<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
Commission File Number : 1-11396
JOHN ALDEN FINANCIAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 59-2840712
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
7300 CORPORATE CENTER DRIVE, MIAMI, FLORIDA 33126-1208
(Address of principal executive offices) (Zip Code)
</TABLE>
(305) 715-3767
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [ X ] Yes [ ] No
As of November 8, 1996, 25,331,390 shares of Common Stock, par value $.01,
were outstanding.
<PAGE> 2
JOHN ALDEN FINANCIAL CORPORATION
FORM 10-Q
For the Quarter Ended September 30, 1996
Index
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<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements as of September 30, 1996
(unaudited) and December 31, 1995, and for the nine and three months
ended September 30, 1996 (unaudited) and September 30, 1995 (unaudited) . . . . . . . . . 1
Notes to Condensed Consolidated Financial Statements (unaudited) . . . . . . . . . . . . 5
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
PART II. OTHER INFORMATION
Item 1. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
<PAGE> 3
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30,
1996 DECEMBER 31,
ASSETS (Unaudited) 1995
------------- -------------
<S> <C> <C>
Debt securities:
Held-to-maturity securities, at amortized cost (market $659,272 and $609,599)............. $ 654,632 $ 584,330
Available-for-sale securities, at market (cost $3,608,739 and $3,652,408)................. 3,613,924 3,811,825
Trading account securities, at market (cost $5,438 and $5,450)............................ 5,489 5,703
Equity securities, at market (cost $73,346 and $72,919)...................................... 80,961 82,639
Mortgage loans............................................................................... 1,501,033 1,506,874
Investment in real estate, at cost, less accumulated depreciation of $1,684 and $1,008...... 37,748 20,998
Real estate owned............................................................................ 9,281 11,973
Policy loans and other notes receivable...................................................... 84,911 84,079
Short-term investments....................................................................... 7,865 6,349
------------- ------------
Total invested assets................................................................... 5,995,844 6,114,770
Cash and cash equivalents.................................................................... 87,914 99,606
Deferred policy acquisition costs............................................................ 259,457 197,667
Investment deposits recoverable.............................................................. 776,768 806,333
Property and equipment, at cost, less accumulated depreciation of $27,081 and $24,240.... 68,003 52,298
Reinsurance receivables...................................................................... 208,435 163,430
Other assets................................................................................. 263,657 261,926
------------- ------------
Total assets.......................................................................... $ 7,660,078 $ 7,696,030
============= ============
LIABILITIES, REDEEMABLE SECURITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Contract holder liabilities................................................................ $ 6,889,341 $ 6,867,803
Short-term debt............................................................................ 25,000 15,063
Long-term debt............................................................................. 90,500 92,000
Other liabilities.......................................................................... 194,004 224,517
------------- ------------
Total liabilities.................................................................... 7,198,845 7,199,383
------------- ------------
Redeemable securities:
Series A 9% cumulative preferred stock, $.01 par value;
150,000 shares authorized, issued and outstanding;
mandatory redemption value of $100 per share; including
accrued dividends of $623 and $286; $104.15 and $101.91 per share....................... 15,623 15,286
Common stock, $.01 par value; 705,956 and 850,974 shares
authorized, issued and outstanding...................................................... 3,890 4,130
------------- ------------
Total redeemable securities.......................................................... 19,513 19,416
------------- ------------
Stockholders' equity:
Common stock, $.01 par value; 74,294,044 and 74,149,026 shares
authorized; 25,013,169 and 24,822,322 shares issued; 24,625,434
and 24,398,139 shares outstanding...................................................... 250 248
Paid-in capital.......................................................................... 181,772 181,154
Net unrealized gain (loss) on investments, net of income taxes........................... (1,298) 58,041
Retained earnings........................................................................ 273,515 250,167
Redemption value of common stock in excess of cost....................................... (3,129) (3,050)
Unearned compensation.................................................................... (714) --
Treasury stock, at cost; 387,735 and 424,183 shares...................................... (8,676) (9,329)
------------- ------------
Total stockholders' equity.......................................................... 441,720 477,231
------------- ------------
Total liabilities, redeemable securities and stockholders' equity................... $ 7,660,078 $ 7,696,030
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
1
<PAGE> 4
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
-------------------------------------
1996 1995
----------------- ---------------
<S> <C> <C>
Revenues:
Gross insurance premiums and contract charges earned............................... $ 1,406,017 $ 1,444,540
Ceded insurance premiums and contract charges earned............................... (626,678) (656,806)
----------------- ---------------
Net insurance premiums and contract charges earned............................ 779,339 787,734
Net investment income.............................................................. 34,045 38,479
Other income, including experience refunds and expense allowances
on reinsurance ceded ........................................................... 47,317 49,573
Net realized investment gains ..................................................... 1,158 183
----------------- ---------------
Total revenues................................................................ 861,859 875,969
----------------- ---------------
Benefits and expenses:
Gross claims incurred on insurance products........................................ 1,045,799 1,053,673
Ceded claims incurred on insurance products........................................ (485,640) (501,464)
----------------- ---------------
Net claims incurred on insurance products..................................... 560,159 552,209
Universal life and investment-type contract benefits............................... 13,696 12,386
Increase (decrease) in life insurance reserves..................................... 270 (80)
Commissions, net of commissions ceded ............................................. 59,845 62,461
General expenses, net of expenses ceded ........................................... 187,466 217,690
Amortization of purchased intangibles.............................................. 4,891 4,694
Amortization of deferred policy acquisition costs.................................. 10,208 9,658
Interest expense................................................................... 4,951 6,366
Minority interest in joint venture's income (loss)................................. 831 (1,693)
----------------- ---------------
Total benefits and expenses................................................. 842,317 863,691
----------------- ---------------
Income (loss) from continuing operations before provision (benefit) for income taxes... 19,542 12,278
Provision (benefit) for income taxes................................................... 8,309 4,889
------------------ ---------------
Net income (loss) from continuing operations........................................... 11,233 7,389
Net income (loss) from discontinued operations:
Annuity Operations (net of income taxes of $14,267, $8,814, $5,284 and $1,910)..... 23,099 15,582
Western Diversified Group (net of income taxes of ($291), $1,337, $237 and $867).... (1,367) 1,932
----------------- ---------------
Net income ............................................................................ $ 32,965 $ 24,903
================= ===============
Net income applicable to common stock.................................................. $ 31,952 $ 23,890
================= ===============
Net income per common and common equivalent share (see Note 3):
Net income (loss) from continuing operations..................................... $ 0.40 $ 0.25
Net income from discontinued operations.......................................... 0.85 0.67
----------------- ---------------
Net income....................................................................... $ 1.25 $ 0.92
================= ===============
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
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<S> <C> <C>
Revenues:
Gross insurance premiums and contract charges earned............................... $ 451,574 $ 483,448
Ceded insurance premiums and contract charges earned............................... (202,347) (216,096)
------------- -------------
Net insurance premiums and contract charges earned............................ 249,227 267,352
Net investment income.............................................................. 11,477 11,994
Other income, including experience refunds and expense allowances
on reinsurance ceded ........................................................... 11,272 16,868
Net realized investment gains ..................................................... 328 42
------------- -------------
Total revenues................................................................ 272,304 296,256
------------- -------------
Benefits and expenses:
Gross claims incurred on insurance products........................................ 348,416 357,116
Ceded claims incurred on insurance products........................................ (161,891) (163,502)
------------- -------------
Net claims incurred on insurance products..................................... 186,525 193,614
Universal life and investment-type contract benefits............................... 4,466 3,305
Increase (decrease) in life insurance reserves..................................... 120 107
Commissions, net of commissions ceded ............................................. 18,968 24,451
General expenses, net of expenses ceded ........................................... 57,824 71,786
Amortization of purchased intangibles.............................................. 1,625 1,753
Amortization of deferred policy acquisition costs.................................. 3,703 2,463
Interest expense................................................................... 1,591 2,152
Minority interest in joint venture's income (loss)................................. 56 (1,693)
------------- -------------
Total benefits and expenses................................................. 274,878 297,938
------------- -------------
Income (loss) from continuing operations before provision (benefit) for income taxes... (2,574) (1,682)
Provision (benefit) for income taxes................................................... (76) (646)
------------- -------------
Net income (loss) from continuing operations........................................... (2,498) (1,036)
Net income (loss) from discontinued operations:
Annuity Operations (net of income taxes of $14,267, $8,814, $5,284 and $1,910)..... 8,318 3,216
Western Diversified Group (net of income taxes of ($291), $1,337, $237 and $867).... (82) 795
------------- -------------
Net income ............................................................................ $ 5,738 $ 2,975
============= =============
Net income applicable to common stock.................................................. $ 5,400 $ 2,637
============= =============
Net income per common and common equivalent share (see Note 3):
Net income (loss) from continuing operations..................................... $ (0.11) $ (0.05)
Net income from discontinued operations.......................................... 0.33 0.15
------------- -------------
Net income....................................................................... $ 0.22 $ 0.10
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
2
<PAGE> 5
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Number of shares outstanding............................................. 24,625,434 24,370,127
============== =============
Common stock, beginning of period........................................ $ 248 $ 245
Stock option exercises................................................ 1 1
Transfer from redeemable common stock................................. 1 2
-------------- -------------
Common stock, end of period.............................................. $ 250 $ 248
============== =============
Paid-in capital, beginning of period..................................... $ 181,154 $ 180,401
Stock option exercises................................................ 205 289
Transfer from redeemable common stock................................. 318 152
Unearned compensation - treasury stock grant.......................... 95 --
-------------- -------------
Paid-in capital, end of period........................................... $ 181,772 $ 180,842
============== =============
Net unrealized gain (loss) on investments, net of income taxes,
beginning of period................................................... $ 58,041 $ (20,348)
Change in net unrealized gain (loss) on investments,
net of income taxes .................................................. (59,339) 43,379
-------------- -------------
Net unrealized gain (loss) on investments, net of income taxes,
end of period......................................................... $ (1,298) $ 23,031
============== =============
Retained earnings, beginning of period................................... $ 250,167 $ 256,252
Net income............................................................ 32,965 24,903
Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and
$2.25 per share) ................................................. (1,013) (1,013)
Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share)..... (8,604) (8,366)
-------------- -------------
Retained earnings, end of period......................................... $ 273,515 $ 271,776
============== =============
Redemption value of common stock in excess of cost,
beginning of period................................................... $ (3,050) $ (3,645)
Transfer from redeemable common stock................................. 4 870
Adjustment of put holder shares to market value....................... (24) (1,172)
Change in redemption value of common stock in excess of cost (59) 684
-------------- -------------
Redemption value of common stock in excess of cost, end of period........ $ (3,129) $ (3,263)
============== =============
Unearned compensation, beginning of period............................... $ -- $ --
Unearned compensation - treasury stock grant.......................... (738) --
Compensation expense recognized....................................... 24 --
-------------- -------------
Unearned compensation, end of period..................................... $ (714) $ --
============== =============
Treasury stock, beginning of period...................................... $ (9,329) $ (6,181)
Unearned compensation - treasury stock grant.......................... 643 --
Stock option exercises ............................................... 10 55
Treasury stock purchase............................................... -- (3,203)
-------------- -------------
Treasury stock, end of period............................................ $ (8,676) $ (9,329)
============== =============
Stockholders' equity, beginning of period................................ $ 477,231 $ 406,724
Net income............................................................ 32,965 24,903
Change in net unrealized gain (loss) on investments,
net of income taxes............................................... (59,339) 43,379
Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and
$2.25 per share) ................................................. (1,013) (1,013)
Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share)..... (8,604) (8,366)
Change in redemption value of common stock in excess of cost.......... (59) 684
Stock option exercises................................................ 216 345
Compensation expense recognized....................................... 24 --
Treasury stock purchase............................................... -- (3,203)
Adjustment of put holder shares to market value....................... (24) (1,172)
Transfer from redeemable common stock................................. 323 1,024
-------------- -------------
Stockholders' equity, end of period...................................... $ 441,720 $ 463,305
============== =============
<CAPTION>
THREE MONTHS ENDED
SEPTEMBER 30,
--------------------------------
1996 1995
-------------- -------------
<S> <C> <C>
Number of shares outstanding............................................. 24,625,434 24,370,127
============= =============
Common stock, beginning of period........................................ $ 250 $ 247
Stock option exercises................................................ -- --
Transfer from redeemable common stock................................. -- 1
------------- -------------
Common stock, end of period.............................................. $ 250 $ 248
============= =============
Paid-in capital, beginning of period..................................... $ 181,636 $ 180,798
Stock option exercises................................................ 32 8
Transfer from redeemable common stock................................. 9 36
Unearned compensation - treasury stock grant.......................... 95 --
------------- -------------
Paid-in capital, end of period........................................... $ 181,772 $ 180,842
============= =============
Net unrealized gain (loss) on investments, net of income taxes,
beginning of period................................................... $ (5,015) $ 25,589
Change in net unrealized gain (loss) on investments,
net of income taxes .................................................. 3,717 (2,558)
------------- -------------
Net unrealized gain (loss) on investments, net of income taxes,
end of period......................................................... $ (1,298) $ 23,031
============= =============
Retained earnings, beginning of period................................... $ 271,155 $ 271,915
Net income............................................................ 5,738 2,975
Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and
$2.25 per share) ................................................. (338) (338)
Dividends on Common stock ($0.34,$0.33,$0.12 and $0.11 per share)..... (3,040) (2,776)
------------- -------------
Retained earnings, end of period......................................... $ 273,515 $ 271,776
============= =============
Redemption value of common stock in excess of cost,
beginning of period................................................... $ (3,382) $ (2,762)
Transfer from redeemable common stock................................. -- 746
Adjustment of put holder shares to market value....................... -- (426)
Change in redemption value of common stock in excess of cost 253 (821)
------------- -------------
Redemption value of common stock in excess of cost, end of period........ $ (3,129) $ (3,263)
============= =============
Unearned compensation, beginning of period............................... $ -- $ --
Unearned compensation - treasury stock grant.......................... (738) --
Compensation expense recognized....................................... 24 --
------------- -------------
Unearned compensation, end of period..................................... $ (714) $ --
============= =============
Treasury stock, beginning of period...................................... $ (9,319) $ (6,181)
Unearned compensation - treasury stock grant.......................... 643 --
Stock option exercises ............................................... -- 55
Treasury stock purchase............................................... -- (3,203)
------------- -------------
Treasury stock, end of period............................................ $ (8,676) $ (9,329)
============= =============
Stockholders' equity, beginning of period................................ $ 435,325 $ 469,606
Net income............................................................ 5,738 2,975
Change in net unrealized gain (loss) on investments,
net of income taxes............................................... 3,717 (2,558)
Dividends on redeemable preferred stock ($6.75, $6.75, $2.25 and
$2.25 per share) ................................................. (338) (338)
Dividends on common stock ($0.34,$0.33,$0.12 and $0.11 per share)..... (3,040) (2,776)
Change in redemption value of common stock in excess of cost.......... 253 (821)
Stock option exercises................................................ 32 63
Compensation expense recognized....................................... 24 --
Treasury stock purchase............................................... -- (3,203)
Adjustment of put holder shares to market value....................... -- (426)
Transfer from redeemable common stock................................. 9 783
------------- -------------
Stockholders' equity, end of period...................................... $ 441,720 $ 463,305
============= =============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
3
<PAGE> 6
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
SEPTEMBER 30,
------------------------------
1996 1995
------------ ------------
<S> <C> <C>
Net cash provided by operating activities................................... $ 225,817 $ 291,152
------------ ------------
Cash flows from investing activities:
Proceeds from investments sold:
Available-for-sale.............................................. 473,032 124,689
Equity securities............................................... 1,383 61,258
Real estate owned............................................... 10,503 7,339
Maturities, calls and scheduled loan payments:
Held-to-maturity................................................ 52,340 58,089
Available-for-sale.............................................. 139,528 54,501
Mortgage loans and other notes receivable....................... 241,755 129,238
Investments purchased:
Held-to-maturity................................................ (121,418) (98,688)
Available-for-sale.............................................. (561,070) (536,208)
Equity securities............................................... -- (27,179)
Mortgage loans and other notes receivable....................... (254,080) (256,504)
Investment in real estate....................................... (17,428) (763)
(Outflows)inflows from net sales and purchases of short-term
investments.......................................................... (1,758) 7,771
Acquisitions........................................................... -- (7,404)
Purchases of property and equipment.................................... (18,687) (26,981)
------------ ------------
Net cash used in investing activities.................................... (55,900) (510,842)
------------ ------------
Cash flows from financing activities:
Proceeds from borrowings of short-term and long-term debt.............. 26,000 20,000
Repayments of borrowings of short-term and long-term debt.............. (17,563) (24,689)
Receipts from universal life and investment-type contracts............. 368,423 725,738
Payments on universal life and investment-type contracts............... (549,669) (496,521)
Purchase of treasury stock, net....................................... -- (3,203)
Payment of dividends................................................... (9,016) (8,796)
Stock option exercises................................................. 216 345
------------ ------------
Net cash (used in) provided by financing activities...................... (181,609) 212,874
------------ ------------
Net decrease in cash and cash equivalents................................... (11,692) (6,816)
Cash and cash equivalents, beginning of period ............................. 99,606 58,474
------------ ------------
Cash and cash equivalents, end of period ................................... $ 87,914 $ 51,658
============ ============
</TABLE>
See Notes to Condensed Consolidated Financial Statements.
4
<PAGE> 7
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
NOTE 1 -- BASIS OF PRESENTATION
The condensed consolidated financial statements of John Alden
Financial Corporation and its subsidiaries (the "Company") have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and note disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. The interim financial data is
unaudited; however, in the opinion of management, the interim data includes all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results of operations for the interim periods presented.
The results of operations for the nine and three months ended September 30,
1996 are not necessarily indicative of the results to be expected for the full
year. As described in Note 2, the Company is anticipating disposing of certain
operations. Certain reclassifications have been made to prior period condensed
consolidated financial statements to conform to current period presentation.
These condensed consolidated financial statements should be read in
conjunction with the consolidated financial statements included in the
Company's Annual Report on Form 10-K for the year ended December 31, 1995, as
amended.
NOTE 2 -- DISCONTINUED OPERATIONS
On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines. Annuity Operations includes
substantially all of the annuity business of John Alden Life Insurance Company
("JALIC") and all of the business of John Alden Life Insurance Company of New
York ("JANY"). JANY primarily markets annuity products in the State of New
York, as well as certain individual life insurance products. The Western
Diversified Group markets credit life and disability and retail service
warranty coverage, primarily through automobile dealers. The Company
anticipates that the potential sales of these businesses will occur within one
year from the above date and that the formal process of disposing of these
separate segments will result in a net gain. Such sales will be subject to
applicable regulatory approvals. There can be no assurance that such sales
will occur.
It is anticipated that the sale of the JALIC annuity business and
certain of the credit businesses will be accomplished through an indemnity
reinsurance transaction. As of September 30, 1996, total contract holder
liabilities, net of reinsurance, related to such annuities were $3,868.9
million. It is anticipated that the sales of JANY and a portion of the Western
Diversified Group will be accomplished through the sale of the common stock of
the respective subsidiaries. As of September 30, 1996, the net assets of JANY
and the Western Diversified Group aggregated approximately $80.1 million and
$61.0 million, respectively. Total contract holder liabilities, net of
reinsurance, related to JANY annuities were $1,355.8 million as of September
30, 1996.
On November 13, 1996, the Company entered into a non-binding letter of
intent with SunAmerica, Inc. relating to the sale of all the common stock of
JANY and the reinsurance of substantially all of the annuity business of
JALIC. The Company is proceeding to finalize the definitive agreement.
The results of operations relating to the Annuity Operations and the
Western Diversified Group for the nine and three months ended September 30,
1996 and 1995 are reflected as discontinued operations in the accompanying
condensed consolidated statements of income. From March 27, 1996, the date on
which management committed to the formal plan of disposition, to September 30,
1996, the Annuity Operations and the Western Diversified Group generated net
income of $15.6 million and a net loss of $1.6 million, respectively.
Operating results relating to continuing operations primarily relate to the
Company's healthcare business. As a result of the above, beginning with the
condensed consolidated financial statements for the quarter ended March 31,
1996, the Company discontinued the reporting of segment information.
5
<PAGE> 8
JOHN ALDEN FINANCIAL CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED) - (CONTINUED)
NOTE 3 -- EARNINGS PER SHARE
Net income per common and common equivalent share was determined by
dividing net income, as adjusted below, by applicable average shares
outstanding (in thousands):
<TABLE>
<CAPTION>
NINE MONTHS ENDED THREE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------------- --------------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . $ 32,965 $ 24,903 $ 5,738 $ 2,975
Dividends on redeemable preferred stock . . . . . (1,013) (1,013) (338) (338)
-------- -------- -------- --------
Net income applicable to common stock . . . . . . $ 31,952 $ 23,890 $ 5,400 $ 2,637
======== ======== ======== =========
Average common and common equivalent shares
outstanding . . . . . . . . . . . . . . . . . . . 25,661 25,854 25,664 25,624
======== ======== ======== =========
</TABLE>
Average common and common equivalent shares outstanding include common
shares outstanding and common stock equivalents attributable to outstanding
stock options. All potentially dilutive securities are considered to be common
stock equivalents.
NOTE 4 -- ACCOUNTING CHANGES
The Company adopted Statement of Financial Accounting Standards
("SFAS") No. 114, "Accounting by Creditors for Impairment of a Loan" and SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition
and Disclosures" effective January 1, 1995. SFAS No. 114 addresses the
accounting by creditors for the measurement and recognition of loan
impairments. SFAS No. 118 amends certain provisions of SFAS No. 114. There
was no effect on the Company's results of operations or financial position upon
adoption of these statements.
The Company adopted SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" effective
January 1, 1996. This statement addresses the recognition and measurement of
impairments of long-lived assets, certain identifiable intangibles and goodwill
related to those assets to be held as well as to be disposed of. There was no
effect on the Company's results of operations or financial position upon
adoption of this statement.
NOTE 5 -- LEGAL PROCEEDING
During the period of April 1995 through May 1995, the Company and
certain of it officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws.
While it is not possible to determine the ultimate disposition of this
proceeding, the Company believes that the ultimate disposition will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
6
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
ACCOUNTING CHANGES
See Note 4 to the condensed consolidated financial statements for a
discussion of the impact of the adoption of new accounting pronouncements.
RESULTS OF OPERATIONS
KEY FINANCIAL DATA
CONSOLIDATED RESULTS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NINE MONTHS ENDED CHANGE THREE MONTHS ENDED CHANGE
SEPTEMBER 30, POSITIVE SEPTEMBER 30, POSITIVE
------------------------- (NEGATIVE) ---------------------- (NEGATIVE)
1996 1995 EFFECT 1996 1995 EFFECT
----------- ----------- ----------- ---------- ---------- --------------
(In millions, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Gross insurance premiums and
contract charges earned . . . $1,406.0 $1,444.5 (2.7)% $451.6 $483.4 (6.6)%
Net realized investment gains . . 1.2 0.2 500.0 0.3 -- --
Interest expense . . . . . . . . 5.0 6.4 21.9 1.6 2.2 27.3
Pre-tax income (loss) from
continuing operations . . . . 19.5 12.3 58.5 (2.6) (1.7) (52.9)
Net income (loss) from
continuing operations . . . . 11.2 7.4 51.4 (2.5) (1.0) (150.0)
Operating income (loss) (1):
Continuing operations . . . . 9.5 6.3 50.8 (3.0) (1.4) (114.3)
Discontinued operations . . . 26.6 22.3 19.3 10.8 6.5 66.2
Total . . . . . . . . . . . 36.1 28.6 26.2 7.8 5.1 52.9
Net income . . . . . . . . . . . 33.0 24.9 32.5 5.8 3.0 93.3
Net income applicable to
common stock . . . . . . . . . 32.0 23.9 33.9 5.4 2.6 107.7
Operating income (loss) per
common share(1):
Continuing operations . . . . 0.37 0.24 54.2 (0.12) (0.06) (100.0)
Discontinued operations . . . 1.04 0.87 19.5 0.43 0.26 65.4
Total . . . . . . . . . . . . 1.41 1.11 27.0 0.31 0.20 55.0
Net income per common share . . 1.25 0.92 35.9 0.22 0.10 120.0
Average common equivalent
shares outstanding . . . . . . 25,661 25,854 (0.7) 25,664 25,624 0.2
</TABLE>
- ----------------------------------
(1) Applicable to common stock, which excludes net realized investment
gains (losses) and is after preferred stock dividends.
Consolidated Results for the Nine Months Ended September 30, 1996 and 1995
Operating income from continuing operations applicable to common stock
increased 50.8% to $9.5 million for the nine months ended September 30, 1996
from $6.3 million for the nine months ended September 30, 1995. Operating
income from continuing operations for the nine months ended September 30, 1996
was reduced by $4.4 million for severance and other charges resulting from the
Company's comprehensive strategic evaluation of its non-core product lines and
increased focus on its core product lines. Operating income from continuing
operations for the nine months ended September 30, 1995 was reduced by $14.6
million due to an increase in the medical
7
<PAGE> 10
claim reserves relating to medical services provided (claims incurred) in 1994
and charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses. Excluding these adjustments in each of the respective periods,
operating income from continuing operations decreased 33.5% to $13.9 million
for the nine months ended September 30, 1996 from $20.9 million for the nine
months ended September 30, 1995. This decrease was primarily attributable to
an increase in the group gross medical loss ratio, excluding the adjustment
referred to above, and a decrease in the group gross insurance premiums and
contract charges earned, partially offset by a decrease in the group gross
expense ratio. Operating income from discontinued operations was $26.6 million
for the nine months ended September 30, 1996 as compared to $22.3 million for
the nine months ended September 30, 1995. This increase was primarily
attributable to increased spreads earned on annuity products.
Net realized investment gains increased to $1.2 million for the nine
months ended September 30, 1996 from $0.2 million for the nine months ended
September 30, 1995. The net increase in operating income of 26.2%, coupled
with the increase in net realized investment gains, resulted in a 33.9%
increase in net income applicable to common stock to $32.0 million for the
nine months ended September 30, 1996 from $23.9 million for the nine months
ended September 30, 1995.
Operating income per share from continuing operations increased 54.2%
to $0.37 for the nine months ended September 30, 1996 from $0.24 for the nine
months ended September 30, 1995. Operating income per share from discontinued
operations increased 19.5% to $1.04 for the nine months ended September 30,
1996 from $0.87 for the nine months ended September 30, 1995. Net income per
share increased 35.9% to $1.25 for the nine months ended September 30, 1996
from $0.92 for the nine months ended September 30, 1995.
Consolidated Results for the Three Months Ended September 30, 1996 and 1995
Operating income from continuing operations applicable to common stock
decreased 114.3% to an operating loss of $3.0 million for the three months
ended September 30, 1996 from an operating loss of $1.4 million for the three
months ended September 30, 1995. Operating income from continuing operations
for the three months ended September 30, 1995 was reduced by $7.4 million due
to charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses. Excluding these adjustments, operating income from continuing
operations decreased 150.0% to an operating loss of $3.0 million for the three
months ended September 30, 1996 from operating income of $6.0 million for the
three months ended September 30, 1995. This decrease was primarily
attributable to an increase in the group gross medical loss ratio as well as a
decrease in the group gross insurance premiums and contract charges earned,
partially offset by a decrease in the group gross expense ratio. Operating
income from discontinued operations increased 66.2% to $10.8 million for the
three months ended September 30, 1996 from $6.5 million for the three months
ended September 30, 1995. This increase was primarily attributable to
increased spreads earned on annuity products.
Net realized investment gains increased to $0.3 million for the three
months ended September 30, 1996 from break even for the three months ended
September 30, 1995. The increase in operating income of 52.9%, coupled with
the increase in net realized investment gains, resulted in a 107.7% increase in
net income applicable to common stock to $5.4 million for the three months
ended September 30, 1996 from $2.6 million for the three months ended September
30, 1995.
Operating income per share from continuing operations decreased 100.0%
to an operating loss of $0.12 for the three months ended September 30, 1996
from an operating loss of $0.06 for the three months ended September 30, 1995.
Operating income per share from discontinued operations increased 65.4% to
$0.43 for the three months ended September 30, 1996 from $0.26 for the three
months ended September 30, 1995. Net income per share increased 120.0% to
$0.22 for the three months ended September 30, 1996 from $0.10 for the three
months ended September 30, 1995.
8
<PAGE> 11
CONTINUING OPERATIONS
HEALTHCARE OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NINE MONTHS ENDED CHANGE THREE MONTHS ENDED CHANGE
SEPTEMBER 30, POSITIVE SEPTEMBER 30, POSITIVE
-------------------------- (NEGATIVE) -------------------------- (NEGATIVE)
1996 1995 EFFECT 1996 1995 EFFECT
------------ ------------ ----------- ----------- ------------ ----------
(Dollars in millions)
<S> <C> <C> <C> <C> <C> <C>
Gross insurance premiums and
contract charges earned . . . . . $ 1,393.7 $ 1,428.3 (2.4)% $ 447.2 $ 479.1 (6.7)%
Group insured data at end of
period:
Employers (1). . . . . . . . . . 197,000 239,000 (17.6) 197,000 239,000 (17.6)
Employee lives . . . . . . . . . 512,000 627,000 (18.3) 512,000 627,000 (18.3)
Group covered lives. . . . . . . . 975,000 1,203,000 (19.0) 975,000 1,203,000 (19.0)
HMO covered lives. . . . . . . . . 71,000 36,000 97.2 71,000 36,000 97.2
Total covered lives 1,046,000 1,239,000 (15.6) 1,046,000 1,239,000 (15.6)
Group pre-tax operating income . . $ 35.6 $ 34.4 3.5 $ 1.9 $ 13.4 (85.8)
Group gross data:
Insurance premiums and contract
charges earned. . . . . . . . . 1,165.3 1,261.4 (7.6) 365.8 416.5 (12.2)
Insurance premiums earned per
group employee life
(in dollars). . . . . . . . . . 2,058.9 1,963.3 4.9 682.5 654.3 4.3
Annualized persistency rates . . 65.9% 71.8% (5.9) 63.3% 72.0% (8.7)
Medical loss ratio . . . . . . . 74.2 72.9 (1.3) 76.7 72.0 (4.7)
Expense ratio. . . . . . . . . . 23.6 25.3 1.7 23.5 25.9 2.4
Combined ratio . . . . . . . . . 97.8 98.2 0.4 100.2 97.9 (2.3)
Pre-tax income . . . . . . . . . . $ 36.4 $ 33.1 10.0 $ 2.1 $ 8.7 (75.9)
</TABLE>
- ----------------------------------
(1) Includes 34,000 and 41,000 groups, each group made up of one individual, as
of September 30, 1996 and 1995, respectively, marketed through an
association group trust.
Healthcare Operations Results for the Nine Months Ended September 30, 1996 and
1995
Pre-tax income for healthcare operations increased 10.0% to $36.4
million for the nine months ended September 30, 1996 from $33.1 million for the
nine months ended September 30, 1995. Pre-tax income for the nine months ended
September 30, 1996 was reduced by $5.3 million for the healthcare operations'
portion of the charges discussed above. Pre-tax income for the nine months
ended September 30, 1995 was reduced by $10.0 million due to an increase in
medical loss reserves relating to claims incurred in 1994 and $5.0 million due
to charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses. Excluding these adjustments in each of the respective periods,
pre-tax income decreased 13.3% to $41.7 million for the nine months ended
September 30, 1996 from $48.1 million for the nine months ended September 30,
1995. The group gross medical loss ratio increased to 74.2% for the nine
months ended September 30, 1996 from 72.1% for the nine months ended September
30, 1995, excluding the $10.0 million for claims incurred in 1994. This
increase was partially offset by a decrease in the group gross expense ratio to
23.3% for the nine months ended September 30, 1996 from 25.1% for the nine
months ended September 30, 1995, excluding the adjustments referred to above.
Group gross insurance premiums and contract charges earned decreased 7.6%
during the respective periods.
In early 1995, the Company experienced an increase in the group gross
medical loss ratio over the already heightened 1994 levels resulting primarily
from increased utilization of medical services and lack of historical
experience in pricing in an environment of healthcare reform, primarily at the
state level, pertaining to small group and individual healthcare. The Company
believes it was among the first major participants in the small group market to
recognize the increasing medical cost trends. The Company identified the
increase during its periodic
9
<PAGE> 12
hindsight review of its estimates of unpaid claims based on its actual claims
experience. Upon such a review completed in late March of 1995 utilizing the
most recent available submitted claims data, the Company discovered that claims
submitted in 1995 relating to medical services provided in 1994 were at higher
levels than originally estimated. As a result of this review, the Company
increased its claim reserves as of December 31, 1994 by $15.0 million. Upon a
hindsight review performed in April 1995, based on claims received in April
1995 for medical services provided in 1994, it became apparent that the claim
reserves for 1994 would have to be further increased to reflect an even higher
level of utilization. Therefore, the Company recorded a pre-tax charge of
$10.0 million in the first quarter of 1995 for claims incurred in 1994. During
the remainder of 1995, the Company continued to experience loss ratio increases
over the 1994 levels. The group gross medical loss ratio increased to 75.0%
for the year ended December 31, 1995 from 69.7% for the year ended December 31,
1994.
Premium rate increases are established approximately three months
prior to the quarter in which they become effective. Subsequent to
establishing the first quarter 1996 premium rate increases in October 1995, the
Company identified several factors, in addition to increased utilization, that
contributed to the relatively high medical loss ratio during 1995. These
factors were primarily a result of small group and individual healthcare reform
legislation, primarily at the state level. Such reform included guaranteed
issue, mandated benefits, premium rate limits (including community rating and
modified community rating), guaranteed renewability, minimum medical loss ratio
mandates, risk adjustment mechanisms which allocate losses of individual
carriers to group carriers and other reforms. The Company also increased its
ability to analyze claims experience by various specific characteristics.
These included, among other things, initial group size, current group size,
duration of policy, geographic location, level of deductibles and utilization
of particular benefits. As a result, the Company identified certain blocks of
business with profit margins lower than that which the Company deems
acceptable. These higher risk blocks of the business accounted for
approximately 30% of the total group gross insurance premiums and contract
charges earned in 1995, and incurred a 1995 "hindsighted" loss ratio of 81.6%.
Hindsighted loss ratios are calculated based on the ultimate claim payout over
time for a particular period. On the same basis, the remaining block of
business, representing approximately 70% of 1995 group gross insurance premiums
and contract charges earned, generated a hindsighted loss ratio for 1995 of
70.4%. As of September 30, 1996, the hindsighted loss ratio relating to gross
insurance premiums and contract charges earned in 1996 for the higher risk
block of business was less than ten percent above the hindsighted loss ratio
for the remaining block of business. However, the performance of these blocks
of business is best measured over at least a 12-month period.
As the first year and renewal premium rate increases that were
effective on January 1, 1996 were established in October 1995, they were
developed without benefit of this new information. The average rate increases
for the quarter beginning on January 1, 1996 were approximately 15%.
Consistent with the Company's objective of maintaining profit margins at the
risk of reducing market share, and utilizing the new information discussed
above, the Company significantly increased rates on its new business and
increased rates on its renewal business for the second, third and fourth
quarters of 1996 by approximately 22%, 23% and 23%, respectively. Premium rate
increases on renewal business will be increased approximately 23% for the first
quarter of 1997. The Company has taken additional actions that it believes
will enable it to better control the future medical loss ratios on its group
business with a strong emphasis on the high risk business. These actions
include, where appropriate or available, improving discounts from providers,
redesigning benefits, improving underwriting techniques, altering commission
structures and discontinuing portions of such business, if warranted. While
all such actions are designed to improve margins, they may have contributed to
a decrease in group covered lives since such rate increases may have resulted
in prices above the competition. The number of group covered lives decreased
19.0% to 975,000 at September 30, 1996 from 1,203,000 at September 30, 1995.
Total group gross insurance premiums and contract charges earned have decreased
7.6% to $1,165.3 million for the nine months ended September 30, 1996 from
$1,261.4 million for the nine months ended September 30, 1995 due to the
decrease in covered lives, partially offset by the effect of the premium rate
increases described above. These actions may result in a continued decrease in
the total group gross insurance premiums and contract charges earned over the
next several quarters and possibly thereafter. There can be no assurance that
these actions will restore profit margins to acceptable levels.
10
<PAGE> 13
As noted above, the group gross medical loss ratio has increased to
74.2% for the nine months ended September 30, 1996 as compared to 72.1% for the
nine months ended September 30, 1995, excluding the increase in medical loss
reserves relating to claims incurred in 1994. The group gross medical loss
ratio for the first, second and third quarters of 1996 was 72.5%, 73.5% and
76.7%, respectively. These increases are primarily attributable to the
increased utilization of medical services which is generally being experienced
throughout the industry. Although the Company's medical loss ratio has
generally been higher in the fourth quarter than the other quarters of the
year, the Company has recently recognized an increase in this disparity. The
Company cannot predict whether the increase in utilization represents a
one-time event or more permanent trend or the extent to which this disparity
may increase or decrease in the future.
The Company has continued its strategy to strengthen its managed care
networks and products. This strategy is designed to reduce the risks created
in its marketplace by healthcare reforms and changing patterns of behavior by
providers while offering customers attractive, high quality, affordable
products. In this pursuit, the Company has been designing benefit plans that
are more easily understood and administered by providers and which steer
customers into selected provider networks. The strategy has resulted in the
development of a new product which is anticipated to be introduced into the
marketplace beginning in the second quarter of 1997 and fully implemented by
the end of 1997. The new product will be targeted to specific geographic
locations and will focus on improving the ability of providers to work with the
product. Although there can be no assurance as to the success of this new
product in the competitive healthcare industry, it has been designed to be more
attractive to providers and customers, thereby leading to increased
demand in the marketplace and increased sales. In addition, the Company is
enhancing provider incentives and risk-sharing programs that encourage and
reward networks for effective medical cost management. It is anticipated that
the cost of implementing this strategy will result in an increase in the group
gross expense ratio over the next several quarters and possibly thereafter.
During the nine months ended September 30, 1996, the Company further
centralized processing functions by closing its Sacramento, California
processing office, resulting in a charge of approximately $1.0 million. During
this same period, the Company recorded a liability of approximately $1.9
million for the remaining lease obligation related to a computer software
system that will no longer be utilized due to the centralizing of various
functions and offices. The combined total for these severance and other
charges aggregates approximately $2.9 million, or 0.3% of the total group gross
insurance premiums and contract charges earned in this period.
The group gross expense ratio for the nine months ended September 30,
1996, excluding the 0.3% of severance and other charges discussed above, was
23.3% compared to 25.1% for the nine months ended September 30, 1995, excluding
the adjustments discussed above. This decrease was primarily attributable to a
reduction in the number of employees. Additionally, reductions in renewal
commissions were announced in late 1994 for new business sold subsequent to
that announcement, which lowered renewal commission expense for the nine months
ended September 30, 1996 compared to the nine months ended September 30, 1995.
The Company's healthcare operations also include the healthcare
stop-loss reinsurance product lines and HMO operations. Pre-tax income for
these product lines increased 161.5% to $0.8 million for the nine months ended
September 30, 1996 from a pre-tax loss of $1.3 million for the nine months
ended September 30, 1995. Pre-tax income for the nine months ended September
30, 1996 and 1995 were reduced by $2.4 million and $2.8 million, respectively,
for the other healthcare operations' portion of the charges discussed above.
Excluding these charges in the respective periods, pre-tax income increased
113.3% to $3.2 million for the nine months ended September 30, 1996 from $1.5
million for the nine months ended September 30, 1995. This increase was
primarily attributable to a reduction in losses incurred in relation to the
Company's provider excess reinsurance product line.
11
<PAGE> 14
Healthcare Operations Results for the Three Months Ended September 30, 1996 and
1995
Pre-tax income for healthcare operations decreased 75.9% to $2.1
million for the three months ended September 30, 1996 from $8.7 million for the
three months ended September 30, 1995. Pre-tax income for the three months
ended September 30, 1995 was reduced by $6.5 million for the healthcare
operations' portion of the charges discussed above. Excluding these charges,
pre-tax income decreased 86.2% to $2.1 million for the three months ended
September 30, 1996 from $15.2 million for the three months ended September 30,
1995. This decrease is generally due to an increase in the group combined
ratio resulting primarily from an increase in the medical loss ratio and a
decrease in group insurance premiums and contract charges earned, as discussed
above. The combined ratio increased to 100.2% for the three months ended
September 30, 1996 from 97.0% for the three months ended September 30, 1995,
excluding the charges discussed above. Total group covered lives decreased
19.0% to 975,000 at September 30, 1996 from 1,203,000 at September 30, 1995.
Group gross insurance premiums and contract charges earned decreased 12.2% to
$365.8 million for the three months ended September 30, 1996 from $416.5
million for the three months ended September 30, 1995 due to the decrease in
covered lives, partially offset by the premium rate increases which were put in
effect in 1996, as discussed above.
OTHER CONTINUING OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NINE MONTHS ENDED CHANGE THREE MONTHS ENDED CHANGE
SEPTEMBER 30, POSITIVE SEPTEMBER 30, POSITIVE
---------------------- (NEGATIVE) --------------------- (NEGATIVE)
1996 1995 EFFECT 1996 1995 EFFECT
---------- --------- ---------- -------- ---------- ----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Gross premiums and fees . . . . . . . $ 12.3 $16.2 (24.1)% $4.4 $ 4.3 2.3%
Net investment income . . . . . . . . . 26.3 30.0 (12.3) 9.0 9.3 (3.2)
Pre-tax operating loss . . . . . . . . (18.1) (21.0) 13.8 (5.1) (10.5) 51.4
Net realized investment gains . . . . 1.2 0.2 500.0 0.4 0.1 300.0
Pre-tax loss . . . . . . . . . . . . . (16.9) (20.8) 18.8 (4.7) (10.4) 54.8
</TABLE>
Other Continuing Operations Results for the Nine Months Ended September 30,
1996 and 1995
Other continuing operations include JALIC's individual life business
and products no longer marketed by the Company. Also included are investment
income on equity, net corporate realized investment gains and losses and
corporate expenses for the Company and all of its subsidiaries, excluding John
Alden Life Insurance Company of New York ("JANY") and the Western Diversified
Group. Pre-tax loss from other continuing operations decreased 18.8% to $16.9
million for the nine months ended September 30, 1996 from $20.8 million for the
nine months ended September 30, 1995. The 1996 amount includes the other
continuing operations' share of the severance and other charges, as discussed
above, of approximately $1.4 million. The 1995 amount includes $7.5 million of
charges incurred in relation to the Company's comprehensive strategic and
financial evaluation of its non-core product lines and refocusing on its core
businesses. Excluding these adjustments, pre-tax loss from other continuing
operations increased 16.5% to $15.5 million for the nine months ended September
30, 1996 from $13.3 million for the nine months ended September 30, 1995 due
primarily to lower yielding invested assets which resulted in reduced
investment income for the 1996 period compared to the 1995 period. Net
realized investment gains increased to $1.2 million for the nine months ended
September 30, 1996 from $0.2 million for the nine months ended September 30,
1995. If the Company completes the anticipated sales of the discontinued
operations discussed below, certain corporate expenses in other continuing
operations shall be reduced. However, there can be no assurance as to when and
to what extent such expense reductions will occur.
Other Continuing Operations Results for the Three Months Ended September 30,
1996 and 1995
Pre-tax loss from other continuing operations decreased 54.8% to $4.7
million for the three months ended September 30, 1996 from $10.4 million for
the three months ended September 30, 1995. The 1995 amount includes
12
<PAGE> 15
$4.9 million of charges incurred in relation to the Company's comprehensive
strategic and financial evaluation of its non-core product lines and refocusing
on its core businesses. Excluding these charges, the pre-tax loss decreased
14.5% to $4.7 million for the three months ended September 30, 1996 from $5.5
million for the three months ended September 30, 1995 due primarily to a
reduction in interest and overhead expenses, partially offset by reduced
investment income on equity. Net realized investment gains increased 300.0% to
$0.4 million for the three months ended September 30, 1996 from $0.1 million
for the three months ended September 30, 1995.
DISCONTINUED OPERATIONS
On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines. Annuity Operations includes
substantially all of the annuity business of John Alden Life Insurance Company
("JALIC") and all of the business of JANY. JANY primarily markets annuity
products in the State of New York, as well as certain individual life insurance
products. The Western Diversified Group markets credit life and disability and
retail service warranty coverage, primarily through automobile dealers. The
Company anticipates that the potential sales of these businesses will occur
within one year from the above date and that the formal process of disposing of
these separate segments will result in a net gain. Such sales will be subject
to applicable regulatory approvals. There can be no assurance that such sales
will occur.
ANNUITY OPERATIONS
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NINE MONTHS ENDED CHANGE THREE MONTHS ENDED CHANGE
SEPTEMBER 30, POSITIVE SEPTEMBER 30, POSITIVE
-------------------------- (NEGATIVE) ----------------------- (NEGATIVE)
1996 1995 EFFECT 1996 1995 EFFECT
(In millions) -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Deposits received . . . . . . . . . $ 351.0 $ 699.7 (49.8)% $ 80.3 $ 189.7 (57.7)%
Net investment income . . . . . . . 303.5 303.1 0.1 101.6 104.5 (2.8)
Total revenues . . . . . . . . . . . 325.3 333.6 (2.5) 105.4 114.4 (7.9)
Benefit and surrender payments . . . 531.8 485.5 (9.5) 167.6 152.5 (9.9)
Interest credited to policyholders . 217.4 232.1 6.3 71.4 83.3 14.3
Average account balances, net of
reinsurance . . . . . . . . . . . . 5,174.1 5,282.3 (2.0) 5,197.8 5,441.9 (4.5)
Pre-tax operating income (net spread
earned) . . . . . . . . . . . . . . 45.0 31.9 41.1 17.6 8.9 97.8
Net realized investment losses . . . (7.6) (7.5) (1.3) (3.9) (3.8) (2.6)
Pre-tax income . . . . . . . . . . . 37.4 24.4 53.3 13.7 5.1 168.6
</TABLE>
Annuity Operations Results for the Nine Months Ended September 30, 1996 and
1995
The net spread earned increased 41.1% to $45.0 million for the nine
months ended September 30, 1996 from $31.9 million for the nine months ended
September 30, 1995. Average account balances, net of reinsurance, decreased
2.0% to $5,174.1 million for the nine months ended September 30, 1996 from
$5,282.3 million for the nine months ended September 30, 1995. The increase
in net spread is due to changes in the mix of annuity contracts caused by the
ceding of a large block of contracts in the third quarter of 1995 which carried
high surrender penalties and changes in the average credited rate on
outstanding annuity contracts during 1996 as compared to the tightening of
spreads during the period of declining interest rates in the first nine months
of 1995. Also, investment income on JANY equity increased due to an increase
in retained earnings and a capital contribution made in late 1995. In
addition, the Company recognized $1.2 million of premium and intangible tax
refunds during the nine months ended September 30, 1996. Deposits received
decreased 49.8% to $351.0 million for the nine months ended September 30, 1996
from $699.7 million for the nine months ended September 30, 1995. This
decrease is generally attributable to the Company's announcement in March 1996
that it was selling its Annuity Operations, as well as the
13
<PAGE> 16
lower ratings received by JALIC and JANY from certain national rating agencies.
See "Current Trends and Developments."
Annuity Operations Results for the Three Months Ended September 30, 1996 and
1995
The net spread earned increased 97.8% to $17.6 million for the three
months ended September 30, 1996 from $8.9 million for the three months ended
September 30, 1995. Average account balances, net of reinsurance, decreased
4.5% to $5,197.8 million for the three months ended September 30, 1996 from
$5,441.9 million for the three months ended September 30, 1995. The increase
in net spread earned is primarily attributable to an increase in gross margin
resulting from changes in the earned and credited rates on annuity contracts as
compared to the tightening of spreads which occurred during the three months
ended September 30, 1995 and income earned on JANY equity, as discussed above,
as well as a decrease in operating expenses. Net realized investment losses
increased 2.6% to $3.9 million for the three months ended September 30, 1996
from $3.8 million for the three months ended September 30, 1995. Pre-tax
income increased 168.6% to $13.7 million for the three months ended September
30, 1996 from $5.1 million for the three months ended September 30, 1995.
WESTERN DIVERSIFIED GROUP
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE
NINE MONTHS ENDED CHANGE THREE MONTHS ENDED CHANGE
SEPTEMBER 30, POSITIVE SEPTEMBER 30, POSITIVE
----------------------- (NEGATIVE) ----------------------- (NEGATIVE)
1996 1995 EFFECT 1996 1995 EFFECT
---------- ---------- ----------- ---------- ----------- -----------
(In millions)
<S> <C> <C> <C> <C> <C> <C>
Written premiums . . . . . . . $ 69.3 $ 67.8 2.2% $ 24.2 $ 20.0 21.0%
Gross insurance premiums and
contract charges earned . . . 55.1 49.5 11.3 19.8 17.2 15.1
Pre-tax income (loss) . . . . (1.7) 3.2 (153.1) 0.1 1.6 (93.8)
</TABLE>
Western Diversified Group Results for the Nine Months Ended September 30, 1996
and 1995
Pre-tax income (loss) decreased 153.1% to a pre-tax loss of $1.7
million for the nine months ended September 30, 1996 from pre-tax income of
$3.2 million for the nine months ended September 30, 1995. Excluding the
Western Diversified Group's portion of the charges discussed above, pre-tax
income (loss) decreased 181.0% to a pre-tax loss of $1.7 million for the nine
months ended September 30, 1996 from pre-tax income of $2.1 million for the
nine months ended September 30, 1995. This decrease is primarily attributable
to additional profit sharing liabilities recorded during 1996 relating to
amounts ceded to reinsurers in the credit product line and an increase in the
credit loss ratio.
Western Diversified Group Results for the Three Months Ended September 30, 1996
and 1995
Pre-tax income decreased to $0.1 million for the three months ended
September 30, 1996 from $1.6 million for the three months ended September 30,
1995. Excluding the Western Diversified Group's portion of the charges
discussed above, pre-tax income decreased 80.0% to $0.1 million for the three
months ended September 30, 1996 from $0.5 million for the three months ended
September 30, 1995 due primarily to the profit sharing liabilities recognized
in 1996.
14
<PAGE> 17
LIQUIDITY AND CAPITAL RESOURCES
INDEBTEDNESS
The Company maintains credit facilities with The Chase Manhattan Bank
on its own behalf and as administrative agent for certain commercial lending
institutions. The Company made a scheduled principal payment of $15.0 million
in April 1996 and repaid $2.5 million under the Company's revolving credit
facility in June 1996. Also in September and April 1996, the Company borrowed
$14.0 million and $12.0 million, respectively, pursuant to the revolving
credit facility. Future required principal payments are $25.0 million in 1997,
$32.0 million in 1998 and $58.5 million in 1999.
The principal amounts of outstanding indebtedness of the Company at
September 30, 1996 and December 31, 1995 were $115.5 million and $107.1
million, respectively. At September 30, 1996, the Company's ratio of debt and
redeemable securities to stockholders' equity was 0.30 to 1 compared to 0.27 to
1 at December 31, 1995. The weighted average annualized interest rates on the
Company's indebtedness were approximately 7.7% and 7.0% for the nine months
ended September 30, 1996 and 1995, respectively.
DIVIDENDS
The Company paid preferred stock dividends of approximately $0.7
million in each of April and October of 1996 and 1995. A summary of common
stock dividends declared or paid during 1995 and 1996 is as follows:
<TABLE>
<CAPTION>
AMOUNT OF DIVIDEND
------------------------------------------
AGGREGATE
MONTH OF DECLARATION PAYMENT MONTH PER SHARE DOLLARS IN MILLIONS
- -------------------- ------------- --------- -------------------
<S> <C> <C> <C>
December 1994 January 1995 $ .10 $ 2.5
March 1995 April 1995 .11 2.8
June 1995 July 1995 .11 2.8
September 1995 October 1995 .11 2.8
December 1995 January 1996 .11 2.8
March 1996 April 1996 .11 2.8
June 1996 July 1996 .11 2.8
September 1996 October 1996 .12 3.0
</TABLE>
CASH FLOWS
Net cash provided by operating activities decreased to $225.8 million
for the nine months ended September 30, 1996 from $291.2 million for the nine
months ended September 30, 1995. This decrease was generally attributable to
the timing of settlement of liabilities under reinsurance agreements and
benefit reserves.
Net cash used in investing activities decreased to $55.9 million for
the nine months ended September 30, 1996 from $510.8 million for the nine
months ended September 30, 1995. This was primarily due to the decrease in net
cash provided by financing activities as explained below. The Company has
increased its sales of available-for-sale securities over the prior year in
order to increase yield earned during the period of an increasing interest rate
environment. In May 1996 and April 1995, the Company exercised options to
purchase office buildings (one of which it had previously leased) located on
land owned by the Company adjacent to its headquarters building. The purchase
prices of $33.5 million and $21.8 million, respectively, were paid from
internally generated funds.
15
<PAGE> 18
Net cash used in financing activities aggregated $181.6 million for
the nine months ended September 30, 1996 compared to net cash provided by
financing activities of $212.9 million for the nine months ended September 30,
1995. This was primarily due to a decrease in receipts from universal life and
investment type contracts to $368.4 million for the nine months ended September
30, 1996 from $725.7 million for the nine months ended September 30, 1995 and
an increase in payments relating to universal life and investments type
contracts to $550.0 million for the nine months ended September 30, 1996 from
$496.5 million for the nine months ended September 30, 1995. The decrease in
net cash flows from universal life and investment-type contracts may be due, in
part, to the Company's announcement in March 1996 that it was selling its
Annuity Operations, as well as the Company's recent downgrades in ratings, as
discussed below.
Cash and cash equivalents increased to $87.9 million at September 30,
1996 from $51.7 million at September 30, 1995. This increase was due to the
Company accumulating cash and cash equivalents at September 30, 1996 in
anticipation of making payments on debt instruments and purchasing additional
bonds in October 1996.
The Company believes that operating cash flows, together with loan
repayments and investment maturities, are sufficient to meet anticipated
operating liquidity needs.
REINSURANCE RECEIVABLES
Receivables from reinsurers and investment deposits recoverable,
consisting primarily of contract holder liabilities transferred to reinsurers,
aggregated $985.2 million. Of the total, $775.7 million, or 78.7%, has been
placed in trusts. These trust agreements generally require that assets be
maintained at least equal to 100% of the underlying regulatory liabilities and
that the assets in trust be left on deposit with an independent trustee. The
Company generally requires that its reinsurers be rated "A (Excellent)" or
better by A.M. Best and Company ("A.M. Best").
Significant reinsurance recoverables due to the Company and premiums
ceded as of and for the nine months ended September 30, 1996 are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
PREMIUMS CEDED
RECOVERABLES FOR THE NINE
A. M. BEST ------------------------------- MONTHS ENDED
RATING PAID LOSSES UNPAID LOSSES SEPTEMBER 30, 1996
--------------- ----------- ------------- -------------------
<S> <C> <C> <C> <C>
London Life Insurance Company . . . . . . . . A++ (Superior) $ -- $73,748 $337,819
Mercantile & General Life Reassurance
Company . . . . . . . . . . . . . . . . . . A+ (Superior) 14,253 14,461 32,397
Transamerica Occidental Life Insurance
Company . . . . . . . . . . . . . . . . . . A+ (Superior) -- 49,165 225,213
</TABLE>
INVESTMENTS
The Company's investment portfolio is managed by its internal
investment professionals with the objectives of maintaining credit quality and
liquidity, maximizing current income within acceptable levels of risk,
minimizing interest rate exposure and matching the anticipated maturity of the
investments with the anticipated maturity of the liabilities they support. To
achieve a balancing of these objectives, the portfolio emphasizes investment
grade publicly traded debt securities and commercial and residential mortgages
meeting the Company's specific underwriting standards.
16
<PAGE> 19
The Company's investment portfolio at September 30, 1996 is summarized
in the table below (dollars in thousands):
<TABLE>
<CAPTION>
PERCENTAGE
OF TOTAL
CARRYING VALUE CARRYING VALUE
-------------- --------------
<S> <C> <C>
Held-to-maturity securities (1):
U.S. government and agency debt securities (2) . . . . . . $ 142,506 2.4%
Municipal debt securities . . . . . . . . . . . . . . . . . 22,889 0.4
Investment grade corporate debt securities . . . . . . . . 215,296 3.6
Non-investment grade corporate debt securities . . . . . . 1,721 --
Mortgage-backed debt securities (3) . . . . . . . . . . . . 153,560 2.6
Asset-backed debt securities . . . . . . . . . . . . . . . 118,660 2.0
---------- ------
Total held-to-maturity securities . . . . . . . . . . . . 654,632 11.0
---------- ------
Available-for-sale securities (4):
U.S. government and agency debt securities (2) . . . . . . 880,426 14.7
Municipal debt securities . . . . . . . . . . . . . . . . . 2,872 --
Debt securities issued by foreign governments (5) . . . . . 15,995 0.3
Investment grade corporate debt securities . . . . . . . . 1,330,052 22.2
Non-investment grade corporate debt securities . . . . . . 3,036 0.1
Mortgage-backed debt securities (3) . . . . . . . . . . . . 1,051,087 17.5
Asset-backed debt securities . . . . . . . . . . . . . . . 330,456 5.5
---------- ------
Total available-for-sale securities . . . . . . . . . . . 3,613,924 60.3
---------- ------
Trading account securities (6) . . . . . . . . . . . . . . . 5,489 0.1
Equity securities (7) . . . . . . . . . . . . . . . . . . . . 80,961 1.4
Commercial mortgages (8) . . . . . . . . . . . . . . . . . . 1,084,918 18.1
Residential mortgages (8) . . . . . . . . . . . . . . . . . . 416,115 6.9
Investment in real estate (9) . . . . . . . . . . . . . . . . 37,748 0.6
Real estate owned (10) . . . . . . . . . . . . . . . . . . . 9,281 0.1
Policy loans and other notes receivable (11) . . . . . . . . 84,911 1.4
Short-term investments (12) . . . . . . . . . . . . . . . . . 7,865 0.1
---------- ------
Total investments (13) . . . . . . . . . . . . . . . . . . $5,995,844 100.0%
========== =======
</TABLE>
- -----------------------
(1) Carried at amortized cost, adjusted for impairments in value which are
considered other than temporary. Total market value was approximately
$659,272,000, representing net unrealized investment gains of
approximately $4,640,000.
(2) Includes $768,650,000 of agency collateralized mortgage obligations.
(3) Includes $1,162,387,000 of non-agency and private placement
collateralized mortgage obligations.
(4) Carried at market value. Total amortized cost was approximately
$3,608,739,000, representing net unrealized investment gains of
approximately $5,185,000.
(5) Consist principally of Canadian provincial government bonds.
(6) Carried at market value. Total cost was approximately $5,438,000,
representing net unrealized investment gains of approximately $51,000.
(7) Carried at market value. Total cost was approximately $73,346,000,
representing net unrealized investment gains of approximately
$7,615,000.
(8) Carried at the unpaid principal balance less unamortized discounts, a
$7,956,000 valuation reserve and $10,892,000 in write-downs for
impairments in value, which are considered other than temporary.
(9) Real estate acquired as investment property is carried at cost less
accumulated depreciation of $1,684,000.
17
<PAGE> 20
(10) Acquired in satisfaction of debt. Carried at cost less allowances for
impairments in value which are considered other than temporary.
(11) Consist of policy, collateral loans and provider notes receivable.
(12) Carried at amortized cost, which approximates market value.
(13) Includes Annuity Operations invested assets of approximately $5.2
billion. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Discontinued Operations" for a
discussion of the proposed sale of the Annuity Operations.
The following table sets forth the composition of the Company's debt
securities portfolio by rating at September 30, 1996 (dollars in thousands):
<TABLE>
<CAPTION>
TRADING % OF TOTAL
HELD-TO-MATURITY AVAILABLE-FOR-SALE ACCOUNT TOTAL CARRYING
SECURITIES SECURITIES SECURITIES CARRYING VALUE VALUE
----------------- ------------------ ---------- -------------- ---------
<S> <C> <C> <C> <C> <C>
Rating (1)
- ---------------
AAA(2) . . . . . . . . . . . . . . $ 343,625 $2,154,513 $ 5,489 $2,503,627 58.6%
AA . . . . . . . . . . . . . . . . 78,661 406,521 -- 485,182 11.3
A . . . . . . . . . . . . . . . . . 175,154 780,843 -- 955,997 22.4
BBB . . . . . . . . . . . . . . . . 55,471 269,011 -- 324,482 7.6
--------- ---------- ------- ---------- -----
Total investment grade . . . . . 652,911 3,610,888 5,489 4,269,288 99.9
--------- ---------- ------- ---------- -----
BB . . . . . . . . . . . . . . . . -- -- -- -- --
B . . . . . . . . . . . . . . . . . -- -- -- -- --
Other . . . . . . . . . . . . . . . 1,721 3,036 -- 4,757 0.1
--------- ---------- ------- ---------- -----
Total non-investment grade . . . 1,721 3,036 -- 4,757 0.1
--------- ---------- ------- ---------- -----
Total . . . . . . . . . . . . . $ 654,632 $3,613,924 $ 5,489 $4,274,045 100.0%
========= ========== ======= ========== =====
</TABLE>
- -----------------------
(1) Debt securities are classified according to the lowest rating by a
nationally recognized statistical rating organization. Debt securities not
rated by any such organization are classified according to the rating
assigned to them by the NAIC as follows: NAIC class 1 is considered
equivalent to an A or higher rating; class 2, BBB; class 3, BB; and classes
4-6, B and below.
(2) Includes approximately $1,028,421,000 of U.S. government and agency debt
securities.
Commercial and residential mortgages comprised 25.0% of the Company's
invested assets at September 30, 1996. Mortgage loans are diversified as to
property type, location and loan size, and are collateralized by the related
properties. At September 30, 1996, mortgages more than 30 days delinquent
accounted for 0.8% of the carrying value of the Company's mortgage portfolio of
$1,501.0 million and, together with real estate owned by the Company, accounted
for 0.3% of the carrying value of the Company's total investment portfolio.
18
<PAGE> 21
The following table sets forth information regarding the Company's
delinquent and other problem mortgage loans as of September 30, 1996 (dollars
in thousands):
<TABLE>
<CAPTION>
COMMERCIAL RESIDENTIAL TOTAL
---------- ----------- -----
<S> <C> <C> <C>
Delinquent 31 days or more:
In non-accrual status(1) . . . . . . . . . . . . . . . . . . $ 7,932 $1,236 $ 9,168
Other . . . . . . . . . . . . . . . . . . . . . . . 1,367 1,061 2,428
------- ------ -------
Total delinquent . . . . . . . . . . . . . . . . . . . . . 9,299 2,297 11,596
Restructured on other than market terms(2) . . . . . . . . . . 36,388 -- 36,388
------- ------ -------
Delinquent and other problem loans . . . . . . . . . . . . . . $45,687 $2,297 $47,984
======= ====== =======
Delinquent and other problem loans as a percentage of
loans outstanding at September 30, 1996 . . . . . . . . . . . 4.2% 0.6% 3.2%
</TABLE>
- ----------------------------------
(1) The Company continues to accrue interest payments on mortgage loans which
are up to 90 days contractually past due as to principal or interest.
After such 90-day period, no additional interest is accrued. For mortgage
loans which are in process of foreclosure, all accrued interest is reduced
to zero.
(2) Excludes loans in this category included in delinquency totals.
CURRENT TRENDS AND DEVELOPMENTS
The Company has continued its strategy to strengthen its managed care
networks and products. This strategy is designed to reduce the risks created
in its marketplace by healthcare reforms and changing patterns of behavior by
providers while offering customers attractive, high quality, affordable
products. In this pursuit, the Company has been designing benefit plans that
are more easily understood and administered by providers and which steer
customers into selected provider networks. The strategy has resulted in the
development of a new product which is anticipated to be introduced into the
marketplace beginning in the second quarter of 1997 and fully implemented by
the end of 1997. The new product will be targeted to specific geographic
locations and will focus on improving the ability of providers to work with the
product. Although there can be no assurance as to the success of this new
product in the competitive healthcare industry, it has been designed to be more
attractive to providers and customers, thereby leading to increased demand in
the marketplace and increased sales. In addition, the Company is enhancing
provider incentives and risk-sharing programs that encourage and reward
networks for effective medical cost management. It is anticipated that the
cost of implementing this strategy will result in an increase in the group
gross expense ratio over the next several quarters and possibly thereafter.
In April 1995, A.M. Best completed its annual review of JALIC and
assigned it a rating of "A (Excellent)". JALIC had previously been rated "A+
(Superior)". In October 1995, Standard & Poor's Rating Group ("S&P") assigned
JALIC a claims-paying ability rating of "A (Good)". JALIC had previously been
assigned a rating of "A+ (Good)". In November 1995, Moody's Investors Service
assigned JALIC and JANY initial insurance financial strength ratings of "A3".
On March 7, 1996, S&P lowered JALIC's "A (Good)" claims-paying ability rating
to "BBB+" and placed JANY's "A (Good)" claims-paying ability rating on "Credit
Watch with Developing Implications," meaning that JANY's rating could be raised
or lowered in connection with the potential sale of the Company's Annuity
Operations. S&P stated that if that sale does not occur, JANY's rating will be
downgraded to reflect JALIC's current rating. On March 11, 1996, A.M. Best
lowered JALIC's and JANY's "A (Excellent)" ratings to "A-(Excellent)" and has
placed such ratings under "Review with Developing Implications" pending further
discussions with the Company. The Company believes that these actions may
materially adversely affect future sales of the Company's products and
surrenders in the Company's Annuity Operations. Although the
19
<PAGE> 22
Company cannot predict the ultimate effect of these actions, it is possible
that they could have a material adverse effect on the Company's financial
position, results of operations, cash flows and liquidity.
On March 27, 1996, the Board of Directors of the Company authorized
the sale of its Annuity Operations and the Western Diversified Group as part of
a plan to focus on its core product lines. The Annuity Operations includes
substantially all of the annuity business of JALIC and all of the business of
JANY. JANY primarily markets annuity products in the State of New York, as
well as certain individual life insurance products. The Western Diversified
Group markets credit life and disability and retail service warranty coverage,
primarily through automobile dealers. The Company anticipates that the
potential sales of these businesses will occur within one year from the above
date and that the formal process of disposing of these separate segments will
result in a net gain. Such sales will be subject to applicable regulatory
approvals. There can be no assurance that such sales will occur.
On November 13, 1996, the Company entered into a non-binding letter of
intent with SunAmerica, Inc. relating to the sale of all the common stock of
JANY and the reinsurance of substantially all of the annuity business of JALIC.
The Company is proceeding to finalize the definitive agreement.
Although the Company's medical loss ratio has generally been higher in
the fourth quarter than the other quarters of the year, the Company has
recently recognized an increase in this disparity. The Company cannot predict
the extent to which this disparity may increase or decrease in the future.
As discussed above, the Company is anticipating the sale of its
Annuity Operations. Such operations have generally resulted in fairly stable
earnings per share, which has had the effect of reducing the volatility in the
Company's earnings per share caused by fluctuations in the gross group medical
loss ratio. The Company believes, therefore, that the relative volatility of
the earnings per share may increase following the proposed sale of the Annuity
Operations.
20
<PAGE> 23
PART II: OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company is involved in various legal proceedings incidental to the
conduct of its business. While it is not possible to determine the ultimate
disposition of each of these proceedings, the Company believes that the
ultimate disposition of such proceedings, individually and in the aggregate
(including the lawsuit discussed below), will not have a material adverse
effect on the Company's financial position, results of operations or cash
flows.
During the period of April 1995 through May 1995, the Company and
certain of its officers and directors were named as defendants in a series of
putative class actions alleging violations of the federal securities laws. The
actions, all of which were filed in the United States District Court for the
Southern District of Florida (the "Court"), have been consolidated. In October
1995, the plaintiffs filed a Consolidated Amended Complaint purportedly on
behalf of a class of persons who purchased the Company's common stock, par
value $.01 per share (the "Common Stock") during the period of October 27, 1994
through May 3, 1995 seeking unspecified damages, fees, costs and interest. The
first of the original complaints was filed after the Company revised its
previously announced earnings for the fourth quarter of 1994 to reflect an
unanticipated increase in claims received in 1995 for medical services rendered
in 1994. The remainder of the original complaints were filed after the Company
increased reserves during the first quarter of 1995 to reflect a further
increase in such claims. On September 30, 1996, the Court denied the
defendants motion to dismiss the Consolidated Amended Complaint and the Court
certified a class of those persons who purchased the Company's Common Stock
during the period between October 27, 1994 through May 3, 1995. Discovery in
this lawsuit is ongoing. The Company and individual defendants deny any
wrongdoing, believe they have meritorious defenses against the claims asserted,
and intend to vigorously defend the lawsuit.
21
<PAGE> 24
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3. Amended and restated By-Laws of the Company, dated as of
September 12, 1996.
27. Financial Data Schedule
(b) Reports on Form 8-K
None
22
<PAGE> 25
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed by the undersigned
thereunto duly authorized.
JOHN ALDEN FINANCIAL CORPORATION
Date: November 12, 1996 By: /s/ Scott L. Stanton
--------------------------------
Scott L. Stanton
Senior Vice President and
Chief Financial Officer
23
<PAGE> 26
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description Page No.
- ----------- ----------- --------
<S> <C> <C>
3 Amended and restated By-Laws of the 25
Company, dated as of September 12, 1996.
27 Financial Data Schedule 49
</TABLE>
24
<PAGE> 1
BY-LAWS
OF
JOHN ALDEN FINANCIAL CORPORATION
A DELAWARE CORPORATION
DATE OF ADOPTION: MARCH 20, 1987
DATES OF AMENDMENT: OCTOBER 30, 1987
MAY 17, 1995
SEPTEMBER 12, 1996
<PAGE> 2
DELAWARE BY-LAWS
OF
JOHN ALDEN FINANCIAL CORPORATION
ARTICLE I
OFFICES
Section 1. Registered Office. The registered office of the
Corporation required by the General Corporation Law of the State of Delaware to
be maintained in the State of Delaware, shall be the registered office named in
the original Certificate of Incorporation of the Corporation, or such other
office as may be designated from time to time by the Board of Directors in the
manner provided by law. Should the Corporation maintain a principal office
within the State of Delaware such registered office need not be identical to
such principal office of the Corporation.
Section 2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
STOCKHOLDERS
Section 1. Place of Meetings. All meetings of the stockholders shall
be held at the principal office of the Corporation, or at such other place
within or without the State of Delaware as shall be specified or fixed in the
notices or waivers of notice thereof.
1
<PAGE> 3
Section. 2. Quorum; Adjournment of Meetings. Unless otherwise
required by law or provided in the Certificate of Incorporation or these
bylaws, the holders of a majority of the stock issued and outstanding and
entitled to vote there-at, present in person or represented by proxy, shall
constitute a quorum at any meeting of stockholders for the transaction of
business and the act of a majority of such stock so represented at any meeting
of stockholders at which a quorum is present shall constitute the act of the
meeting of stockholders. The chairman of the meeting or a majority of the
shares so represented may adjourn the meeting from time to time, whether or not
there is such a quorum. No notice of the time and place of adjourned meetings
need be given except as required by law. The stockholders present at a duly
organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum.
Section 3. Annual Meetings. An annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before the meeting shall be held on such date as the Board of
Directors may from time to time determine.
Section 4. Special Meetings. Unless otherwise provided in the
Certificate of Incorporation, special meetings of the stockholders may be
called only by the Chairman of the Board or by the Board of Directors pursuant
to a resolution adopted by a majority of the total number of directors which
the Corporation would have if there were no vacancies (the "Whole Board").
Section 5. Notice of Meeting. Written notice of the place, date and
hour of all meetings, and, in the case of a special meeting, the purpose or
purposes for which the meeting is called shall be given by or at the direction
of the Chairman of the Board (if any) or the President, the Secretary or the
other person(s) calling the meeting to each stockholder entitled to vote
thereat no less than ten (10) nor more than sixty (60) days before the date of
the meeting. Such notice may be delivered either personally or by mail. If
mailed, notice is given when deposited in the United States mail, postage
prepaid, directed to the stockholder at his address as it appears on the
records of the Corporation.
2
<PAGE> 4
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting pursuant to the
Corporation's notice of meeting. Meetings may be held without notice if all
stockholders entitled to vote are present, or if notice is waived by those not
present in accordance with Article VII, Section 3 of these By-laws. Any
previously scheduled meeting of the stockholders may be postponed, and (unless
the Certificate of Incorporation otherwise provides) any special meeting of the
stockholders may be cancelled, by resolution of the Board of Directors upon
public notice given prior to the date previously scheduled for such meeting of
stockholders.
Section 6. Stock List. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the number
of shares registered in the name of such stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or if not so
specified, at the place where the meeting is to be held. The stock list shall
also be produced and kept at the time and place of the meeting during the whole
time thereof, and may be inspected by any stockholder who is present.
Section 7. Proxies. Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to a corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy. Proxies for use at any meeting of stockholders shall be filed with the
Secretary, or such other officer as the Board of directors may from time to
time determine by resolution, before or at the time of the meeting. All
proxies shall be received and taken charge of and all ballots shall be received
and canvassed by the secretary of the meeting who shall decide all questions
touching upon the qualification of voters, the validity of the proxies, and the
acceptance or rejection of votes, unless an inspector or inspectors shall have
been appointed by the chairman of the meeting, in which event such inspector or
inspectors shall decide all such questions.
3
<PAGE> 5
No proxy shall be valid after three (3) years from its date, unless
the proxy provides for a longer period. Each proxy shall be revocable unless
expressly provided therein to be irrevocable and coupled with an interest
sufficient in law to support an irrevocable power.
Section 8. Notice of Stockholder Business and Nominations.
(A) Annual Meetings of Stockholders.
(1) Nominations of persons for election to the Board of
Directors of the Corporation and the proposal of
business to be considered by the stockholders may be
made at an annual meeting of stockholders
(a) pursuant to the Corporation's notice of
meeting,
(b) by or at the direction of the Board of
Directors or
(c) by any stockholder of the Corporation who was
a stockholder of record at the time of giving
of notice provided for in this By-law, who is
entitled to vote at the meeting and who
complies with the notice procedures set forth
in this By-law.
(2) For nominations or other business to be properly brought
before an annual meeting by a stockholder pursuant to
clause (c) of paragraph (A)(1) of this By-law, the
stockholder must have given timely notice thereof in
writing of the Secretary of the Corporation and such other
business must otherwise be a proper matter for stockholder
action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive
officers of the Corporation not later than the close of
business on the 60th day nor earlier than the close of
business on the 90th day prior to the first anniversary of
the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is
more than 30 days before or more than 60 days after such
anniversary date, notice by
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the stockholder to be timely must be so delivered not
earlier than the close of business on the 90th day prior
to such annual meeting and not later than the close of
business on the later of the 60th day prior to such annual
meeting or the 10th day following the day on which public
announcement of the date of such meeting is first made by
the Corporation. In no event shall the public
announcement of an adjournment of an annual meeting
commence a new time period for the giving of a
stockholder's notice as described above. Such
stockholder's notice shall set forth:
(a) as to each person whom the stockholder proposes to
nominate for election or re-election as a director
all information relating to such person that is
required to be disclosed in solicitations of proxies
for election of directors in an election contest, or
is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act") and Rule
14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a
nominee and to serving as a director if elected);
(b) as to any other business that the stockholder
proposes to bring before the meeting, a brief
description of the business desired to be brought
before the meeting, the reasons for conducting such
business at the meeting and any material interest in
such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made;
and
(c) as to the stockholder giving the notice and the
beneficial owner, if any, on whose behalf the
nomination or proposal is made
(i) the name and address of such stockholder,
as they appear on the Corporation's books,
and of such beneficial owner and
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(ii) the class and number of shares of the
Corporation which are owned beneficially
and of record by such stockholder and such
beneficial owner.
(3) Notwithstanding anything in the second sentence of
paragraph (A)(2) of this By-law to the contrary, in the
event that the number of directors to be elected to the
Board of Directors of the Corporation is increased and
there is no public announcement by the Corporation naming
all of the nominees for director or specifying the size of
the increased Board of Directors at least 70 days prior to
the first anniversary of the preceding year's annual
meeting, a stockholder's notice required by this By-law
shall also be considered timely, but only with respect to
nominees for any new positions created by such increase,
if it shall be delivered to the Secretary at the principal
executive offices of the Corporation not later than the
close of business on the 10th day following the day on
which such public announcement is first made by the
Corporation.
(B) Special Meetings of Stockholders.
Only such business shall be conducted at a special meeting of
stockholders as shall have been brought before the meeting
pursuant to the Corporation's notice of meeting. Nominations
of persons for election to the Board of Directors may be made
at a special meeting of stockholders at which directors are to
be elected pursuant to the Corporation's notice of meeting
(a) by or at the direction of the board of Directors or
(b) provided that the Board of Directors has determined that
directors shall be elected at such meeting, by any
stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in
this By-law, who shall be entitled to vote at the meeting
and who complies with the notice procedures set forth in
this
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By-law. In the event the Corporation calls a special
meeting of stockholders for the purpose of electing one or
more directors to the board of Directors, any such
stockholder may nominate a person or persons (as the case
may be), for election to such position(s) as specified in
the Corporation's notice of meeting, if the stockholder's
notice required by paragraph (A)(2) of this By-law shall
be delivered to the Secretary at the principal executive
offices of the Corporation not earlier than the close of
business on the 90th day prior to such special meeting and
not later than the close of business on the later of the
60th day prior to such special meeting or the 10th day
following the day on which public announcement is first
made of the date of the special meeting and of the
nominees proposed by the Board of Directors to be elected
at such meeting. In no event shall the public
announcement of an adjournment of a special meeting
commence a new time period for the giving of a
stockholder's notice as described above.
(C) General.
(1) Only such persons who are nominated in accordance with the
procedures set forth in this By-law shall be eligible to
serve as directors and only such business shall be
conducted at a meeting of stockholders as shall have been
brought before the meeting in accordance with the
procedures set forth in this By-law. Except as otherwise
provided by law, the Certificate of Incorporation or these
By-Laws, the chairman of the meeting shall have the power
and duty to determine whether a nomination or any business
proposed to be brought before the meeting was made or
proposed, as the case may be, in accordance with the
procedures set forth in this By-law and, if any proposed
nomination or business is not in compliance with this
By-law, to declare that such defective proposal or
nomination shall be disregarded.
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(2) For purposes of this By-law, "public announcement" shall
mean disclosure in a press release reported by the Dow
Jones News Service, Associated Press or comparable
national news service or in a document publicly filed by
the Corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the
Exchange Act.
(3) Notwithstanding the foregoing provisions of this by-law, a
stockholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set
forth in this By-law. Nothing in this By-law shall be
deemed to affect any rights
(i) of stockholders to request inclusion of proposals in
the Corporation's proxy statement pursuant to Rule
14a-8 under the Exchange Act or
(ii) of the holders of any series of Preferred Stock to
elect directors under specified circumstances.
Section 9. Procedures for Election of Directors; Inspectors of
Elections; Opening and Closing the Polls. Election of directors at all meeting
of the stockholders at which directors are to be elected shall be by ballot,
and, subject to the rights of the holders of any series of Preferred Stock to
elect directors under specified circumstances, a plurality of the votes cast
thereat shall elect directors.
The Board of Directors by resolution shall appoint one or more
inspectors, which inspector or inspectors may include individuals who serve the
Corporation in other capacities, including, without limitation, as officers,
employees, agents or representatives, to act at the meeting of stockholders and
make a written report thereof. One or more persons may be designated as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate has been appointed to act or is able to act at a meeting
of stockholders, the chairman of the meeting shall appoint one or more
inspectors to act at the meeting. Each inspector, before discharging his or
her duties, shall take and sign an oath faithfully to execute the duties of
inspector with
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strict impartiality and according to the best of his or her ability. The
inspector shall have the duties prescribed by law.
The chairman of the meeting shall fix and announce at the meeting the
date and time of the opening and the closing of the polls for each matter upon
which the stockholders will vote at a meeting.
Section 10. Conduct of Meetings. The meetings of the stockholders
shall be presided over by the Chairman of the Board (if any), or if he not
present, by the President, or if neither the Chairman of the board (if any),
nor President is present, by a chairman elected at the meeting. The Secretary
of the Corporation, if present, shall act as secretary of such meeting, or if
he is not present, an Assistant Secretary shall so act; if neither the
Secretary nor an Assistant Secretary is present, then a secretary shall be
appointed by the chairman of the meeting. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seems to him in order. Unless the chairman of the meeting of
stockholders shall otherwise determine, the order of business shall be as
follows:
(a) Calling of meeting to order.
(b) Election of a chairman and the appointment of a secretary if
necessary.
(c) Presentation of proof of the due calling of the meeting.
(d) Presentation and examination of proxies and determination of a
quorum.
(e) Reading and settlement of the minutes of the previous meeting.
(f) Reports of officers and committees.
(g) The election of directors if any annual meeting, or a meeting
called for that purpose.
(h) Unfinished business.
(i) New business.
(j) Adjournment.
Section 11. Treasury Stock. The Corporation shall not vote, directly
or indirectly, shares of its own stock owned by it and such shares shall not be
counted for quorum purposes.
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Section 12. Action Without Meeting. Unless otherwise provided in the
Certificate of Incorporation, any action permitted or required by law, the
Certificate of Incorporation or these bylaws to be taken at a meeting of
stockholders, may be taken without a meeting, without prior notice and without
a vote, if a consent in writing, setting forth the action so taken, shall be
signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Prompt notice of the taking of the corporate action without a meeting by less
than a unanimous written consent shall be given by the Secretary to those
stockholders who have not consented in writing.
Section 13. Record Date for Action by Written Consent. In order that
the Corporation may determine the stockholders entitled to consent to corporate
action writing without a meeting, the Board of Directors may fix a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which date shall not
be more than 10 days after the date upon which the resolution fixing the record
date is adopted by the Board of Directors. Any stockholder of record seeking
to have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board of Directors to
fix a record date. The Board of Directors shall promptly, but in all events
within 10 days after the date on which such a request is received, adopt a
resolution fixing the record date. If no record date has been fixed by the
Board of Directors within 10 days of the date on which such a request is
received, the record date for determining stockholders entitled to consent to
corporate action in writing without a meeting, when no prior action by the
Board of Directors is required by applicable law, shall be the first date on
which a signed written consent setting forth the action taken or proposed to be
taken is delivered to the Corporation by delivery to its registered office in
Delaware, its principal place of business or to any officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the Corporation's registered
office shall be by hand or by certified or registered mail, return receipt
requested. If no record date has been fixed by the Board of Directors and
prior action by the Board of Directors is required by applicable law, the
record date for determining stockholders entitled to consent to corporate
action in writing without a meeting shall be at the close of
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business on the date on which the Board of Directors adopts the resolution
taking such prior action.
Section 14. Inspectors of Written Consent. In the event of the
delivery, in the manner provided by Article II, Section 13 of these By-laws, to
the Corporation of the requisite written consent or consents to take corporate
action and/or any related revocation or revocations, the Corporation shall
engage nationally recognized independent inspectors of elections for the
purpose of promptly performing a ministerial review of the validity of the
consents and revocations. For the purpose of permitting the inspectors to
perform such review, no action by written consent without a meeting shall be
effective until such date as the independent inspectors certify to the
Corporation that the consents delivered to the Corporation in accordance with
Article II, Section 13 of these By-laws represent at least the minimum number
of votes that would be necessary to take the corporate action. Nothing
contained in this paragraph shall in any way be construed to suggest or imply
that the board of Directors or any stockholder shall not be entitled to contest
the validity of any consent or revocation thereof, whether before or after such
certification by the independent inspectors, or to take any other action
(including, without limitation, the commencement, prosecution or defense of any
litigation with respect thereto, and the seeking of injunctive relief in such
litigation).
Section 15. Effectiveness of Written Consent. Every written consent
shall bear the date of signature of each stockholder who signs the consent and
no written consent shall be effective to take the corporate action referred to
therein unless, within 60 days of the date the earliest dated written consent
was received in accordance with Article II, Section 13 of these By-laws, a
written consent or consents signed by a sufficient number of holders to take
such action are delivered to the Corporation in the manner prescribed in
Article II, Section 13 of these By-laws.
Section 16. Stock Ledger. The stock ledger of the Corporation shall
be the only evidence as to who are the stockholders entitled to examine the
stock ledger, the list required by Section 7 of this Article II or the books of
the Corporation, or to vote in person or by proxy at any meeting of
stockholders.
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ARTICLE III
BOARD OF DIRECTORS
Section 1. Power; Number; Term of Office. The business and affairs
of the Corporation shall be managed by or under the direction of the Board of
Directors, and, subject to the restrictions imposed by law or the Certificate
of Incorporation, they may exercise all the powers of the Corporation.
The number of directors which shall constitute the whole Board of
Directors shall be determined from time to time by resolution of the Board of
Directors (provided that no decrease in the number of directors which would
have the effect of shortening the term of an incumbent director may be made by
the Board of Directors). If the Board of Directors makes no such
determination, the number of directors shall be the number set forth in the
Certificate of Incorporation. Each director shall hold office for the term for
which he is elected, and until his successor shall have been elected and
qualified, or until his earlier death, resignation or removal.
Unless otherwise provided in the Certificate of Incorporation,
directors need not be stockholders nor residents of the State of Delaware.
Section 2. Quorum. Unless otherwise provided in the Certificate of
Incorporation, the presence in person of a majority of the total number of
directors shall constitute a quorum for the transaction of business of the
Board of Directors and the vote of a majority of the directors present at a
meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 3. Place of Meetings; Order of Business. The directors may
hold their meetings and may have an office and keep the books of the
Corporation, except as otherwise provided by law, in such place or places,
within or without the State of Delaware, as the Board of Directors may from
time to time determine by resolution. At all meetings of the Board of
Directors business shall be transacted in such order as shall from time to time
be determined by the Chairman of the board (if any), or in his absence by the
President, or by resolution of the Board of Directors.
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Section 4. First Meeting. Each newly elected Board of Directors may
hold its first meeting for the purpose of organization and the transaction of
business, if a quorum is present immediately after and at the same place as the
annual meeting of the stockholders. Notice of such meeting shall not be
required. At the first meeting of the Board of Directors in each year at which
a quorum shall be present, held next after the annual meeting of stockholders,
the Board of Directors shall proceed to the election of the officers of the
Corporation.
Section 5. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such times (at least quarterly) and places as shall
be designated from time to time by resolution of the Board of Directors.
Notice of such regular meetings shall not be required.
Section 6. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board (if any), the President
or, on the written request of any two directors, by the Secretary, in each case
on at least twenty-four (24) hours personal written, telegraphic cable or
wireless notice to each director. Such notice, or any waiver thereof pursuant
to Article VII, Section 3 hereof, need not state the purpose or purposes of
such meeting, except as may otherwise be required by law or provided for in the
Certificate of Incorporation or these bylaws.
Section 7. Removal. Subject to the rights of the holders of any
series of Preferred Stock with respect to such series of Preferred Stock, any
director, or the entire Board of Directors, may be removed from office at any
time, but only for cause and only by the affirmative vote of the holders of a
majority of the outstanding shares then entitled to vote at an election of
directors, voting together as a single class.
Section 8. Vacancies; Increases in the Number of Directors. Unless
otherwise provided in the Certificates of Incorporation, vacancies and newly
created directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office, although
less than a quorum, or a sole remaining director; and any director so chosen
shall hold office until the next annual election and until his successor shall
be duly elected and shall qualify, or until his earlier death, resignation or
removal.
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If the directors of the Corporation are divided into classes, any
directors elected to fill vacancies or newly created directorships shall hold
office until the next election of the class for which such directors shall have
been chosen, and until their successors shall be duly elected and shall
qualify.
Section 9. Compensation. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority
to fix the compensation of directors. No such compensation shall preclude any
director from serving the Corporation in any other capacity and receiving other
compensation therefor. Members of special or standing committee may be allowed
further compensation for attending committee meetings.
Section 10. Actions Without a Meeting Telephone Conference Meeting.
Unless otherwise restricted by the Certificate of Incorporation, any action
required or permitted to be taken at any meeting of the Board of Directors, or
any committee designated by the Board of Directors, may be taken without a
meeting if all members of the Board of Directors or committee, as the case may
be consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or committee. Such consent
shall have the same force and effect as a unanimous vote at a meeting, and may
be stated as such in any document or instrument filed with the Secretary of
State of Delaware.
Unless otherwise restricted by the Certificate of Incorporation,
subject to the requirements for notice of meetings, members of the Board of
Directors, or members of any committee designated by the Board of Directors,
may participate in a meeting of such Board of Directors or committee, as the
case may be, by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such a meeting shall constitute presence in
person at such Meeting, except where a person participates in the meeting for
the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
Section 11. (Intentionally Deleted).
Section 12. (Intentionally Deleted).
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ARTICLE IV
COMMITTEES
Section 1. Designation; Powers. The Board of Directors may, by
resolution passed by a majority of the whole board, designate one or more
committees, including without limitation, if they shall so determine, an
executive committee, each such committee to consist of one or more of the
directors of the Corporation. Any such designated committee shall have and may
exercise such of the powers and authority of the Board of Directors in the
management of the business and affairs of the Corporation as may be provided in
such resolution, except that no such committee shall have the power or
authority of the Board of Directors in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending
to the stockholders the sale, lease or exchange of all or substantially all of
the Corporation's property and assets, recommending to the stockholders a
dissolution of the Corporation, or amending, altering or repealing the bylaws
or adopting new bylaws for the Corporation and, unless such resolution or the
Certificate of Incorporation expressly so provides, no such committee shall
have the power or authority to declare a dividend or to authorize the issuance
of stock. Any such designated committee may authorize the seal of the
Corporation to be affixed to all papers which may require it. In addition to
the above such committee or committees shall have such other powers and
limitations of authority as may be determined from time to time by resolution
adopted by the Board of Directors. The Board of Directors shall at all times
maintain an Audit Committee, a Compensation Committee and an Investment Policy
Committee, each such committee to consist of one or more directors as the Board
of Directors shall designate by resolution passed by a majority of the whole
board.
Section 2. Procedure; Meetings; Quorum. Any committee
designated pursuant to Section 1 of this Article shall choose its own chairman,
shall keep regular minutes of its proceedings and report the same to the Board
of Directors when requested, shall fix its own rules or procedures, and shall
meet at such times and at such place or places as may be provided by such
rules, or by resolution of such
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committee or resolution of the Board of Directors. At every meeting of any
such committee, the presence of a majority of all the members thereof shall
constitute a quorum and the affirmative vote of a majority of the members
present shall be necessary for the adoption by it of any resolution.
Section 3. Substitution of Members. The Board of Directors may
designate one or more directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of such committee. In
the absence or disqualification of a member of a committee, the member or
members present at any meeting and not disqualified from voting, whether or not
constituting a quorum, may unanimously appoint another member of the Board of
Directors to act at the meeting in the place of the absent or disqualified
member.
ARTICLE V
OFFICERS
Section 1. Number, Titles and Term of Office. The officers of
the Corporation shall be a President, one or more Vice-Presidents (any one or
more of whom may be designated Executive Vice President or Senior Vice
President), a Treasurer, a Secretary and, if the Board of Directors so elects,
a Chairman of the Board and such other officers as the Board of Directors may
from time to time elect or appoint. Each officer shall hold office until his
successor shall be duly elected and shall qualify or until his death or until
he shall resign or shall have been removed in the manner hereinafter provided.
Any number of offices may be held by the same person, unless the Certificate of
Incorporation provides otherwise. Except for the Chairman of the Board, if
any, no officer need be a director.
Section 2. Salaries. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors.
Section 3. Removal. Any officer or agent elected or appointed
by the Board of Directors may be removed, either with or without cause, by the
vote of a majority of the whole Board of Directors at a special meeting called
for the purpose, or at any regular meeting of the Board of Directors, provided
the notice for such meeting shall
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specify that the matter of any such proposed removal will be considered at the
meeting but such removal shall be without prejudice to the contract rights, if
any, of the person so removed. Election or appointment of an officer or agent
shall not of itself create contract rights.
Section 4. Vacancies. Any vacancy occurring in any office of
the Corporation may be filled by the Board of Directors.
Section 5. Powers and Duties of the Chief Executive Officer.
The President shall be the Chief Executive Officer of the Corporation unless
the Board of Directors designates the Chairman of the Board as Chief Executive
Officer. Subject to the control of the Board of Directors and the executive
committee (if any), the Chief Executive Officer shall have general executive
charge, management and control of the properties, business and operations of
the Corporation with all powers as may be reasonably incident to such
responsibilities; he may agree upon and execute all leases, contracts,
evidences of indebtedness and other obligations in the name of the Corporation
and may sign all certificates for shares of capital stock of the Corporation;
and shall have such other powers and duties as designated in accordance with
these bylaws and as from time to time may be assigned to him by the Board of
Directors.
Section 6. Powers and Duties of the Chairman of the Board. If
elected, the Chairman of the Board shall preside at all meetings of the
stockholders and of the Board of Directors; and he shall have such other powers
and duties ad designated in these bylaws and as from time to time may be
assigned to him by the Board of Directors.
Section 7. Powers and Duties of the President. Unless the Board
of Directors otherwise determines, the President shall have the authority to
agree upon and execute all leases, contracts, evidences of indebtedness and
other obligations in the name of the Corporation; and, unless the Board of
Directors otherwise determines, he shall, in the absence of the Chairman of the
Board or if there is no Chairman of the Board, preside at all meetings of the
stockholders and (should he be a director) of the Board of Directors; and he
shall have such other powers and duties as designated in
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accordance with these bylaws and as from time to time may be assigned to him by
the Board of Directors.
Section 8. Vice Presidents. In the absence of the President, or
in the event of his inability or refusal to act, a Vice President designated by
the Board of Directors shall perform the duties of the President, and when so
acting shall have all the powers of an be subject to all the restrictions upon
the President. In the absence of a designation by the Board of Directors of a
Vice President to perform the duties of the President, or in the event of his
absence or inability or refusal to act, the Vice President who is present and
who is senior in terms of time as a Vice President of the Corporation shall so
act. The Vice Presidents shall perform such other duties and have such other
powers as the Board of Directors may from time to time prescribe.
Section 9. Treasurer. The Treasurer shall have responsibility
for the custody and control of all the funds and securities of the Corporation,
and he shall have such other powers and duties as designated in these bylaws
and as from time to time may be assigned to him by the Board of Directors. He
shall perform all acts incident to the position of Treasurer, subject to the
control of the Chief Executive Officer and the Board of Directors; and he
shall, if required by the Board of Directors, give such bond for the faithful
discharge of his duties in such form as the Board of Directors may require.
Section 10. Assistant Treasurers. Each Assistant Treasurer shall
have the usual powers and duties pertaining to his office, together with such
other powers and duties as designated in these bylaws and as from time to time
may be assigned to him by the Chief Executive Officer or the Board of
Directors. The Assistant Treasurers shall exercise the powers of the Treasurer
during that officer's absence or inability or refusal to act.
Section 11. Secretary. The Secretary shall keep the minutes of
all meetings of the Board of Directors, committees of directors and the
stockholders, in books provided for that purpose; he shall attend to the giving
and serving of all notices; he may in the name of the Corporation affix the
seal of the Corporation to all contracts of the Corporation and attest the
affixation of the seal of the corporation thereto; he may
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sign with the other appointed officers all certificates for shares of capital
stock of the Corporation; he shall have charge of the certificate books,
transfer books and stock ledgers, and such other books and papers as the Board
of Directors may direct, all of which shall at all reasonable times be open to
inspection of any director upon application at the office of the Corporation
during business hours; he shall have such other powers and duties as designated
in these bylaws and as from time to time may be assigned to him by the Board of
Directors; and he shall in general perform all acts incident to the office of
Secretary, subject to the control of the Chief Executive Officer and the Board
of Directors.
Section 12. Assistant Secretaries. Each Assistant Secretary
shall have the usual powers and duties pertaining to his office, together with
such other powers and duties as designated in these bylaws and as from time to
time may be assigned to him by the Chief Executive Officer or the Board of
Directors. The Assistant Secretaries shall exercise the powers of the
Secretary during that officer's absence or inability or refusal to act.
Section 13. Action with Respect to Securities of Other
Corporations. Unless otherwise directed by the Board of Directors, the Chief
Executive Officer shall have power to vote and otherwise act on behalf of the
Corporation, in person or by proxy, at any meeting of security holders of or
with respect to any action of security holders of any other corporation in
which this Corporation may hold securities and otherwise exercise any and all
rights and powers which this Corporation may possess by reason of its ownership
of securities in such other corporation.
Section 14. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from
time to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other office of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
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ARTICLE VI
CAPITAL STOCK
Section 1. Certificates of Stock. The certificates for shares
of the capital stock of the Corporation shall be in such form, not inconsistent
with that required by law and the Certificate or Incorporation, as shall be
approved by the Board of Directors. The Chairman of the Board (if any),
President or a Vice President shall cause to be issued to each stockholder one
or more certificates, under the seal of the Corporation or a facsimile thereof
if the Board of Directors shall have provided for such seal, and signed by the
Chairman of the Board (if any), President or a Vice President and the Secretary
or an Assistant Secretary or the Treasurer or an Assistant Treasurer certifying
the number of shares (and, if the stock of the Corporation shall be divided
into classes or series, the class and series of such shares) owned by such
stockholder in the Corporation; provided, however, that any of or all the
signatures on the certificate may be facsimile. The stock record books and the
blank stock certificate books shall be kept by the Secretary, or at the office
of such transfer agent or transfer agents as the Board of Directors may from
time to time by resolution determine. In case any officer, transfer agent or
registrar who shall have signed or whose facsimile signature or signatures
shall have been placed upon any such certificate or certificates shall have
ceased to be such officer, transfer agent or registrar before such certificate
is issued by the Corporation, such certificate may nevertheless be issued by
the Corporation with the same effect as if such person were such officer,
transfer agent or registrar at the date of issue. The stock certificates shall
be consecutively numbered and shall be entered in the books of the Corporation
as they are issued and shall exhibit the holder's name and number of shares.
Section 2. Transfer of Shares. The shares of stock of the
Corporation shall be transferable only on the books of the Corporation by the
holders thereof in person or by their duly authorized attorneys or legal
representative upon surrender and cancellation of certificates for a like
number of shares. Upon surrender to the Corporation or a transfer agent of the
Corporation of a certificate for shares duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer, it shall be the
duty of the Corporation to issue a new certificate to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.
20
<PAGE> 22
Section 3. Ownership of Shares. The Corporation shall be
entitled to treat the holder of record of any share or shares of capital stock
of the Corporation as the holder in fact thereof and, accordingly, shall not be
bound to recognize any equitable or other claim to or interest in such share or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Delaware.
Section 4. Regulations Regarding Certificates. The Board of
Directors shall have the power and authority to make all such rules and
regulations as they may deem expedient concerning the issue, transfer and
registration or the replacement of certificates for shares of capital stock of
the Corporation.
Section 5. Lost or Destroyed Certificates. The Board of
Directors may determine the conditions upon which a new certificate of stock
may be issued in place of a certificate which is alleged to have been lost,
stolen or destroyed; and may, in their discretion, require the owner of such
certificate or his legal representative to give bond, with sufficient surety,
to indemnify the Corporation and each transfer agent and registrar against any
and all losses or claims which may arise by reason of the issue of a new
certificate in the place of the one so lost; stolen or destroyed.
ARTICLE VII
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Corporation
shall be such as established from time to time by the Board of Directors.
Section 2. Corporate Seal. The Board of Directors may provide a
suitable seal, containing the name of the Corporation. The Secretary shall
have charge of the seal (if any). If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Treasurer or by the Assistant Secretary or Assistant Treasurer.
21
<PAGE> 23
Section 3. Notice and Waiver of Notice. Whenever any notice is
required to be given by law, the Certificate of Incorporation or under the
provisions of these bylaws, said notice shall be deemed to be sufficient if
given (i) by telegraphic cable or wireless transmission or (ii) by deposit of
the same in a post office box in a sealed prepaid wrapper addressed to the
person entitled thereto at his post office address, as it appears on the
records of the Corporation, and such notice shall be deemed to have been given
on the day of such transmission or mailing, as the case may be.
Whenever notice is required to be given by law, the Certificate of
Incorporation or under any of the provisions of these bylaws, a written waiver
thereof, signed by the person entitled to notice, whether before or after the
time stated therein, shall be deemed equivalent to notice. Attendance of a
person at a meeting shall constitute a waiver of notice of such meeting, except
when the person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting was not lawfully called or convened. Neither the business to be
transacted at, nor the purpose of, any regular or special meeting of the
stockholders, directors, or members of a committee of directors need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or the bylaws.
Section 4. Resignations. Any director, member of a committee or
officer may resign at any time. Such resignation shall be made in writing and
shall take effect at the time specified therein, or if no time be specified, at
the time of its receipt by the Chief Executive Officer or Secretary. The
acceptance of a resignation shall not be necessary to make it effective, unless
expressly so provided in the resignation.
Section 5. Facsimile Signatures. In addition to the provisions
for the use of facsimile signatures elsewhere specifically authorized in these
bylaws, facsimile signatures of any officer or officers of the Corporation may
be used whenever and as authorized by the Board of Directors.
Section 6. Reliance upon Books, Reports and Records. Each
director and each member of any committee designated by the Board of Directors
shall, in the performance of his duties, be fully protected in relying in good
faith upon the books of account or reports made to the Corporation by any of
its officers, or by an independent
22
<PAGE> 24
certified public accountant, or by an appraiser selected with reasonable care
by the Board of Directors or by any such committee, or in relying in good faith
upon other records of the Corporation.
ARTICLE VIII
AMENDMENTS
These By-laws may be altered, amended, or repealed at any meeting of
the Board of Directors or of the stockholders, provided notice of the proposed
change was given in the notice of the meeting and, in the case of a meeting of
the Board of Directors, in a notice given not less than two days prior to the
meeting.
23
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