings are given to companies which do not qualify for
"letter" ratings for a variety of reasons. A.M. Best's ratings are based
upon factors of concern to policyholders and insurance agents and are
not directed toward the concerns of investors.
Employees
As of December 31, 1995, the Company had 376 full and part-time
employees (not including sponsored or independent agents), 361 of whom
are employed in its principal office, 2 of whom are employed in its
Kingston, Pennsylvania office, and 13 of whom are employed in its
Florida office. Of the 376 employees, 10 are employed in an executive
capacity, 24 in marketing and agency operations, 98 in claims
administration, 92 in new business and underwriting, 44 in policyholder
services, 12 in accounting and the balance in various other areas. None
of the Company's employees is represented by a labor union. The Company
believes that its relationship with its employees is good.
ITEM 2. PROPERTIES
The Company's principal office is located at 3220 Tillman Drive,
Bensalem, Pennsylvania. This property, which is owned by an unrelated
third party, consists of approximately 150,000 square feet of space of
which the Company leases approximately 52,000 square feet. The Company
also leases space for its VFW operations in Kingston, Pennsylvania, and
for its Southeastern Regional Office in Sarasota, Florida, from
unrelated third parties. In addition, the Company owns its former
principal office in Warrington, Pennsylvania.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party to various lawsuits generally arising in the
normal course of business. The Company does not believe that the
eventual outcome of such suits will have a material effect on its
financial condition or results of operations.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of the security holders of
the Company, through the solicitation of proxies or otherwise, during
the fourth quarter of the fiscal year covered by this report.
ITEM 4a. EXECUTIVE OFFICERS OF THE REGISTRANT
Name Age Position
John A. Powell 51 Chairman of the Board, President and Chief
Executive Officer since April 1989. Mr. Powell
has been President of the Company from October
1985 until September 1990, and from November
1991 to present.
Susan T. Mankowski 48 Vice President-Administration. From November
1993 to May 1995, Ms. Mankowski was Vice
President-Internal Business Systems. Ms.
Mankowski was Chief Information Officer from
April 1991 to November 1993 and Secretary and
Assistant Treasurer of the Company since May
1989. Prior to that, she served as Assistant
Secretary of the Company from 1977 to May
1989 and Vice President-Operations From
November 1989 until April 1991. Ms. Mankowski
has been a director of the Company since
1989.
Ronald J. Holmer 59 Vice President-Operations since May 1992. He
was the Director of Operations from September
1991 through May 1992. From July 1991 to
September 1991 Mr. Holmer was employed by the
Department of Liquidations of the State of
Pennsylvania. From January 1990 to July 1991
he was Senior Vice President and a Director
(as of April 1991) of World Life and Health
Insurance Company of Pennsylvania. From 1983
to 1990, Mr. Holmer was the President and a
Director of National Health Agency, Inc. and
United General Life Insurance Company.
Benedict J. Iacovetti 39 Treasurer and Chief Financial and Accounting
Officer since December 1992. Prior to joining
the Company, Mr. Iacovetti was associated
with the Clarendon Insurance Group from 1988
to 1992 as Division Treasurer and Chief
Financial Officer.
Ernest Iannucci 53 Vice President-Chief Information Officer
since November 1993. Prior to joining the
Company, Mr. Iannucci was an officer and
director of American Integrity Corporation.
Thomas J. Parry 46 Vice President-Product Development and
Compliance since joining the Company in
August 1990. Prior to joining the Company,
Mr. Parry was employed by Penn Treaty Life
Insurance Company as Vice President-
Administration from February 1987 until
August 1990.
Denise M. Powell 30 Vice President since November 1995. Ms.
Powell was Regional Director of the Company's
Southeastern Regional Office, from 1989 until
November 1995.
Kevin J. Shields 41 Vice President-Marketing since June 1990.
Previously, Mr. Shields served as Director of
Sales for American Travellers Insurance
Services Company, Inc., a subsidiary of the
Company from 1984 until June 1990.
Wayne G. Vosik 50 Vice President-Legal and Government Relations
since May 1993. Prior to joining the Company
in 1992, Mr. Vosik was a sole legal
practitioner.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is quoted on the National Market of the
NASDAQ Stock Market under the symbol ATVC. The table below sets forth,
for the fiscal periods shown, the high and low closing prices for the
Common Stock as reported by NASDAQ (as adjusted for the Company's 3-for-
2 stock split, declared March 4, 1996 for shareholders of record on
March 20, 1996, payable on April 10, 1996). On March 8, 1996, the last
reported sale price of the Common Stock as reported by NASDAQ was $20
per share.
High Low
1994
First Quarter 9 7/8 7 1/4
Second Quarter 9 3/8 7 5/16
Third Quarter 11 3/4 8 3/4
Fourth Quarter 12 8 7/8
1995
First Quarter 13 5/8 10 9/16
Second Quarter 13 7/16 10 15/16
Third Quarter 12 7/8 10 9/16
Fourth Quarter 18 3/4 12 1/8
On March 15, 1996, there were 344 holders of record of the Common
Stock of the Company.
The Company has never paid a cash dividend on its Common Stock. The
Board of Directors currently intends to retain all earnings to finance
the expansion of the Company's business and does not anticipate paying
cash dividends in the foreseeable future. The payment of dividends by
the Company is dependent on dividends the Company may receive from its
subsidiaries. The payment of dividends by the Company's insurance
subsidiaries is subject to stringent regulatory restrictions.
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial information was derived from the
financial statements of the Company which have been audited by Arthur
Andersen LLP, independent public accountants. The report of Arthur
Andersen LLP for the years 1995, 1994, and 1993, is included as Item 8
herein. The table should be read in conjunction with the Consolidated
Financial Statements and the Notes thereto. Certain reclassifications
have been made to the 1991 and 1992 amounts to conform with 1995, 1994
and 1993 presentations.
Year Ended December 31,
1995 1994 1993 1992 1991
(In thousands except per data share)
Income Statement Data-
Revenues:
Premium Earned:
Accident and health $265,732 $195,024 $162,322 $135,833 $115,048
Life 8,235 6,864 4,052 2,468 1,911
Investment Income 23,190 11,023 9,395 8,718 8,092
Securities gains(losses) 175 (10) 227 344 (76)
Total Revenues 297,332 212,901 175,996 147,363 124,975
Benefits and Expenses:
Benefits to policyholders 172,903 114,200 88,347 75,074 64,698
Commissions 76,080 63,819 56,728 43,634 41,305
General and
administrative (1) 33,092 29,140 29,304 27,090 21,070
Net deferred policy
acquisition costs (2) (22,697) (22,230) (21,738) (14,841) (18,976)
Interest Expense 3,260 990 32 230 186
Total benefits and expenses 262,638 185,919 152,673 131,187 108,283
Income before income taxes 34,694 26,982 23,323 16,176 16,692
Income taxes 11,009 8,554 8,715(4) 5,500(3) 5,675(3)
Net income 23,685 18,428 14,608(4) 10,676 11,017(3)
Per Share Amounts:
Primary:
Net Income 1.45 1.14 .92(4) .68 .71
Weighted average number of
shares Primary 16,316 16,133 15,804 15,617 15,549
Fully Diluted:
Net Income 1.36 1.14 .92 .68 .71
Weighted average number of
shares Fully Diluted 18,362 16,133 15,804 15,617 15,549
Balance Sheet Data-
Total Assets 836,141 400,804 298,991 240,905 219,729
Total Liabilities 665,336 264,465 182,816(3) 139,743 129,277(3)
Shareholders' Equity 170,805 136,339 116,175(3) 101,162 90,452(3)
(1) Includes amortization of value of business acquired and premium taxes.
(2) Represents deferred policy acquisition costs, net of amortization.
(3) Restated to reflect adoption of Statement of Financial Accounting
Standards No.109.
(4) Includes $702, or $.07 per share, deferred tax adjustment for the
years 1992 and prior, to reflect the change during 1993 in the
corporate income tax rate.
All share and per share amounts have been adjusted to reflect a 3-for-2
stock split payable on April 10, 1996.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Revenues
Premiums increased by $72.2 million or 35.7% in 1995, and $35.4
million or 21.2% in 1994. These increases reflect the continued
expansion of the Company's policyholder base, as well as the acquisition
of the J.C. Penney Insurance Companies ("JCP") long term care insurance
business in 1994 and the acquisition of the Transport Holdings Inc.
("Transport") long term care insurance business in 1995. Premiums
include $22.6 million attributable to JCP and $24.6 million attributable
to Transport for 1995, and $6.1 million attributable to JCP for 1994.
The year-to-year changes in the various components of annualized
premiums in force, including JCP and Transport, are summarized in the
schedule below:
Annualized Premiums in Force
(Dollars in millions)
December 31, Percentage Change
1995 1994 1993 1995 v.1994 1994 v.1993
Nursing home $ 257.1 $149.4 $101.4 72.1% 47.3%
Home health care 75.0 49.1 35.4 52.7% 38.7%
Total long
term care 332.1 198.5 136.8 67.3% 45.1%
Medicare supplement 22.2 25.8 32.0 (13.0)% (19.4)%
Other accident
and health 8.7 9.3 10.5 (6.5)% (11.4)%
Life insurance 8.8 7.3 4.3 20.5% 69.8%
Total premiums
in force $ 371.8 $240.9 $ 183.6 54.3% 31.2%
The Company's annualized long term care premiums in force have grown
significantly over the periods presented. Long term care insurance in
force includes $24.9 million related to JCP for 1994, and $96.5 million
related to Transport and $21.4 million related to JCP for 1995. As of
December 31, 1995, the Company had $371.8 million of annualized premiums
in force, a 54.3% increase from 1994. As of December 31, 1994, the
Company had $240.9 of annualized premium in force, a 31.2% increase from
1993. Partially offsetting the growth in long term care premiums is a
reduction in the Company's Medicare supplement business. New sales of
Medicare supplement policies have been negligible since 1992 when
management decided to de-emphasize this product line.
Total internally generated new business premiums, which excludes JCP
and Transport, are summarized by line of business below:
New Business Premiums Collected
(Dollars in millions)
Year ended December 31, Percentage Change
1995 1994 1993 1995 v. 1994 1994 v. 1993
Nursing home $42.6 $40.2 $39.6 6.0% 1.5%
Home health care 20.7 20.3 17.7 2.0% 14.7%
Total long
term care 63.3 60.5 57.3 4.6% 5.6%
Medicare supplement 0.1 0.1 0.6 0.0% (83.3)%
Other accident
and health 1.7 1.8 2.1 (6.0)% (14.3)%
Life insurance 3.4 3.6 2.1 (5.6)% 71.4%
Total new business $68.5 $66.0 $62.1 3.8% 6.3%
The limited growth in new business premiums in 1995, is attributable
to: (i) an increase in policyholders' selection of monthly premium
payment plans as opposed to annual premium payments, a practice the
Company promotes; and (ii)increased competition. The Company does not
know whether and to what extent its competition is likely to increase or
change in the future but believes that it is well-positioned to remain
competitive in all of its markets.
Investment income, including securities gains (losses), increased
$12.4 million or 112.4% in 1995, and increased $1.4 million or 14.5% in
1994. This reflects the availability of additional cash for investment
principally from premium growth, the $103.5 million 6.5% Convertible
Subordinated Debenture offering in September 1995, the Transport
acquisition in 1995 and the JCP acquisition in 1994. As a result of
these transactions, investment income in future years will be a more
significant component of the Company's revenues and operating income.
During 1993, the Company began purchasing tax-free municipal
securities, which provided superior after-tax yields when compared to
taxable securities of similar quality and maturity. This practice was
continued during the first nine months in 1994. In the fourth quarter of
1994, the Company changed its investment criteria to include the
purchase of taxable securities in response to its changing tax planning
requirements. The Company intends to sell these tax-free municipal bonds
in 1996.
The Company invests in investment grade debt instruments. It does not
invest in high-yield debt securities, equities or real estate, and has
historically held its investment portfolio at amortized cost. Although
the Company's investment policy was to hold its investments until
maturity, in the fourth quarter of 1995, the Company changed its
investment strategy and made its entire portfolio available for sale.
This will provide the Company with the flexibility to adjust its
investment holdings in response to changing market conditions and other
factors. During 1995, the Company increased its holdings in mortgage-
backed securities to $183.9 million as compared to $10.0 million for the
year ended 1994.
Benefits and Expenses
Benefits to policyholders (the sum of claims paid and changes in
reserves for claims and future policy benefits) increased $58.7 million
or 51.4% in 1995, and increased $25.9 million or 29.3% in 1994. The
year-to-year changes in the components of benefits to policyholders are
as follows:
Benefits to Policyholders
(Dollars in millions)
Year ended December 31, Percentage Change
1995 1994 1993 1995 v.1994 1994 v.1993
Paid claims $112.4 $78.0 $66.1 44.0% 18.1%
Change in Claim
Reserves 32.6 18.1 12.6 80.7% 42.8%
Change in Benefit
Reserves 27.9 18.1 9.6 54.1% 88.6%
Total benefits $172.9 $114.2 $88.3 51.4% 29.3%
Benefits to Policyholders
(As a % of total premiums)
Year ended December 31,
1995 1994 1993
Paid claims 41.0% 38.7% 39.7%
Change in Claim
Reserves 11.9% 8.9% 7.6%
Change in Benefit
Reserves 10.2% 9.0% 5.8%
Total benefits 63.1% 56.6% 53.1%
The continuing increases in the change in reserves to total premiums
ratio corresponds to the growth in the Company's long term care
business, for which it holds higher levels of reserves. The Company
actively monitors claims and has its reserves reviewed annually by an
independent actuarial firm to ensure that claim and benefit reserves are
adequate and to make appropriate adjustments, if necessary, in marketing
strategy, product design and product rates.
Commission expense increased $12.3 million or 19.2% in 1995, and
increased $7.1 million or 12.5% in 1994. As a percentage of total
premiums, commission expense decreased to 27.8% in 1995, from 31.6% in
1994, and from 34.1% for 1993. These changes in the effective commission
rate are directly related to changes in the relative levels of new
business (for which a higher commission rate is payable) and renewal
business. An increase in renewal business relative to total business
resulted in a decrease in commission expense as a percentage of total
premiums in 1995 relative to 1994, as well as in 1994 relative to 1993.
General and administrative expenses increased $2.2 million or 9.8% in
1995, and increased by $0.7 million or 3.4% in 1994. As a percentage of
total premiums, general and administrative expenses have decreased to
9.2% in 1995 from 11.3% in 1994 and 13.3% in 1993. The general and
administrative expense increases are due primarily to the incremental
costs in servicing a larger in force policyholder base. However, as a
percentage of premiums, general and administrative costs have decreased
as the Company has been able to realize economies of scale.
Interest expense increased significantly in 1995, as a result of the
Company's issuance of $103.5 million of 6.5% Convertible Subordinated
Debentures due in 2005. The proceeds were used to make a $58 million
surplus contribution to ATL, to pay down the $20 million revolving
credit facility and for general corporate purposes. Interest expense in
1994 reflects borrowings on the revolving credit facility only.
Amortization of deferred policy acquisition costs increased $0.9
million or 4.4% in 1995, and increased $1.5 million or 8.3% in 1994.
These increases reflect the higher levels of deferred policy acquisition
costs, which have increased by $22.7 million in 1995, and increased
$22.2 million in 1994. Amortization of deferred policy acquisition
costs varies with, and is directly related to, the lapse rates of
premiums in force. Improved persistency has resulted in decreased
amortization of deferred policy acquisition cost in relation to the
average deferred policy acquisition cost asset during the periods when
compared with prior periods.
Amortization of the value of business acquired varies with and is
directly related to premiums in force on acquired business. The
amortization of the value of business acquired has decreased as the
lapse rates on the Company's acquired business, primarily relating to
acquisitions made in 1991 and prior, have declined.
Policy acquisition costs deferred increased $1.3 million or 3.2% in
1995, and increased $2.0 million or 5.0% in 1994. Policy acquisition
costs, which consist of principally excess first year commissions and
policy issue and underwriting costs, vary with and are directly related
to new business premiums.
The provision for income taxes increased $2.4 million or 28.7% in
1995, and increased $0.6 million or 6.8% in 1994 (excluding the effect
of the additional provision of 1993). The components of the income tax
provisions are as follows:
Provision for Income Taxes
(Dollars in millions)
Year ended December 31,
1995 1994 1993
Income before taxes $34.7 $27.0 $23.3
Tax-free income (3.7) (2.5) (0.4)
Taxable income 31.0 24.5 22.9
Provision for income taxes 11.0 8.6 8.0
Additional provision - - 0.7
Total provision for income taxes $11.0 $8.6 $8.7
Effective Tax Rate
(As a % of income before provision for taxes)
Year ended December 31,
1995 1994 1993
Applicable tax rate 35.0% 35.0% 35.0%
Tax-free income (3.3)% (3.3)% (.6)%
Additional provision - - 3.0%
Effective tax rate 31.7% 31.7% 37.4%
The 1993 tax provisions included a one-time tax adjustment of $0.7
million, reflecting an increase in deferred tax liabilities due to the
change in corporate federal income tax rates from 34.0% to 35.0% during
that year. Excluding this tax adjustment, taxes increased over each of
the prior periods. The increased tax provision is directly attributable
to the increase in the Company's pre-tax earnings. The Company's
effective tax rate for financial reporting purposes was 31.7% for 1995
and 1994. The reduction in the effective tax rate in 1994 as compared to
1993 was primarily the result of a higher percentage of income derived
from municipal bonds. However, the Company intends to sell its municipal
bonds in 1996 resulting in the elimination of this tax free income.
The Company's current tax provision was $12.0 million, $7.9 million
and $1.0 million for years 1995, 1994 and 1993, respectively. The
significant increase in taxes currently payable is the result of the
Company's continued growth which limits the availability of the small
life company deduction, while at the same time increasing other
temporary differences. These temporary differences may grow during 1996
and 1997. Although these differences will not increase the Company's
effective tax rate for financial reporting purposes, they will result in
a greater amount of taxes which are currently payable.
Liquidity and Capital Resources
The Company's primary sources of cash are premiums and investment
income. Its primary uses of cash are payments of benefits, policy
acquisition costs, operating costs and income taxes. In December 1993
the Company utilized its revolving credit line to make a $12.0 million
surplus contribution to ATL. In the third quarter of 1994, this credit
facility was increased to $20.0 million and an additional $8.0 million
was borrowed and utilized to make an additional surplus contribution to
ATL. In September 1995, the Company issued $103.5 million in
convertible subordinated debentures. $20.0 million of the proceeds were
used to pay down the Company's outstanding borrowings under this credit
facility. The Company intends to keep its credit facility available.
The credit facility is secured by the common stock of ATL and ATIS.
There are no other lines of credit currently in place. The Company will
be dependent on dividends from ATL to meet its debt service requirements
after the cash at the holding company is exhausted. There are no other
lines of credit currently in place. As of December 31, 1995, the Company
had no material commitments for any capital expenditures.
In December 1995, the Company received net cash of $253.3 million as a
result of the Transport acquisition. The transaction consisted of the
acquisition of approximately 97,000 policies with annualized premiums of
approximately $96 million at the date of acquisition. This transaction
had the effect of significantly increasing cash and invested assets in
support of the policy liabilities assumed. In future years investment
income will be a more significant component of the Company's revenues
and operating income.
In October 1994, the Company received net cash of $29.2 million as a
result of the JCP Acquisition. The transaction consisted of the
acquisition of approximately 20,000 policies with annualized premiums of
approximately $25.0 million at the date of acquisition. The effect of
this acquisition on the 1994 results of operations was not material.
State insurance laws and regulations require the insurance company
subsidiaries to maintain capital and surplus at specific levels. During
1993, regulators began to utilize a "risk-based" capital and surplus
analysis as a guide to determine the appropriate level of capital and
surplus. As of December 31, 1995, the "adjusted" statutory capital and
surplus for the insurance company subsidiaries was above all required
capital levels. The Company must continue, however, to increase its
insurance subsidiaries' statutory capital and surplus to support
significant increases its sales of new policies or acquisitions of other
blocks of business. The Company has available a revolving credit
facility and other funding sources to support future growth.
Management believes that the effect of inflation is insignificant to
its insurance operations, except with respect to its Medicare supplement
product line.
The Company adopted the provisions of Statement of Financial
Accounting Standards No.115, "Accounting for Certain Investments in Debt
& Equity Securities" (SFAS 115) as of at January 1, 1994. Under SFAS
115 investments in debt and equity securities are accounted as follows:
"Held to maturity" securities are securities that the Company has the
positive intent and ability to hold to maturity and are reported at
amortized cost. Securities that are brought and held principally for
the purpose of selling in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings. Securities not classified in these two categories
are classified as "available for sale" and reported at fair value, with
unrealized gains and losses reported, net of tax, in a separate
component of shareholders' equity.
As further discussed in Note 3 to the financial statements, the
Company has classified all of its investments as "available for sale" at
December 31, 1995, and as "held to maturity" at December 31, 1994.
The Company holds no derivative financial instruments subject to the
provisions of SFAS No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments."
In March 1995, the FASB issued SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed
of. This statement, which must be adopted by March 31, 1996 establishes
accounting standards for the impairment of long lived assets, certain
identifiable intangibles and goodwill related to (1) those assets to be
held and used in the business, and (2) assets to be disposed of. The
Company does not anticipate a material effect on its financial
statements from this new accounting standard.
SFAS 123, Accounting for Stock-Based Compensation, will be adopted by
the Company in 1996. This statement provides alternative methods for
accounting for employee stock compensation plans. A company can elect
to use the new fair-value-based method of accounting for employee stock
compensation plans, under which compensation cost is measured and
recognized in results of operations, or continue to account for these
plans under the current accounting standards. Entities electing to
remain with the present accounting method must make disclosures of what
net income and earnings per share would have been if the fair-value-
based method of accounting had been applied. The Company plans to
continue to account for employee stock options using the present
accounting method and include the required disclosures in the financial
statements.
ITEM 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Report of Independent Public Accountants 29
Consolidated Financial Statements
Consolidated Balance Sheets as of December 31, 1995 and 1994 30
Consolidated Statements of Income for the three years ended
December 31, 1995 31
Consolidated Statements of Shareholder's Equity for the three
years ended December 31, 1995 32
Consolidated Statements of Cash Flows for the three years ended
December 31, 1995 33
Notes to Consolidated Financial Statements 34
Summary of Investments - Schedule I 49
Condensed Financial Information of Registrant - Schedule II 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of American Travellers Corporation:
We have audited the accompanying consolidated balance sheets of
American Travellers Corporation (a Pennsylvania corporation) and
subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1995. These
financial statements and the schedules referred to below are the
responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements and schedules 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, the financial statements referred to above present
fairly, in all material respects, the financial position of American
Travellers Corporation and subsidiaries as of December 31, 1995 and
1994, and the results of their operations and their cash flows for each
of the three years in the period ended December 31, 1995 in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in
the index of the financial statements are presented for purposes of
complying with the Securities and Exchange Commission's rules and are
not a required part of the basic financial statements. These schedules
have been subjected to the auditing procedures applied in our audits of
the basic financial statements and, in our opinion, are fairly stated
in all material respects in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Philadelphia, Pa.
March 4, 1996
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
December 31,
1995 1994
ASSETS
Investments:
Bonds, Available for Sale, at fair value
(Cost $566,859) $ 582,621 $ -
Bonds, Held to Maturity, at amortized cost
(Market $228,971) - 238,198
Mortgage Loan 447 -
Total investments 583,068 238,198
Cash and cash equivalents 70,214 9,133
Accrued investment income 6,781 4,192
Premiums due and deferred 7,027 5,518
Deferred policy acquisition costs 144,767 122,070
Value of business acquired (net of accumulated
amortization $12,619 and $10,603) 12,846 14,316
Property and equipment, at cost (net of
accumulated depreciation of $3,682 and $4,192) 4,176 5,168
Other assets 7,262 2,209
Total assets $836,141 $400,804
LIABILITIES AND SHAREHOLDERS' EQUITY
Policy liabilities:
Future policy benefits $247,562 $83,995
Claim Reserves 210,073 85,290
Unearned premium reserve 60,477 35,133
Total policy liabilities 518,112 204,418
Other liabilities 7,785 5,185
Bank Borrowings - 20,000
Current and deferred income taxes 35,939 34,862
6.5% convertible subordinated debentures 103,500 -
Total liabilities 665,336 264,465
Shareholders' equity:
Preferred stock, $.0l par value; 5,000,000
shares authorized; no shares issued - -
Common stock, $.01 par value; 37,500,000
shares authorized; 16,053,105 and
15,962,268 shares issued 107 106
Capital in excess of par value 60,015 59,480
Net Unrealized gain on investments 10,245 -
Retained earnings 101,187 77,502
Less-Shares of common stock held in treasury,
at cost (200,159 shares) (749) (749)
Total shareholders' equity 170,805 136,339
Total liabilities and shareholders' equity $836,141 $400,804
All share and per share amounts have been adjusted to reflect a 3-for-2 stock
split payable on April 10, 1996.
The accompanying notes are an integral part of these statements.
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
Year ended December 31,
1995 1994 1993
Revenues:
Accident and health premiums $265,732 $195,024 $162,322
Life premiums 8,235 6,864 4,052
Investment income 23,190 11,023 9,395
Securities gains (losses) 175 (10) 227
Total revenues 297,332 212,901 175,996
Benefits and expenses:
Benefits to policyholders 172,903 114,200 88,347
Commissions 76,080 63,819 56,728
General and administrative 25,071 22,831 22,086
Premium taxes 6,007 4,187 4,231
Amortization of deferred policy
acquisition costs 20,687 19,815 18,298
Amortization of value of business acquired 2,014 2,122 2,987
Less-policy acquisition costs deferred (43,384) (42,045) (40,036)
Interest expense 3,260 990 32
Total benefits and expenses 262,638 185,919 152,673
Income before provision for income taxes 34,694 26,982 23,323
Provision for income taxes 11,009 8,554 8,715
Net income $23,685 $18,428 $14,608
Net income per share:
Primary $1.45 $1.14 $.92
Fully diluted $1.36 $1.14 $.92
Weighted average common shares
and common equivalents:
Primary 16,316 16,133 15,804
Fully diluted 18,362 16,133 15,804
Share and per-share amounts have been adjusted to reflect the three-for-
two stock split payable on April 10, 1996.
The accompanying notes are an integral part of these statements.
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(In thousands)
CommonStock CapitalinNet Unreal- RetainedTreasuryTotal
SharesAmountExcessof ized Gain onEarnings Stock Shareholders'
Par ValueInvestments Equity
Balance, 12/31/92 15,438 $103 $57,342 $ - $44,466 $(749) $101,162
Net income - - - 14,608 - 14,608
Exercise of
stock options 226 1 404 - - 405
Balance, 12/31/93 15,664 104 57,746 - 59,074 (749) 116,175
Net income - - - 18,428 - 18,428
Exercise of
stock options 299 2 939 - - 941
Tax benefit
from exercise
of stock options - - 795 - - 795
Balance, 12/31/94 15,963 106 59,480 - 77,50 (749) 136,339
Net income 23,685 23,685
Exercise of
stock option 90 1 400 401
Tax benefit
from exercise
of stock options 135 135
Unrealized Gain
Investments $10,245 10,245
Balance 12/31/95 16,053 $107 $60,015 $10,245 $101,187 $(749) $170,805
Share and per-share amounts have been adjusted to reflect the three-for-
two stock split payable on April 10, 1996.
The accompanying notes are an integral part of these statements.
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Year ended December 31,
1995 1994 1993
Cash flows-operating activities
Net income $23,685 $18,428 $14,608
Adjustments to reconcile net income to net
cash provided by operating activities
Amortization of deferred policy
acquisition costs 20,687 19,815 18,298
Depreciation and amortization 5,381 5,774 6,015
Realized securities (gains) losses (174) 10 (227)
(Decrease) increase current and
deferred income taxes (4,437) 5,207 8,316
Increase in reserves 61,981 39,519 23,982
Increase (decrease) in other liabilities 2,600 533 (1,225)
Deferred policy acquisition costs (43,384) (42,045) (40,036)
(Increase) decrease in all other assets (4,651) (1,793) 600
Total adjustments 38,003 27,020 15,723
Net cash provided by operating
activities 61,688 45,448 30,331
Cash flows-investing activities
Proceeds from sales of investments 16,615 156 3,910
Proceeds from calls and maturities
of investments 33,037 15,295 24,275
Purchase of investments (380,116) (99,551) (63,282)
Purchase of fixed assets (352) (626) (693)
Proceeds from acquisitions 249,969 29,186 -
Net cash used in investing activities (80,847) (55,540) (35,790)
Cash flows-financing activities
Debenture issue costs (3,796) - -
Proceeds from issuance
of Subordinated Debentures 103,500 - -
Bank borrowings - 8,000 12,000
Exercise of options 536 939 405
Repayment of Bank borrowings (20,000) - -
Net cash provided by financing
activities 80,240 8,939 12,405
Net increase (decrease) in
cash and cash equivalents 61,081 (1,153) 6,946
Cash and cash equivalents,
beginning of year 9,133 10,286 3,340
Cash and cash equivalents,
end of year $70,214 $9,133 $10,286
Supplemental disclosure of cash flow information
Cash paid during the year for:
Interest $ 1,319 $ 990 $ -
Income taxes $15,300 $3,465 $ 970
The accompanying notes are an integral part of these statements.
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1995
(In Thousands, except share data)
(l) Summary of significant accounting policies:
Principles of consolidation-
The accompanying consolidated financial statements include the
accounts of American Travellers Corporation ("ATC") and its wholly owned
subsidiaries, American Travellers Life Insurance Company ("ATL"), United
General Life Insurance Company ("UGL"), American Travellers Insurance
Company of New York ("ATICNY") and American Travellers Insurance
Services Company, Inc. ("ATIS"). ATC, ATL, UGL, ATICNY and ATIS are
collectively referred to as the "Company." All material intercompany
accounts and transactions have been eliminated in consolidation.
General-
The Company's operations consist of the underwriting and sale of life
and accident and health insurance. The accompanying consolidated
financial statements have been prepared in accordance with generally
accepted accounting principles (GAAP). The Company is a marketer and
underwriter of long term care insurance. The Company's long term care
products consist of both nursing home and home health care policies
which provide limited benefit payments primarily to senior citizens.
The Company also markets and underwrites other supplemental accident and
health insurance policies, as well as life insurance. The Company's
long term care products accounted for 89.3%, 82.4%, and 74.5% of its
annualized premiums in force at December 31, 1995, 1994, and 1993,
respectively.
The preparation of financial statements in conformity with GAAP
requires the use of estimates and assumptions that affect the reported
amounts of assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Management does not anticipate that actual results
will differ significantly from these estimates.
Revenue recognition-
Premiums are reflected as revenues primarily on a pro-rata basis as
the premiums are earned. Expenses are associated with earned premiums,
resulting in a recognition of profits over the lives of the contracts.
This association is accomplished by providing liabilities for future
policy benefits and by deferring, and then amortizing, policy
acquisition costs.
Investments-
The Company adopted the provisions of Statement of Financial
Accounting Standards ("SFAS"), Accounting for Certain investments in
Debt and Equity Securities (SFAS 115), as of January 1, 1994. Under
SFAS 115, investments in equity and debt securities are classified in
three categories and accounted for based upon the classification. In
December 1995, the Company transferred its investments from the "held to
maturity" classification to the "available for sale" classification
pursuant to SFAS 115 and has recorded such investments at fair value
with unrealized gains and losses reported as a component of
shareholders' equity, net of tax. See Note 3.
Deferred policy acquisition costs-
Policy acquisition costs, which vary with and are directly related to
the production of new business, are deferred. The costs deferred,
consisting principally of commissions and policy issuance costs, are
being amortized with interest in accordance with actuarial assumptions
which consider the anticipated period the policy will be in force in
relation to the premiums expected to be earned. These assumptions are
consistent with those used in developing policy reserves.
Property and equipment-
Property and equipment are stated at cost. Improvements which
materially increase the estimated useful life of the asset are
capitalized. Expenditures for repairs and maintenance are charged to
operations as incurred. Depreciation is provided principally on the
straight-line method over the related estimated lives of the assets
which range from 3 to 40 years. Upon sale or retirement, the cost of the
asset and the related accumulated depreciation are removed from the
accounts and the resulting gain or loss, if any, is included in income.
Policy benefits-
Future policy benefits and claim reserves are determined based upon
generally accepted actuarial methods. Unpaid claim reserves are based
upon the aggregate of claim estimates for reported and unreported losses
based upon experience. While the ultimate amount of claims incurred and
the related expenses are dependent on future developments, in
management's opinion, the reserves for future policy benefits and claims
are adequate to cover anticipated losses and expenses.
Income taxes-
Deferred income taxes are recorded for temporary differences in
reporting certain transactions for financial statement and income tax
purposes, principally deferred policy acquisition costs and policy
benefits. Income taxes are accounted for using the asset and liability
method in accordance with SFAS 109. This method requires that deferred
tax assets and liabilities at the end of the year be determined using
the tax rates and limitations expected to be in effect at such time as
the taxes are projected to be paid or recovered. Consequently, income
tax expense will increase or decrease in the period in which a change in
tax law or rates is enacted.
Earnings per share-
Primary earnings per common share are based on the weighted average
number of shares outstanding during the period and the dilutive effect
of stock options and other common stock equivalents. Fully diluted
earnings per share are based on the weighted average number of shares
outstanding, dilutive effect of common stock equivalents, and the
assumed conversion of the 6.5% convertible subordinated debenture. Net
income is increased by the interest on the debenture, net of related
income taxes.
Stock split-
On March 4, 1996, the board of directors declared a three-for-two stock
split for securityholders of record as of March 20, 1996, payable on
April 10, 1996. Share and per share amounts have been retroactively
adjusted to reflect this split for all years presented.
Statements of cash flows-
For purposes of reporting cash flows, cash and cash equivalents
include all cash and short-term deposits available on demand.
Accounting Pronouncements
The Company adopted the provisions of Statement of Financial Accounting
Standards No.115, "Accounting for Certain Investments in Debt & Equity
Securities" (SFAS 115) as of at January 1, 1994. Under SFAS 115
investments in debt and equity securities are accounted as follows:
"Held to maturity" securities are securities that the Company has the
positive intent and ability to hold to maturity and are reported at
amortized cost. Securities that are brought and held principally for
the purpose of selling in the near term are classified as "trading
securities" and reported at fair value, with unrealized gains and losses
included in earnings. Securities not classified in these two categories
are classified as "available for sale" and reported at fair value, with
unrealized gains and losses reported net of tax in a separate component
of shareholders' equity.
As further discussed in Note 3 to the financial statements, the
Company has classified all of its investments as "available for sale" at
December 31, 1995 and as "Held to maturity" at December 31, 1994.
The Company holds no derivative financial instruments subject to the
provisions of SFAS No. 119, "Disclosure About Derivative Financial
Instruments and Fair Value of Financial Instruments."
In March 1995, the FASB issued SFAS 121, Accounting for the
Impairment of Long-Lived Assets and for Long Lived Assets to be Disposed
of. This statement, which must be adopted by March 31, 1996 establishes
accounting standards for the impairment of long lived assets, certain
identifiable intangibles and goodwill related to (1) those assets to be
held and used in the business, and (2) for assets to be disposed of.
The Company does not anticipate a material effect on the financial
statements from this new accounting standard.
SFAS 123, Accounting for Stock-Based Compensation, will be adopted by
the Company in 1996. This statement provides alternative methods for
accounting for employee stock compensation plans. A company can elect
to use the new fair-value-based method of accounting for employee stock
compensation plans, under which compensation cost is measured and
recognized in results of operations, or continue to account for these
plans under the current accounting standards. Entities electing to
remain with the present accounting method must make disclosures of what
net income and earnings per share would have been if the fair-value-
based method of accounting had been applied. The Company plans to
continue to account for employee stock options using the present
accounting method and include the required disclosures in the financial
statements.
Reclassifications-
Financial statements for 1993 and 1994 have been reclassified to
conform with the 1995 presentation.
(2) Basis of presentation:
The consolidated financial statements have been prepared in accordance
with GAAP; these principles differ from practices prescribed or
permitted by insurance regulatory authorities (statutory accounting
practices) in the following material respects-
(a) Costs which vary with and are directly related to the writing of
new insurance policies are deferred and then amortized over the
anticipated period the policies will be in force in relation to the
premiums expected to be earned on the policies. Under statutory
accounting practices such costs are charged to expense as incurred.
(b) The accounts of wholly-owned subsidiaries are consolidated. Under
statutory accounting practices such subsidiaries are carried at cost
adjusted for subsequent operating results as determined under statutory
accounting practices.
(c) The value of business acquired resulting from purchases of blocks
of accident and health business is being amortized over the life of the
acquired policies. Under statutory accounting practices, any ceding
allowances paid are expensed in the year incurred.
(d) Policy liabilities-
(l) GAAP basis-Future policy benefits are provided on the net level
premium method which provides for anticipated rates of morbidity,
mortality, interest and the Company's termination experience. Accident
and health insurance future policy benefits are primarily calculated
using morbidity based on the Company's experience. The future policy
benefits on ordinary life insurance are calculated using the 1965-70
Intercompany male mortality rates. Unearned premium reserve is the gross
unearned premium reserve less the portion of the premium for expenses,
overhead and profit. Investment income is assumed at rates between 6.25%
and 8.00%. Termination rates, exclusive of mortality, have been assumed
to be between 17.5% and 33.0% in the first year decreasing to between
5.0% and 10.0% of the renewing policies after the fifteenth year. These
assumptions vary by plan, year of issue and duration.
(2) Statutory basis-Future policy benefits on accident and health
insurance consist primarily of unearned premium reserves. Future policy
benefits on ordinary life insurance have been computed using the l958
and 1980 Commissioners' Standard Ordinary Mortality Table with interest
assumed at rates between 3% and 5% applied on the Commissioners' Reserve
Valuation Method basis with grading to the net level premium method.
(3) Claim reserves (both on a GAAP and Statutory basis) include
provisions for reported claims in process of settlement as well as
claims incurred but not reported based on prior experience of the
Company. Interest is assumed at rates between 5.0% and 7.5%.
(e) Deferred income taxes, which for statutory purposes are not
recognized, are provided as appropriate for temporary differences.
(3) Investments:
As of December 31, 1994 the Company classified all of its investments
as "held to maturity" pursuant to the provisions of SFAS 115. As a
result of the changes in the investment portfolio and strategy and as a
result of the acquisition discussed in Note 15 and other factors, the
Company changed the classification of its investments to "available for
sale" effective December 1995.
Pursuant to the requirements of SFAS 115, "available for sale"
securities are reported at fair value with unrealized gains and losses
reported net of tax as a separate component of shareholders' equity. As
a result of this change the reported value of the investment portfolio,
at December 31,1995, increased $15,762 with corresponding increases in
shareholders' equity of $10,245 and deferred income taxes of $5,517.
The components of investment income are as follows-
Year ended December 3l,
1995 1994 1993
Fixed maturity investments $15,308 $10,185 $8,926
Mortgage-backed securities 3,076 223 28
Cash and short-term investments 1,613 437 342
Mortgage loan and other 3,193 178 99
Investment Income $23,190 $11,023 $9,395
The amortized cost and market values of investments in debt securities
are as follows:
Gross Gross
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
December 31, 1995
U.S. Government Obligations $ 133,703 2,836 (83) 136,456
Mortgage-backed Securities 180,926 2,995 (4) 183,917
States and Political Subdivisions 78,915 1,497 (62) 80,350
Corporate Securities 173,315 8,695 (112) 181,898
Totals $566,859 16,023 (261) $582,621
December 31, 1994
U.S. Government Obligations $52,190 $134 $(2,582) $49,742
Mortgage-backed securities 9,975 16 (52) 9,939
States and Political Subdivisions 95,194 6 (3,822) 91,378
Corporate Securities 80,839 135 (3,062) 77,912
Totals $238,198 $ 291 $(9,518) $228,971
The amortized cost and market value of debt securities at December 31,
1995 and 1994, by contractual maturity, are shown below. Expected
maturities will differ from contractual maturities because borrowers may
have the right to call or prepay obligations with or without call or
prepayment penalties.
Amortized Market
Cost Value
December 31, 1995
Due in one year or less $46,383 $46,425
Due after one year through five years 103,326 104,890
Due after five years through ten years 138,634 145,181
Due after ten years 97,590 102,208
Mortgage-backed securities 180,926 183,917
Totals $566,859 $582,621
Amortized Market
Cost Value
December 31, 1994
Due in one year or less $26,840 $26,693
Due after one year through five years 123,997 118,809
Due after five years through ten years 70,134 66,378
Due after ten years 7,252 7,152
Mortgage-backed securities 9,975 9,939
Totals $238,198 $228,971
Proceeds from sales of investments were $16,615 in 1995, $156 in 1994
and $3,910 in 1993. Proceeds from maturities and security calls were
$33,037 in 1995, $15,295 in 1994 and $24,275 in 1993. Gross gains of
$194, $10 and $266 and gross losses of $19, $20 and $39 in 1995, 1994
and 1993, respectively, were realized on sales and calls.
As of December 31, 1995 and 1994, the company did not have any
individual investments in corporate securities which exceeded 10% of
shareholders' equity. There were no non-income producing investments
during the year ended December 31, 1995 and 1994.
At December 31, 1995 and 1994, bonds with an amortized cost of $7,669
and $9,153, respectively, are on deposit with various regulatory
departments pursuant to statutory requirements.
(4) Restrictions on shareholders' equity:
The statutory financial statements of ATL, the Company's principal
subsidiary, as filed, reflect the following-
Year ended December 3l,
1995 1994 1993
Statutory net income (loss) $(43,287) $ 2,232 $ 4,065
Statutory capital and surplus $72,137 $57,013 $46,143
In 1995, ATL acquired the long term care business of an unrelated
insurer, for which it paid a $40,000 ceding allowance. See Note 15. The
cost of this acquisition, and its related tax consequences, are
primarily responsible for the 1995 statutory loss.
ATL is required by insurance laws and regulations to maintain minimum
capital and surplus, determined in accordance with statutory accounting
regulations. Under Pennsylvania insurance law, dividends may be paid by
ATL only from statutory profits or surplus and require Pennsylvania
Insurance Department approval if the dividend is in excess of the
greater of l0% of surplus or net statutory income of the prior year. The
Department must be notified of any dividend in excess of one-half of l%
of admitted assets of ATL.
(5) Federal income taxes:
ATC and its direct subsidiaries file a consolidated Federal income tax
return. UGL files a separate Federal income tax return. ATL and UGL are
taxed as life insurance companies under the Tax Reform Act of 1986 and
Revenue Reconciliation Act of 1990. The 1990 Act requires life insurance
companies to capitalize costs of acquiring certain insurance contracts
and to amortize such costs over specified periods. The 1986 Act taxes
life insurance companies at general corporate rates.
The Company adopted the accounting and disclosure rules of SFAS 109,
"Accounting for Income Taxes," effective January 1, 1993, under which
the tax benefit of the small life insurance company deduction cannot be
anticipated for purposes of offsetting a deferred tax liability for
taxable temporary differences at the end of the current year. As a
result, the adoption of SFAS 109 resulted in an increase in the deferred
tax liability of $5,500 based on taxable temporary differences and the
net deferred tax liability at January 1, 1993. The Company has restated
as permitted under SFAS 109, prior years' financial statements to record
the effect of the adoption of this pronouncement.
The components of deferred tax assets and liabilities, measured under
SFAS 109 as of December 31, 1995 and 1994 are as follows:
1995 1994
Deferred tax liabilities
Deferred policy acquisition cost and other intangibles $34,934 $37,288
Unrealized gain on investments available for sale 5,517 -
Other 1,106 1,532
Deferred tax liabilities 41,557 38,820
Deferred tax assets
Policy liabilities 6,031 5,869
Net operating loss carry forward 575 670
Capital loss carryforward 47 185
Alternative minimum tax credit carry forward - 6
Other 503 551
Deferred tax assets 7,156 7,281
Net deferred tax liability 34,401 31,539
Current tax liability 1,538 3,323
Current and deferred income taxes $35,939 $34,862
The provision for Federal income taxes are comprised of the following:
Year ended December 31,
1995 1994 1993
Current taxes $12,061 $7,882 $1,090
Deferred taxes relating to:
Deferred policy acquisition costs (2,597) 4,848 7,622
Future policy benefits, claims and unearned
premium reserves 2,154 (1,619) (323)
Amortization of intangibles (705) (643) (884)
Net operating loss for tax purposes (518) 118 199
Tax rate increase on prior year temporary
differences - - 702
Other, net 614 (2,032) 309
Total deferred taxes (1,052) 672 7,625
Total provision for income taxes $11,009 $8,554 $8,715
A reconciliation between the Federal statutory tax rate and the
Company's effective tax rate is as follows:
Year ended December 31,
1995 1994 1993
Statutory tax rate 35.0% 35.0% 35.0%
Increase in taxes resulting from:
Effect of tax rate increase on temporary
differences as of January 1, 1993 - - 3.0%
Decrease in taxes resulting from:
Tax free investment income (3.3)% (3.3)% (0.6)%
Effective tax rate 31.7% 31.7% 37.4%
Pursuant to the requirements of SFAS 109, the Company recorded an
additional deferred tax provision of $702 during 1993 to reflect the
impact on deferred tax assets and liabilities resulting from the
increase in U.S. statutory maximum corporate tax rates from 34% to 35%.
ATC has $1,569 in non-life net operating loss carryforwards available
for tax purposes, and has capital loss carryforwards of approximately
$375 expiring in 1997.
Prior to 1984, ATL had accumulated $170 in a special policyholders'
surplus account which has been excluded from taxation. These amounts
will become taxable only when distributed to shareholders. No provision
for deferred income taxes has been made for these amounts since the
Company does not anticipate any transactions that would cause any part
of the account to become taxable.
The Internal Revenue Service is conducting a review of the Company's
federal income tax returns for the years ended December 31, 1993, 1992,
1991, and 1990. Management believes that the ultimate outcome of the
review will not have any material adverse effect on the financial
condition or results of operation of the Company.
(6) Stock option plans:
ATC has adopted several stock option plans (the "Plans"). The Plans
permit grants of options covering a maximum of 3,495,000 shares of
common stock. Under the Plans, options may be issued as incentive stock
options in the case of key employees and/or as non-qualified stock
options in the case of persons with managerial, professional or
supervisory responsibilities, including but not limited to, directors,
officers and consultants to ATC, who, in the opinion of the Committee
administering the Plans, have a capacity to make a substantial
contribution to ATC. One of the Plans also provides for the issuance of
up to 50,000 shares of the Company's common stock upon the exercise of
stock options granted as formula awards pursuant to the plan.
The per share exercise price may not be less than 100% of the fair
market value of the common stock on the date of grant, or 1l0% of the
fair market value in the case of incentive stock options issued to an
employee owning, at the time the option is granted, more than 10% of the
outstanding common stock of ATC. Options cannot be exercised more than
ten years after the date of grant. Incentive stock options held by
shareholders owning more than 10% of the outstanding common stock of ATC
cannot be exercised more than five years after the date of grant.
Stock Options
(The following table summarizes data relating to the stock options, as
restated for the stock split.)
Number of Shares
1995 1994 1993
Outstanding at beginning of year 1,234,788 1,390,788 1,341,774
Granted 564,375 142,500 276,000
Exercised (90,837) (298,500) (226,266)
Canceled - - (720)
Outstanding at end of year 1,708,326 1,234,788 1,390,788
At December 31, 1995, the number of shares exercisable and options
available for additional granting for all plans was 1,444,503 and
259,698, respectively. The exercise price of options outstanding at
December 31, 1995, ranged from $1.46 to $15.75 per share. The average
exercise price at December 31, 1995, is $8.44 per share. During 1995,
options for 90,837 shares were exercised at a range of $1.58 to $8.66
per share.
(7) Shareholders' rights agreement:
On April 25, 1990, the Company declared a dividend distribution in the
form of preferred stock purchase rights (the "rights"). The rights
become exercisable if a person or group acquires or announces a tender
offer to acquire 20% or more of the Company's common stock. The rights
also become exercisable if the Board of Directors declares a person to
be an "adverse person" and that person has obtained more than 10% of the
outstanding shares of the Company's common stock.
Each right, when exercisable, entitles the registered holder to
purchase one one-hundredth of a share of Series A preferred stock at an
exercise price of $50 subject to certain adjustments. In addition, if a
person or group acquires 20% or more of the outstanding shares of the
Company's common stock, subject to certain exceptions, or a person is
declared an adverse person, each right will then entitle its holder
(other than such persons or members of any such group) to purchase, at
the right's then current exercise price, a number of shares of the
Company's common stock having a total market value of twice the right's
exercise price.
In the event that the Company merges with or transfers 50% or more of
its assets or earnings to any entity after the rights become
exercisable, holders of rights may purchase, at the right's then current
exercise price, common stock of the acquiring entity having a value
equal to twice the right's exercise price.
In addition, at any time after a person acquires 20% of the
outstanding shares of common stock and prior to the acquisition by such
person of 50% or more of the outstanding shares of common stock, the
Company may change the rights (other than the rights which have become
null and void), in whole or in part, at an exchange ratio of one share
of common stock or equivalent share of preferred stock, per right.
The Board of Directors can redeem the rights for $.01 per right at any
time prior to the acquisition by a person or group of beneficial
ownership of 20% or more of the Company's common stock or a person being
declared an adverse person. Until a right is exercised, the holder
thereof will have no rights as a shareholder of the Company, including
without limitation, the right to vote or to receive dividends. Unless
earlier redeemed or exchanged, the rights will expire on May 14, 2000.
(8) Claim Reserves:
Activity in the liability for policy claim reserves is summarized as
follows for the years ended December 31:
1995 1994 1993
Claim reserves-beginning of year: $ 85,290 $ 55,958 $ 43,315
Add claims incurred during the year related to-
Current year: 133,221 91,831 73,398
Prior years: 6,327 3,131 5,213
Total incurred: 139,548 94,962 78,611
Less claims paid during the year related to-
Current year: 49,794 35,200 30,049
Prior years: 57,141 42,703 35,919
Total paid: 106,935 77,903 65,968
Plus-reinsurance assumed (See Note 15): 92,170 12,273 0
Claim reserves-end of year: $210,073 $ 85,290 $ 55,958
The development of prior year claims reserves reflects normal changes
in actuarial estimates. The Company utilizes case reserves that are
considered fixed and determinable and discounts such reserves using an
interest rate of 6.25% for financial statements prepared in accordance
with GAAP and 5.0% discount rate for statutory purposes.
(9) Employee benefits:
Effective January 1, 1984, ATC initiated a defined benefit pension
plan (the "Plan") for all employees over the age of 2l years who have
worked for ATC for a period of one year. ATC makes annual contributions
to the Plan based upon amounts required to fund such plan as determined
by a consulting actuary. Pension expense was $203, $181 and $154, for
the years ended December 31, 1995, 1994 and 1993, respectively. The
following table sets forth the plan's funded status at December 31, 1995
and 1994.
1995 1994
Actuarial present value of benefit obligations:
Vested benefits $ 733 $ 593
Non-vested benefits 124 99
$ 857 $ 692
Projected benefit obligation $1,270 $ 1,052
Plan assets at fair value (750) (614)
Projected benefit obligation in excess of plan assets 520 438
Unrecognized net loss (276) (292)
Unrecognized transition obligation (89) (92)
Unrecognized prior service cost (64) (70)
Accrued (prepaid) pension expense $ 91 $ (16)
Net pension cost includes the following components:
Service cost $ 162 $ 137
Interest cost on projected benefit obligation 72 60
Actual return on plan assets (47) (16)
Net amortization 16 0
Net periodic pension cost $ 203 $ 181
The assumed rate of increase in future compensation levels used in
determining the actuarial present value of the projected benefit
obligation is 5% in 1995 and 1994. The expected rate of return on assets
is 8% in 1995 and 1994. The discount rate used is 7% in 1995 and 1994.
The Company does not have any other obligations to provide post-
retirement benefits to employees.
(10) Commitments and contingencies:
The Company is a defendant in various legal proceedings and litigation
arising in the ordinary course of business. In management's opinion,
based on discussions with counsel, the resolution of such proceedings
will not have a material adverse effect on the Company's consolidated
financial condition and results of operations.
A civil shareholders' class action suit filed against the Company and
certain of its officers in March 1992 was settled during the second
quarter of 1993. Under the terms of the settlement, class members were
paid $1,500, of which $1,000 was paid by the Company's liability
carrier. While the Company believed the suit was without merit, a
settlement was reached to avoid internal distraction, ongoing
professional fees and other potential costs and uncertainties of
continued litigation.
(11) Transactions with related parties:
Commissions paid to agencies controlled by certain directors amounted
to $136 in 1995, $140 in 1994 and $104 in 1993.
The Company has employment contracts with certain key employees. These
contracts provide for, among other things, certain severance payments in
the case of termination.
(12) 6.5% convertible subordinated debentures due 2005
In September 1995 the Company issued $103,500 of 6.5% Convertible
Subordinated Debentures (the "Debentures") due October 1, 2005. The
proceeds were used to finance an additional surplus contribution to ATL,
prepay $20 million in outstanding borrowings under the Company's
Revolving Credit Facility and for general corporate purposes.
Interest on the debentures is payable semi-annually on April 1 and
October 1, commencing on April 1, 1996. The Debentures are redeemable
at the Company's option at a price equal to 103.25% after October 1998,
declining to 100% if redeemed after October 2001.
The Debentures are convertible into ATC common stock anytime prior to
maturity at a conversion price equal to $15.17 per share (equivalent to
a conversion rate of 65.94 shares per $1,000 principal amount of
debentures). The conversion price has been adjusted to reflect the 3-
for-2 stock split discussed in Note 1, and is subject to further
adjustment under certain events including dividends distributions and
common stock issuances, among others.
Debt issue costs incurred in connection with the Debentures totaling
$3,796 are included in other assets and are being amortized over the
term of the Debentures. Accumulated amortization is $74 at December 31,
1995.
(13) Bank borrowings
ATC currently is party to a $20,000 Revolving Credit Agreement (the
"Agreement"). The revolving credit availability will be reduced by
$1,667 each quarter beginning no later than March 31, 2002. No
borrowings are outstanding at December 31, 1995.
At December 31, 1994, $20,000 in borrowings were outstanding.
Proceeds from these borrowings were used to fund surplus contributions
to ATL during 1994 and 1993. Such borrowings were repaid with the
proceeds from the Debentures discussed in Note 12.
Borrowings are secured by the common stock of ATL and ATIS. Interest
is payable at 0.25% over the bank's base rate, at 1.625% over the London
interbank Eurodollar rate or 1.75% over the bank's certificate of
deposit rate, at the Company's option. The average interest rate for
amounts borrowed was 8.35% and 8.44% for 1995 and 1994, respectively. A
commitment fee is payable to the bank based on the average daily unused
portion of the credit.
The Agreement contains restricted covenants. The more significant
covenants require the company maintain a specified amount of net worth
and statutory surplus and meet certain financial ratios, and restricts
mergers and acquisitions, future indebtedness and commitments, and types
of investments. The Company was in compliance with all of the covenants
as amended as of December 31, 1995.
(14) Leases:
Future minimum lease rentals on operating leases which consist
principally of the Company's Home Office facility and computers are as
follows:
1996 1,935
1997 1,796
1998 1,411
1999 1,185
Thereafter 938
Total $7,265
Operating lease expenses for the years ended December 31, 1995, 1994,
and 1993 were $1,670, $1,607 and $1,734, respectively.
(15) Acquisitions:
In December 1995, the Company closed on an reinsurance agreement to
acquire the long term care insurance business of an unrelated insurance
company which consisted of approximately $96,000 of annualized premium.
The transaction was effective as of October 1, 1995. Under the terms of
the reinsurance agreement, the Company assumed all existing liabilities
associated with the long term care insurance business on a coinsurance
basis. Cash and marketable securities of approximately $249,969 were
transferred to the Company. In October 1994, the Company acquired the
long term insurance business of an unrelated insurance company which
consisted of approximately $25,000 of annualized premiums. Approximately
$29,400 in cash was transferred to the Company. These acquisitions have
been accounted for using the purchase accounting method. Total cash and
marketable securities received in connection with these acquisitions
approximates reserve liabilities assumed.
Value of business acquired consists of the excess of the purchase
price over the estimated fair value of net assets acquired in connection
with the purchase of common stock and the present value of expected
future profits associated with blocks of business purchased prior to
1992. Value of business acquired related to the purchased blocks of
business is being amortized over the respective lives of the blocks,
which are estimated at approximately 5 to 7 years.
(16) Consolidated quarterly financial data (unaudited).
Quarterly financial data for the years ended December 31, 1995 and 1994
are as follows:
First Second Third Fourth
1995
Total Revenues $ 65,314 $ 65,476 $ 68,278 $ 98,264
Total Benefits and Expenses 57,740 57,424 59,962 87,512
Income before Provision
for Income Tax 7,574 8,052 8,316 10,752
Provision for Income Taxes 2,350 2,544 2,589 3,526
Net Income $ 5,224 $ 5,508 $ 5,727 $ 7,226
Net Income Per Share
Primary $ .32 $ .34 $ .35 $ .44
Fully Diluted $ .32 $ .34 $ .34 $ .36
First Second Third Fourth
1994
Total Revenues $ 49,610 $ 50,605 $ 52,043 $ 60,643
Total Benefits and Expenses 43,439 44,205 45,149 53,126
Income before provision for
income tax 6,171 6,400 6,894 7,517
Provision for Income Taxes 1,929 2,010 2,178 2,437
Net Income $ 4,242 $ 4,390 $ 4,716 $ 5,080
Net Income Per Share
Primary $ .27 $ .27 $ .29 $ .31
Fully Diluted $ .27 $ .27 $ .29 $ .31
Per share amounts have been adjusted to reflect the three-for-two stock
split payable on April 10, 1996.
SCHEDULE I
SUMMARY OF INVESTMENTS
December 31, 1995
(In thousands)
Market Value
Type of Investment Amortized Amount as shown
Cost in Balance Sheet
Fixed Maturities:
Bonds --
Government issues $133,703 $136,456
Mortgage-backed securities 180,926 183,917
State & political subdivisions 78,915 80,350
Public utilities 18,061 19,133
All other corporate bonds 155,229 162,740
Certificates of deposits 25 25
Mortgage loan 447 447
Total investments $567,306 $583,068
SCHEDULE II
AMERICAN TRAVELLERS CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
(In thousands except per share data)
December 31,
1995 1994
ASSETS
Cash $ 1,077 $ 919
Bonds 21,710 50
Accrued interest 452 -
Property and equipment, at cost(net of
accumulated depreciation of $1,133 and $2,477) 2,367 4,205
Investment in subsidiaries * 291,426 179,286
Other assets 4,253 482
Total assets $ 321,285 $184,942
LIABILITIES AND SHAREHOLDERS' EQUITY
Payable to subsidiaries $ 469 $ 300
Other liabilities 2,966 1,149
Notes payable - 20,000
Current & deferred income taxes 43,545 27,154
6.5% convertible subordinated debentures 103,500 -
Preferred stock, $.01 par value;5,000,000 shares
authorized; no shares issued - -
Common stock, $.01 par value; 37,500,000 shares
authorized, 16,053,105 and 15,962,268
shares issued) 107 106
Capital in excess of par value 60,015 59,480
Net unrealized gains on investments 10,245 -
Retained earnings 101,187 77,502
Less - shares of common stock held in treasury
at cost (200,159) (749) (749)
Total shareholders' equity 170,805 136,339
Total liabilities and shareholder's equity $ 321,285 $184,942
Share amounts have been adjusted to reflect the three-for-two stock
split payable on April 10, 1996.
* Eliminated in consolidation
The condensed financial information should be read in conjunction with
the American Travellers Corporation and Subsidiaries December 31, 1995
consolidated financial statements and notes thereto.
SCHEDULE II(Continued)
AMERICAN TRAVELLERS CORPORATION (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME AND RETAINED EARNINGS
(In thousands)
Year ended December 31,
1995 1994 1993
Investment income $ 511 $ 15 $ 5
Management fee(*) 675 1,562 1,770
Rental income(*) 450 - -
Dividend from subsidiary(*) 249 - -
Total revenues 1,885 1,577 1,775
General and administrative expenses 319 388 2,368
Interest expense 3,260 989 32
Total expenses 3,579 1,377 2,400
Income (loss) before equity in
undistributed net earnings of
subsidiaries (1,694) 200 (625)
Equity in undistributed net
earnings of subsidiaries(*) 36,388 26,782 23,839
Income before provision for
income tax 34,694 26,982 23,214
Provision for income tax 11,009 8,554 8,606
Net Income $ 23,685 $ 18,428 $ 14,608
Retained earnings, beginning of year $ 77,502 $ 59,074 $ 44,466
Retained earnings, end of year $101,187 $ 77,502 $ 59,074
*Eliminated in consolidation
The condensed financial information should be read in conjunction
with the American Travellers Corporation and Subsidiaries December
31, 1995, consolidated financial statements and notes thereto.
SCHEDULE II
AMERICAN TRAVELLERS CORPORATION(PARENT COMPANY)
CONDENSED FINANCIAL INFROMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
(In thousands)
Years ended December 31,
1995 1994 1993
Cash flows-operating activities
Net income $ 23,685 $ 18,428 $ 14,608
Adjustments to reconcile net income
to net cash provided by operating
activities
Depreciation and amortization (71) 594 816
Realized investment (gains) losses
Equity in undistributed net earnings
of subsidiaries (36,388) (26,782) (23,839)
Increase (decrease) in other liabilities 1,818 (673) 70
(Increase) decrease in other assets (502) 123 (78)
Current and deferred income tax 10,874 8,547 8,521
Total adjustments (24,269) (18,191) (14,510)
Net cash provided by operating
activities (584) 237 98
Cash flows-investing activities
Purchase of investments (21,660) - -
(Purchase)/sale of property and
equipment (7) (425) (692)
Net cash used in investing activities (21,667) (425) (692)
Cash flows-financing activities
Debenture issue costs (3,796) - -
Proceeds from issuance of Subordinated
Debentures 103,500 - -
Bank borrowings - 8,000 12,000
Exercise of options 536 939 405
Repayment of Bank borrowing (20,000) - -
Increase in investment of subsidiary (58,000) (8,000) (12,000)
Increase (decrease) in payable to
subsidiary 169 (19) 273
Net cash provided by financing
activities 22,409 920 678
Net increase (decrease) in cash $ 158 $ 732 $ 84
Cash and cash equivalent, beginning $ 919 $ 187 $ 103
Cash and cash equivalent, ending $ 1,077 $ 919 $ 187
* Eliminated in consolidation
The condensed financial information should be read in conjunction with
the American Travellers Corporation and Subsidiaries December 31, 1995,
consolidated financial statements and notes thereto.
Schedule II (Continued)
AMERICAN TRAVELLERS CORPORATION AND SUBSIDIARIES
NOTES CONSOLIDATED FINANCIAL STATEMENTS
The condensed financial statements of American Travellers Corporation
(the parent company) should be read in conjunction with the American
Travellers Corporation and Subsidiaries December 31, 1995 consolidated
financial statements and notes thereto.
(1) Summary of significant accounting policies:
The accompanying parent company financial statements reflect only
those accounts of American Travellers Corporation, The parent company's
investment in its directly owned subsidiaries, American Travellers life
Insurance Company, American Travellers Insurance Company of New York,
and American Travellers Insurance Services Company, Inc., are reflected
on the equity basis. Intercompany accounts and transactions have not
been eliminated since consolidated financial statements are not
presented.
(2) Dividend restrictions:
Under Pennsylvania insurance law, dividends may be paid by ATL only
from statutory profits or surplus and require Insurance Department
approval if the dividend is in excess of the greater of 10% of surplus
or net statutory income of prior year. The Insurance Department must be
notified of any dividend in excess of one-half of 1% of admitted assets
of ATL.
(3) Surplus contributions:
The parent company utilized the proceeds of the 6.5% Convertible
Subordinated Debenture offering to make an investment in ATL of $58,000
in 1995. The parent company also made a non-monetary contribution to
surplus of $1,990 in 1995. The Company utilized proceeds of a bank
credit facility to make investments of $8,000 in 1994 and $12,000 in
1993.
(4) Income taxes:
A tax sharing agreement , effective January 1, 1995, among ATC, ATL,
ATICNY, UGL AND ATIS, has been implemented to allocate Federal income
taxes.
(5) Dividend:
In September 1995, effective January 1, 1995, ATIS paid a non-monetary
dividend to ATC in the amount of $249.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item is incorporated by reference to
the information appearing under the caption "Election of Directors" in
the Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be filed with the Commission on or before April 28, 1996
and the information appearing under Item 4a of this report.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this item is incorporated by reference to
the information appearing under the caption " Executive Compensation" in
the Registrant's definitive Proxy Statement for its Annual Meeting of
Shareholders to be filed with the Commission on or before April 28,
1996.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to
the information appearing under the caption "Security Ownership of
Certain Beneficial Owners and Management" in the Registrant's definitive
Proxy Statement for its Annual meeting of Shareholders to be filed with
the Commission on or before April 28, 1996.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to
the information appearing under the caption "Election of Directors" in
the Registrant's definitive Proxy Statement for its Annual meeting of
Shareholders to be filed with the Commission on or before April 28,
1996.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Exhibits, Financial Statements and Schedules
(1) Financial Statements
Report of Independent Public Accountants
(i) Consolidated Balance Sheet as of December 31, 1995 and
1994.
(ii) Consolidated Statement of Income for the years ended
December 31, 1995, 1994 and 1993.
(iii) Consolidated Statement of Shareholder's Equity for the
years ended December 31, 1995, 1994, and 1993.
(iv) Consolidated Statement of Cash Flows for the years ended
December 31, 1995, 1994 and 1993.
(v) Notes to Consolidated Financial Statements
(2) Financial Statement Schedules
(i) Schedule I - Summary of Investments at December 31, 1995
(ii) Schedule II - Condensed Financial Information of the
Registrant as of December 31, 1995 and 1994.
All other Financial Statement Schedules are omitted because they are not
applicable or the required information is shown in the Consolidated
Financial Statements or Notes thereto.
(3) Exhibits
Exhibits filed are listed in the attached exhibit index.
(b) Reports on 8-K
On December 7, 1995, the Company filed an 8-K disclosing a
Reinsurance transaction among American Travellers Life
Insurance Company and Transport Life Insurance Company and
Continental Life Insurance Company.
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.
AMERICAN TRAVELLERS CORPORATION
By: /s/ John A. Powell
John A. Powell,
Chairman of the Board
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 dated indicated.
/s/ John A. Powell March 26, 1996
John A. Powell, Chairman of the Board,
Chief Executive officer and Director
(Principal Officer)
/s/ Benedict J. Iacovetti March 26, 1996
Benedict J. Iacovetti, Treasurer and
Chief Financial and Accounting Officer
/s/ Susan Mankowski March 26, 1996
Susan T. Mankowski, Vice President-
Administration and Secretary, Director
/s/ Walter E. Conrad March 26, 1996
Walter E. Conrad, Director
/s/ Walter J. Diener March 26, 1996
Walter J. Diener, Director
/s/ Henry G. Hager March 26, 1996
Henry G. Hager, Director
/s/ Arnold H. Keehn March 26, 1996
Arnold H. Keehn, Director
/s/ Alice E. Powell March 26, 1996
Alice E. Powell, Director
/s/ Ramon R. Obod March 26, 1996
Raymond R. Obod, Director
AMERICAN TRAVELLERS CORPORATION
Index to Exhibits to Annual Report on Form 10-K for 1995
Exhibits Page
Number
3(a) Articles of Incorporation, as amended and restated. 59
3(b) By-Laws, as amended and restated, -Incorporated by
reference to Exhibit 3(b)to the Registrant's
Registration Statement on Form S-3 (File No.33-94614) -
4(a) Specimen Common Stock Certificate-Incorporated by
reference to Exhibit 4(a) to the Company's Annual
Report on Form 10-K for the fiscal year ended
December 31, 1987. -
4(b) Stock Rights Agreement-Incorporated by reference to
Exhibit 4 to the Company's Registration Statement on
Form 8-A filed May 9, 1990. -
4(c) Indenture relating to 6.5 % Convertible Subordinated
Debentures due October 1, 2005. 73
4(d) Specimen Debenture Certificate. 147
9(a) Voting Trust Agreement dated as of April 28, 1989, as of
March 17, 1989, by, between and among the estate
of Francis E. Powell and John A. Powell, Alice E. Powell
and Ramon R. Obod as trustees-Incorporated by reference to
Exhibit 9(a) to the Company's Annual Report on Form
10-K for the fiscal year ended December 31, 1989
(the "1989 10-K"). -
9(b) Restrictive Stock Sale Agreement, dated as of July 1, 1989,
between and among John A. Powell and James V. Fiumara, Sr.
and Lois Jane Fiumara-Incorporated by reference to
the 1989 10-K. -
10(a) Amended and Restated Employment Agreement as of February
1994 made and entered into between the Company and John A.
Powell. - Incorporated by reference to 1993 10-K. -
10(b) Amendment to Amended and Restated Employment Agreement
between the Company and John A. Powell. 152
10(c) Employment Agreements made and entered into between
the Company and Certain Officers - Incorporated by
reference to the 1989 10-K. -
11 Schedule of Computation of Net Income per share 155
21 List of Subsidiaries 156
23 Consent of Arthur Andersen LLP 157
27 Financial Data Schedule (electronic filing only) 160
Exhibit 3(A)
ARTICLES OF INCORPORATION
(restated as of March 29, 1996)
1. The name of the corporation is:
AMERICAN TRAVELLERS CORPORATION
2. The location and post office address of its registered
office in this Commonwealth is:
3220 Tillman Drive
Bensalem, PA 19020
3. The purpose or purposes of the corporation which shall
be organized under this Act are as follows:
To act as a holding company and engage
in and do any lawful act concerning any and
all lawful business for which corporations
may be incorporated under the Business
Corporation Law.
4. The date of its incorporation is January 8, 1971 and
the term of its existence is perpetual.
5. (a) The aggregate number of shares of stock which the
Corporation shall have the authority to issue is 37,500,000
shares of Common Stock, $.01 par value per share, and 5,000,000
shares of Preferred Stock, $.01 par value per share."
(b) The shares of Preferred Stock may be divided into
and issued from time to time in one or more series as may be
designated by the Board of Directors of the Corporation, each
such series to be distinctly titled and to consist of the number
of shares designated by the Board of Directors. All shares of
any one series of Preferred Stock so designated by the Board of
Directors shall be alike in every particular, except that shares
of any one series issued at different times may differ as to the
dates from which dividends thereon (if any) shall accrue or by
cumulative (or both). The designations, relative rights,
preferences and limitations of any series of Preferred Stock may
differ from those of any and all other series at any time
outstanding. The Board of Directors may change the designation
or number of shares, or the preferences, relative rights and
limitations of the shares, of any theretofore established series
of Preferred Stock, no shares of which have been issued. The
Board of Directors of the Corporation is hereby expressly vested
with authority to determine by resolution the preferences,
relative rights and limitations of the Preferred Stock and each
series thereof which may be designated by the Board of Directors,
including, but without limiting the generality of the foregoing,
the following:
1. The voting rights and powers (if any) of the Preferred
Stock and each series thereof;
2. The rates and times at which, and the terms and
conditions on which, dividends (if any) on Preferred
Stock and each series thereof, will be paid, and any
dividend preferences or rights of cumulation;
3. The rights (if any) of holders of Preferred Stock, and
each series thereof, to convert the same into, or
exchange the same for shares of other classes (or
series of classes) of capital stock of the Corporation
and the terms and conditions for each conversion or
exchange, including provisions for adjustment for
conversion or exchange prices or rates in such events
as the Board of Directors shall determine;
4. The redemption rights (if any) of the Corporation and
times at which the terms and conditions on which
Preferred Stock and each series thereof may be
redeemed; and
5. The rights and preferences (if any) of the holders of
Preferred Stock, and each series thereof, upon the
voluntary or involuntary dissolution, liquidation or
winding up of the Corporation.
(c) The shareholders of the Corporation shall not have
the right to cumulate their votes for the election of directors.
6. The name and address of the incorporator and the number
and class of shares subscribed was as follows:
Number of Class
Name Address of Shares
Daniel A. Gordon 550 West DeKalb Pike One (1) share
King of Prussia, PA common stock
19406
7. (a) In furtherance and not in limitation of the powers
conferred by the laws of the Commonwealth of Pennsylvania, the
Board of Directors is expressly authorized and empowered, without
the assent or the vote of the stockholders to make, alter, or
repeal, the By-Laws of the Corporation.
(b) In the absence of actual fraud, no contract or
other transaction between the Corporation and any other
corporation shall be impeached, affected or invalidated by the
fact that directors of the Corporation are directors of such
other corporation. In the absence of actual fraud no contract or
other transaction between the Corporation and any other
corporation shall be impeached, affected or invalidated by the
fact that such other corporation, at least a majority of the
stock of which having voting power is owned or controlled by the
corporation, in any case be void or voidable because of the fact
that the directors of the Corporation are directors of such other
corporation nor shall any such director be under any of the
provisions or sub-divisions under this Article SEVENTH, nor shall
any such director be liable to account because of such interest.
(c) Any director individually, or any firm of which
any director is partner, or any corporation of which any director
may be an officer, director, employee or holder of any amount of
its capital stock may be a party to or may be interested in any
contract or transaction of the Corporation and, in the absence of
actual fraud, no such contract or other transaction shall be
thereby affected, impeached or invalidated.
No director shall be liable to account to the Corporation for any
profit realized by him from or through any such transaction or
contract of the Corporation by reason of his interest in such
transaction or contract provided that such contract or
transaction shall be approved or ratified by the affirmative vote
of directors who are not so interested constituting a majority of
a quorum of directors present at a meeting of the Board of
Directors of the Corporation having authority in the premises.
Directors interested in any contracts or transactions of the
types described in the foregoing paragraph may be counted when
present at meetings of the Board of Directors or any of the
committees for the purpose of determining the existence of a
quorum to consider and vote upon any such contract or
transaction. Any director whose interest in any such contract or
transaction. Any director whose interest in any such contract or
transaction arising solely by reason of the fact that he is a
stockholder, officer or creditor of such other corporation (or
solely by reason of the fact that he is a director of such other
corporation or partner in such firm where such dealing, contract
or arrangement is made by officers or employees of the
Corporation in the ordinary performance of their duties and
without the actual participation of such director) shall not be
deemed interested in such contract or other transaction under any
of the provisions of this subdivision (c) nor shall any such
contract or transaction be void or voidable, nor shall any such
director be liable to account because of such interest.
(d) No contract or other transaction between the
Corporation and any other corporation or firm which provides for
the purchase and sale of securities or other property or for any
other action for the Corporation upon terms not less favorable to
the Corporation than those offered to others, shall in any case
be void or voidable because of the fact that the directors of the
Corporation are directors of such other corporation or partners
in such firm, nor shall any directors be deemed interested in
such contract or other transactions under any of the provisions
of subdivision(c) of this Article SEVENTH, nor shall any such
director be liable to account because of such interest.
(e) Any contract or act that shall be approved or
ratified by the vote of the holders of a majority of the capital
stock of the Corporation having voting power which is represented
in person or by proxy at any annual meeting of stockholders or at
any special meeting called for the purpose, among others, of
considering the approval or ratification of the acts of officers
and directors (provided that a lawful quorum of stockholders be
there represented in person or by proxy) shall be valid and
binding upon the corporation and upon all its stockholders as
though it had been approved or ratified by every stockholder of
the Corporation.
8. The Corporation shall indemnify any and all of its
present or former directors and officers and any person who is or
was serving at the request of the Corporation as a director or
officer of another corporation or of a partnership, joint
venture, trust or other enterprise, including service with
respect to employee benefit plans to the fullest extent permitted
by law. Such right of indemnification shall not be exclusive of
any other right which such officers and directors of the
Corporation and other persons may have or hereafter acquire and
without limiting the generality of such statement, they shall be
entitled to their respective rights of indemnification under any
By-Law, agreement, vote of shareholders, provisions of law or
otherwise, as well as their rights under this Article. The
foregoing indemnification provisions shall be retroactive to
January 27, 1987 to the fullest extent permitted by law.
9. Section 910 of the Pennsylvania Business Corporation
Law (15 P.S. 1910) shall not be applicable to the Corporation.
10. (a) The number of directors of the Corporation shall be
fixed from time to time in the manner provided in the By-Laws.
The directors shall be divided into three classes: Class I, Class
II and Class III. Each Class shall consist, as nearly as may be
possible, of one-third of the total number of directors. At the
annual meeting of shareholders in 1987, the Class I directors
shall be elected for three-year terms, the Class II directors for
two-year terms and the Class III directors for one-year terms.
At each succeeding annual meeting of shareholders beginning in
1988, successors to the class of directors whose terms expire at
that annual meeting shall each be elected for a three-year term.
If the number of directors is changed, any increase or decrease
shall be apportioned among the classes so as to maintain the
number of directors in each class as nearly equal as possible,
and any additional director of any class elected to fill a
vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of
that class, but in no case will a decrease in the number of
directors shorten the term of any incumbent director. A director
shall hold office until the annual meeting in the year in which
his term expires and until his successor shall be elected and
shall qualify, subject, however, to prior death, resignation,
retirement, disqualification or removal from office. Any vacancy
on the Board of Directors that results from an increase in the
number of directors shall be filled by a majority of the Board of
Directors in office, and any other vacancy occurring in the Board
of Directors shall be filled by a majority of the directors in
office, although less than a quorum, or by a sole remaining
director. Any director elected to fill a vacancy not resulting
from an increase in the number of directors shall have the same
remaining term as that of his predecessor.
(b) A director may be removed with or without cause
only upon the affirmative vote of shareholders entitled to cast
at least eighty (80%) percent of the votes which all shareholders
are entitled to cast generally in the election of directors,
voting together as a single class.
(c) Notwithstanding the foregoing, whenever the
holders of any class of stock (other than Common Stock) issued by
the Corporation shall have the right, voting separately as a
class or otherwise, to elect directors, then the authorized
number of directors of the Corporation shall be increased by the
number of additional directors to be elected, and the election,
term of office, filling of vacancies and other features of such
directorships shall be governed by the terms of these Articles of
Incorporation applicable thereto.
(d) Notwithstanding any other provisions of these
Articles of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the By-Laws
of the Corporation), the affirmative vote of shareholders
entitled to cast at least eighty (80%) percent of the votes which
all shareholders are entitled to cast generally in the election
of directors, voting together as a single class, shall be
required to amend, alter, change or repeal, or adopt any
provisions of the Articles of Incorporation or By-Laws
inconsistent with, this Article 10.
11. Special meetings of the shareholders may be called by
the Chairman of the Board or the President and shall be called by
the Secretary when directed by the Board of Directors or by the
written request of shareholders entitled to cast at least fifty
(50%) percent of the votes which all shareholders are entitled to
cast at such meeting.
Notwithstanding any other provisions of these Articles of
Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the By-Laws
of the Corporation), the affirmative vote of shareholders
entitled to cast at least eighty (80%) percent of the votes which
all shareholders are entitled to cast generally in the election
of directors, voting together as a single class, shall be
required to amend, alter, change or repeal, or adopt any
provisions of the Articles of Incorporation or By-Laws
inconsistent with this Article 11.
12.I In addition to any affirmative vote required by
Pennsylvania law or any other provision of these Articles of
Incorporation, the affirmative vote of at least eighty (80%)
percent of all the votes evidenced by the Voting Stock, voting
together as a single class, shall be required for the approval or
authorization of any "Business Combination" (as hereinafter
defined) involving a "Related Person" (as hereinafter defined),
provided, however, that the eighty (80%) percent voting
requirement shall not be applicable if:
(A) The "Continuing Directors" of the Corporation (as
hereinafter defined) by a two-thirds vote have expressly
approved the Business Combination either in advance of or
subsequent to the acquisition of outstanding shares of
Voting Stock of the Corporation that caused the Related
Person to become a Related Person; or
(B) If the following conditions are satisfied:
(1) The aggregate amount of the cash and the fair
market value, as determined by two-thirds of the
Continuing Directors, of the property, securities or
other consideration to be received per share of capital
stock of the Corporation in the Business Combination by
holders of capital stock of the Corporation, other than
the Related Person involved in the Business
Combination, is not less than the "Highest Per Share
Price" or the "Highest Equivalent Price" (as these
terms are hereinafter defined) paid by the Related
Person in acquiring any of its holdings of the
Corporation's capital stock; and
(2) A proxy or information statement complying
with the requirements of the Securities Exchange Act of
1934, as amended, and the rules and regulations
thereunder (or any subsequent provisions replacing such
Act, rules or regulations) shall have been mailed to
all shareholders of the Corporation at least 30 days
prior to the consummation of such Business Combination
(whether or not such proxy or information statement is
required to be mailed pursuant to such Act or
subsequent provisions). The proxy or information
statement shall contain at the front thereof, in a
prominent place, the position of the Continuing
Directors as to the advisability (or inadvisability) of
the Business Combination and, if deemed advisable by a
majority of the Continuing Directors, the opinion of an
investment banking firm selected by the Continuing
Directors as to the fairness of the terms of the
Business Combination from the point of view of the
holders of the outstanding shares of capital stock of
the Corporation other than any Related Person.
II. For purposes of this Article 12:
(A) The term "Business Combination" shall mean (i) any
merger or consolidation of the Corporation or a subsidiary
of the Corporation into or with a Related Person, in each
case irrespective of which corporation or company is the
surviving entity; (ii) any sale, lease, exchange, mortgage,
pledge, transfer or other disposition to or with a Related
Person (in a single transaction or a series of related
transactions) of all or a "Substantial Part" (as hereinafter
defined) of the assets of the Corporation (including without
limitation any securities of a subsidiary) or of a
subsidiary of the Corporation, (iii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition to
or with the Corporation or to or with a subsidiary of the
Corporation (in a single transaction or series of related
transactions) of all or a Substantial Part of the assets of
a Related Person; (iv) the issuance of any securities of the
Corporation or of a subsidiary of the Corporation to a
Related Person (other than an issuance of securities which
is effected on a pro rata basis to all shareholders of the
Corporation); (v) any recapitalization or reclassification
of securities (including any reverse stock split) of the
Corporation which would have the effect, directly or
indirectly, of increasing the proportionate share of the
outstanding Voting Stock of the Corporation owned by a
Related Person; (vi) the adoption of any plan or proposal
for the liquidation or dissolution of the Corporation
proposed by or on behalf of a Related Person; and (vii) the
acquisition by the Corporation or by a subsidiary of the
Corporation of any securities of a Related Person.
(B) The term "Related Person" shall mean any
individual, corporation, partnership or other person or
entity (other than any subsidiary of the Corporation and
other than any profit-sharing, employee stock ownership or
other employee benefit plan of the Corporation or a
subsidiary of the Corporation) which, as of the record date
for the determination of shareholders entitled to notice of
and to vote on any Business Combination, or immediately
prior to the consummation of such transaction, together with
its "Affiliates" and "Associates" (as defined in Rule 12b-2
of the General Rules and Regulations under the Securities
Exchange Act of 1934 as in effect at the date of the
adoption of this Article 12 by the shareholders of the
Corporation (collectively and as so in effect, the "Exchange
Act")), are "Beneficial Owners" (as defined in Rule 13d-3 of
the Exchange Act) in the aggregate of ten (10%) percent or
more of the outstanding shares of Voting Stock of the
Corporation, and any Affiliate or Associate of any such
individual, corporation, partnership or other person or
entity.
(C) The term "Substantial Part" shall mean assets
having a fair market value, as determined by two-thirds of
the Continuing Directors, of more than twenty (20%) percent
of the total consolidated assets of the Corporation and its
subsidiaries taken as a whole, as of the end of its most
recent fiscal year ending prior to the time the
determination is being made.
(D) Without limitation, any shares of Voting Stock of
the Corporation that any Related Person has the right to
acquire at any time (notwithstanding that Rule 13d-3 of the
Exchange Act deems such shares to be beneficially owned only
if such right may be exercised within 60 days) pursuant to
any agreement, or upon exercise of conversion rights,
warrants or options, or otherwise, shall be deemed to be
beneficially owned by the Related Person and to be
outstanding for purposes of subparagraph (B) above.
(E) For the purposes of subparagraph (B)(1) of
paragraph I of this Article 12, the term "other
consideration to be received" shall include, without
limitation, Common Stock or other capital stock of the
Corporation retained by shareholders of the Corporation
other than Related Persons or parties to such Business
Combination in the event of a Business Combination in which
the Corporation is the surviving corporation.
(F) The term "Voting Stock" shall mean all outstanding
shares of voting capital stock of the Corporation and each
reference to a proportion of Voting Stock shall refer to
such proportion of the votes entitled to be cast by such
shares.
(G) The term "Continuing Director" shall mean a
director who was a member of the Board of Directors of the
Corporation at the date of the adoption of this Article 12
by the shareholders of the Corporation, together with each
director who either (i) was a member of the Board of
Directors immediately prior to the time that the Related
Person involved in a Business Combination became the
Beneficial Owner of ten (10%) percent of the Voting Stock of
the Corporation, or (ii) was designated (before his or her
initial election as director) as a Continuing Director by a
majority of the then Continuing Directors.
(H) A Related Person shall be deemed to have acquired
a share of the Voting Stock of the Corporation at the time
when such Related Person became the Beneficial Owner
thereof. With respect to the shares owned by Affiliates.
Associates or other persons whose ownership is attributed to
a Related Person under the foregoing definition of Related
Person, if the price paid by such Related Person for such
shares is not determinable by the Continuing Directors, the
price so paid shall be deemed to be the higher of (i) the
price paid upon the acquisition thereof by the Affiliate,
Associate or other person or (ii) the market price of the
shares in question at the time when the Related Person
became the Beneficial Owner thereof.
(I) The terms "Highest Per Share Price" and "Highest
Equivalent Price" as used in this Article 12 shall mean the
following: If there is only one class of capital stock of
the Corporation issued and outstanding, the Highest Per
Share Price shall mean the highest price that can be
determined to have been paid at any time by the Related
Person for any share or shares of that class of capital
stock. If there is more than one class of capital stock of
the Corporation issued and outstanding, the Highest
Equivalent Price shall mean with respect to each class and
series of capital stock of the Corporation, the amount
determined by two-thirds of the Continuing Directors, on
whatever basis they believe is appropriate, to be the
highest per share price equivalent of the highest price that
can be determined to have been paid at any time by the
Related Person for any share or shares of any class or
series of capital stock of the Corporation. In determining
the Highest Per Share Price and Highest Equivalent Price,
appropriate adjustments shall be made for recapitalizations
and for stock splits, stock dividends and like distributions
or transactions and all purchases by the Related Person
shall be taken into account regardless of whether the shares
were purchased before or after the Related Person became a
Related Person. Also, the Highest Per Share Price and the
Highest Equivalent Price shall include any brokerage
commissions, transfer taxes and soliciting dealers' fees
paid by the Related Person with respect to the shares of
capital stock of the Corporation acquired by the Related
Person in the case of any Business Combination with a
Related Person, the Continuing Directors should determine
the Highest Equivalent Price for each class and series of
the capital stock of the Corporation.
III. Notwithstanding any other provisions of these Articles
of Incorporation or the By-Laws of the Corporation (and
notwithstanding the fact that a lesser percentage may be
specified by law, these Articles of Incorporation or the By-Laws
of the Corporation), the affirmative vote of at least eighty
(80%) percent of all the votes evidenced by the issued and
outstanding Voting Stock, voting together as a single class,
shall be required to amend, alter, change or repeal, or adopt any
provisions inconsistent with this Article 12.
THE RIGHTS, PREFERENCES AND LIMITATIONS
OF SERIES A PREFERRED STOCK
of
AMERICAN TRAVELLERS CORPORATION
Section 1. Designation and Amount. The shares of such
series shall be designated as "Series A Preferred Stock" and the
number of shares constituting such series shall be 200,000.
Section 2. Dividends and Distributions.
(A) Subject to the prior and superior rights of the
holders of any shares of any series of Preferred Stock ranking
prior and superior to the shares of Series A Preferred Stock with
respect to dividends, the holders of shares of Series A Preferred
Stock shall be entitled to receive, when, as and if declared by
the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the 15th day of
March, June, September and December in each year (each such date
being referred to herein as a "Quarterly Dividend Payment Date"),
commencing on the first Quarterly Dividend Payment Date after the
first issuance of a share or fraction of a share of Series A
Preferred Stock, in an amount per share (rounded to the nearest
cent) equal to (subject to the provisions for adjustment
hereinafter set forth), 100 times the aggregate per share amount
of all cash dividends, and 100 times the aggregate per share
amount (payable in kind) of all non-cash dividends or other
distributions other than a dividend payable in shares of Common
Stock or a subdivision of the outstanding shares of Common Stock
(by reclassification or otherwise), declared on the Common Stock,
par value $.01 per share, of the Corporation (the "Common Stock")
since the immediately preceding Quarterly Dividend Payment Date,
or, with respect to the first Quarterly Dividend Payment Date,
since the first issuance of any share or fraction of a share of
Series A Preferred Stock. In the event the Corporation shall at
any time after May 15, 1990 (the "Rights Declaration Date") (i)
declare any dividend on Common Stock payable in shares of Common
Stock, (ii) subdivide the outstanding Common Stock, or (iii)
combine the outstanding Common Stock into a smaller number of
shares, then in each such case the amount to which holders of
shares of Series A Preferred Stock were entitled under the
preceding sentence immediately prior to such event shall be
adjusted by multiplying such amount by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number shares of Common Stock that were outstanding immediately
prior to such event.
(B) The Corporation shall declare a dividend or
distribution on the Series A Preferred Stock as provided in
paragraph (A) above immediately after it declares a dividend or
distribution on the Common Stock (other than a dividend payable
in shares of Common Stock).
(C) Dividends shall begin to accrue and be cumulative
on outstanding shares of Series A Preferred Stock from the
Quarterly Dividend Payment Date next preceding the date of issue
of such shares of Series A Preferred Stock, unless the date of
issue of such shares is prior to the record date for the first
Quarterly Dividend Payment Date, in which case dividends on such
shares shall begin to accrue from the date of issue of such
shares, or unless the date of issue is a Quarterly Dividend
Payment Date or is a date after the record date for the
determination of holders of shares of Series A Preferred Stock
entitled to receive a quarterly dividend and before such
Quarterly Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of Series
A Preferred Stock in an amount less than the total amount of such
dividends at the time accrued and payable on such shares shall be
allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a
record date for the determination of holders of shares of Series
A Preferred Stock entitled to receive payment of a dividend or
distribution declared thereon, which record date shall be no more
than 30 days prior to the date fixed for the payment thereof.
Section 3. Voting Rights. The holders of shares of Series
A Preferred Stock shall have the following voting rights:
(A) Subject to the provision for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to 100 votes on all matters
submitted to a vote of the shareholders of the Corporation. In
the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the number of
votes per share to which holders of shares of Series A Preferred
Stock were entitled immediately prior to such event shall be
adjusted by multiplying such number by a fraction the numerator
of which is the number of shares of Common Stock outstanding
immediately after such event and the denominator of which is the
number of shares of Common Stock that were outstanding
immediately prior to such event.
(B) Except as otherwise provided herein or by law, the
holders of shares of Series A Preferred Stock and the holders of
shares of Common Stock shall vote together as one class on all
matters submitted to a vote of shareholders of the Corporation.
(C) Except as set forth herein, holders of Series A
Preferred Stock shall have no special voting rights and their
consent shall not be required (except to the extent they are
entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.
Section 4. Certain Restrictions.
(A) Whenever quarterly dividends or other dividends or
distributions payable on the Series A Preferred Stock as provided
in Section 2 are in arrears, thereafter and until all accrued and
unpaid dividends and distributions, whether or not declared, on
shares of Series A have been paid in full, the Corporation shall
not
(i) declare or pay dividends on, make any other
distributions on, or redeem or purchase or otherwise acquire
for consideration any shares of stock ranking junior (either
as to dividends or upon liquidation, dissolution or winding
up) to the Series A Preferred Stock;
(ii) declare or pay dividends on or make any other
distributions on any shares of stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, except
dividends paid ratably on the Series A Preferred Stock and
all such parity stock on which dividends are payable or in
arrears in proportion to the total amounts to which the
holders of all such shares are then entitled;
(iii) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking on a parity
(either as to dividends or upon liquidation, dissolution or
winding up) with the Series A Preferred Stock, provided that
the Corporation may at any time redeem, purchase or
otherwise acquire shares of any such parity stock in
exchange for shares of any stock of the Corporation ranking
junior (either as to dividends or upon dissolution,
liquidation or winding up) to the Series A Preferred Stock;
(iv) purchase or otherwise acquire for
consideration any shares of Series A Preferred Stock, or any
shares of stock ranking on a parity with the Series A
Preferred Stock, except in accordance with a purchase offer
made in writing or by publication (as determined by the
Board of Directors) to all holders of such shares upon such
terms as the Board of Directors, after consideration of the
respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall
determine in good faith will result in fair and equitable
treatment among the respective series or classes.
(B) The Corporation shall not permit any subsidiary of
the Corporation to purchase or otherwise acquire for
consideration any shares of stock of the Corporation unless the
Corporation could, under paragraph (A) of this Section 4,
purchase or otherwise acquire such shares at such time and in
such time and in such manner.
Section 5. Reacquired Shares. Any shares of Series A
Preferred Stock purchased or otherwise acquired by the
Corporation in any manner whatsoever shall be retired and
cancelled promptly after the acquisition thereof. All such
shares shall upon their cancellation become authorized but
misused shares of Preferred Stock and may be reissued as part of
a new series of Preferred Stock to be created by resolution or
resolutions of the Board of Directors, subject to the conditions
and restrictions on issuance set forth herein.
Section 6. Liquidation, Dissolution or Winding Up.
(A) Upon any liquidation (voluntary or otherwise),
dissolution or winding up of the Corporation, no distribution
shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Preferred Stock unless, prior
thereto, the holders of shares of Series A Preferred Stock shall
have received $100 per share, plus an amount equal to accrued and
unpaid dividends and distributions thereon, whether or not
declared, to the date of such payment (the "Series A Liquidation
Preference"). Following the payment of the full amount of the
Series A Liquidation Preference, no additional distribution shall
be made to the holders of shares of the Series A Preferred Stock
unless, prior thereto, the holders of shares of Common Stock
shall have received an amount per share (the "Common Adjustment")
equal to the quotient obtained by dividing (i) the Series A
Liquidation Preference by (ii) 100 (as appropriately adjusted as
set forth in subparagraph C below to reflect such events as stock
splits, stock dividends and capitalization with respect to the
Common Stock) (such number in clause (ii), the "Adjustment
Number") following the payment of the full amount of the Series A
Liquidation Preference and the Common Adjustment in respect of
all outstanding shares of Series A Preferred Stock and Common
Stock, respectively, holders of Series A Preferred Stock and
holders of shares of Common Stock shall receive their ratable and
proportionate share of the remaining assets to be distributed in
the ratio of the Adjustment Number to 1 with respect to such
Preferred Stock and Common Stock, on a per share basis,
respectively.
(B) In the event, however, that there are not
sufficient assets available to permit payment in full of the
Series A Liquidation Preference and the liquidation preferences
of all other series of Preferred Stock, if any, which rank on a
parity with the Series A Preferred Stock, then such remaining
assets shall be distributed ratably to the holders of such parity
shares in proportion to their respective liquidation preferences.
In the event, however, that there are not sufficient assets
available to permit payment in full of the Common Adjustment,
then such remaining assets shall be distributed ratably to the
holders of Common Stock.
(C) In the event the Corporation shall at any time
after the Rights Declaration Date (i) declare any dividend on
Common Stock payable in shares of Common Stock, (ii) subdivide
the outstanding Common Stock into smaller number of shares, then
in each such case the Adjustment Number in effect immediately
prior to such event shall be adjusted by multiplying such
Adjustment Number by a fraction the numerator of which is the
number of shares of Common Stock outstanding immediately after
such event and the denominator of which is the number of shares
of Common Stock that were outstanding immediately prior to such
event.
Section 7. Consolidation, Merger, etc. In case the
Corporation shall enter into any consolidation, merger, division,
combination or other transaction in which the shares of Common
Stock are exchanged for or changed into other stock or
securities, cash and/or any other property, then in any such case
the shares of Series A Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share (subject to
the provision for adjustment hereinafter set forth) equal to 100
times the aggregate amount of stock, securities, cash and/or any
other property (payable in kind), as the case may be, into which
or for which each share of Common Stock is changed or exchanged.
In the event the Corporation shall at any time after the Rights
Declaration Date (i) declare any dividend on Common Stock payable
in shares of Common Stock, (ii) subdivide the outstanding Common
Stock, or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the amount set
forth in the preceding sentence with respect to the exchange or
change of shares of Series A Preferred Stock shall be adjusted by
multiplying such amount by a fraction the numerator of which is
the number of shares of Common Stock outstanding immediately
after such event and the denominator of which is the number of
shares of Common Stock that were outstanding immediately prior to
such event.
Section 8. No Redemption. The shares of Series A Preferred
Stock shall not be redeemable.
Section 9. Ranking. The Series A Preferred Stock shall
rank junior to all other series of the Corporation's Preferred
Stock as to the payment of dividends and the distribution of
assets, unless the terms of any such series shall provide
otherwise.
Section 10. Amendment. The Articles of Incorporation of
the Corporation shall not be further amended in any manner which
would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect
them adversely without the affirmative vote of the holders of a
majority or more of the votes of the outstanding shares of Series
A Preferred Stock, voting separately as a class.
Section 11. Fractional Shares. Series A Preferred Stock
may be issued in fractions of a share which shall entitle the
holder, in proportion to such holders fractional shares, to
exercise voting rights, receive dividends, participate in
distributions and to have the benefit of all other rights of
holders of Series A Preferred Stock.
Exhibit 4 (c)
Indenture relating to 6.5 % Convertible Subordinated Debentures due
October 1, 2005 (including Form of Debenture)
AMERICAN TRAVELLERS CORPORATION,
Issuer,
and
AMERICAN BANK, NATIONAL ASSOCIATION,
Trustee
INDENTURE
Dated as of September 15, 1995
$103,500,000
6.5% Convertible Subordinated Debentures due October 1, 2005
TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE 1
SECTION 1.1. Definitions 1
SECTION 1.2. Incorporation by Reference of TIA 9
SECTION 1.3. Rules of Construction 9
ARTICLE II
THE DEBENTURES 10
SECTION 2.1. Form and Dating 10
SECTION 2.2. Execution and Authentication 10
SECTION 2.3. Registrar and Paying Agent 11
SECTION 2.4. Paying Agent to Hold Assets in Trust 12
SECTION 2.5. Securityholder List 12
SECTION 2.6. Transfer and Exchange 12
SECTION 2.7. Replacement Debentures 13
SECTION 2.8. Outstanding Debentures 14
SECTION 2.9. Treasury Debentures 14
SECTION 2.10. Temporary Debentures 14
SECTION 2.11. Cancellation 15
SECTION 2.12. Defaulted Interest 15
ARTICLE III
REDEMPTION 17
SECTION 3.1. Right of Redemption 17
SECTION 3.2. Notices to Trustee 17
SECTION 3.3. Selection of Debentures to Be Redeemed 17
SECTION 3.4. Notice of Redemption 18
SECTION 3.5. Effect of Notice of Redemption 19
SECTION 3.6. Deposit of Redemption Price 20
SECTION 3.7. Debentures Redeemed in Part 20
ARTICLE IV
COVENANTS 20
SECTION 4.1. Payment of Debentures 20
SECTION 4.2. Maintenance of Office or Agency 21
SECTION 4.3. Corporate Existence 21
SECTION 4.4. Payment of Taxes and Other Claims 22
SECTION 4.5. Maintenance of Properties and Insurance 22
SECTION 4.6. Compliance Certificate; Notice of Default 23
SECTION 4.7. Reports 23
SECTION 4.8. Limitation on Status as Investment Company 24
SECTION 4.9. Waiver of Stay, Extension or Usury Laws 24
ARTICLE V
SUCCESSOR CORPORATION 24
SECTION 5.1. Limitation on Merger, Sale or Consolidation 24
SECTION 5.2. Successor Corporation Substituted 25
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES 26
SECTION 6.1. Events of Default 26
SECTION 6.2. Acceleration of Maturity Date; Rescission and Annulment 28
SECTION 6.3. Collection of Indebtedness and Suits for Enforcement by
Trustee 29
SECTION 6.4. Trustee May File Proofs of Claim 30
SECTION 6.5. Trustee May Enforce Claims Without Possession of the
Debentures 31
SECTION 6.6. Priorities 31
SECTION 6.7. Limitation on Suits 31
SECTION 6.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest 32
SECTION 6.9. Rights and Remedies Cumulative 33
SECTION 6.10. Delay or Omission Not Waiver 33
SECTION 6.11. Control by Holders 33
SECTION 6.12. Waiver of Past Default 34
SECTION 6.13. Undertaking for Costs 34
SECTION 6.14. Restoration of Rights and Remedies 35
ARTICLE VII
TRUSTEE 35
SECTION 7.1. Duties of Trustee 35
SECTION 7.2. Rights of Trustee 36
SECTION 7.3. Individual Rights of Trustee 38
SECTION 7.4. Trustee's Disclaimer 38
SECTION 7.5. Notice of Default 38
SECTION 7.6. Reports by Trustee to Holders 38
SECTION 7.7. Compensation and Indemnity 39
SECTION 7.8. Replacement of Trustee 40
SECTION 7.9. Successor Trustee by Merger, Etc. 41
SECTION 7.10. Eligibility; Disqualification 41
SECTION 7.11. Preferential Collection of Claims Against Company 41
ARTICLE VIII
SATISFACTION AND DISCHARGE 42
SECTION 8.1. Satisfaction and Discharge of Indenture 42
SECTION 8.2. Repayment to the Company 42
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS 43
SECTION 9.1. Supplemental Indentures Without Consent of Holders 43
SECTION 9.2. Amendments, Supplemental Indentures and Waivers with
Consent of Holders 43
SECTION 9.3. Compliance with TIA 45
SECTION 9.4. Revocation and Effect of Consents 45
SECTION 9.5. Notation on or Exchange of Debentures 46
SECTION 9.6. Trustee to Sign Amendments, Etc. 46
ARTICLE X
MEETINGS OF SECURITYHOLDERS 47
SECTION 10.1. Purposes for Which Meetings May Be Called 47
SECTION 10.2. Manner of Calling Meetings 47
SECTION 10.3. Call of Meetings by the Company or Holders 48
SECTION 10.4. Who May Attend and Vote at Meetings 48
SECTION 10.5. Regulations May Be Made by Trustee; Conduct
of the Meeting; Voting Rights; Adjournment 48
SECTION 10.6. Voting at the Meeting and Record to Be Kept 49
SECTION 10.7. Exercise of Rights of Trustee or Securityholders
May Not Be Hindered or Delayed by Call of Meeting 50
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE 50
SECTION 11.1. Repurchase of Debentures at Option of the Holder 50
ARTICLE XII
SUBORDINATION 53
SECTION 12.1. Debentures Subordinated to Senior Debt 53
SECTION 12.2. No Payment on Debentures in Certain Circumstances 54
SECTION 12.3. Debentures Subordinated to Prior Payment of All
Senior Debt on Dissolution, Liquidation or Reorgani-
zation 54
SECTION 12.4. Securityholders to Be Subrogated to Rights of Holders
of Senior Debt 56
SECTION 12.5. Obligations of the Company Unconditional 56
SECTION 12.6. Trustee Entitled to Assume Payments Not Prohibited
in Absence of Notice 57
SECTION 12.7. Application by Trustee of Assets Deposited with It 57
SECTION 12.8. Subordination Rights Not Impaired by Acts or Omissions
of the Company or Holders of Senior Debt 58
SECTION 12.9. Securityholders Authorize Trustee to Effectuate
Subordination of Debentures 58
SECTION 12.10. Right of Trustee to Hold Senior Debt 59
SECTION 12.11. Article XII Not to Prevent Events of Default 59
SECTION 12.12. No Fiduciary Duty of Trustee to Holders of Senior Debt 59
ARTICLE XIII
CONVERSION OF DEBENTURES 59
SECTION 13.1. Conversion Privilege 59
SECTION 13.2. Exercise of Conversion Privilege 60
SECTION 13.3. Fractional Interests 61
SECTION 13.4. Conversion Price 62
SECTION 13.5. Adjustment of Conversion Price 62
SECTION 13.6. Continuation of Conversion Privilege in Case of
Reclassification,
Change, Merger, Consolidation or Sale of Assets 66
SECTION 13.7. Notice of Certain Events 68
SECTION 13.8. Taxes on Conversion 69
SECTION 13.9. Company to Provide Stock 69
SECTION 13.10. Disclaimer of Responsibility for Certain Matters 70
SECTION 13.11. Return of Funds Deposited for Redemption of
Converted Debentures 70
ARTICLE XIV
MISCELLANEOUS 71
SECTION 14.1. TIA Controls 71
SECTION 14.2. Notices 71
SECTION 14.3. Communications by Holders with Other Holders 72
SECTION 14.4. Certificate and Opinion as to Conditions Precedent 72
SECTION 14.5. Statements Required in Certificate or Opinion 72
SECTION 14.6. Rules by Trustee, Paying Agent, Registrar 73
SECTION 14.7. Legal Holidays 73
SECTION 14.8. Governing Law 73
SECTION 14.9. No Adverse Interpretation of Other Agreements 74
SECTION 14.10. No Recourse Against Others 74
SECTION 14.11. Successors 74
SECTION 14.12. Duplicate Originals 75
SECTION 14.13. Severability 75
SECTION 14.14. Table of Contents, Headings, Etc. 75
SIGNATURES
EXHIBIT A A-1
CROSS-REFERENCE TABLE
TIA Indenture
Section Section
310(a)(1) 7.10
(a)(2) 7.10
(a)(3) N.A.
(a)(4). N.A.
(a)(5). 7.10
(b) 7.8;
7.10;
14.2
(c) N.A.
311(a) 7.11
(b) 7.11
(c) N.A.
312(a) 2.5
(b) 14.3
(c) 14.3
313(a) 7.6
(b)(1) N.A.
(b)(2) 7.6
(c) 7.6;
14.2
(d) 7.6
314(a) 4.6;
4.7
(b) N.A.
(c)(1) 2.2;
7.2;
14.4
(c)(2) 7.2;
14.4
(c)(3) N.A.
(d) N.A.
(e) 14.5
(f) N.A.
315(a) 7.1(b)
(b) 7.5;
7.6;
14.2
(c) 7.1(a)
(d) 6.11;
7.1(b)(c)
(e) 6.14
316(a)(last sentence) 2.9
(a)(1)(A) 6.11
(a)(1)(B) 6.12
(a)(2) N.A.
(b) 6.12;
6.7
317(a)(1) 6.3
(a)(2) 6.4
(b) 2.4
318(a) 14.1
__________
N.A. means Not Applicable.
Note: This Cross-Reference Table shall not, for any purpose, be deemed
to be a part of the Indenture
INDENTURE, dated as of September 15, 1995, between AMERICAN
TRAVELLERS CORPORATION, a Pennsylvania corporation (the "Company"), and
AMERICAN BANK, NATIONAL ASSOCIATION, as Trustee.
Each party hereto agrees as follows for the benefit of each
other party and for the equal and ratable benefit of the Holders of the
Company's 6.5% Convertible Subordinated Debentures due October 1, 2005:
ARTICLE I
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION I.1. Definitions.
"Acceleration Notice" shall have the meaning specified in
Section 6.2.
"Affiliate" means (i) any person directly or indirectly
controlling or controlled by or under direct or indirect common control
with the Company, (ii) any spouse, immediate family member, or other
relative who has the same principal residence of any person described in
clause (i) above, and (iii) any trust in which any person described in
clause (i) or (ii) above has a beneficial interest. For purposes of
this definition, the term "control" means (a) the power to direct the
management and policies of a person, directly or through one or more
intermediaries, whether through the ownership of voting securities, by
contract, or otherwise, or (b) the beneficial ownership of 10% or more
of any class of voting Capital Stock of a person (on a fully diluted
basis) or of any combination of shares, warrants or other rights to ac-
quire such amount of any class of Capital Stock (whether or not present-
ly exercisable).
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Bankruptcy Law" means Title 11, U.S. Code, or any similar
Federal, state or foreign law for the relief of debtors.
"beneficial owner" for purposes of the definition of Change
of Control has the meaning attributed to it in Rules 13d-3 and 13d-5
under the Exchange Act (as in effect on the Issue Date), whether or not
applicable, except that a "person" shall be deemed to have "beneficial
ownership" of all shares that any such person has the right to acquire,
whether such right is exercisable immediately or only after the passage
of time or upon the occurrence of certain events.
"Board of Directors" means, with respect to any Person, the
Board of Directors of such Person or any committee of the Board of
Directors of such Person authorized, with respect to any particular
matter, to exercise the power of the Board of Directors of such Person.
"Board Resolution" means, with respect to any Person, a duly
adopted resolution of the Board of Directors of such Person.
"Business Day" means a day that is not a Legal Holiday.
"Capitalized Lease Obligation" means rental obligations
under a lease that are required to be capitalized for financial report-
ing purposes in accordance with GAAP, and the amount of Indebtedness
represented by such obligations shall be the capitalized amount of such
obligations, as determined in accordance with GAAP.
"Capital Stock" means, with respect to any corporation, any
and all shares, interests, rights to purchase (other than convertible or
exchangeable Indebtedness), warrants, options, participations or other
equivalents of or interests (however designated) in stock issued by that
corporation.
"Cash" means such coin or currency of the United States of
America as at the time of payment shall be legal tender for the payment
of public and private debts.
"Change of Control" (i) any merger or consolidation of the
Company with or into any person or any sale, transfer or other convey-
ance, whether direct or indirect, of all or substantially all of the
assets of the Company, on a consolidated basis, in one transaction or a
series of related transactions, if, immediately after giving effect to
such transaction, any "person" or "group" (as such terms are used for
purposes of Sections 13(d) and 14(d) of the Exchange Act, whether or not
applicable) is or becomes the "beneficial owner," directly or indirect-
ly, of more than 50% of the total voting power in the aggregate normally
entitled to vote in the election of directors, managers, or trustees, as
applicable, of the transferee or surviving entity, (ii) any "person" or
"group" (as such terms are used for purposes of Sections 13(d) and 14(d)
of the Exchange Act, whether or not applicable) is or becomes the
"beneficial owner," directly or indirectly, of more than 50% of the
total voting power in the aggregate normally entitled to vote in elec-
tions of directors of the Company, or (iii) during any period of 12
consecutive months after the Issue Date, individuals who at the
beginning of any such 12-month period constituted the Board of Directors
of the Company (together with any new directors whose election by such
Board or whose nomination for election by the shareholders of the
Company was approved by a vote of a majority of the directors then still
in office who were either directors at the beginning of such period or
whose election or nomination for election was previously so approved)
cease for any reason to constitute a majority of the Board of Directors
of the Company then in office.
"Code" means the Internal Revenue Code of 1986, as amended.
"Common Stock" means the Company's common stock, par value
$.01 per share, or as such stock may be reconstituted from time to time.
"Company" means the party named as such in this Indenture
until a successor replaces it pursuant to the Indenture, and thereafter
means such successor.
"Conversion Price" shall have the meaning specified in
Section 13.5.
"Custodian" means any receiver, trustee, assignee, liqui-
dator, sequestrator or similar official under any Bankruptcy Law.
"Date of Conversion" shall have the meaning specified in
Section 13.2.
"Debentures" means, collectively, the 6.5% Convertible
Subordinated Debentures due October 1, 2005, as supplemented from time
to time in accordance with the terms hereof, issued under this
Indenture.
"Default" means any event or condition that is, or after
notice or passage of time or both would be, an Event of Default.
"Defaulted Interest" shall have the meaning specified in
Section 2.12.
"Disqualified Capital Stock" means (a) except as set forth
in (b), with respect to any person, Capital Stock of such person that,
by its terms or by the terms of any security into which it is
convertible, exercisable or exchangeable, is, or upon the happening of
an event or the passage of time would be, required to be redeemed or
repurchased (including at the option of the holder thereof) by such
person or any of its Subsidiaries, in whole or in part, on or prior to
the Stated Maturity of the Debentures and (b) with respect to any
Subsidiary of such person (including with respect to any Subsidiary of
the Company), any Capital Stock other than any common stock with no
preference, privileges, or redemption or repayment provisions.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended from time to time, and any successor statute.
"Event of Default" shall have the meaning specified in
Section 6.1.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC
thereunder.
"GAAP" means United States generally accepted accounting
principles set forth in the opinions and pronouncements of the Account-
ing Principles Board of the American Institute of Certified Public
Accountants and statements and pronouncements of the Financial
Accounting Standards Board ("FASB") or in such other statements by such
other entity as approved by a significant segment of the accounting
profession as in effect as of the Issue Date.
"Holder" or "Securityholder" means the Person in whose name
a Debenture is registered on the Registrar's books.
"Indebtedness" of any Person means, without duplication, the
following (whether currently outstanding or hereafter incurred or
created): (i) all liabilities and obligations, contingent or otherwise,
of any such Person (a) in respect of borrowed money (whether or not the
recourse of the lender is to the whole of the assets of such Person or
only to a portion thereof), (b) evidenced by bonds, notes, debentures or
similar instruments, (c) representing the balance deferred and unpaid of
the purchase price of any property or services, except such as would
constitute trade payables to trade creditors in the ordinary course of
business that are not more than 90 days past their original due date,
(d) evidenced by bankers' acceptances or similar instruments issued or
accepted by banks, (e) for the payment of money relating to a Capital-
ized Lease Obligation, or (f) evidenced by a letter of credit or a
reimbursement obligation of such Person with respect to any letter of
credit; (ii) all net obligations of such person under Interest Swap and
Hedging Obligations; (iii) all liabilities of others of the kind de-
scribed in the preceding clause (i) or (ii) that such Person has guar-
anteed or that is otherwise its legal liability and all obligations to
purchase, redeem or acquire any Capital Stock; and (iv) any and all
deferrals, renewals, extensions, refinancings, refundings (whether
direct or indirect) of, or amendments, modifications or supplements to,
any liability of the kind described in any of the preceding clauses (i),
(ii) or (iii), or this clause (iv), whether or not between or among the
same parties.
"Indenture" means this Indenture, as amended or supplemented
from time to time in accordance with the terms hereof.
"Interest Payment Date" means the stated due date of an
installment of interest on the Debentures.
"Interest Swap and Hedging Obligation" means any obligation
of any person pursuant to any interest rate swap agreement, interest
rate cap agreement, interest rate collar agreement, interest rate ex-
change agreement, currency exchange agreement or any other agreement or
arrangement designed to protect against fluctuations in interest rates
or currency values, including, without limitation, any arrangement
whereby, directly or indirectly, such person is entitled to receive from
time to time periodic payments calculated by applying either a fixed or
floating rate of interest on a stated notional amount in exchange for
periodic payments made by such person calculated by applying a fixed or
floating rate of interest on the same notional amount.
"Issue Date" means the date of first issuance of the
Debentures under this Indenture.
"Junior Security" of any Person means any Qualified Capital
Stock of such Person or any Indebtedness of such Person that is subordi-
nated in right of payment to the Debentures and has no scheduled in-
stallment of principal due, by redemption, sinking fund payment or
otherwise, on or prior to the Stated Maturity of the Debentures.
"Last Sale Price" shall have the meaning specified in
Section 13.3.
"Legal Holiday" shall have the meaning specified in Section
14.7.
"Lien" means any mortgage, lien, pledge, charge, security
interest, or other encumbrance of any kind, whether or not filed,
recorded or otherwise perfected under applicable law (including any
conditional sale or other title retention agreement and any lease deemed
to constitute a security interest and any option or other agreement to
give any security interest).
"Notice of Default" shall have the meaning specified in
Section 6.1(3).
"Offer" shall have the meaning specified in Section 13.5(d).
"Officer" means, with respect to the Company, the Chief
Executive Officer, the President, any Vice President, the Chief Finan-
cial Officer, the Treasurer, the Controller, or the Secretary of the
Company.
"Officers' Certificate" means, with respect to the Company,
a certificate signed by two Officers or by an Officer and an Assistant
Secretary of the Company and otherwise complying with the requirements
of Sections 14.4 and 14.5.
"Opinion of Counsel" means a written opinion from legal
counsel who is reasonably acceptable to the Trustee and which complies
with the requirements of Sections 14.4 and 14.5.
"Paying Agent" shall have the meaning specified in Section
2.3.
"Payment Default" shall have the meaning specified in
Section 12.2.
"Person" or "person" means any corporation, individual,
limited liability company, joint stock company, joint venture, partner-
ship, unincorporated association, governmental regulatory entity, coun-
try, state or political subdivision thereof, trust, municipality or
other entity.
"principal" of any Indebtedness means the principal of such
Indebtedness plus, without duplication, any applicable premium, if any,
on such Indebtedness.
"property" means any right or interest in or to property or
assets of any kind whatsoever, whether real, personal or mixed and
whether tangible or intangible.
"Qualified Capital Stock" means any Capital Stock of the
Company that is not Disqualified Capital Stock.
"Record Date" means a Record Date specified in the
Debentures whether or not such Record Date is a Business Day.
"Redemption Date," when used with respect to any Debenture
to be redeemed, means the date fixed for such redemption pursuant to
Article III of this Indenture and Paragraph 5 in the form of Debenture.
"Redemption Price," when used with respect to any Debenture
to be redeemed, means the redemption price for such redemption pursuant
to Paragraph 5 in the form of Debenture, which shall include, without
duplication, in each case, accrued and unpaid interest to and including
the Redemption Date.
"Registrar" shall have the meaning specified in Section 2.3.
"Repurchase Event" shall have the meaning specified in
Section 11.1.
"Repurchase Offer" shall have the meaning specified in
Section 11.1.
"Repurchase Payment" shall have the meaning specified in
Section 11.1.
"Repurchase Payment Date" shall have the meaning specified
in Section 11.1.
"Repurchase Put Date" shall have the meaning specified in
Section 11.1.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amend-
ed, and the rules and regulations of the SEC promulgated thereunder.
"Senior Debt" of the Company means (i) all Indebtedness of
the Issuer unless, by the terms of the instrument creating or evidencing
such Indebtedness, it is provided that such Indebtedness is not superior
in right of payment to the Debentures or to other Indebtedness which is
pari passu with, or subordinated to the Debentures, and (ii) any
modifications, refunding, deferrals, renewals or extensions of any such
Indebtedness or securities, notes or other evidences of Indebtedness
issued in exchange for such Indebtedness.
"Significant Subsidiary" shall have the meaning assigned to
that term under Regulation S-X of the Securities Act, as in effect on
the Issue Date.
"Special Record Date" for payment of any Defaulted Interest
means a date fixed by the Trustee pursuant to Section 2.12.
"Stated Maturity," when used with respect to any Debenture,
means October 1, 2005.
"Subsidiary" with respect to any Person, means (i) a corpo-
ration a majority of whose Capital Stock with voting power, under
ordinary circumstances, to elect directors is at the time, directly or
indirectly, owned by such Person, by such Person and one or more Subsid-
iaries of such Person or by one or more Subsidiaries of such Person,
(ii) a partnership in which such Person or a Subsidiary of such Person
is, at the time, a general partner or (iii) any other person (other than
a corporation) in which such person, one or more Subsidiaries of such
person, or such person and one or more Subsidiaries of such person,
directly or indirectly, at the date of determination thereof has at
least majority ownership interest.
"TIA" means the Trust Indenture Act of 1939 (15 U.S. Code
77aaa-77bbbb) as in effect on the date of the execution of this
Indenture.
"Trading Day" means each Monday, Tuesday, Wednesday,
Thursday and Friday, other than any day on which securities are not
traded on the Nasdaq Stock Market National Market (or, if the Common
Stock is not admitted to trading thereon, on the principal national
securities exchange on which the Common Stock is listed or admitted to
trading).
"Trustee" means the party named as such in this Indenture
until a successor replaces it in accordance with the provisions of this
Indenture, and thereafter means such successor.
"Trust Officer" means any officer within the corporate trust
division (or any successor group) of the Trustee or any other officer of
the Trustee customarily performing functions similar to those performed
by the Persons who at that time shall be such officers, and also means,
with respect to a particular corporate trust matter, any other officer
of the Trustee to whom such trust matter is referred because of his
knowledge of and familiarity with the particular subject.
"U.S. Government Obligations" means direct non-callable
obligations of, or noncallable obligations guaranteed by, the United
States of America for the payment of which obligation or guarantee the
full faith and credit of the United States of America is pledged.
SECTION I.2. Incorporation by Reference of TIA.
Whenever this Indenture refers to a provision of the TIA,
such provision is incorporated by reference in and made a part of this
Indenture. The following TIA terms used in this Indenture have the
following meanings:
"Commission" means the SEC.
"indenture securities" means the Debentures.
"indenture securityholder" means a Holder or a
Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the
Trustee.
"obligor" on the "indenture securities" means the Company
and any other obligor on the Debentures.
All other TIA terms used in this Indenture that are defined
by the TIA, defined by TIA reference to another statute, or defined by
SEC rule and not otherwise defined herein have the meanings assigned to
them thereby.
SECTION I.3. Rules of Construction.
Unless the context otherwise requires:
(l) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the
meaning assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and
words in the plural include the singular;
(5) provisions apply to successive events and
transactions;
(6) "herein," "hereof" and other words of similar
import refer to this Indenture as a whole and not to any particular
Article, Section or other subdivision; and
(7) references to Sections or Articles means
reference to such Section or Article in this Indenture, unless stated
otherwise.
ARTICLE II
THE DEBENTURES
SECTION II.1. Form and Dating.
The Debentures and the Trustee's certificate of authentica-
tion, in respect thereof, shall be substantially in the form of Exhibit
A hereto, which Exhibit is part of this Indenture. The Debentures may
have notations, legends or endorsements required by law, stock exchange
rule or usage. The Company shall approve the form of the Debentures and
any notation, legend or endorsement on them. Any such notations,
legends or endorsements not contained in the form of Debenture attached
as Exhibit A hereto shall be delivered in writing to the Trustee. Each
Debenture shall be dated the date of its authentication.
The terms and provisions contained in the forms of Debe-
ntures shall constitute, and are hereby expressly made, a part of this
Indenture and, to the extent applicable, the Company and the Trustee, by
their execution and delivery of this Indenture, expressly agree to such
terms and provisions and to be bound thereby.
SECTION II.2. Execution and Authentication.
Two Officers shall sign, or one Officer shall sign and one
Officer shall attest to, the Debenture for the Company by manual or
facsimile signature. The Company's seal shall be impressed, affixed,
imprinted or reproduced on the Debentures and may be in facsimile form.
If an Officer whose signature is on a Debenture was an
Officer at the time of such execution but no longer holds that office at
the time the Trustee authenticates the Debenture, the Debenture shall be
valid nevertheless and the Company shall nevertheless be bound by the
terms of the Debentures and this Indenture.
A Debenture shall not be valid until an authorized signatory
of the Trustee manually signs the certificate of authentication on the
Debenture but such signature shall be conclusive evidence that the
Debenture has been authenticated pursuant to the terms of this
Indenture.
The Trustee shall authenticate the Debentures for original
issue in the aggregate principal amount of up to $103,500,000 upon a
written order of the Company in the form of an Officers' Certificate.
The Officers' Certificate shall specify the amount of Debentures to be
authenticated and the date on which the Debentures are to be
authenticated. The aggregate principal amount of Debentures outstanding
at any time may not exceed $103,500,000 except as provided in Section
2.7; provided, that Debentures in excess of $90,000,000 shall not be
issued other than pursuant to the over-allotment option granted by the
Company to the underwriters thereof. Upon the written order of the
Company in the form of an Officers' Certificate, the Trustee shall
authenticate Debentures in substitution of Debentures originally issued
to reflect any name change of the Company.
The Trustee may appoint an authenticating agent acceptable
to the Company to authenticate Debentures. Unless otherwise provided in
the appointment, an authenticating agent may authenticate Debentures
whenever the Trustee may do so. Each reference in this Indenture to
authentication by the Trustee includes authentication by such agent. An
authenticating agent has the same rights as an Agent to deal with the
Company, any Affiliate of the Company, or any of their respective
Subsidiaries.
Debentures shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
SECTION II.3. Registrar and Paying Agent.
The Company shall maintain an office or agency in the Bor-
ough of Manhattan, The City of New York, where Debentures may be
presented for registration of transfer or for exchange ("Registrar") and
an office or agency where Debentures may be presented for payment
("Paying Agent") and where notices and demands to or upon the Company in
respect of the Debentures may be served. The Company may act as Regis-
trar or Paying Agent, except that, for the purposes of Articles III,
VIII and XI and as otherwise specified in the Indenture, neither the
Company nor any Affiliate of the Company shall act as Paying Agent. The
Registrar shall keep a register of the Debentures and of their transfer
and exchange. The Company may have one or more co-Registrars and one or
more additional Paying Agents. The term "Paying Agent" includes any
additional Paying Agent. The Company hereby initially appoints the
Trustee as Registrar and Paying Agent, and the Trustee hereby initially
agrees so to act.
The Company shall enter into an appropriate written agency
agreement with any Agent not a party to this Indenture, which agreement
shall implement the provisions of this Indenture that relate to such
Agent. The Company shall promptly notify the Trustee in writing of the
name and address of any such Agent. If the Company fails to maintain a
Registrar or Paying Agent, the Trustee shall act as such.
SECTION II.4. Paying Agent to Hold Assets in Trust.
The Company shall require each Paying Agent other than the
Trustee to agree in writing that each Paying Agent shall hold in trust
for the benefit of Holders or the Trustee all assets held by the Paying
Agent for the payment of principal of, premium, if any, or interest on,
the Debentures (whether such assets have been distributed to it by the
Company or any other obligor on the Debentures), and shall notify the
Trustee in writing of any Default in making any such payment. If either
of the Company or a Subsidiary of the Company acts as Paying Agent, it
shall segregate such assets and hold them as a separate trust fund for
the benefit of the Holders or the Trustee. The Company at any time may
require a Paying Agent to distribute all assets held by it to the
Trustee and account for any assets disbursed and the Trustee may at any
time during the continuance of any payment Default, upon written request
to a Paying Agent, require such Paying Agent to distribute all assets
held by it to the Trustee and to account for any assets distributed.
Upon distribution to the Trustee of all assets that shall have been
delivered by the Company to the Paying Agent, the Paying Agent (if other
than the Company or an Affiliate of the Company) shall have no further
liability for such assets.
SECTION II.5. Securityholder List.
The Trustee shall preserve in as current a form as is rea-
sonably practicable the most recent list available to it of the names
and addresses of Holders. If the Trustee is not the Registrar, the
Company shall furnish to the Trustee on or before the third Business Day
preceding each Interest Payment Date and at such other times as the
Trustee may request in writing a list in such form and as of such date
as the Trustee reasonably may require of the names and addresses of
Holders.
SECTION II.6. Transfer and Exchange.
When Debentures are presented to the Registrar or a co-
Registrar with a request to register the transfer of such Debentures or
to exchange such Debentures for an equal principal amount of Debentures
of other authorized denominations, the Registrar or co-Registrar shall
register the transfer or make the exchange as requested if its rea-
sonable requirements for such transaction are met; provided, however,
that the Debentures surrendered for transfer or exchange shall be duly
endorsed or accompanied by a written instrument of transfer in form rea-
sonably satisfactory to the Company and the Registrar or co-Registrar,
duly executed by the Holder thereof or his attorney duly authorized in
writing.
To permit registrations of transfers and exchanges, the
Company shall execute and the Trustee shall authenticate Debentures at
the Registrar's or co-Registrar's request. No service charge shall be
made for any registration of transfer or exchange, but the Company may
require payment of a sum sufficient to cover any transfer tax,
assessments, or similar governmental charge payable in connection there-
with. The Registrar or co-Registrar shall not be required to register
the transfer of or exchange of (a) any Debenture selected for redemption
in whole or in part pursuant to Article III, except the unredeemed
portion of any Debenture being redeemed in part, or (b) any Debenture
for a period beginning 15 Business Days before the mailing of a notice
of an offer to repurchase pursuant to Article XI or of redemption of
Debentures pursuant to Article III hereof and ending at the close of
business on the day of such mailing.
SECTION II.7. Replacement Debentures.
If a mutilated Debenture is surrendered to the Trustee or if
the Holder of a Debenture claims and submits an affidavit or other
evidence, satisfactory to the Trustee, to the Trustee to the effect that
the Debenture has been lost, destroyed or wrongfully taken, the Company
shall issue and the Trustee shall authenticate a replacement Debenture
if the Trustee's requirements are met. If required by the Trustee or
the Company, such Holder must provide an indemnity bond or other indem-
nity, sufficient in the judgment of both the Company and the Trustee, to
protect the Company, the Trustee or any Agent from any loss which any of
them may suffer if a Debenture is replaced. The Company may charge such
Holder for its reasonable, out-of-pocket expenses in replacing a Debe-
nture.
Every replacement Debenture is an additional obligation of
the Company.
SECTION II.8. Outstanding Debentures.
Debentures outstanding at any time are all the Debentures
that have been authenticated by the Trustee except those cancelled by
it, those delivered to it for cancellation and those described in this
Section 2.8 as not outstanding. A Debenture does not cease to be out-
standing because the Company or an Affiliate of the Company holds the
Debenture, except as provided in Section 2.9.
If a Debenture is replaced pursuant to Section 2.7 (other
than a mutilated Debenture surrendered for replacement), it ceases to be
outstanding unless the Trustee and the Company receives proof
satisfactory to it that the replaced Debenture is held by a bona fide
purchaser. A mutilated Debenture ceases to be outstanding upon
surrender of such Debenture and replacement thereof pursuant to Section
2.7.
If on a Redemption Date the Paying Agent (other than the
Company or an Affiliate of the Company) holds Cash or U.S. Government
Obligations sufficient to pay all of the principal and interest due on
the Debentures payable on that date in accordance with Section 3.6
hereof and payment of the Debentures called for redemption is not
otherwise prohibited pursuant to Article XII hereof or otherwise, then
on and after that date such Debentures cease to be outstanding and
interest on them ceases to accrue.
SECTION II.9. Treasury Debentures.
In determining whether the Holders of the required principal
amount of Debentures have concurred in any direction, amendment,
supplement, waiver or consent, Debentures owned by the Company or an
Affiliate of the Company shall be disregarded, except that, for the
purposes of determining whether the Trustee shall be protected in rely-
ing on any such direction, amendment, supplement, waiver or consent,
only Debentures that the Trustee knows are so owned shall be disregard-
ed.
SECTION II.10. Temporary Debentures.
Until definitive Debentures are ready for delivery, the
Company may prepare and the Trustee shall authenticate temporary Debent-
ures. Temporary Debentures shall be substantially in the form of defin-
itive Debentures but may have variations that the Company reasonably and
in good faith considers appropriate for temporary Debentures. Without
unreasonable delay, the Company shall prepare and the Trustee shall
authenticate definitive Debentures in exchange for temporary Debentures.
Until so exchanged, the temporary Debentures shall in all respects be
entitled to the same benefits under this Indenture as permanent Debent-
ures authenticated and delivered hereunder.
SECTION II.11. Cancellation.
The Company at any time may deliver Debentures to the Trust-
ee for cancellation. The Registrar and the Paying Agent shall forward
to the Trustee any Debentures surrendered to them for transfer, exchange
or payment. The Trustee, or at the direction of the Trustee, the Regis-
trar or the Paying Agent (other than the Company or an Affiliate of the
Company), and no one else, shall cancel and, at the written direction of
the Company, shall dispose of all Debentures surrendered for transfer,
exchange, payment or cancellation. Subject to Section 2.7, the Company
may not issue new Debentures to replace Debentures that have been paid
or delivered to the Trustee for cancellation. No Debentures shall be
authenticated in lieu of or in exchange for any Debentures cancelled as
provided in this Section 2.11, except as expressly permitted in the form
of Debentures and as permitted by this Indenture.
SECTION II.12. Defaulted Interest.
Interest on any Debenture which is payable, and is punc-
tually paid or duly provided for, on any Interest Payment Date shall be
paid to the person in whose name that Debenture (or one or more
predecessor Debentures) is registered at the close of business on the
Record Date for such interest.
Any interest on any Debenture which is payable, but is not
punctually paid or duly provided for, on any Interest Payment Date plus,
to the extent lawful, any interest payable on the defaulted interest
(hereinafter called "Defaulted Interest") shall forthwith cease to be
payable to the registered holder on the relevant Record Date, and such
Defaulted Interest may be paid by the Company, at its election in each
case, as provided in clause (1) or (2) below:
(1) The Company may elect to make payment of
any Defaulted Interest to the persons in whose names the Debent-
ures (or their respective predecessor Debentures) are registered
at the close of business on a Special Record Date for the payment
of such Defaulted Interest, which shall be fixed in the following
manner. The Company shall notify the Trustee in writing of the
amount of Defaulted Interest proposed to be paid on each Debenture
and the date of the proposed payment, and at the same time the
Company shall deposit with the Trustee an amount of Cash equal to
the aggregate amount proposed to be paid in respect of such
Defaulted Interest or shall make arrangements satisfactory to the
Trustee for such deposit prior to the date of the proposed
payment, such Cash when deposited to be held in trust for the
benefit of the persons entitled to such Defaulted Interest as
provided in this clause (1). Thereupon the Trustee shall fix a
Special Record Date for the payment of such Defaulted Interest
which shall be not more than 15 days and not less than 10 days
prior to the date of the proposed payment and not less than 10
days after the receipt by the Trustee of the notice of the pro-
posed payment. The Trustee shall promptly notify the Company of
such Special Record Date and, in the name and at the expense of
the Company, shall cause notice of the proposed payment of such
Defaulted Interest and the Special Record Date therefor to be
mailed, first-class postage prepaid, to each Holder at his address
as it appears in the Debenture register not less than 10 days
prior to such Special Record Date. Notice of the proposed payment
of such Defaulted Interest and the Special Record Date therefor
having been mailed as aforesaid, such Defaulted Interest shall be
paid to the persons in whose names the Debentures (or their
respective predecessor Debentures) are registered on such Special
Record Date and shall no longer be payable pursuant to the
following clause (2).
(2) The Company may make payment of any Default-
ed Interest in any other lawful manner not inconsistent with the
requirements of any securities exchange on which the Debentures
may be listed, and upon such notice as may be required by such
exchange, if, after notice given by the Company to the Trustee of
the proposed payment pursuant to this clause, such manner shall be
deemed practicable by the Trustee.
Subject to the foregoing provisions of this Section, each
Debenture delivered under this Indenture upon transfer of or in exchange
for or in lieu of any other Debenture shall carry the rights to interest
accrued and unpaid, and to accrue, which were carried by such other
Debenture.
ARTICLE III
REDEMPTION
SECTION III.1. Right of Redemption.
Redemption of Debentures, as permitted by any provision of
this Indenture, shall be made in accordance with Paragraph 5 of the
Debentures and this Article III. The Company will not have the right to
redeem any Debentures prior to October 9, 1998. On or after October 9,
1998, the Company will have the right to redeem all or any part of the
Debentures at the Redemption Prices specified in Paragraph 5 therein
under the caption "Redemption," in each case including accrued and
unpaid interest to the Redemption Date.
SECTION III.2. Notices to Trustee.
If the Company elects to redeem Debentures pursuant to
Paragraph 5 of the Debentures, it shall notify the Trustee in writing of
the Redemption Date and the principal amount of Debentures to be
redeemed and whether it wants the Trustee to give notice of redemption
to the Holders.
If the Company elects to reduce the principal amount of
Debentures to be redeemed pursuant to Paragraph 5 of the Debentures by
crediting against any such redemption Debentures it has not previously
delivered to the Trustee for cancellation, it shall so notify the
Trustee of the amount of the reduction and deliver such Debentures with
such notice.
The Company shall give each notice to the Trustee provided
for in this Section 3.2 at least 45 days before the Redemption Date
(unless a shorter notice shall be satisfactory to the Trustee). Any
such notice may be canceled at any time prior to notice of such
redemption being mailed to any Holder and shall thereby be void and of
no effect.
SECTION III.3. Selection of Debentures to Be Redeemed.
If less than all of the Debentures are to be redeemed pursu-
ant to Paragraph 5 thereof, the Trustee shall select the Debentures to
be redeemed by lot or by such other method as the Trustee shall
determine to be fair and appropriate and in such manner as complies with
any applicable depository, legal and stock exchange requirements.
The Trustee shall make the selection from the Debentures
outstanding and not previously called for redemption and shall promptly
notify the Company in writing of the Debentures selected for redemption
and, in the case of any Debenture selected for partial redemption, the
principal amount thereof to be redeemed. Debentures in denominations of
$1,000 may be redeemed only in whole. The Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof)
of the principal of Debentures that have denominations larger than
$1,000. Provisions of this Indenture that apply to Debentures called
for redemption also apply to portions of Debentures called for redemp-
tion.
SECTION III.4. Notice of Redemption.
At least 30 days but not more than 60 days before a Redemp-
tion Date, the Company shall mail a notice of redemption by first class
mail, postage prepaid, to the Trustee and each Holder whose Debentures
are to be redeemed. At the Company's request, the Trustee shall give
the notice of redemption in the Company's name and at the Company's ex-
pense. Each notice for redemption shall identify the Debentures to be
redeemed and shall state:
(1) the Redemption Date, and that the
Debentures called for redemption may not be converted after the
fifth Business Day prior to the Redemption Date;
(2) the Redemption Price, including the amount
of accrued and unpaid interest to be paid upon such redemption;
(3) the name, address and telephone number of
the Paying Agent;
(4) that Debentures called for redemption must
be surrendered to the Paying Agent at the address specified in
such notice to collect the Redemption Price;
(5) that, unless (a) the Company defaults in
its obligation to deposit Cash with the Paying Agent in accordance
with Section 3.6 hereof or (b) such redemption payment is
prohibited pursuant to Article XII hereof or otherwise, interest
on Debentures called for redemption ceases to accrue on and after
the Redemption Date and the only remaining right of the Holders of
such Debentures is to receive payment of the Redemption Price,
including accrued and unpaid interest to the Redemption Date, upon
surrender to the Paying Agent of the Debentures called for redemp-
tion and to be redeemed;
(6) if any Debenture is being redeemed in part,
the portion of the principal amount, equal to $1,000 or any inte-
gral multiple thereof, of such Debenture to be redeemed and that,
after the Redemption Date, and upon surrender of such Debenture, a
new Debenture or Debentures in aggregate principal amount equal to
the unredeemed portion thereof will be issued;
(7) if less than all the Debentures are to be
redeemed, the identification of the particular Debentures (or
portion thereof) to be redeemed, as well as the aggregate prin-
cipal amount of such Debentures to be redeemed and the aggregate
principal amount of Debentures to be outstanding after such
partial redemption;
(8) the CUSIP number of the Debentures to be
redeemed; and
(9) that the notice is being sent pursuant to
this Section 3.4 and pursuant to the redemption provisions of
Paragraph 5 of the Debentures.
SECTION III.5. Effect of Notice of Redemption.
Once notice of redemption is mailed in accordance with
Section 3.4, Debentures called for redemption become due and payable on
the Redemption Date and at the Redemption Price, including accrued and
unpaid interest to the Redemption Date. Upon surrender to the Trustee
or Paying Agent, such Debentures called for redemption shall be paid at
the Redemption Price, including interest, if any, accrued and unpaid to
the Redemption Date; provided that if the Redemption Date is after a
regular Record Date and on or prior to the corresponding Interest Pay-
ment Date, the accrued interest shall be payable to the Holder of the
redeemed Debentures registered on the relevant Record Date; and
provided, further, that if a Redemption Date is a Legal Holiday, payment
shall be made on the next succeeding Business Day and no interest shall
accrue for the period from such Redemption Date to such succeeding Busi-
ness Day.
SECTION III.6. Deposit of Redemption Price.
On or prior to the Redemption Date, the Company shall depos-
it with the Paying Agent (other than the Company or an Affiliate of the
Company) Cash sufficient to pay the Redemption Price of, including
accrued and unpaid interest on, all Debentures to be redeemed on such
Redemption Date (other than Debentures or portions thereof called for
redemption on that date that have been delivered by the Company to the
Trustee for cancellation). The Paying Agent shall promptly return to
the Company any Cash so deposited which is not required for that purpose
upon the written request of the Company.
If the Company complies with the preceding paragraph and the
other provisions of this Article III and payment of the Debentures
called for redemption is not prohibited under Article XII or otherwise,
interest on the Debentures to be redeemed will cease to accrue on the
applicable Redemption Date, whether or not such Debentures are presented
for payment. Notwithstanding anything herein to the contrary, if any
Debenture surrendered for redemption in the manner provided in the
Debentures shall not be so paid upon surrender for redemption because of
the failure of the Company to comply with the preceding paragraph,
interest shall continue to accrue and be paid from the Redemption Date
until such payment is made on the unpaid principal, and, to the extent
lawful, on any interest not paid on such unpaid principal, in each case
at the rate and in the manner provided in Section 4.1 hereof and the
Debenture.
SECTION III.7. Debentures Redeemed in Part.
Upon surrender of a Debenture that is to be redeemed in
part, the Company shall execute and the Trustee shall authenticate and
deliver to the Holder, without service charge to the Holder, a new
Debenture or Debentures equal in principal amount to the unredeemed
portion of the Debenture surrendered.
ARTICLE IV
COVENANTS
SECTION IV.1. Payment of Debentures.
The Company shall pay the principal of and interest on the
Debentures on the dates and in the manner provided in the Debentures.
An installment of principal of or interest on the Debentures shall be
considered paid on the date it is due if the Trustee or Paying Agent
(other than the Company or an Affiliate of the Company) holds for the
benefit of the Holders, on or before 10:00 a.m. New York City time on
that date, Cash deposited and designated for and sufficient to pay the
installment.
The Company shall pay interest on overdue principal and on
overdue installments of interest at the rate specified in the Debentures
compounded semi-annually, to the extent lawful.
SECTION IV.2. Maintenance of Office or Agency.
The Company shall maintain in the Borough of Manhattan, The
City of New York, an office or agency where Debentures may be presented
or surrendered for payment, where Debentures may be surrendered for
registration of transfer or exchange and for conversion and where
notices and demands to or upon the Company in respect of the Debentures
and this Indenture may be served. The Company shall give prompt written
notice to the Trustee of the location, and any change in the location,
of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders,
notices and demands may be made or served at the address of the Trustee
set forth in Section 14.2.
The Company may also from time to time designate one or more
other offices or agencies where the Debentures may be presented or
surrendered for any or all such purposes and may from time to time
rescind such designations; provided, however, that no such designation
or rescission shall in any manner relieve the Company of its obligation
to maintain an office or agency in the Borough of Manhattan, The City of
New York, for such purposes. The Company shall give prompt written
notice to the Trustee of any such designation or rescission and of any
change in the location of any such other office or agency. The Company
hereby initially designates the Corporate Trust Office of the Trustee as
such office.
SECTION IV.3. Corporate Existence.
Subject to Article V, the Company shall do or cause to be
done all things necessary to preserve and keep in full force and effect
its corporate existence and the corporate or other existence of each of
its Subsidiaries in accordance with the respective organizational docu-
ments of each of them and the rights (charter and statutory) and
corporate franchises of the Company and each of its Subsidiaries; pro-
vided, however, that the Company shall not be required to preserve, with
respect to itself, any right or franchise, and with respect to any of
its Subsidiaries, any such existence, right or franchise, if (a) the
Board of Directors of the Company shall determine that the preservation
thereof is no longer desirable in the conduct of the business of such
entity and (b) the loss thereof is not disadvantageous in any material
respect to the Holders.
SECTION IV.4. Payment of Taxes and Other Claims.
Except with respect to immaterial items, the Company shall,
and shall cause each of its Subsidiaries to, pay or discharge or cause
to be paid or discharged, before the same shall become delinquent, (i)
all taxes, assessments and governmental charges (including withholding
taxes and any penalties, interest and additions to taxes) levied or im-
posed upon the Company or any of its Subsidiaries or any of their re-
spective properties and assets and (ii) all lawful claims, whether for
labor, materials, supplies, services or anything else, which have become
due and payable and which by law have or may become a Lien upon the
property and assets of the Company or any of its Subsidiaries; provided,
however, that neither the Company nor any Subsidiary shall be required
to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or validity is
being contested in good faith by appropriate proceedings and for which
disputed amounts adequate reserves have been established in accordance
with GAAP.
SECTION IV.5. Maintenance of Properties and Insurance.
The Company shall cause all material properties used or
useful to the conduct of its business and the business of each of its
Subsidiaries to be maintained and kept in good condition, repair and
working order (reasonable wear and tear excepted) and supplied with all
necessary equipment and shall cause to be made all necessary repairs,
renewals, replacements, betterments and improvements thereof, all as in
their reasonable judgment may be necessary, so that the business carried
on in connection therewith may be properly conducted at all times;
provided, however, that nothing in this Section 4.5 shall prevent the
Company or any Subsidiary from discontinuing any operation or
maintenance of any of such properties, or disposing of any of them, if
such discontinuance or disposal is (a), in the judgment of the Board of
Directors of the Company, desirable in the conduct of the business of
such entity and (b) not disadvantageous in any material respect to the
Holders.
The Company shall provide, or cause to be provided, for
itself and each of its Subsidiaries, insurance (including appropriate
self-insurance) against loss or damage of the kinds that, in the
reasonable, good faith opinion of the Company is adequate and appropri-
ate for the conduct of the business of the Company and such Subsidiaries
in a prudent manner, with (except for self-insurance) reputable insurers
or with the government of the United States of America or an agency or
instrumentality thereof, in such amounts, with such deductibles, and by
such methods as shall be customary, in the reasonable, good faith
opinion of the Company and adequate and appropriate for the conduct of
the business of the Company and such Subsidiaries in a prudent manner
for entities similarly situated in the industry, unless failure to
provide such insurance (together with all other such failures) would not
have a material adverse effect on the financial condition or results of
operations of the Company or such Subsidiary.
SECTION IV.6. Compliance Certificate; Notice of Default.
(a) The Company shall deliver to the Trustee within
120 days after the end of its fiscal year an Officers' Certificate
complying with Section 314(a)(4) of the TIA and stating that a review of
their activities and the activities of their Subsidiaries during the
preceding fiscal year has been made under the supervision of the signing
Officers with a view to determining whether the Company has kept, ob-
served, performed and fulfilled their obligations under this Indenture
and further stating, as to each such Officer signing such certificate,
whether or not the signer knows of any failure by the Company or any
Subsidiary of the Company to comply with any conditions or covenants in
this Indenture and, if such signor does know of such a failure to com-
ply, the certificate shall describe such failure with particularity.
The Officers' Certificate shall also notify the Trustee should the rele-
vant fiscal year end on any date other than the current fiscal year end
date.
(b) The Company shall, so long as any of the Debe-
ntures are outstanding, deliver to the Trustee, promptly upon becoming
aware of any Default, Event of Default or fact which would prohibit the
making of any payment to or by the Trustee in respect of the Debentures,
an Officers' Certificate specifying such Default, Event of Default or
fact and what action the Company is taking or proposes to take with
respect thereto. The Trustee shall not be deemed to have knowledge of
any Default, any Event of Default or any such fact unless one of its
Trust Officers receives notice thereof from the Company or any of the
Holders.
SECTION IV.7. Reports.
(a) The Company shall deliver to the Trustee, within
15 days after it is required to file such with the SEC, copies of the
annual and quarterly reports (or copies of such portions of any of the
foregoing as the SEC may by rules and regulations prescribe) that the
Company is required to file with the SEC pursuant to Section 13 or 15
(d) of the Exchange Act.
(b) If the Company is required to furnish annual or
quarterly reports to its stockholders pursuant to the Exchange Act, the
Company shall cause any annual report furnished to its stockholders
generally, and any quarterly or other financial reports furnished by it
to its stockholders generally, to be filed with the Trustee and mailed
to the Holders at their addresses appearing in the register of
Securities maintained by the Registrar promptly.
SECTION IV.8. Limitation on Status as Investment Company.
Neither the Company nor any of its Subsidiaries shall become
an "investment company" (as that term is defined in the Investment
Company Act of 1940, as amended), or otherwise become subject to regula-
tion under the Investment Company Act.
SECTION IV.9. Waiver of Stay, Extension or Usury Laws.
The Company covenants (to the extent that it may lawfully do
so) that it will not at any time insist upon, plead, or in any manner
whatsoever claim or take the benefit or advantage of, any stay or
extension law or any usury law or other law which would prohibit or for-
give the Company from paying all or any portion of the principal of,
premium of, or interest on the Debentures as contemplated herein, wher-
ever enacted, now or at any time hereafter in force, or which may affect
the covenants or the performance of this Indenture; and (to the extent
that it may lawfully do so) the Company hereby expressly waives all
benefit or advantage of any such law, and covenants that it will not
hinder, delay or impede the execution of any power herein granted to the
Trustee, but will suffer and permit the execution of every such power as
though no such law had been enacted.
ARTICLE V
SUCCESSOR CORPORATION
SECTION V.1. Limitation on Merger, Sale or Consolidation.
(a) The Company shall not, directly or indirectly,
consolidate with or merge with or into another Person or sell, lease,
convey or transfer all or substantially all of its assets (computed on a
consolidated basis), whether in a single transaction or a series of
related transactions, to another Person or group of affiliated Persons,
unless (i) either (a) in the case of a merger or consolidation, the
Company is the surviving entity or (b) the resulting, surviving or
transferee entity is a corporation organized under the laws of the
United States, any state thereof or the District of Columbia and
expressly assumes by supplemental indenture all of the obligations of
the Company in connection with the Debentures and the Indenture; (ii) no
Default or Event of Default shall exist or shall occur immediately
before or after giving effect on a pro forma basis to such transaction;
and (iii) the Company has delivered to the Trustee an Officers' Certifi-
cate and an Opinion of Counsel, each stating that such consolidation,
merger or transfer and, if a supplemental indenture is required, such
supplemental indenture comply with the Indenture and that all conditions
precedent relating to such transactions have been satisfied.
(b) For purposes of clause (a) of this Section 5.1,
the sale, lease, conveyance, assignment, transfer, or other disposition
of all or substantially all of the properties and assets of one or more
Subsidiaries of the Company, which properties and assets, if held by the
Company instead of such Subsidiaries, would constitute all or sub-
stantially all of the properties and assets of the Company on a consoli-
dated basis, shall be deemed to be the transfer of all or substantially
all of the properties and assets of the Company.
SECTION V.2. Successor Corporation Substituted.
Upon any consolidation or merger or any sale, lease,
conveyance or transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, the successor corporation
formed by such consolidation or into which the Company is merged or to
which such sale, lease, conveyance or transfer is made, shall succeed
to, and be substituted for, and may exercise every right and power of,
the Company under the Indenture with the same effect as if such succes-
sor corporation had been named therein as the Company, and when a
successor corporation duly assumes all of the obligations of the Company
pursuant hereto and pursuant to the Debentures, the predecessor shall be
released from such obligations (except with respect to any obligations
that arise from, or are related to, such transaction).
ARTICLE VI
EVENTS OF DEFAULT AND REMEDIES
SECTION VI.1. Events of Default.
"Event of Default," wherever used herein, means any one of the following
events (whatever the reason for such Event of Default and whether it
shall be caused voluntarily or involuntarily or effected, without
limitation, by operation of law or pursuant to any judgment, decree or
order of any court or any order, rule or regulation of any
administrative or governmental body):
(1) failure to pay any installment of interest upon
the Debentures as and when the same becomes due and payable, or to
perform any conversion of the Debentures required under this
Indenture, and the continuance of such default for a period of 30
days, whether or not such payment is prohibited by Article XII;
(2) failure to pay all or any part of the principal
of or premium, if any, on the Debentures when and as the same be-
comes due and payable at maturity, redemption, by acceleration or
otherwise, including, without limitation, pursuant to any
Repurchase Offer or otherwise, whether or not such payment is pro-
hibited by Article XII;
(3) failure by the Company to observe or perform any
covenant, agreement or warranty contained in the Debentures or
this Indenture (other than a default in the performance of any
covenant, agreement or warranty which is specifically dealt with
elsewhere in this Section 6.1), and continuance of such failure
for a period of 60 days after there has been given, by registered
or certified mail, to the Company by the Trustee, or to the
Company and the Trustee by Holders of at least 25% in aggregate
principal amount of the then outstanding Debentures, a written
notice specifying such default or breach, requesting it to be
remedied and stating that such notice is a "Notice of Default"
hereunder;
(4) a default under Indebtedness of the Company or
any of its Subsidiaries with an aggregate principal amount in
excess of $5,000,000.00 (a) resulting from the failure to pay
principal at maturity or (b) as a result of which the maturity of
such Indebtedness has been accelerated prior to its stated
maturity;
(5) a decree, judgment, or order by a court of compe-
tent jurisdiction shall have been entered adjudging the Company or
any of its Significant Subsidiaries as bankrupt or insolvent, or
approving as properly filed a petition seeking reorganization of
the Company or any of its Significant Subsidiaries under any bank-
ruptcy or similar law, and such decree or order shall have con-
tinued undischarged and unstayed for a period of 75 days; or a
decree or order of a court of competent jurisdiction over the ap-
pointment of a receiver, liquidator, trustee, or assignee in bank-
ruptcy or insolvency of the Company, any of its Significant Sub-
sidiaries, or of the property of any such Person, or for the
winding up or liquidation of the affairs of any such Person, shall
have been entered, and such decree, judgment, or order shall have
remained in force undischarged and unstayed for a period of 75
days;
(6) the Company or any of its Significant Subsidiar-
ies shall institute proceedings to be adjudicated a voluntary
bankrupt, or shall consent to the filing of a bankruptcy proceed-
ing against it, or shall file a petition or answer or consent
seeking reorganization under any bankruptcy or similar law or
similar statute, or shall consent to the filing of any such peti-
tion, or shall consent to the appointment of a Custodian, receiv-
er, liquidator, trustee, or assignee in bankruptcy or insolvency
of it or any of its assets or property, or shall make a general
assignment for the benefit of creditors, or shall admit in writing
its inability to pay its debts generally as they become due, or
shall, within the meaning of any Bankruptcy Law, become insolvent,
fail generally to pay its debts as they become due, or take any
corporate action in furtherance of or to facilitate, conditionally
or otherwise, any of the foregoing; or
(7) final unsatisfied judgments not covered by insur-
ance for the payment of money, or the issuance of any warrant of
attachment against any portion of the property or assets of the
Company or any of its Subsidiaries, aggregating in excess of
$5,000,000.00 at any one time rendered against the Company or any
of its Subsidiaries and not be stayed, bonded or discharged for a
period (during which execution shall not be effectively stayed) of
75 days (or, in the case of any such final judgment which provides
for payment over time, which shall so remain unstayed, unbonded or
undischarged beyond any applicable payment date provided therein).
Notwithstanding the 60-day period and notice requirement
contained in Section 6.1(3) above, with respect to a default under
Article XI the 60-day period referred to in Section 6.1(3) shall be
deemed to have begun as of the date the Repurchase Event notice is
required to be sent in the event that the Company has not complied with
the provisions of Section 11.1 and the Trustee or Holders of at least
25% in principal amount of the outstanding Debentures thereafter give
the Notice of Default referred to in Section 6.1(3) to the Company and,
if applicable, the Trustee; provided, however, that if the breach or
default is a result of a default in the payment when due of the
Repurchase Payment on the Repurchase Payment Date, such Event of Default
shall be deemed, for purposes of this Section 6.1, to arise no later
than on the Repurchase Payment Date .
If a Default occurs and is continuing, the Trustee must,
within 90 days after the occurrence of such default, give to the Holders
notice of such Default.
SECTION VI.2. Acceleration of Maturity Date; Rescission and
Annulment.
If an Event of Default (other than an Event of Default
specified in Section 6.1(5) or (6) relating to the Company or any of its
Subsidiaries) occurs and is continuing, then, and in every such case,
unless the principal of all of the Debentures shall have already become
due and payable, either the Trustee or the Holders of not less than 25%
in aggregate principal amount of then outstanding Debentures, by a
notice in writing to the Company (and to the Trustee if given by
Holders) (an "Acceleration Notice"), may declare all of the principal of
the Debentures (or the Repurchase Payment if the Event of Default
includes failure to pay the Repurchase Payment), determined as set forth
below, including in each case accrued interest thereon, to be due and
payable immediately. In the event a declaration of acceleration
resulting from an Event of Default described in Section 6.1(4) above has
occurred and is continuing, such declaration of acceleration shall be
automatically annulled if such default is cured or waived or the holders
of the Indebtedness which is the subject of such default have rescinded
their declaration of acceleration in respect of such Indebtedness within
60 days thereof and the Trustee has received written notice of such
cure, waiver or rescission and no other Event of Default described in
Section 6.1(4) above has occurred that has not been cured or waived
within 60 days of the declaration of such acceleration in respect of
such Indebtedness. If an Event of Default specified in Section 6.1(5)
or (6) relating to the Company or any Subsidiary occurs, all principal
and accrued interest thereon will be immediately due and payable on all
outstanding Debentures without any declaration or other act on the part
of Trustee or the Holders.
At any time after such a declaration of acceleration is made
and before a judgment or decree for payment of the money due has been
obtained by the Trustee as hereinafter provided in this Article VI, the
Holders of a majority in aggregate principal amount of then outstanding
Debentures, by written notice to the Company and the Trustee, may
rescind, on behalf of all Holders, any such declaration of acceleration
if all Events of Default, other than the non-payment of the principal
of, premium, if any, and interest on Debentures which have become due
solely by such declaration of acceleration, have been cured or waived as
provided in Section 6.12, including, if applicable, any Event of Default
relating to the covenants contained in Section 11.1. Notwithstanding
the previous sentence of this Section 6.2, no waiver shall be effective
against any Holder for any Event of Default or event which with notice
or lapse of time or both would be an Event of Default with respect to
any covenant or provision which cannot be modified or amended without
the consent of the Holder of each outstanding Debenture affected
thereby, unless all such affected Holders agree, in writing, to waive
such Event of Default or other event. No such waiver shall cure or
waive any subsequent default or impair any right consequent thereon.
SECTION VI.3. Collection of Indebtedness and Suits for En-
forcement by Trustee.
The Company covenants that if an Event of Default in payment
of principal, premium, or interest specified in clause (1) or (2) of
Section 6.1 occurs and is continuing, the Company shall, upon demand of
the Trustee, pay to it, for the benefit of the Holders of such
Debentures, the whole amount then due and payable on such Debentures for
principal, premium (if any) and interest, and, to the extent that
payment of such interest shall be legally enforceable, interest on any
overdue principal (and premium, if any) and on any overdue interest, at
the rate borne by the Debentures, and, in addition thereto, such further
amount as shall be sufficient to cover the costs and expenses of collec-
tion, including compensation to, and expenses, disbursements and advanc-
es of the Trustee, its agents and counsel.
If the Company fails to pay such amounts forthwith upon such
demand, the Trustee, in its own name and as trustee of an express trust
in favor of the Holders, may institute a judicial proceeding for the
collection of the sums so due and unpaid, may prosecute such proceeding
to judgment or final decree and may enforce the same against the Company
or any other obligor upon the Debentures and collect the moneys adjudged
or decreed to be payable in the manner provided by law out of the
property of the Company or any other obligor upon the Debentures,
wherever situated.
If an Event of Default occurs and is continuing, the Trustee
may in its discretion proceed to protect and enforce its rights and the
rights of the Holders by such appropriate judicial proceedings as the
Trustee shall deem most effective to protect and enforce any such
rights, whether for the specific enforcement of any covenant or agree-
ment in this Indenture or in aid of the exercise of any power granted
herein, or to enforce any other proper remedy.
SECTION VI.4. Trustee May File Proofs of Claim.
In case of the pendency of any receivership, insolvency,
liquidation, bankruptcy, reorganization, arrangement, adjustment,
composition or other judicial proceeding relative to the Company or any
other obligor upon the Debentures or the property of the Company or of
such other obligor or their creditors, the Trustee (irrespective of
whether the principal of the Debentures shall then be due and payable as
therein expressed or by declaration or otherwise and irrespective of
whether the Trustee shall have made any demand on the Company for the
payment of overdue principal or interest) shall be entitled and empow-
ered, by intervention in such proceeding or otherwise to take any and
all actions under the TIA, including
(1) to file and prove a claim for the whole amount of
principal (and premium, if any) and interest owing and unpaid in respect
of the Debentures and to file such other papers or documents as may be
necessary or advisable in order to have the claims of the Trustee
(including any claim for the reasonable compensation, expenses, dis-
bursements and advances of the Trustee, its agent and counsel) and of
the Holders allowed in such judicial proceeding, and
(2) to collect and receive any moneys or other
property payable or deliverable on any such claims and to distribute the
same;
and any custodian, receiver, assignee, trustee, liquidator, sequestrator
or other similar official in any such judicial proceeding is hereby
authorized by each Holder to make such payments to the Trustee and, in
the event that the Trustee shall consent to the making of such payments
directly to the Holders, to pay to the Trustee any amount due it for the
reasonable compensation, expenses, disbursements and advances of the
Trustee, its agents and counsel, and any other amounts due the Trustee
under Section 7.7.
Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept or adopt on behalf of any
Holder any plan of reorganization, arrangement, adjustment, or composi-
tion affecting the Debentures or the rights of any Holder thereof or to
authorize the Trustee to vote in respect of the claim of any Holder in
any such proceeding.
SECTION VI.5. Trustee May Enforce Claims Without Possession
of the Debentures.
All rights of action and claims under this Indenture or the
Debentures may be prosecuted and enforced by the Trustee without the
possession of any of the Debentures or the production thereof in any
proceeding relating thereto, and any such proceeding instituted by the
Trustee shall be brought in its own name as trustee of an express trust
in favor of the Holders, and any recovery of judgment shall, after
provision for the payment of compensation to, and expenses, disburse-
ments and advances of the Trustee, its agents and counsel, be for the
ratable benefit of the Holders of the Debentures in respect of which
such judgment has been recovered.
SECTION VI.6. Priorities.
Any money collected by the Trustee pursuant to this Article
VI shall be applied in the following order, at the date or dates fixed
by the Trustee and, in case of the distribution of such money on account
of principal, premium (if any) or interest, upon presentation of the
Debentures and the notation thereon of the payment if only partially
paid and upon surrender thereof if fully paid:
FIRST: To the Trustee in payment of all amounts due pursu-
ant to Section 7.7;
SECOND: To the Holders of Senior Debt of the Company to the
extent provided in Article XII;
THIRD: To the Holders in payment of the amounts then due
and unpaid for principal of, premium (if any) and interest on, the
Debentures in respect of which or for the benefit of which such money
has been collected, ratably, without preference or priority of any kind,
according to the amounts due and payable on such Debentures for
principal, premium (if any) and interest, respectively; and
FOURTH: To whomsoever may be lawfully entitled thereto, the
remainder, if any.
SECTION VI.7. Limitation on Suits.
No Holder of any Debenture shall have any right to order or
direct the Trustee to institute any proceeding, judicial or otherwise,
with respect to this Indenture, or for the appointment of a receiver or
trustee, or for any other remedy hereunder, unless
(A) such Holder has previously given written
notice to the Trustee of a continuing Event of Default;
(B) the Holders of not less than 25% in
principal amount of then outstanding Debentures shall have made
written request to the Trustee to institute proceedings in respect
of such Event of Default in its own name as Trustee hereunder;
(C) such Holder or Holders have offered to the
Trustee reasonable security or indemnity against the costs, ex-
penses and liabilities to be incurred or reasonably probable to be
incurred in compliance with such request;
(D) the Trustee for 60 days after its receipt
of such notice, request and offer of indemnity has failed to
institute any such proceeding; and
(E) no direction inconsistent with such written
request has been given to the Trustee during such 60-day period by
the Holders of a majority in principal amount of the outstanding
Debentures;
it being understood and intended that no one or more Holders shall have
any right in any manner whatever by virtue of, or by availing of, any
provision of this Indenture to affect, disturb or prejudice the rights
of any other Holders, or to obtain or to seek to obtain priority or
preference over any other Holders or to enforce any right under this
Indenture, except in the manner herein provided and for the equal and
ratable benefit of all the Holders.
SECTION VI.8. Unconditional Right of Holders to Receive
Principal, Premium and Interest.
Notwithstanding any other provision of this Indenture, the
Holder of any Debenture shall have the right, which is absolute and
unconditional, to receive payment of the principal of, and premium (if
any) and interest on, such Debenture when due (including, in the case of
redemption, the Redemption Price on the applicable Redemption Date, and
in the case of the Repurchase Payment, on the applicable Repurchase
Payment Date) and to institute suit for the enforcement of any such pay-
ment after such respective dates, and such rights shall not be impaired
without the consent of such Holder.
SECTION VI.9. Rights and Remedies Cumulative.
Except as otherwise provided with respect to the replacement
or payment of mutilated, destroyed, lost or stolen Debentures in Section
2.7, no right or remedy herein conferred upon or reserved to the Trustee
or to the Holders is intended to be exclusive of any other right or
remedy, and every right and remedy shall, to the extent permitted by
law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise.
The assertion or employment of any right or remedy hereunder, or other-
wise, shall not prevent the concurrent assertion or employment of any
other appropriate right or remedy.
SECTION VI.10. Delay or Omission Not Waiver.
No delay or omission by the Trustee or by any Holder of any
Debenture to exercise any right or remedy arising upon any Event of
Default shall impair the exercise of any such right or remedy or consti-
tute a waiver of any such Event of Default. Every right and remedy
given by this Article VI or by law to the Trustee or to the Holders may
be exercised from time to time, and as often as may be deemed expedient,
by the Trustee or by the Holders, as the case may be.
SECTION VI.11. Control by Holders.
The Holder or Holders of a majority in aggregate principal
amount of then outstanding Debentures shall have the right to direct the
time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred upon
the Trustee, provided, that
(1) such direction shall not be in conflict with any
rule of law or with this Indenture,
(2) the Trustee shall not determine that the action
so directed would be unjustly prejudicial to the Holders not
taking part in such direction, and
(3) the Trustee may take any other action deemed
proper by the Trustee which is not inconsistent with such direc-
tion.
SECTION VI.12. Waiver of Past Default.
Subject to Section 6.8, the Holder or Holders of not less
than a majority in aggregate principal amount of the outstanding
Debentures may, on behalf of all Holders, prior to the declaration of
the maturity of the Debentures, waive any past default hereunder and its
consequences, except a default
(A) in the payment of the principal of,
premium, if any, or interest on, any Debenture as specified in
clauses (1) and (2) of Section 6.01, or
(B) in respect of a covenant or provision
hereof which, under Article IX, cannot be modified or amended
without the consent of the Holder of each outstanding Debenture
affected.
Upon any such waiver, such default shall cease to exist, and
any Event of Default arising therefrom shall be deemed to have been
cured, for every purpose of this Indenture; but no such waiver shall
extend to any subsequent or other default or impair the exercise of any
right arising therefrom.
SECTION VI.13. Undertaking for Costs.
All parties to this Indenture agree, and each Holder of any
Debenture by his acceptance thereof shall be deemed to have agreed, that
any court may in its discretion require, in any suit for the enforcement
of any right or remedy under this Indenture, or in any suit against the
Trustee for any action taken, suffered or omitted to be taken by it as
Trustee, the filing by any party litigant in such suit of an undertaking
to pay the costs of such suit, and that such court may in its discretion
assess reasonable costs, including reasonable attorneys' fees, against
any party litigant in such suit, having due regard to the merits and
good faith of the claims or defenses made by such party litigant; but
the provisions of this Section 6.13 shall not apply to any suit
instituted by the Company, to any suit instituted by the Trustee, to any
suit instituted by any Holder, or group of Holders, holding in the
aggregate more than 10% in aggregate principal amount of the outstanding
Debentures, or to any suit instituted by any Holder for enforcement of
the payment of principal of, or premium (if any) or interest on, any
Debenture on or after the respective Maturity Date expressed in such
Debenture (including, in the case of redemption, on or after the
Redemption Date).
SECTION VI.14. Restoration of Rights and Remedies.
If the Trustee or any Holder has instituted any proceeding
to enforce any right or remedy under this Indenture and such proceeding
has been discontinued or abandoned for any reason, or has been
determined adversely to the Trustee or to such Holder, then and in every
case, subject to any determination in such proceeding, the Company, the
Trustee and the Holders shall be restored severally and respectively to
their former positions hereunder and thereafter all rights and remedies
of the Trustee and the Holders shall continue as though no such
proceeding had been instituted.
ARTICLE VII
TRUSTEE
The Trustee hereby accepts the trust imposed upon it by this
Indenture and covenants and agrees to perform the same, as herein
expressed.
SECTION VII.1. Duties of Trustee.
(a) If a Default or an Event of Default has occurred
and is continuing, the Trustee shall exercise such of the rights and
powers vested in it by this Indenture and use the same degree of care
and skill in their exercise as a prudent Person would exercise or use
under the circumstances in the conduct of his own affairs.
(b) Except during the continuance of a Default or an
Event of Default:
(1) The Trustee need perform only those duties as are
specifically set forth in this Indenture and no others, and no
covenants or obligations shall be implied in or read into this
Indenture which are adverse to the Trustee.
(2) In the absence of bad faith on its part, the
Trustee may conclusively rely, as to the truth of the statements
and the correctness of the opinions expressed therein, upon
certificates or opinions furnished to the Trustee and conforming
to the requirements of this Indenture. However, the Trustee shall
examine the certificates and opinions to determine whether or not
they conform to the requirements of this Indenture.
(c) The Trustee may not be relieved from liability
for its own negligent action, its own negligent failure to act, or its
own willful misconduct, except that:
(1) This paragraph does not limit the effect of para-
graph (b) of this Section 7.1.
(2) The Trustee shall not be liable for any error of
judgment made in good faith by a Trust Officer, unless it is
proved that the Trustee was negligent in ascertaining the
pertinent facts.
(3) The Trustee shall not be liable with respect to
any action it takes or omits to take in good faith in accordance
with a direction received by it pursuant to Section 6.11.
(d) No provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any financial
liability in the performance of any of its duties hereunder or to take
or omit to take any action under this Indenture or at the request, order
or direction of the Holders or in the exercise of any of its rights or
powers if it shall have reasonable grounds for believing that repayment
of such funds or adequate indemnity against such risk or liability is
not reasonably assured to it.
(e) Every provision of this Indenture that in any way
relates to the Trustee is subject to paragraphs (a), (b), (c), (d) and
(f) of this Section 7.1.
(f) The Trustee shall not be liable for interest on
any assets received by it except as the Trustee may agree in writing
with the Company. Assets held in trust by the Trustee need not be
segregated from other assets except to the extent required by law.
SECTION VII.2. Rights of Trustee.
Subject to Section 7.1:
(a) The Trustee may rely on any document believed by
it to be genuine and to have been signed or presented by the proper
Person. The Trustee need not investigate any fact or matter stated in
the document.
(b) Before the Trustee acts or refrains from acting,
it may consult with counsel and may require an Officers' Certificate or
an Opinion of Counsel, which shall conform to Sections 14.4 and 14.5.
The Trustee shall not be liable for any action it takes or omits to take
in good faith in reliance on such certificate or advice of counsel.
(c) The Trustee may act through its attorneys and
agents and shall not be responsible for the misconduct or negligence of
any agent appointed with due care.
(d) The Trustee shall not be liable for any action it
takes or omits to take in good faith which it believes to be authorized
or within its rights or powers conferred upon it by this Indenture.
(e) The Trustee shall not be bound to make any
investigation into the facts or matters stated in any resolution,
certificate, statement, instrument, opinion, notice, request, direction,
consent, order, bond, debenture, or other paper or document, but the
Trustee, in its discretion, may make such further inquiry or investiga-
tion into such facts or matters as it may see fit.
(f) The Trustee shall be under no obligation to
exercise any of the rights or powers vested in it by this Indenture at
the request, order or direction of any of the Holders, pursuant to the
provisions of this Indenture, unless such Holders shall have offered to
the Trustee reasonable security or indemnity against the costs, expenses
and liabilities which may be incurred therein or thereby.
(g) Unless otherwise specifically provided for in
this Indenture, any demand, request, direction as notice from the
Company shall be sufficient if signed by an Officer of the Company.
(h) The Trustee shall have no duty to inquire as to
the performance of the Company's covenants in Article IV hereof. In
addition, the Trustee shall not be deemed to have knowledge of any
Default or Event of Default except (i) any Event of Default occurring
pursuant to Sections 6.1(1), 6.1(2) and 5.1, or (ii) any Default or
Event of Default of which the Trustee shall have received written
notification or obtained actual knowledge.
SECTION VII.3. Individual Rights of Trustee.
The Trustee in its individual or any other capacity may
become the owner or pledgee of Debentures and may otherwise deal with
the Company, any of its Subsidiaries, or their respective Affiliates
with the same rights it would have if it were not Trustee. Any Agent
may do the same with like rights. However, the Trustee must comply with
Sections 7.10 and 7.11.
SECTION VII.4. Trustee's Disclaimer.
The Trustee makes no representation as to the validity or
adequacy of this Indenture or the Debentures and it shall not be ac-
countable for the Company's use of the proceeds from the Debentures, and
it shall not be responsible for any statement in the Debentures, other
than the Trustee's certificate of authentication, or the use or applica-
tion of any funds received by a Paying Agent other than the Trustee.
SECTION VII.5. Notice of Default.
If a Default or an Event of Default occurs and is continuing
and if it is known to the Trustee, the Trustee shall mail to each
Securityholder notice of the uncured Default or Event of Default within
90 days after such Default or Event of Default occurs. Except in the
case of a Default or an Event of Default in payment of principal (or
premium, if any) of, or interest on, any Debenture (including the
payment of the Repurchase Payment on the Repurchase Payment Date, and
the payment of the Redemption Price on the Redemption Date), the Trustee
may withhold the notice if and so long as a Trust Officer in good faith
determines that withholding the notice is in the interest of the
Securityholders.
SECTION VII.6. Reports by Trustee to Holders.
On or about May 15 of each year, beginning with May 15,
1996, the Trustee shall, if required by law, mail to each Securityholder
a brief report dated as of such date that complies with TIA 313(a).
The Trustee also shall comply with TIA 313(b) and 313(c).
The Company shall promptly notify the Trustee in writing if
the Debentures become listed on any stock exchange or automatic quota-
tion system.
A copy of each report at the time of its mailing to
Securityholders shall be mailed to the Company and filed with the SEC
and each stock exchange, if any, on which the Debentures are listed.
SECTION VII.7. Compensation and Indemnity.
The Company agrees to pay to the Trustee from time to time
reasonable compensation for its services. The Trustee's compensation
shall not be limited by any law on compensation of a trustee of an ex-
press trust. The Company shall reimburse the Trustee upon request for
all reasonable disbursements, expenses and advances incurred or made by
it. Such expenses shall include the reasonable compensation, dis-
bursements and expenses of the Trustee's agents, accountants, experts
and counsel.
The Company agrees to indemnify the Trustee (in its capacity
as Trustee) and each of its officers, directors, attorneys-in-fact and
agents for, and hold it harmless against, any claim, demand, expense
(including but not limited to reasonable compensation, disbursements and
expenses of the Trustee's agents and counsel), loss or liability in-
curred by it without negligence or bad faith on its part, arising out of
or in connection with the administration of this trust and its rights or
duties hereunder including the reasonable costs and expenses of defend-
ing itself against any claim or liability in connection with the exer-
cise or performance of any of its powers or duties hereunder. The
Trustee shall notify the Company promptly of any claim asserted against
the Trustee for which it may seek indemnity. The Company shall defend
the claim and the Trustee shall provide reasonable cooperation at the
Company's expense in the defense. The Trustee may have separate counsel
and the Company shall pay the reasonable fees and expenses of such
counsel; provided, that the Company will not be required to pay such
fees and expenses if they assume the Trustee's defense and there is no
conflict of interest between the Company and the Trustee in connection
with such defense. The Company need not pay for any settlement made
without its written consent. The Company need not reimburse any expense
or indemnify against any loss or liability to the extent incurred by the
Trustee through its negligence, bad faith or willful misconduct.
To secure the Company's payment obligations in this Section
7.7, the Trustee shall have a lien prior to the Debentures on all assets
held or collected by the Trustee, in its capacity as Trustee, except
assets held in trust to pay principal and premium, if any, of or inter-
est on particular Debentures.
When the Trustee incurs expenses or renders services after
an Event of Default specified in Section 6.1(5) or (6) occurs, the
expenses and the compensation for the services are intended to
constitute expenses of administration under any Bankruptcy Law.
The Company's obligations under this Section 7.7 and any
lien arising hereunder shall survive the resignation or removal of the
Trustee, the discharge of the Company's obligations pursuant to Article
VIII of this Indenture and any rejection or termination of this Inden-
ture under any Bankruptcy Law.
SECTION VII.8. Replacement of Trustee.
The Trustee may resign by so notifying the Company in writ-
ing. The Holder or Holders of a majority in principal amount of the
outstanding Debentures may remove the Trustee by so notifying the
Company and the Trustee in writing and may appoint a successor trustee
with the Company's consent. The Company may remove the Trustee if:
(a) the Trustee fails to comply with Section 7.10;
(b) the Trustee is adjudged bankrupt or insolvent;
(c) a receiver, Custodian, or other public officer
takes charge of the Trustee or its property; or
(d) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists
in the office of Trustee for any reason, the Company shall promptly
appoint a successor Trustee. Within one year after the successor
Trustee takes office, the Holder or Holders of a majority in principal
amount of the Debentures may appoint a successor Trustee to replace the
successor Trustee appointed by the Company.
A successor Trustee shall deliver a written acceptance of
its appointment to the retiring Trustee and to the Company. Immediately
after that and provided that all sums owing to the trustee provided for
in Section 7.7 have been paid, the retiring Trustee shall transfer all
property held by it as trustee to the successor Trustee, subject to the
lien provided in Section 7.7, the resignation or removal of the retiring
Trustee shall become effective, and the successor Trustee shall have all
the rights, powers and duties of the Trustee under this Indenture. A
successor Trustee shall mail notice of its succession to each Holder.
If a successor Trustee does not take office within 60 days
after the retiring Trustee resigns or is removed, the retiring Trustee,
the Company or the Holder or Holders of at least 10% in principal amount
of the outstanding Debentures may petition any court of competent juris-
diction for the appointment of a successor Trustee.
If the Trustee fails to comply with Section 7.10, any
Securityholder may petition any court of competent jurisdiction for the
removal of the Trustee and the appointment of a successor Trustee.
Notwithstanding replacement of the Trustee pursuant to this
Section 7.8, the Company's obligations under Section 7.7 shall continue
for the benefit of the retiring Trustee.
SECTION VII.9. Successor Trustee by Merger, Etc.
If the Trustee consolidates with, merges or converts into,
or transfers all or substantially all of its corporate trust business
to, another corporation, the resulting, surviving or transferee
corporation without any further act shall, if such resulting, surviving
or transferee corporation is otherwise eligible hereunder, be the
successor Trustee.
SECTION VII.10. Eligibility; Disqualification.
The Trustee shall at all times satisfy the requirements of
TIA 310(a)(1), (2) and (5). The Trustee shall have a combined capital
and surplus of at least $25,000,000 as set forth in its most recent pub-
lished annual report of condition. The Trustee shall comply with TIA
310(b).
SECTION VII.11. Preferential Collection of Claims Against
Company.
The Trustee shall comply with TIA 311(a), excluding any
creditor relationship listed in TIA 311(b). A Trustee who has re-
signed or been removed shall be subject to TIA 311(a) to the extent
indicated.
ARTICLE VIII
SATISFACTION AND DISCHARGE
SECTION VIII.1. Satisfaction and Discharge of Indenture.
The Company may terminate its obligations under this
Indenture (subject to the provisions of this Article VIII) when it shall
have delivered to the Trustee for cancellation all Debentures thereto-
fore authenticated (other than any Debentures which shall have been
destroyed, lost or stolen and which shall have been replaced or paid as
provided in Article II hereof) and the following conditions shall be
satisfied:
(1) The Company has paid all sums payable under the
Indenture; and
(2) The Company shall have delivered to the Trustee
an Officers' Certificate and an Opinion of Counsel in the United States,
each stating that all conditions precedent have been complied with as
contemplated by this Section 8.1.
SECTION VIII.2. Repayment to the Company.
Any money deposited with the Trustee or any Paying Agent, or
then held by the Company, for the payment of the principal of, premium,
if any, or interest on any Debenture and remaining unclaimed for two
years after such principal, and premium, if any, or interest has become
due and payable shall be paid to the Company on its request; and the
Holder of such Debenture shall thereafter look only to the Company for
payment thereof, and all liability of the Trustee or such Paying Agent
with respect to such trust money shall thereupon cease; provided,
however, that the Trustee or such Paying Agent, before being required to
make any such repayment, may at the expense of the Company cause to be
published once, in the New York Times and The Wall Street Journal
(national edition), notice that such money remains unclaimed and that,
after a date specified therein, which shall not be less than 30 days
from the date of such notification or publication, any unclaimed balance
of such money then remaining will be repaid to the Company.
ARTICLE IX
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION IX.1. Supplemental Indentures Without Consent of
Holders.
Without the consent of any Holder, the Company, when
authorized by Board Resolutions, and the Trustee, at any time and from
time to time, may enter into one or more indentures supplemental hereto,
in form satisfactory to the Trustee, for any of the following purposes:
(1) to cure any ambiguity, defect, or inconsistency,
or to make any other provisions with respect to matters or questions
arising under this Indenture which shall not be inconsistent with the
provisions of this Indenture, provided, that such action pursuant to
this clause (1) does not adversely affect the interests of any Holder in
any respect;
(2) to create additional covenants of the Company
for the benefit of the Holders, or to surrender any right or power
herein conferred upon the Company or to make any other change that does
not adversely affect the rights of any Holder, provided, that the Comp-
any has delivered to the Trustee an Opinion of Counsel stating that such
change pursuant to this clause (2) does not adversely affect the rights
of any Holder;
(3) to provide for collateral for or guarantors of
the Debentures;
(4) to evidence the succession of another Person to
the Company and the assumption by any such successor of the obligations
of the Company herein and in the Debentures in accordance with Article
V; or
(5) to comply with the TIA.
SECTION IX.2. Amendments, Supplemental Indentures and Waiv-
ers with Consent of Holders.
Subject to Section 6.8 and the last sentence of this
paragraph, with the consent of the Holders of not less than a majority
in aggregate principal amount of then outstanding Debentures, by written
act of said Holders delivered to the Company and the Trustee, the
Company, when authorized by Board Resolutions, and the Trustee may amend
or supplement this Indenture or the Debentures or enter into an
indenture or indentures supplemental hereto for the purpose of adding
any provisions to or changing in any manner or eliminating any of the
provisions of this Indenture or the Debentures or of modifying in any
manner the rights of the Holders under this Indenture or the Debentures.
Subject to Section 6.8 and the last sentence of this paragraph, the
Holder or Holders of not less than a majority in aggregate principal
amount of then outstanding Debentures may, in writing, waive compliance
by the Company with any provision of this Indenture or the Debentures.
Notwithstanding any of the above, however, no such amendment,
supplemental indenture or waiver shall, without the consent of the
Holder of each outstanding Debenture affected thereby:
(1) reduce the percentage of principal amount of
Debentures whose Holders must consent to an amendment, supplement or
waiver of any provision of this Indenture or the Debentures;
(2) reduce the rate or extend the time for payment of
interest on any Debenture;
(3) reduce the principal amount of any Debenture, or
reduce the Repurchase Payment or the Redemption Price;
(4) change the Stated Maturity of any Debenture;
(5) alter the redemption provisions of Article III or the
conversion provisions of Article XIII, in either case in a manner ad-
verse to any Holder;
(6) make any changes in the provisions concerning waivers
of Defaults or Events of Default by Holders of the Debentures or the
rights of Holders to recover the principal or premium of, interest on,
or redemption payment with respect to, any Debenture, including without
limitation any changes in Section 6.8, 6.12 or this third sentence of
this Section 9.2; or
(7) make the principal of, or the interest on, any
Debenture payable with anything or in any manner other than as provided
for in this Indenture (including changing the place of payment where, or
the coin or currency in which, any Debenture or any premium or the
interest thereon is payable) and the Debentures as in effect on the date
hereof.
It shall not be necessary for the consent of the Holders
under this Section 9.2 to approve the particular form of any proposed
amendment, supplement or waiver, but it shall be sufficient if such
consent approves the substance thereof.
After an amendment, supplement or waiver under this Section
becomes effective, the Company shall mail to the Holders affected
thereby a notice briefly describing the amendment, supplement or waiver.
Any failure of the Company to mail such notice, or any defect therein,
shall not, however, in any way impair or affect the validity of any such
supplemental indenture or waiver.
After an amendment, supplement or waiver under this Section
9.2 or Section 9.4 becomes effective, it shall bind each Holder.
In connection with any amendment, supplement or waiver under
this Article IX, the Company may, but shall not be obligated to, offer
to any Holder who consents to such amendment, supplement or waiver, or
(at the option of the Company) to all Holders, consideration for consent
to such amendment, supplement or waiver.
SECTION IX.3. Compliance with TIA.
Every amendment, waiver or supplement of this Indenture or
the Debentures shall comply with the TIA as then in effect.
SECTION IX.4. Revocation and Effect of Consents.
Until an amendment, waiver or supplement becomes effective,
a consent to it by a Holder is a continuing consent by the Holder and
every subsequent Holder of a Debenture or portion of a Debenture that
evidences the same debt as the consenting Holder's Debenture, even if
notation of the consent is not made on any Debenture. However, any such
Holder or subsequent Holder may revoke the consent as to his Debenture
or portion of his Debenture by written notice to the Company or the
Person designated by the Company as the Person to whom consents should
be sent if such revocation is received by the Company or such Person
before the date on which the Trustee receives an Officers' Certificate
certifying that the Holders of the requisite principal amount of
Debentures have consented (and not theretofore revoked such consent) to
the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record
date for the purpose of determining the Holders entitled to consent to
any amendment, supplement or waiver, which record date shall be the date
so fixed by the Company notwithstanding the provisions of the TIA. If a
record date is fixed, then notwithstanding the last sentence of the
immediately preceding paragraph, those Persons who were Holders at such
record date, and only those Persons (or their duly designated proxies),
shall be entitled to revoke any consent previously given, whether or not
such Persons continue to be Holders after such record date. No such
consent shall be valid or effective for more than 90 days after such
record date.
After an amendment, supplement or waiver becomes effective,
it shall bind every Securityholder, unless it makes a change described
in any of clauses (1) through (8) of Section 9.2, in which case, the
amendment, supplement or waiver shall bind only each Holder of a
Debenture who has consented to it and every subsequent Holder of a
Debenture or portion of a Debenture that evidences the same debt as the
consenting Holder's Debenture; provided, that any such waiver shall not
impair or affect the right of any Holder to receive payment of principal
and premium of and interest on a Debenture, on or after the respective
dates set for such amounts to become due and payable expressed in such
Debenture, or to bring suit for the enforcement of any such payment on
or after such respective dates.
SECTION IX.5. Notation on or Exchange of Debentures.
If an amendment, supplement or waiver changes the terms of a
Debenture, the Trustee may require the Holder of the Debenture to
deliver it to the Trustee or require the Holder to put an appropriate
notation on the Debenture. The Trustee may place an appropriate
notation on the Debenture about the changed terms and return it to the
Holder. Alternatively, if the Company or the Trustee so determines, the
Company in exchange for the Debenture shall issue and the Trustee shall
authenticate a new Debenture that reflects the changed terms. Any
failure to make the appropriate notation or to issue a new Debenture
shall not affect the validity of such amendment, supplement or waiver.
SECTION IX.6. Trustee to Sign Amendments, Etc.
The Trustee shall execute any amendment, supplement or
waiver authorized pursuant to this Article IX; provided, that the
Trustee may, but shall not be obligated to, execute any such amendment,
supplement or waiver which affects the Trustee's own rights, duties or
immunities under this Indenture. The Trustee shall be entitled to
receive, and shall be fully protected in relying upon, an Opinion of
Counsel stating that the execution of any amendment, supplement or
waiver authorized pursuant to this Article IX is authorized or permitted
by this Indenture.
ARTICLE X
MEETINGS OF SECURITYHOLDERS
SECTION X.1. Purposes for Which Meetings May Be Called.
A meeting of Securityholders may be called at any time and
from time to time pursuant to the provisions of this Article X for any
of the following purposes:
(a) to give any notice to the Company or to the
Trustee, or to give any directions to the Trustee, or to waive or to
consent to the waiving of any Default or Event of Default hereunder and
its consequences, or to take any other action authorized to be taken by
Securityholders pursuant to any of the provisions of Article VI;
(b) to remove the Trustee or appoint a successor
Trustee pursuant to the provisions of Article VII;
(c) to consent to an amendment, supplement or waiver
pursuant to the provisions of Section 9.2; or
(d) to take any other action (i) authorized to be
taken by or on behalf of the Holder or Holders of any specified
aggregate principal amount of the Debentures under any other provision
of this Indenture, or authorized or permitted by law or (ii) which the
Trustee deems necessary or appropriate in connection with the adminis-
tration of this Indenture.
SECTION X.2. Manner of Calling Meetings.
The Trustee may at any time call a meeting of
Securityholders to take any action specified in Section 10.1, to be held
at such time and at such place in the City of New York, New York or
elsewhere as the Trustee shall determine. Notice of every meeting of
Securityholders, setting forth the time and place of such meeting and in
general terms the action proposed to be taken at such meeting, shall be
mailed by the Trustee, first-class postage prepaid, to the Company and
to the Holders at their last addresses as they shall appear on the
registration books of the Registrar, not less than 10 nor more than 60
days prior to the date fixed for a meeting.
Any meeting of Securityholders shall be valid without notice
if the Holders of all Debentures then outstanding are present in Person
or by proxy, or if notice is waived before or after the meeting by the
Holders of all Debentures outstanding, and if the Company and the
Trustee are either present by duly authorized representatives or have,
before or after the meeting, waived notice.
SECTION X.3. Call of Meetings by the Company or Holders.
In case at any time the Company or the Holders of not less
than 10% in aggregate principal amount of the Debentures then outstand-
ing, shall have requested the Trustee to call a meeting of
Securityholders to take any action specified in Section 10.1, by written
request setting forth in reasonable detail the action proposed to be
taken at the meeting, and the Trustee shall not have mailed the notice
of such meeting within 20 days after receipt of such request, then the
Company or the Holders of Debentures in the amount above specified may
determine the time and place in The City of New York, New York or
elsewhere for such meeting and may call such meeting for the purpose of
taking such action, by mailing or causing to be mailed notice thereof as
provided in Section 10.2, or by causing notice thereof to be published
at least once in each of two successive calendar weeks (on any Business
Day during such week) in a newspaper or newspapers printed in the
English language, customarily published at least five days a week of a
general circulation in The City of New York, State of New York, the
first such publication to be not less than 10 nor more than 60 days
prior to the date fixed for the meeting.
SECTION X.4. Who May Attend and Vote at Meetings.
To be entitled to vote at any meeting of Securityholders, a
Person shall (a) be a registered Holder of one or more Debentures, or
(b) be a Person appointed by an instrument in writing as proxy for the
registered Holder or Holders of Debentures. The only Persons who shall
be entitled to be present or to speak at any meeting of Securityholders
shall be the Persons entitled to vote at such meeting and their counsel
and any representatives of the Trustee and its counsel and any represen-
tatives of the Company, and its counsel.
SECTION X.5. Regulations May Be Made by Trustee; Conduct of
the Meeting; Voting Rights; Adjournment.
Notwithstanding any other provision of this Indenture, the
Trustee may make such reasonable regulations as it may deem advisable
for any action by or any meeting of Securityholders, in regard to proof
of the holding of Debentures and of the appointment of proxies, and in
regard to the appointment and duties of inspectors of votes, and submis-
sion and examination of proxies, certificates and other evidence of the
right to vote, and such other matters concerning the conduct of the
meeting as it shall think appropriate. Such regulations may fix a
record date and time for determining the Holders of record of Debentures
entitled to vote at such meeting, in which case those and only those
Persons who are Holders of Debentures at the record date and time so
fixed, or their proxies, shall be entitled to vote at such meeting
whether or not they shall be such Holders at the time of the meeting.
The Trustee shall, by an instrument in writing, appoint a
temporary chairman of the meeting, unless the meeting shall have been
called by the Company or by Securityholders as provided in Section 10.3,
in which case the Company or the Securityholders calling the meeting, as
the case may be, shall in like manner appoint a temporary chairman. A
permanent chairman and a permanent secretary of the meeting shall be
elected by vote of the Holders of a majority in principal amount of the
Debentures represented at the meeting and entitled to vote.
At any meeting each Securityholder or proxy shall be enti-
tled to one vote for each $1,000 principal amount of Debentures held or
represented by him; provided, however, that no vote shall be cast or
counted at any meeting in respect of any Debentures challenged as not
outstanding and ruled by the chairman of the meeting to be not then out-
standing. The chairman of the meeting shall have no right to vote other
than by virtue of Debentures held by him or instruments in writing as
aforesaid duly designating him as the proxy to vote on behalf of other
Securityholders. Any meeting of Securityholders duly called pursuant to
the provisions of Section 10.2 or Section 10.3 may be adjourned from
time to time by vote of the Holder or Holders of a majority in aggregate
principal amount of the Debentures represented at the meeting and
entitled to vote, and the meeting may be held as so adjourned without
further notice.
SECTION X.6. Voting at the Meeting and Record to Be Kept.
The vote upon any resolution submitted to any meeting of
Securityholders shall be by written ballots on which shall be subscribed
the signatures of the Holders of Debentures or of their representatives
by proxy and the principal amount of the Debentures voted by the ballot.
The permanent chairman of the meeting shall appoint two inspectors of
votes, who shall count all votes cast at the meeting for or against any
resolution and who shall make and file with the secretary of the meeting
their verified written reports in duplicate of all votes cast at the
meeting. A record in duplicate of the proceedings of each meeting of
Securityholders shall be prepared by the secretary of the meeting and
there shall be attached to such record the original reports of the
inspectors of votes on any vote by ballot taken thereat and affidavits
by one or more Persons having knowledge of the facts, setting forth a
copy of the notice of the meeting and showing that such notice was
mailed as provided in Section 10.2 or published as provided in Section
10.3. The record shall be signed and verified by the affidavits of the
permanent chairman and the secretary of the meeting and one of the
duplicates shall be delivered to the Company and the other to the
Trustee to be preserved by the Trustee, the latter to have attached
thereto the ballots voted at the meeting.
Any record so signed and verified shall be conclusive evi-
dence of the matters therein stated.
SECTION X.7. Exercise of Rights of Trustee or
Securityholders May Not Be Hindered or Delayed by Call of Meeting.
Nothing contained in this Article X shall be deemed or
construed to authorize or permit, by reason of any call of a meeting of
Securityholders or any rights expressly or impliedly conferred hereunder
to make such call, any hindrance or delay in the exercise of any right
or rights conferred upon or reserved to the Trustee or to the
Securityholders under any of the provisions of this Indenture or of the
Debentures.
ARTICLE XI
RIGHT TO REQUIRE REPURCHASE
SECTION XI.1. Repurchase of Debentures at Option of the
Holder.
(a) In the event that a Repurchase Event occurs, each
Holder shall have the right, at such Holder's option, pursuant to an
irrevocable and unconditional offer by the Company and subject to the
terms and conditions of this Indenture, to require the Company to
repurchase all or any part of such Holder's Debentures (provided, that
the principal amount of such Debentures must be $1,000 or an integral
multiple thereof) on the date (the "Repurchase Payment Date") that is no
later than 45 Business Days after the occurrence of such Repurchase
Event, at a cash price (the "Repurchase Payment") equal to 100% of the
principal amount thereof, plus accrued and unpaid interest to the Repur-
chase Payment Date.
A Repurchase Event will be deemed to have occurred at such
time as (i) there is a Change of Control, or (ii) the Common Stock is
not listed for trading on a United States national securities exchange
or the Nasdaq National Market.
(b) In the event that, pursuant to this Section 11.1,
the Company shall be required to commence an offer to purchase
Debentures (a "Repurchase Offer"), the Company shall follow the
procedures set forth in this Section 11.1 as follows:
(1) the Repurchase Offer shall commence within 15
Business Days following the Repurchase Event;
(2) the Repurchase Offer shall remain open for no
fewer than 10 nor more than 20 Business Days, except to the extent
that a longer period is required by applicable law, but in any
case not more than 45 Business Days following commencement (the
"Repurchase Offer Period");
(3) upon the expiration of a Repurchase Offer, the
Company shall purchase all of the properly tendered Debentures at
the Repurchase Payment, including accrued and unpaid interest to
the Repurchase Payment Date;
(4) if the Repurchase Payment Date is on or after an
interest payment record date and on or before the related Interest
Payment Date, any accrued interest will be paid to the Person in
whose name a Debenture is registered at the close of business on
such record date, and no additional interest will be payable to
Securityholders who tender Debentures pursuant to the Repurchase
Offer;
(5) the Company shall provide the Trustee with notice
of the Repurchase Offer at least 5 Business Days before the
commencement of any Repurchase Offer; and
(6) on or before the commencement of any Repurchase
Offer, the Company or the Trustee (upon the request and at the
expense of the Company) shall send, by first-class mail, a notice
to each of the Securityholders, which (to the extent consistent
with this Indenture) shall govern the terms of the Repurchase
Offer and shall state:
(i) that the Repurchase Offer is being made
pursuant to such notice and this Section 11.1 and that all Debe-
ntures, or portions thereof, tendered will be accepted for
payment;
(ii) the Repurchase Payment (including the
amount of accrued and unpaid interest), the Repurchase Payment
Date and the Repurchase Put Date (as defined below);
(iii) that any Debenture, or portion thereof,
not tendered or accepted for payment will continue to accrue
interest;
(iv) that, unless the Company defaults in
depositing Cash with the Paying Agent in accordance with the last
paragraph of this clause (b) or such payment is prevented pursuant
to Article XII, any Debenture, or portion thereof, accepted for
payment pursuant to the Repurchase Offer shall cease to accrue in-
terest after the Repurchase Payment Date;
(v) that Holders electing to have a Debenture,
or portion thereof, purchased pursuant to a Repurchase Offer will
be required to surrender the Debenture, with the form entitled
"Option of Holder to Elect Purchase" on the reverse of the
Debenture completed, to the Paying Agent (which may not for
purposes of this Section 11.1, notwithstanding anything in this
Indenture to the contrary, be the Company or any Affiliate of the
Company) at the address specified in the notice prior to the close
of business on the earlier of (a) the third Business Day prior to
the Repurchase Payment Date and (b) the third Business Day follow-
ing the expiration of the Repurchase Offer (such earlier date
being the "Repurchase Put Date");
(vi) that Holders will be entitled to withdraw
their election, in whole or in part, if the Paying Agent (which
may not for purposes of this Section 11.1, notwithstanding
anything in this Indenture to the contrary, be the Company or any
Affiliate of the Company) receives, up to the close of business on
the Repurchase Put Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal
amount of the Debentures the Holder is withdrawing and a statement
that such Holder is withdrawing his election to have such princi-
pal amount of Debentures purchased; and
(vii) a brief description of the events
resulting in such Repurchase Event.
Any such Repurchase Offer shall comply with all applicable
provisions of Federal and state laws, including those regulating tender
offers, if applicable, and any provisions of this Indenture which
conflict with such laws shall be deemed to be superseded by the
provisions of such laws.
On or before the Repurchase Payment Date, the Company shall
(i) accept for payment Debentures or portions thereof properly tendered
pursuant to the Repurchase Offer on or before the Repurchase Put Date,
(ii) deposit with the Paying Agent Cash sufficient to pay the Repurchase
Payment (including accrued and unpaid interest) for all Debentures or
portions thereof so tendered and (iii) deliver to the Trustee Debentures
so accepted together with an Officers' Certificate listing the Debent-
ures or portions thereof being purchased by the Company. The Paying
Agent shall on the Repurchase Payment Date mail to Holders of Debentures
so accepted payment in an amount equal to the Repurchase Payment for
such Debentures, and the Trustee shall promptly authenticate and mail or
deliver to such Holders a new Debenture equal in principal amount to any
unpurchased portion of the Debenture surrendered. Any Debentures not so
accepted shall be promptly mailed or delivered by the Company to the
Holder thereof.
ARTICLE XII
SUBORDINATION
SECTION XII.1. Debentures Subordinated to Senior Debt.
The Company and each Holder, by its acceptance of Debent-
ures, agree that (a) the payment of the principal of and interest on the
Debentures and (b) any other payment in respect of the Debentures,
including on account of the acquisition or redemption of the Debentures
by the Company (including, without limitation, pursuant to Article XI)
is subordinated, to the extent and in the manner provided in this
Article XII, to the prior payment in full of all Senior Debt of the
Company, whether outstanding at the date of this Indenture or thereafter
created, incurred, assumed or guaranteed, and that these subordination
provisions are for the benefit of the holders of Senior Debt.
This Article XII shall constitute a continuing offer to all
Persons who, in reliance upon such provisions, become holders of, or
continue to hold, Senior Debt, and such provisions are made for the
benefit of the holders of Senior Debt, and such holders are made
obligees hereunder and any one or more of them may enforce such
provisions.
SECTION XII.2. No Payment on Debentures in Certain Circum-
stances.
(a) No payment shall be made by the Company on ac-
count of the principal of, premium, if any, or interest on the Debent-
ures (including any repurchases of Debentures) for cash or property
(other than Junior Securities of the Company), or on account of the
redemption provisions of the Debentures in the event of default in pay-
ment of any principal of, premium, if any, or interest on any Senior
Debt of the Company when the same becomes due and payable, whether at
maturity or at a date fixed for prepayment or by declaration or
otherwise (a "Payment Default"), unless and until such Payment Default
has been cured or waived or otherwise has ceased to exist.
(b) In furtherance of the provisions of Section 12.1,
in the event that, notwithstanding the foregoing provisions of this
Section 12.2, any payment or distribution of assets of the Company
(other than Junior Securities of the Company) shall be received by the
Trustee or the Holders at a time when such payment or distribution was
prohibited by the provisions of this Section 12.2, then, unless such
payment or distribution is no longer prohibited by this Section 12.2,
such payment or distribution (subject to the provisions of Section 12.7)
shall be received and held in trust by the Trustee or such Holder or
Paying Agent for the benefit of the holders of Senior Debt of the
Company, and shall be paid or delivered by the Trustee or such Holders
or such Paying Agent, as the case may be, to the holders of Senior Debt
of the Company remaining unpaid or their representative or representa-
tives, or to the trustee or trustees under any indenture pursuant to
which any instruments evidencing such Senior Debt of the Company may
have been issued, ratably, according to the aggregate amounts unpaid on
account of such Senior Debt of the Company held or represented by each,
for application to the payment of all Senior Debt in full after giving
effect to all concurrent payments and distributions to or for the
holders of such Senior Debt.
SECTION XII.3. Debentures Subordinated to Prior Payment of
All Senior Debt on Dissolution, Liquidation or Reorganization.
Upon any distribution of assets of the Company or upon any
dissolution, winding up, total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary, in bankruptcy, insol-
vency, receivership or similar proceeding or upon assignment for the
benefit of creditors:
(a) the holders of all Senior Debt of the Company
shall first be entitled to receive payments in full before the Holders
are entitled to receive any payment on account of the principal of,
premium, if any, and interest on the Debentures (other than Junior Secu-
rities of the Company);
(b) any payment or distribution of assets of the
Company of any kind or character, whether in cash, property or
securities (other than Junior Securities of the Company), to which the
Holders or the Trustee on behalf of the Holders would be entitled,
except for the provisions of this Article XII, shall be paid by the
liquidating trustee or agent or other Person making such a payment or
distribution directly to the holders of such Senior Debt or their repre-
sentative, ratably according to the respective amounts of Senior Debt
held or represented by each, to the extent necessary to make payment in
full of all such Senior Debt remaining unpaid after giving effect to all
concurrent payments and distributions to the holders of such Senior
Debt; and
(c) in the event that, notwithstanding the foregoing,
any payment or distribution of assets of the Company of any kind or
character, whether in cash, property or securities (other than Junior
Securities of the Company), shall be received by the Trustee or the
Holders or any Paying Agent (or, if the Company or any Affiliate of the
Company is acting as its own Paying Agent, money for any such payment or
distribution shall be segregated or held in trust) on account of the
principal of or interest on the Debentures before all Senior Debt of the
Company is paid in full, such payment or distribution (subject to the
provisions of Section 12.7) shall be received and held in trust by the
Trustee or such Holder or Paying Agent for the benefit of the holders of
such Senior Debt, or their respective representative, ratably according
to the respective amounts of such Senior Debt held or represented by
each, to the extent necessary to make payment as provided herein of all
such Senior Debt remaining unpaid after giving effect to all concurrent
payments and distributions and all provisions therefor to or for the
holders of such Senior Debt, but only to the extent that as to any
holder of such Senior Debt, as promptly as practical following notice
from the Trustee to the holders of such Senior Debt that such prohibited
payment has been received by the Trustee, Holder(s) or Paying Agent (or
has been segregated as provided above), such holder (or a representative
therefor) notifies the Trustee of the amounts then due and owing on such
Senior Debt, if any, held by such holder and only the amounts specified
in such notices to the Trustee shall be paid to the holders of such
Senior Debt.
SECTION XII.4. Securityholders to Be Subrogated to Rights
of Holders of Senior Debt.
Subject to the payment in full of all Senior Debt of the
Company as provided herein, the Holders of Debentures shall be subro-
gated to the rights of the holders of such Senior Debt to receive pay-
ments or distributions of assets of the Company applicable to the Senior
Debt until all amounts owing on the Debentures shall be paid in full,
and for the purpose of such subrogation no such payments or distribu-
tions to the holders of such Senior Debt by the Company, or by or on
behalf of the Holders by virtue of this Article XII, which otherwise
would have been made to the Holders shall, as between the Company and
the Holders, be deemed to be payment by the Company or on account of
such Senior Debt, it being understood that the provisions of this Arti-
cle XII are and are intended solely for the purpose of defining the
relative rights of the Holders, on the one hand, and the holders of such
Senior Debt, on the other hand.
If any payment or distribution to which the Holders would
otherwise have been entitled but for the provisions of this Article XII
shall have been applied, pursuant to the provisions of this Article XII,
to the payment of amounts payable under Senior Debt of the Company, then
the Holders shall be entitled to receive from the holders of such Senior
Debt any payments or distributions received by such holders of Senior
Debt in excess of the amount sufficient to pay all amounts payable under
or in respect of such Senior Debt in full.
SECTION XII.5. Obligations of the Company Unconditional.
Nothing contained in this Article XII or elsewhere in this
Indenture or in the Debentures is intended to or shall impair, as
between the Company and the Holders, the obligation of each such Person,
which is absolute and unconditional, to pay to the Holders the principal
of, premium, if any, and interest on the Debentures as and when the same
shall become due and payable in accordance with their terms, or is in-
tended to or shall affect the relative rights of the Holders and credi-
tors of the Company other than the holders of the Senior Debt, nor shall
anything herein or therein prevent the Trustee or any Holder from
exercising all remedies otherwise permitted by applicable law upon
default under this Indenture, subject to the rights, if any, under this
Article XII, of the holders of Senior Debt in respect of cash, property
or securities of the Company received upon the exercise of any such
remedy. Notwithstanding anything to the contrary in this Article XII or
elsewhere in this Indenture or in the Debentures, upon any distribution
of assets of the Company referred to in this Article XII, the Trustee,
subject to the provisions of Sections 7.1 and 7.2, and the Holders shall
be entitled to rely upon any order or decree made by any court of
competent jurisdiction in which such dissolution, winding up, liquida-
tion or reorganization proceedings are pending, or a certificate of the
liquidating trustee or agent or other Person making any distribution to
the Trustee or to the Holders for the purpose of ascertaining the Per-
sons entitled to participate in such distribution, the holders of the
Senior Debt and other Indebtedness of the Company, the amount thereof or
payable thereon, the amount or amounts paid or distributed thereon and
all other facts pertinent thereto or to this Article XII so long as such
court has been apprised of the provisions of, or the order, decree or
certificate makes reference to, the provisions of this Article XII.
Nothing in this Section 12.5 shall apply to the claims of, or payments
to, the Trustee under or pursuant to Section 7.7.
SECTION XII.6. Trustee Entitled to Assume Payments Not
Prohibited in Absence of Notice.
The Trustee shall not at any time be charged with knowledge
of the existence of any facts which would prohibit the making of any
payment to or by the Trustee unless and until a Trust Officer of the
Trustee or any Paying Agent shall have received, no later than one
Business Day prior to such payment, written notice thereof from the
Company or from one or more holders of Senior Debt or from any represen-
tative therefor and, prior to the receipt of any such written notice,
the Trustee, subject to the provisions of Sections 7.1 and 7.2, shall be
entitled in all respects conclusively to assume that no such fact
exists.
SECTION XII.7. Application by Trustee of Assets Deposited
with It.
Amounts deposited in trust with the Trustee pursuant to and
in accordance with Article VIII shall be for the sole benefit of
Securityholders and, to the extent allocated for the payment of Debent-
ures, shall not be subject to the subordination provisions of this
Article XII. Otherwise, any deposit of assets with the Trustee or the
Agent (whether or not in trust) for the payment of principal of or
interest on any Debentures shall be subject to the provisions of Sec-
tions 12.1, 12.2, 12.3 and 12.4; provided, that, if prior to one Busi-
ness Day preceding the date on which by the terms of this Indenture any
such assets may become distributable for any purpose (including without
limitation, the payment of either principal of or interest on any Debe-
nture) the Trustee or such Paying Agent shall not have received with
respect to such assets the written notice provided for in Section 12.6,
then the Trustee or such Paying Agent shall have full power and
authority to receive such assets and to apply the same to the purpose
for which they were received, and shall not be affected by any notice to
the contrary which may be received by it on or after such date.
SECTION XII.8. Subordination Rights Not Impaired by Acts or
Omissions of the Company or Holders of Senior Debt.
No right of any present or future holders of any Senior Debt
to enforce subordination provisions contained in this Article XII shall
at any time in any way be prejudiced or impaired by any act or failure
to act on the part of the Company or by any act or failure to act, in
good faith, by any such holder, or by any noncompliance by the Company
with the terms of this Indenture, regardless of any knowledge thereof
which any such holder may have or be otherwise charged with. The hold-
ers of Senior Debt may extend, renew, modify or amend the terms of the
Senior Debt or any security therefor and release, sell or exchange such
security and otherwise deal freely with the Company, all without affect-
ing the liabilities and obligations of the parties to this Indenture or
the Holders.
SECTION XII.9. Securityholders Authorize Trustee to Effec-
tuate Subordination of Debentures.
Each Holder of the Debentures by his acceptance thereof
authorizes and expressly directs the Trustee on his behalf to take such
action as may be necessary or appropriate to effectuate the subordina-
tion provisions contained in this Article XII and to protect the rights
of the Holders pursuant to this Indenture, and appoints the Trustee his
attorney-in-fact for such purpose, including, in the event of any
dissolution, winding up, liquidation or reorganization of the Company
(whether in bankruptcy, insolvency or receivership proceedings or upon
an assignment for the benefit of creditors of the Company), the immedi-
ate filing of a claim for the unpaid balance of his Debentures in the
form required in said proceedings and cause said claim to be approved.
If the Trustee does not file a proper claim or proof of debt in the form
required in such proceeding prior to 30 days before the expiration of
the time to file such claim or claims, then the holders of the Senior
Debt or their representative are or is hereby authorized to have the
right to file and are or is hereby authorized to file an appropriate
claim for and on behalf of the Holders of said Debentures. Nothing
herein contained shall be deemed to authorize the Trustee or the holders
of Senior Debt or their representative to authorize or consent to or
accept or adopt on behalf of any Securityholder any plan of reorga-
nization, arrangement, adjustment or composition affecting the Debent-
ures or the rights of any Holder thereof, or to authorize the Trustee or
the holders of Senior Debt or their representative to vote in respect of
the claim of any Securityholder in any such proceeding.
SECTION XII.10. Right of Trustee to Hold Senior Debt.
The Trustee shall be entitled to all of the rights set forth
in this Article XII in respect of any Senior Debt at any time held by it
to the same extent as any other holder of Senior Debt, and nothing in
this Indenture shall be construed to deprive the Trustee of any of its
rights as such holder.
SECTION XII.11. Article XII Not to Prevent Events of
Default.
The failure to make a payment on account of principal of,
premium, if any, or interest on the Debentures by reason of any provi-
sion of this Article XII shall not be construed as preventing the
occurrence of a Default or an Event of Default under Section 6.1 or in
any way prevent the Holders from exercising any right hereunder other
than the right to receive payment on the Debentures.
SECTION XII.12. No Fiduciary Duty of Trustee to Holders of
Senior Debt.
The Trustee shall not be deemed to owe any fiduciary duty to
the holders of Senior Debt, and shall not be liable to any such holders
(other than for its willful misconduct or negligence) if it shall in
good faith mistakenly pay over or distribute to the Holders of Debent-
ures or the Company or any other Person, cash, property or securities to
which any holders of Senior Debt shall be entitled by virtue of this
Article XII or otherwise. Nothing in this Section 12.12 shall affect
the obligation of any other such Person to hold such payment for the
benefit of, and to pay such payment over to, the holders of Senior Debt
or their representative.
ARTICLE XIII
CONVERSION OF DEBENTURES
SECTION XIII.1. Conversion Privilege.
Subject to and upon compliance with the provisions of this
Article XIII, at the option of the Holder thereof, any Debenture may at
any time be converted, in whole, or in part in multiples of $1,000
principal amount, into fully paid and non-assessable shares of Common
Stock issuable upon conversion of the Debentures, at the conversion
price in effect at the Date of Conversion (as hereinafter defined),
until and including, but not after the close of business on the second
Business Day prior to Stated Maturity, or unless such Debenture or some
portion thereof shall have been called for redemption or delivered for
repurchase prior to such date and no default is made in making due
provision for the payment of the redemption price in accordance with the
terms of this Indenture, in which case, with respect to such Debenture
or portion thereof as has been so called or delivered, such Debenture or
portion thereof may be so converted until and including, but not after,
the close of business on the fifth Business Day prior to the Redemption
Date or Repurchase Payment Date, as applicable, for such Debenture.
SECTION XIII.2. Exercise of Conversion Privilege.
In order to exercise the conversion privilege, the Holder of
any Debenture to be converted shall surrender such Debenture to the
Company at any time during usual business hours at its office or agency
maintained for the purpose as provided in this Indenture, accompanied by
a fully executed written notice, in substantially the form set forth on
the reverse of the Debenture, that the Holder elects to convert such
Debenture or a stated portion thereof constituting a multiple of $1,000
principal amount, and, if such Debenture is surrendered for conversion
during the period between the close of business on any Record Date and
the opening of business on the next following Interest Payment Date and
has not been called for redemption on a Redemption Date which occurs
within such period, accompanied also by payment of an amount equal to
the interest payable on such Interest Payment Date on the principal
amount of the Debenture being surrendered for conversion,
notwithstanding such conversion. The Holder of any Debenture at the
close of business on a Record Date will be entitled to receive the
interest payable on such Debenture on the corresponding Interest Payment
Date notwithstanding the conversion thereof after such Record Date.
Such notice of conversion shall also state the name or names (with ad-
dress) in which the certificate or certificates for shares of Common
Stock shall be issued. Debentures surrendered for conversion shall (if
reasonably required by the Company or the Trustee) be duly endorsed by,
or be accompanied by a written instrument or instruments of transfer in
form satisfactory to the Company duly executed by, the Holder or his
attorney duly authorized in writing. As promptly as practicable after
the receipt of such notice and the surrender of such Debenture as
aforesaid, the Company shall, subject to the provisions of Section 13.8
hereof, issue and deliver at such office or agency to such Holder, or on
his written order, a certificate or certificates for the number of full
shares of Common Stock issuable on such conversion of Debentures in
accordance with the provisions of this Article XIII and Cash, as
provided in Section 13.3 hereof, in respect of any fraction of a share
of Common Stock otherwise issuable upon such conversion. Such conversion
shall be deemed to have been effected immediately prior to the close of
business on the date (herein called the "Date of Conversion") on which
such Debenture shall have been surrendered as aforesaid, and the person
or persons in whose name or names any certificate or certificates for
shares of Common Stock shall be issuable upon such conversion shall be
deemed to have become on the Date of Conversion the holder or holders of
record of the shares represented thereby; provided, however, that any
such surrender on any date when the stock transfer books of the Company
shall be closed shall cause the person or persons in whose name or names
the certificate or certificates for such shares are to be issued to be
deemed to have become the recordholder or holders thereof for all pur-
poses at the opening of business on the next succeeding day on which
such stock transfer books are open but such conversion shall
nevertheless be at the conversion price in effect at the close of
business on the date when such Debenture shall have been so surrendered
with the conversion notice. In the case of conversion of a portion, but
less than all, of a Debenture, the Company shall as promptly as
practicable execute, and the Trustee shall authenticate and deliver to
the Holder thereof, at the expense of the Company, a Debenture or Debe-
ntures in the aggregate principal amount of the unconverted portion of
the Debenture surrendered. Except as otherwise expressly provided in
this Indenture, no payment or adjustment shall be made for interest
accrued on any Debenture (or portion thereof) converted or for dividends
or distributions on any Common Stock issued upon conversion of any
Debenture.
SECTION XIII.3. Fractional Interests.
No fractions of shares or scrip representing fractions of
shares shall be issued upon conversion of Debentures. If more than one
Debenture shall be surrendered for conversion at one time by the same
holder, the number of full shares which shall be issuable upon
conversion thereof shall be computed on the basis of the aggregate
principal amount of the Debentures so surrendered. If any fraction of a
share of Common Stock would, except for the foregoing provisions of this
Section 13.3, be issuable on the conversion of any Debenture or
Debentures, the Company shall make payment in lieu thereof in an amount
of Cash equal to the value of such fraction computed on the basis of the
last sale price of the Common Stock as reported on the Nasdaq National
Market (or if not admitted to trading thereon, then on the principal na-
tional securities exchange on which the Common Stock is listed or
admitted to trading) on the last Trading Day prior to the Date of
Conversion or if no such sale takes place on such day, the last sale
price for such day shall be the average of the closing bid and asked
prices regular way on the Nasdaq National Market (or if not admitted to
trading thereon, on the principal national securities exchange on which
the Common Stock is listed or admitted to trading) for such day (any
such last sale price being hereinafter referred to as the "Last Sale
Price"). If on such Trading Day the Common Stock is not quoted by any
such organization, the fair value of such Common Stock on such day, as
reasonably determined in good faith by the Board of Directors of the
Company, shall be used.
SECTION XIII.4. Conversion Price.
The conversion price per share of Common Stock issuable upon
conversion of the Debentures shall initially be the Conversion Price set
forth on the cover page of the Prospectus
SECTION XIII.5. Adjustment of Conversion Price.
The conversion price (herein called the "Conversion Price")
shall be subject to adjustment from time to time as follows:
(a) In case the Company shall (l) make or pay a divi-
dend or make a distribution in shares of Common Stock on any class of
Capital Stock of the Company, (2) subdivide its outstanding shares of
Common Stock into a greater number of shares or (3) combine or
reclassify its outstanding shares of Common Stock into a smaller number
of shares, the Conversion Price in effect immediately prior to such
action shall be adjusted so that the holder of any Debenture thereafter
surrendered for conversion shall be entitled to receive the number of
shares of Common Stock which he would have owned immediately following
such action had such Debenture been converted immediately prior thereto.
An adjustment made pursuant to this subsection (a) shall become
effective immediately, except as provided in subsection (h) below, after
the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(b) In case the Company shall issue rights, options
or warrants to all holders of Common Stock entitling them to subscribe
for or purchase shares of Common Stock at a price per share less than
the then current market price per share of the Common Stock (as
determined pursuant to subsection (f) below) on the record date men-
tioned below, the Conversion Price shall be adjusted to a price,
computed to the nearest cent, so that the same shall equal the price
determined by multiplying:
(i) the Conversion Price in effect immediately
prior to the date of issuance of such rights or warrants by a
fraction, of which
(ii) the numerator shall be (A) the number of
shares of Common Stock outstanding on the date of issuance of such
rights, options or warrants, immediately prior to such issuance,
plus (B) the number of shares which the aggregate offering price
of the total number of shares so offered for subscription or pur-
chase would purchase at such current market price (determined by
multiplying such total number of shares by the exercise price of
such rights, options or warrants and dividing the product so
obtained by such current market price), and of which
(iii) the denominator shall be (A) the number
of shares of Common Stock outstanding on the date of issuance of
such rights, options or warrants, immediately prior to such issu-
ance, plus (B) the number of additional shares of Common Stock
which are so offered for subscription or purchase.
Such adjustment shall become effective immediately, except
as provided in subsection (h) below, after the record date for the
determination of holders entitled to receive such rights, options or
warrants.
(c) In case the Company or any subsidiary of the
Company shall distribute to all holders of Common Stock, any of its as-
sets, evidences of indebtedness, cash or securities other than Common
Stock (other than (x) dividends or distributions exclusively in cash or
(y) any dividend or distribution for which an adjustment is required to
be made in accordance with subsection (b) above) then in each such case
the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immedi-
ately prior to the date of such distribution by a fraction of which the
numerator shall be the then current market price per share of the Common
Stock (determined as provided in subsection (f) below) on the record
date mentioned below less the then fair market value (as reasonably
determined in good faith by the Board of Directors of the Company) of
the portion of the assets so distributed applicable to one share of
Common Stock, and of which the denominator shall be such current market
price per share of the Common Stock. Such adjustment shall become
effective immediately, except as provided in subsection (h) below, after
the record date for the determination of stockholders entitled to
receive such distribution. Notwithstanding the foregoing, in the event
that the fair market value of the assets, evidences of indebtedness or
other securities so distributed applicable to one share of Common Stock
equals or exceeds such current market price per share of Common Stock or
such current market price exceeds such fair market value by less than
$0.10 per share, the Conversion Price shall not be adjusted pursuant to
this subsection (c) until such time as the cumulative amount of all such
distributions exceeds $0.10 per share.
(d) In case the Company or any subsidiary
of the Company shall make any distribution consisting exclusively of
cash (excluding any cash portion of distributions for which an
adjustment is required to be made in accordance with (c) above, or cash
distributed upon a merger or consolidation to which Section 13.6 ap-
plies) to all holders of Common Stock in an aggregate amount that, com-
bined together with (i) all other such all-cash distributions made
within the then preceding 12 months in respect of which no adjustment
has been made and (ii) any cash and the fair market value of other
consideration paid or payable in respect of any tender offer by the
Company or any of its subsidiaries for Common Stock (any such tender
offer being referred to as an "Offer") concluded within the preceding 12
months in respect of which no adjustment has been made, exceeds 12.5% of
the Company's market capitalization (defined as being the product of the
then current market price of the Common Stock (determined as provided in
subsection (e) below) times the number of shares of Common Stock then
outstanding) on the record date of such distribution, in each such case
the Conversion Price shall be adjusted so that the same shall equal the
price determined by multiplying the Conversion Price in effect immedi-
ately prior to the date of such distribution by a fraction of which the
numerator shall be the then current market price per share of the Common
Stock on such record date less the amount of the cash so distributed
applicable to one share of Common Stock, and of which the denominator
shall be such current market price per share of the Common Stock. Such
adjustment shall become effective immediately, except as provided in
subsection (g) below, after the record date for the determination of
stockholders entitled to receive such distribution. Notwithstanding the
foregoing, in the event that the cash so distributed applicable to one
share of Common Stock equals or exceeds such current market price per
share of Common Stock or such current market price exceeds such amount
of cash by less than $0.10 per share, the Conversion Price shall not be
adjusted pursuant to this subsection (d) until such time as the
cumulative amount of all such cash distributions exceeds $0.10 per
share.
(e) For the purpose of any computation under subsec-
tions (b), (c), and (d) above, the current market price per share of
Common Stock on any date shall be deemed to be the average of the Last
Sale Prices of a share of Common Stock for the five consecutive Trading
Days selected by the Company commencing not more than 20 Trading Days
before, and ending not later than, the earlier of the date in question
and the date before the "`ex' date", with respect to the issuance, dis-
tribution or Offer requiring such computation. If on any such Trading
Day the Common Stock is not quoted by any organization referred to in
the definition of Last Sale Price in Section 13.3 hereof, the fair value
of the Common Stock on such day, as reasonably determined in good faith
by the Board of Directors of the Company, shall be used. For purposes
of this paragraph, the term "`ex' date," when used with respect to any
issuance, distribution or payments with respect to an Offer, means the
first date on which the Common Stock trades regular way on the Nasdaq
Stock Market National Market (or if not listed or admitted to trading
thereon, then on the principal national securities exchange on which the
Common Stock is listed or admitted to trading) without the right to
receive such issuance, distribution or Offer.
(f) In addition the foregoing adjustments in
subsections (a), (b), (c) and (d) above, the Company will be permitted
to make such reductions in the Conversion Price as it considers to be
advisable in order that any event treated for Federal income tax
purposes as a dividend of stock or stock rights will not be taxable to
the holders of the shares of Common Stock.
(g) In any case in which this Section 13.5 shall re-
quire that an adjustment (including by reason of the last sentence of
subsection (a) or (c) above) be made immediately following a record
date, the Company may elect to defer the effectiveness of such
adjustment (but in no event until a date later than the effective time
of the event giving rise to such adjustment), in which case the Company
shall, with respect to any Debenture converted after such record date
and on and before such adjustment shall have become effective (i) defer
paying any Cash payment pursuant to Section 13.3 hereof or issuing to
the Holder of such Debenture the number of shares of Common Stock and
other capital stock of the Company (or other assets or securities) issu-
able upon such conversion in excess of the number of shares of Common
Stock and other Capital Stock of the Company issuable thereupon only on
the basis of the Conversion Price prior to adjustment, and (ii) not
later than five Business Days after such adjustment shall have become
effective, pay to such Holder the appropriate Cash payment pursuant to
Section 13.3 hereof and issue to such Holder the additional shares of
Common Stock and other Capital Stock of the Company issuable on such
conversion.
(h) No adjustment in the Conversion Price shall be
required unless such adjustment would require an increase or decrease of
at least 1.0% of the Conversion Price; provided, that any adjustments
which by reason of this subsection (i) are not required to be made shall
be carried forward and taken into account in any subsequent adjustment.
All calculations under this Article XIII shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be.
(i) Whenever the Conversion Price is adjusted as
herein provided, the Company shall promptly (i) file with the Trustee
and each conversion agent an Officers' Certificate setting forth the
Conversion Price after such adjustment and setting forth a brief
statement of the facts requiring such adjustment, which certificate
shall be conclusive evidence of the correctness of such adjustment, and
(ii) mail or cause to be mailed a notice of such adjustment to each
holder of Debentures at his address as the same appears on the registry
books of the Company.
SECTION XIII.6. Continuation of Conversion Privilege in
Case of Reclassification, Change, Merger, Consolidation or Sale of
Assets.
If any of the following shall occur, namely: (a) any reclas-
sification or change of outstanding shares of Common Stock issuable upon
conversion of the Debentures (other than a change in par value, or from
par value to no par value, or from no par value, to par value, or as a
result of a subdivision or combination), (b) any consolidation or merger
of the Company with or into any other Person, or the merger of any other
Person with or into the Company (other than a merger which does not
result in any reclassification, change, conversion, exchange or
cancellation of outstanding shares of Common Stock) or (c) sale,
transfer or conveyance of all or substantially all of the assets of the
Company (computed on a consolidated basis), then the Company, or such
successor or purchasing entity, as the case may be, shall, as a condi-
tion precedent to such reclassification, change, consolidation, merger,
sale or conveyance, execute and deliver to the Trustee a supplemental
indenture providing that the Holder of each Debenture then outstanding
shall have the right to convert such Debenture only into the kind and
amount of shares of stock and other securities and property (including
cash) receivable upon such reclassification, change, consolidation,
merger, sale, transfer or conveyance by a holder of the number of shares
of Common Stock issuable upon conversion of such Debenture immediately
prior to such reclassification, change, consolidation, merger, sale,
transfer or conveyance assuming such holder of Common Stock of the
Company failed to exercise his rights of an election, if any, as to the
kind or amount of securities, cash and other property receivable upon
such reclassification, change, consolidation, merger, sale, transfer or
conveyance (provided that if the kind or amount of securities, cash, and
other property receivable upon such reclassification, change, consolida-
tion, merger, sale, transfer or conveyance is not the same for each
share of Common Stock of the Company held immediately prior to such re-
classification, change, consolidation, merger, sale, transfer or
conveyance in respect of which such rights of election shall not have
been exercised ("non-electing share"), then for the purpose of this
Section 13.6 the kind and amount of securities, cash and other property
receivable upon such reclassification, change, consolidation, merger,
sale, transfer or conveyance by each non-electing share shall be deemed
to be the kind and amount so receivable per share by a plurality of the
non-electing shares). Such supplemental indenture shall provide for
adjustments which shall be as nearly equivalent as may be practicable to
the adjustments provided for in this Article XIII. If, in the case of
any such consolidation, merger, sale or conveyance, the stock or other
securities and property (including cash) receivable thereupon by a
holder of shares of Common Stock includes shares of stock or other
securities and property (including cash) of a corporation other than the
successor or purchasing corporation, as the case may be, in such
consolidation, merger, sale or conveyance, then such supplemental
indenture shall also be executed by such other corporation and shall
contain such additional provisions to protect the interests of the hold-
ers of the Debentures as the Board of Directors of the Company shall
reasonably consider necessary by reason of the foregoing. The
provisions of this Section 13.6 shall similarly apply to successive
consolidations, mergers, sales or conveyances.
Notice of the execution of each such supplemental indenture
shall be mailed to each Holder of Debentures at his address as the same
appears on the registry books of the Company.
Neither the Trustee nor any conversion agent shall be under
any responsibility to determine the correctness of any provisions
contained in any such supplemental indenture relating either to the kind
or amount of shares of stock or securities or property (including cash)
receivable by holders of Debentures upon the conversion of their
Debentures after any such reclassification, change, consolidation,
merger, sale or conveyance or to any adjustment to be made with respect
thereto, but, subject to the provisions of Article VIII hereof, may
accept as conclusive evidence of the correctness of any such provisions,
and shall be protected in relying upon, the Officers' Certificate (which
the Company shall be obligated to file with the Trustee prior to the
execution of any such supplemental indenture) with respect thereto.
SECTION XIII.7. Notice of Certain Events.
In case:
(a) the Company shall declare a dividend (or any other dis-
tribution) payable to the holders of Common Stock (other than cash
dividends); or
(b) the Company shall authorize the granting to the holders
of Common Stock of rights, warrants or options to subscribe for or pur-
chase any shares of stock of any class or of any other rights; or
(c) the Company shall authorize any reclassification or
change of the Common Stock (including a subdivision or combination of
its outstanding shares of Common Stock), or any consolidation or merger
to which the Company is a party and for which approval of any stockhold-
ers of the Company is required, or the sale or conveyance of all or sub-
stantially all the property or business of the Company; or
(d) there shall be proposed any voluntary or involuntary
dissolution, liquidation or winding-up of the Company; or
(e) the Company or any of its Subsidiaries shall complete
an Offer;
then, the Company shall cause to be filed at the office or agency
maintained for the purpose of conversion of the Debentures as provided
in Section 3.2 hereof, and shall cause to be mailed to each holder of
Debentures, at his address as it shall appear on the registry books of
the Company, at least 20 days before the date hereinafter specified (or
the earlier of the dates hereinafter specified, in the event that more
than one date is specified), a notice stating the date on which (1) a
record is expected to be taken for the purpose of such dividend,
distribution, rights, warrants or options or Offer, or if a record is
not to be taken, the date as of which the holders of Common Stock of
record to be entitled to such dividend, distribution, rights, warrants
or options or to participate in such Offer are to be determined, or (2)
such reclassification, change, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding-up is expected to become effective
and the date, if any is to be fixed, as of which it is expected that
holders of Common Stock of record shall be entitled to exchange their
shares of Common Stock for securities or other property deliverable upon
such reclassification, change, consolidation, merger, sale, conveyance,
dissolution, liquidation or winding-up.
SECTION XIII.8. Taxes on Conversion.
The Company will pay any and all documentary, stamp or
similar taxes payable to the United States of America or any political
subdivision or taxing authority thereof or therein in respect of the
issue or delivery of shares of Common Stock on conversion of Debentures
pursuant thereto; provided, however, that the Company shall not be
required to pay any tax which may be payable in respect of any transfer
involved in the issue or delivery of shares of Common Stock in a name
other than that of the Holder of the Debentures to be converted and no
such issue or delivery shall be made unless and until the person
requesting such issue or delivery has paid to the Company the amount of
any such tax or has established, to the satisfaction of the Company,
that such tax has been paid. The Company extends no protection with re-
spect to any other taxes imposed in connection with conversion of
Debentures.
SECTION XIII.9. Company to Provide Stock.
The Company shall reserve, free from pre-emptive rights, out
of its authorized but unissued shares, sufficient shares to provide for
the conversion of the Debentures from time to time as such Debentures
are presented for conversion, provided, that nothing contained herein
shall be construed to preclude the Company from satisfying its obli-
gations in respect of the conversion of Debentures by delivery of repur-
chased shares of Common Stock which are held in the treasury of the
Company.
If any shares of Common Stock to be reserved for the purpose
of conversion of Debentures hereunder 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 Company covenants that it will in good faith and as expedi-
tiously as possible endeavor to secure such registration or approval, as
the case may be, provided, however, that nothing in this Section 13.9
shall be deemed to limit in any way the obligations of the Company
provided in this Article XIII.
Before taking any action which would cause an adjustment
reducing the Conversion Price below the then par value, if any, of the
Common Stock, the Company will take all corporate action which may, in
the Opinion of Counsel, be necessary in order that the Company may
validly and legally issue fully paid and non-assessable shares of Common
Stock at such adjusted Conversion Price.
The Company covenants that all shares of Common Stock which
may be issued upon conversion of Debentures will upon issue be fully
paid and non-assessable by the Company and free of preemptive rights.
SECTION XIII.10. Disclaimer of Responsibility for Certain
Matters.
Neither the Trustee nor any agent of the Trustee shall at
any time be under any duty or responsibility to any holder of Debentures
to determine whether any facts exist which may require any adjustment of
the Conversion Price, or with respect to the Officers' Certificate
referred to in Section 13.5 hereof, or with respect to the nature or
extent of any such adjustment when made, or with respect to the method
employed, or herein or in any supplemental indenture provided to be
employed, in making the same. Neither the Trustee nor any agent of the
Trustee shall be accountable with respect to the validity or value (or
the kind or amount) of any shares of Common Stock, or of any securities
or property (including cash), which may at any time be issued or deliv-
ered upon the conversion of any Debenture; and neither the Trustee nor
any conversion agent makes any representation with respect thereto.
Neither the Trustee nor any agent of the Trustee shall be responsible
for any failure of the Company to issue, register the transfer of or
deliver any shares of Common Stock or stock certificates or other secu-
rities or property (including cash) upon the surrender of any Debenture
for the purpose of conversion or, subject to Article VIII hereof, to
comply with any of the covenants of the Company contained in this
Article XIII.
SECTION XIII.11. Return of Funds Deposited for Redemption
of Converted Debentures.
Any funds which at any time shall have been deposited by the
Company or on its behalf with the Trustee or any other Paying Agent for
the purpose of paying the principal of and interest on any of the
Debentures and which shall not be required for such purposes because of
the conversion of such Debentures, as provided in this Article XIII,
shall after such conversion be repaid to the Company by the Trustee or
such other Paying Agent.
ARTICLE XIV
MISCELLANEOUS
SECTION XIV.1. TIA Controls.
If any provision of this Indenture limits, qualifies, or
conflicts with the duties imposed by operation of the TIA, the imposed
duties, upon qualification of this Indenture under the TIA, shall
control.
SECTION XIV.2. Notices.
Any notices or other communications to the Company or the
Trustee required or permitted hereunder shall be in writing, and shall
be sufficiently given if made by hand delivery, by telex, by telecopier
or registered or certified mail, postage prepaid, return receipt re-
quested, addressed as follows:
if to the Company:
American Travellers Corporation
3220 Tillman Drive
Bensalem, Pennsylvania 19020
Attention: John A. Powell, Chairman of the Board
and President
Telecopy: (215) 441-7711
if to the Trustee:
American Bank, National Association
101 Fifth Street
St. Paul, Minnesota 55101-1860
Attention: Frank P. Leslie III, Vice President
Telecopy: (612) 229-6415
Any party by notice to each other party may designate
additional or different addresses as shall be furnished in writing
by such party. Any notice or communication to any party shall be
deemed to have been given or made as of the date so delivered, if
personally delivered; when answered back, if telexed; when receipt
is acknowledged, if telecopied; and five Business Days after mailing
if sent by registered or certified mail, postage prepaid (except
that a notice of change of address shall not be deemed to have been
given until actually received by the addressee).
Any notice or communication mailed to a Securityholder
shall be mailed to him by first class mail or other equivalent means
at his address as it appears on the registration books of the
Registrar and shall be sufficiently given to him if so mailed within
the time prescribed.
Failure to mail a notice or communication to a Security-
holder or any defect in it shall not affect its sufficiency with
respect to other Securityholders. If a notice or communication is
mailed in the manner provided above, it is duly given, whether or
not the addressee receives it.
SECTION XIV.3. Communications by Holders with Other
Holders.
Securityholders may communicate pursuant to TIA 312(b)
with other Securityholders with respect to their rights under this
Indenture or the Debentures. The Company, the Trustee, the
Registrar and any other Person shall have the protection of TIA
312(c).
SECTION XIV.4. Certificate and Opinion as to Conditions
Precedent.
Upon any request or application by the Company to the
Trustee to take any action under this Indenture, such Person shall
furnish to the Trustee:
(1) an Officers' Certificate (in form and sub-
stance reasonably satisfactory to the Trustee) stating that, in the
opinion of the signers, all conditions precedent, if any, provided
for in this Indenture relating to the proposed action have been
complied with; and
(2) an Opinion of Counsel (in form and substance
reasonably satisfactory to the Trustee) stating that, in the opinion
of such counsel, all such conditions precedent have been complied
with.
SECTION XIV.5. Statements Required in Certificate or
Opinion.
Each certificate or opinion with respect to compliance
with a condition or covenant provided for in this Indenture shall
include:
(1) a statement that the Person making such
certificate or opinion has read such covenant or condition;
(2) a brief statement as to the nature and scope
of the examination or investigation upon which the statements or
opinions contained in such certificate or opinion are based;
(3) a statement that, in the opinion of such
Person, he has made such examination or investigation as is neces-
sary to enable him to express an informed opinion as to whether or
not such covenant or condition has been complied with; and
(4) a statement as to whether or not, in the
opinion of each such Person, such condition or covenant has been
complied with; provided, however, that with respect to matters of
fact an Opinion of Counsel may rely on an Officers' Certificate or
certificates of public officials.
SECTION XIV.6. Rules by Trustee, Paying Agent,
Registrar.
The Trustee may make reasonable rules for action by or
at a meeting of Securityholders. The Paying Agent or Registrar may
make reasonable rules for its functions.
SECTION XIV.7. Legal Holidays.
A "Legal Holiday" is a Saturday, a Sunday or a day on
which banking institutions in New York, New York are authorized or
obligated by law or executive order to close. If a payment date is
a Legal Holiday at such place, payment may be made at such place on
the next succeeding day that is not a Legal Holiday, and no interest
shall accrue for the intervening period.
SECTION XIV.8. Governing Law.
THIS INDENTURE AND THE DEBENTURES SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
AS APPLIED TO CONTRACTS MADE AND PERFORMED WITHIN THE STATE OF NEW
YORK. THE COMPANY HEREBY IRREVOCABLY SUBMITS TO THE JURISDICTION OF
ANY NEW YORK STATE COURT SITTING IN THE BOROUGH OF MANHATTAN IN THE
CITY OF NEW YORK OR ANY FEDERAL COURT SITTING IN THE BOROUGH OF
MANHATTAN IN THE CITY OF NEW YORK IN RESPECT OF ANY SUIT, ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS INDENTURE AND THE
DEBENTURES, AND IRREVOCABLY ACCEPTS FOR ITSELF AND IN RESPECT OF ITS
PROPERTY, GENERALLY AND UNCONDITIONALLY, JURISDICTION OF THE
AFORESAID COURTS. THE COMPANY IRREVOCABLY WAIVES, TO THE FULLEST
EXTENT IT MAY EFFECTIVELY DO SO UNDER APPLICABLE LAW, ANY OBJECTION
WHICH THEY MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF
ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY SUCH COURT AND
ANY CLAIM THAT ANY SUCH SUIT, ACTION OR PROCEEDING BROUGHT IN ANY
SUCH COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTHING
HEREIN SHALL AFFECT THE RIGHT OF THE TRUSTEE OR ANY SECURITYHOLDER
TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE
LEGAL PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE COMPANY IN ANY
OTHER JURISDICTION.
SECTION XIV.9. No Adverse Interpretation of Other
Agreements.
This Indenture may not be used to interpret another
indenture, loan or debt agreement of the Company or any of their
respective Subsidiaries. Any such indenture, loan or debt agreement
may not be used to interpret this Indenture.
SECTION XIV.10. No Recourse Against Others.
No direct or indirect partner, employee, stockholder,
director or officer, as such, past or future of the Company, shall
have any personal liability in respect of the obligations of the
Company under the Debentures or this Indenture by reason of his or
its status as such partner, stockholder, employee, director or
officer. Each Securityholder by accepting a Debenture waives and
releases all such liability. Such waiver and release are part of
the consideration for the issuance of the Debentures.
SECTION XIV.11. Successors.
All agreements of the Company in this Indenture and the
Debentures shall bind its successor. All agreements of the Trustee
in this Indenture shall bind its successor.
SECTION XIV.12. Duplicate Originals.
All parties may sign any number of copies or counter-
parts of this Indenture. Each signed copy or counterpart shall be
an original, but all of them together shall represent the same
agreement.
SECTION XIV.13. Severability.
In case any one or more of the provisions in this Inden-
ture or in the Debentures shall be held invalid, illegal or
unenforceable, in any respect for any reason, the validity, legality
and enforceability of any such provision in every other respect and
of the remaining provisions shall not in any way be affected or im-
paired thereby, it being intended that all of the provisions hereof
shall be enforceable to the full extent permitted by law.
SECTION XIV.14. Table of Contents, Headings, Etc.
The Table of Contents, Cross-Reference Table and head-
ings of the Articles and the Sections of this Indenture have been
inserted for convenience of reference only, are not to be considered
a part hereof and shall in no way modify or restrict any of the
terms or provisions hereof. SIGNATURES
IN WITNESS WHEREOF, the parties hereto have caused this
Indenture to be duly executed as of the date first written above.
AMERICAN TRAVELLERS CORPORATION,
a Pennsylvania corporation
[Seal]
By:
John A. Powell
Chairman of the Board
and President
Attest:
Susan Mankowski
Secretary
AMERICAN BANK, NATIONAL ASSOCIATION,
as Trustee
By:
Name:
Title:
By:
Name:
Title:
Exhibit 4 (d)
Specimen Debenture Certificate
[FORM OF DEBENTURE]
AMERICAN TRAVELLERS CORPORATION
6.5% CONVERTIBLE SUBORDINATED DEBENTURE
DUE OCTOBER 1, 2005
No. CUSIP No. 030290 AA 8
$ _______
American Travellers Corporation, a Pennsylvania corporation
(hereinafter called the "Company," which term includes any successors
under the Indenture hereinafter referred to), for value received, hereby
promises to pay to __________, or registered assigns, the principal sum
of $_____ Dollars, on October 1, 2005.
Interest Payment Dates: April 1 and October 1, commencing
April 1, 1996.
Record Dates: March 15 and September 15.
Reference is made to the further provisions of this
Debenture on the reverse side, which will, for all purposes, have the
same effect as if set forth at this place.
IN WITNESS WHEREOF, the Company has caused this Instrument
to be duly executed under its corporate seal.
Dated: ____________
AMERICAN TRAVELLERS CORPORATION, a
Pennsylvania corporation
[Seal]
By:
John A. Powell
Chairman of the Board
and President
Attest:
Susan Mankowski
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Debentures described in the within-men-
tioned Indenture.
AMERICAN BANK, NATIONAL ASSOCIATION
as Trustee
Dated: By
Authorized Signatory
AMERICAN TRAVELLERS CORPORATION
6.5% Convertible Subordinated Debenture
due October 1, 2005
1. Interest.
American Travellers Corporation, a Pennsylvania corporation
(hereinafter called the "Company," which term includes any successors
under the Indenture hereinafter referred to), promises to pay interest
on the principal amount of this Debenture at the rate of 6.5% per annum.
To the extent it is lawful, the Company promises to pay interest on any
interest payment due but unpaid on such principal amount at a rate of
6.5% per annum compounded semi-annually.
The Company will pay interest semi-annually on April 1 and
October 1 of each year (each, an "Interest Payment Date"), commencing
April 1, 1996. Interest on the Debentures will accrue from the most
recent date to which interest has been paid or, if no interest has been
paid on the Debentures, from September 22, 1995. Interest will be com-
puted on the basis of a 360-day year consisting of twelve 30-day months.
2. Method of Payment.
The Company shall pay interest on the Debentures (except
defaulted interest) to the Persons who are the registered Holders at the
close of business on the Record Date immediately preceding the Interest
Payment Date. Holders must surrender Debentures to a Paying Agent to
collect principal payments. Any such interest not so punctually paid,
and defaulted interest relating thereto, may be paid to the Persons who
are registered Holders at the close of business on a Special Record Date
for the payment of such defaulted interest, as more fully provided in
the Indenture referred to below. Except as provided below, the Company
shall pay principal and interest in such coin or currency of the United
States of America as at the time of payment shall be legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the
Company may pay principal and interest by wire transfer of Federal
funds, or interest by its check payable in such U.S. Legal Tender. The
Company may deliver any such interest payment to the Paying Agent or the
Company may mail any such interest payment to a Holder at the Holder's
registered address.
3. Paying Agent and Registrar.
Initially, American Bank, National Association (the "Trust-
ee") will act as Paying Agent and Registrar. The Company may change any
Paying Agent, Registrar or co-Registrar without notice to the Holders.
The Company or any of its Subsidiaries may, subject to certain excep-
tions, act as Paying Agent, Registrar or co-Registrar.
4. Indenture.
The Company issued the Debentures under an Indenture, dated
as of September 15, 1995 (the "Indenture"), between the Company and the
Trustee. Capitalized terms herein are used as defined in the Indenture
unless otherwise defined herein. The terms of the Debentures include
those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act, as in effect on the date of the
Indenture. The Debentures are subject to all such terms, and Holders of
Debentures are referred to the Indenture and said Act for a statement of
them. The Debentures are general unsecured obligations of the Company
limited in aggregate principal amount to $90,000,000 ($103,500,000 if
the underwriters exercise their over-allotment option in full).
5. Redemption.
The Debentures may be redeemed in whole or from time to time
in part at any time on and after October 9, 1998, at the option of the
Company, at the following Redemption Prices (expressed as percentages of
the principal amount) if redeemed during the 12-month period commencing
October 9 of the years indicated below, in each case together with any
accrued but unpaid interest thereon to the Redemption Date:
Year Percentage
1998 . . . . . . . . . 103.25%
1999 . . . . . . . . . 102.17%
2000 . . . . . . . . . 101.08%
2001 and thereafter. 100.00%
The Debentures will not be subject to any sinking fund. Any
such redemption will comply with Article III of the Indenture.
6. Notice of Redemption.
Notice of redemption will be sent by first class mail, at
least 30 days and not more than 60 days prior to the Redemption Date to
the Holder of each Debenture to be redeemed at such Holder's last ad-
dress as then shown upon the registry books of the Registrar. Debent-
ures may be redeemed in part in multiples of $1,000 only.
Except as set forth in the Indenture, from and after any
Redemption Date, if monies for the redemption of the Debentures called
for redemption shall have been deposited with the Paying Agent on such
Redemption Date and payment of the Debentures called for redemption is
not prohibited under Article XII of the Indenture, the Debentures called
for redemption will cease to bear interest and the only right of the
Holders of such Debentures will be to receive payment of the Redemption
Price, plus any accrued and unpaid interest to the Redemption Date.
7. Denominations; Transfer; Exchange.
The Debentures are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder may
register the transfer of, or exchange Debentures in accordance with, the
Indenture. The Registrar may require a Holder, among other things, to
furnish appropriate endorsements and transfer documents and to pay any
taxes and fees required by law or permitted by the Indenture. The
Registrar need not register the transfer of or exchange any Debentures
selected for redemption.
8. Persons Deemed Owners.
The registered Holder of a Debenture may be treated as the
owner of it for all purposes.
9. Unclaimed Money.
If money for the payment of principal or interest remains
unclaimed for two years, the Trustee and the Paying Agent(s) will pay
the money back to the Company at its written request. After that, all
liability of the Trustee and such Paying Agent(s) with respect to such
money shall cease.
10. Amendment; Supplement; Waiver.
Subject to certain exceptions, the Indenture or the Debent-
ures may be amended or supplemented, and any existing Default or Event
of Default or compliance with any provision may be waived, with the
written consent of the Holders of a majority in aggregate principal
amount of the Debentures then outstanding. Without notice to or consent
of any Holder, the parties thereto may amend or supplement the Indenture
or the Debentures to, among other things, cure any ambiguity, defect or
inconsistency, or make any other change that does not adversely affect
the rights of any Holder of a Debenture.
11. Conversion Rights.
Subject to the provisions of the Indenture, the Holders have
the right to convert the principal amount of the Debentures into fully
paid and nonassessable shares of Common Stock of the Company at the
initial conversion price per share of Common Stock of 22.75 (equivalent
to a conversion rate of 43.96 shares per $1000 principal amount of
Debentures), or at the adjusted conversion price then in effect, if
adjustment has been made as provided in the Indenture, upon surrender of
the Debenture to the Company, together with a fully executed notice in
substantially the form attached hereto and, if required by the
Indenture, an amount equal to accrued interest payable on such Debent-
ure.
12. Ranking.
Payment of principal, premium, if any, and interest on the
Debentures is subordinated, in the manner and to the extent set forth in
the Indenture, to the prior payment in full of all Senior Debt.
13. Repurchase at Option of Holder.
If there is a Repurchase Event, the Company shall be re-
quired to offer to purchase on the Repurchase Payment Date all
outstanding Debentures at a purchase price equal to 100% of the
principal amount thereof, plus accrued and unpaid interest, if any, to
the Repurchase Payment Date. Holders of Debentures will receive a
Repurchase Offer from the Company prior to any related Repurchase Pay-
ment Date and may elect to have such Debentures purchased by completing
the form entitled "Option of Holder to Elect Purchase" appearing below.
14. Successors.
When a successor assumes all the obligations of its prede-
cessor under the Debentures and the Indenture, the predecessor will be
released from those obligations.
15. Defaults and Remedies.
If an Event of Default occurs and is continuing (other than
as Event of Default relating to certain events of bankruptcy, insolvency
or reorganization), then in every such case, unless the principal of all
of the Debentures shall have already become due and payable, either the
Trustee or the Holders of 25% in aggregate principal amount of Debent-
ures then outstanding may declare all the Debentures to be due and pay-
able immediately in the manner and with the effect provided in the
Indenture. Holders of Debentures may not enforce the Indenture or the
Debentures except as provided in the Indenture. The Trustee may require
indemnity satisfactory to it before it enforces the Indenture or the
Debentures. Subject to certain limitations, Holders of a majority in
aggregate principal amount of the Debentures then outstanding may direct
the Trustee in its exercise of any trust or power. The Trustee may
withhold from Holders of Debentures notice of any continuing Default or
Event of Default (except a Default in payment of principal or interest),
if it determines that withholding notice is in their interest.
16. Trustee Dealings with Company.
The Trustee under the Indenture, in its individual or any
other capacity, may make loans to, accept deposits from, and perform
services for the Company or its Affiliates, and may otherwise deal with
the Company or its Affiliates as if it were not the Trustee.
17. No Recourse Against Others.
No stockholder, director, officer or employee, as such,
past, present or future, of the Company or any successor corporation
shall have any personal liability in respect of the obligations of the
Company under the Debentures or the Indenture by reason of his or its
status as such stockholder, director, officer or employee. Each Holder
of a Debenture by accepting a Debenture waives and releases all such
liability. The waiver and release are part of the consideration for the
issuance of the Debentures.
18. Authentication.
This Debenture shall not be valid until the Trustee or au-
thenticating agent signs the certificate of authentication on the other
side of this Debenture.
19. Abbreviations and Defined Terms.
Customary abbreviations may be used in the name of a Holder
of a Debenture or an assignee, such as: TEN COM (= tenants in common),
TEN ENT (= tenants by the entireties), JT TEN (= joint tenants with
right of survivorship and not as tenants in common), CUST (= Custodian),
and U/G/M/A (= Uniform Gifts to Minors Act).
20. CUSIP Numbers.
Pursuant to a recommendation promulgated by the Committee on
Uniform Debenture Identification Procedures, the Company will cause
CUSIP numbers to be printed on the Debentures as a convenience to the
Holders of the Debentures. No representation is made as to the accuracy
of such numbers as printed on the Debentures only on the other
identification numbers printed hereon.
[FORM OF] ASSIGNMENT
I or we assign this Debenture to
__________________________________________________________
__________________________________________________________
__________________________________________________________
(Print or type name, address and zip code of assignee)
Please insert Social Security or other identifying number of
assignee
_________________________
and irrevocably appoint __________ agent to transfer this Debenture on
the books of the Company. The agent may substitute another to act for
him.
Dated: __________ Signed: ______________________________
__________________________________________________________
(Sign exactly as name appears on
the other side of this Debenture)
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Debenture purchased by the
Company pursuant to Article XI of the Indenture, check the box:
If you want to elect to have only part of this Debenture
purchased by the Company pursuant to Article XI of the Indenture, state
the amount you want to be purchased: $________
Date: ________________ Signature: ___________________________________
(Sign exactly as your name appears
on the other side of this
Debenture)
[FORM OF] CONVERSION NOTICE
To: American Travellers Corporation
The undersigned owner of this Debenture hereby:
(i) irrevocably exercises the option to convert this Debenture, or the
portion hereof below designated, for shares of Common Stock of American
Travellers Corporation in accordance with the terms of the Indenture
referred to in this Debenture and (ii) directs that such shares of
Common Stock deliverable upon the conversion, together with any check in
payment for fractional shares and any Debenture(s) representing any
unconverted principal amount hereof, be issued and delivered to the
registered holder hereof unless a different name has been indicated
below. If shares are to be delivered registered in the name of a person
other than the undersigned, the undersigned will pay all transfer taxes
payable with respect thereto. Any amount required to be paid by the
undersigned on account of interest accompanies this Debenture.
Dated ___________________
Signature
Fill in for registration of shares if to be delivered, and
of Debentures if to be issued, otherwise than to and in the name of the
registered holder.
Social Security or other
Taxpayer Identifying Number
(Name)
(Street Address)
(City, State and Zip Code)
(Please print name and ad-
dress)
Principal amount to be
converted: (if less than all)
$
Exhibit 10(a)
FIRST AMENDMENT
TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS FIRST AMENDMENT, dated as of February 15, 1996, by and
between AMERICAN TRAVELLERS CORPORATION, a Pennsylvania corporation
having its principal place of business located at 3220 Tillman Drive,
Bensalem, Pennsylvania 19020 ("Employer"), and JOHN A. POWELL, who
resides at 180 Street Road, New Hope, Pennsylvania 18938 ("Employee").
W I T N E S S E T H:
Employer and Employee are the parties to an Amended and Restated
Employment Agreement entered into February 17, 1994 as of March 17, 1989
(the "Agreement"). Employer and Employee desire to amend the Agreement
in certain respects as hereafter set forth.
NOW, THEREFORE, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Paragraph 3.1 of the Agreement is hereby amended in its
entirety to read as follow:
"3.1 Base Salary. Employer shall pay to Employee a
Base Salary of $315,000 during the first Year of the Term. At the
beginning of each succeeding Year of the Term, Employee's Base Salary
shall be increased to a Base Salary which shall equal the Base Salary
paid during the immediately preceding Year of the Term increased by the
greater of (a) the percentage increase (if any) in the Consumer Price
Index for Urban Wage Earners and Clerical Workers (Philadelphia, PA-NJ
Metropolitan Area), as published by the U.S. Department of Labor, Bureau
of Labor Statistics (or such index as may be substituted in place
thereof by such Bureau) in respect of the immediately preceding calendar
year, or (b) the average percentage increase in the salaries granted to
all employees of Employer as of the end of the immediately preceding
calendar year. Notwithstanding the foregoing, (I) effective on and as
of July 1, 1993 the Base Salary then in effect shall be increased to
$500,000, which amount shall be deemed the Base Salary for the entire
Year of the Term ending March 16, 1994, and (ii) effective on and as of
February 15, 1996 the Base Salary then in effect shall be increased to
$800,000, which amount shall continue to be the Base Salary through the
Year of the Term ending March 16, 1997. Base Salary shall be paid,
subject to withholding as required by law, in regular and equal
installments in the same manner as Employer pays its other employees."
2. Except as specifically provided in this First Amendment, the
Agreement shall continue in full force and effect without modification
or change.
IN WITNESS WHEREOF, the parties hereto have executed this First
Amendment as of the day and year first above written.
"Employer" "Employee"
AMERICAN TRAVELLERS CORPORATION
By: _________________________________
______________________________
John A. Powell
Exhibit 11
AMERICAN TRAVELLERS CORPORATION
SCHEDULE OF COMPUTATION OF NET INCOME PER SHARE
(In thousands except per data share)
Years ended December 31,
PRIMARY 1995 1994 1993
Net Income $23,685 $18,428 $14,608
Weighted Average number of common
shares outstanding during the year 16,316 16,133 15,804
Primary income per common share $ 1.45 $ 1.14 $ .92
FULLY DILUTED
Net income for primary earnings
per share $23,685 $18,428 $14,608
Add: Interest on 6.5% Convertible
Subordinated Debentures due 2005
(Net of tax effect) 1,251 - -
Net income for fully diluted
earnings per share $24,936 $18,428 $14,608
Primary number of shares outstanding 16,316 16,133 15,804
Add incremental shares representing:
Stock options 170 - -
Shares issuable on 6.5% Convertible
Subordinated Debentures 1,876 - -
Fully Diluted Number of Shares
outstanding 18,362 16,133 15,804
Fully Diluted Earnings per
common share $ 1.36 $ 1.14 $ .92
Exhibit 21
LIST OF SUBSIDIARIES
American Travellers Life Insurance Company - Pennsylvania *
United General Life Insurance Company - Texas **
American Travellers Insurance Company of New York - New York **
American Travellers Insurance Services Company, Inc. - Pennsylvania *
* Wholly owned by American Travellers Corporation
** Wholly owned By American Travellers Life Insurance Company
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation of our report in this Form 10-K, into American Travellers
Corporation's previously filed Registration Statement File No. 33-73114
on Form S-8.
Exhibit 27
FINANCIAL DATA SCHEDULE
The Financial Data Schedule is being submitted in the electronic format
prescribed by the EDGAR Filer Manual and shall set forth the financial
information in the applicable table as it pertains to Article 7
Registrants(Insurance Companies).
[ARTICLE] 7
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1995
[PERIOD-END] DEC-31-1995
[DEBT-HELD-FOR-SALE] 582,621,000
[DEBT-CARRYING-VALUE] 566,859,000
[DEBT-MARKET-VALUE] 582,621,000
[EQUITIES] 0
[MORTGAGE] 447,000
[REAL-ESTATE] 0
[TOTAL-INVEST] 583,068,000
[CASH] 70,214,000
[RECOVER-REINSURE] 0
[DEFERRED-ACQUISITION] 144,767,000
[TOTAL-ASSETS] 836,141,000
[POLICY-LOSSES] 247,562,000
[UNEARNED-PREMIUMS] 60,477,000
[POLICY-OTHER] 0
[POLICY-HOLDER-FUNDS] 0
[NOTES-PAYABLE] 0
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] (107,000)
[OTHER-SE] (170,698,000)
[TOTAL-LIABILITY-AND-EQUITY] (836,141,000)
[PREMIUMS] (273,967,000)
[INVESTMENT-INCOME] (23,190,000)
[INVESTMENT-GAINS] (175,000)
[OTHER-INCOME] 0
[BENEFITS] (172,903,000)
[UNDERWRITING-AMORTIZATION] (20,687,000)
[UNDERWRITING-OTHER] 0
[INCOME-PRETAX] (34,694,000)
[INCOME-TAX] 11,009,000
[INCOME-CONTINUING] (23,685,000)
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (23,685,000)
[EPS-PRIMARY] 1.45
[EPS-DILUTED] 1.36
[RESERVE-OPEN] 0
[PROVISION-CURRENT] 0
[PROVISION-PRIOR] 0
[PAYMENTS-CURRENT] 0
[PAYMENTS-PRIOR] 0
[RESERVE-CLOSE] 0
[CUMULATIVE-DEFICIENCY] 0
