<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(MARK ONE)
[x]QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 1-10890
HORACE MANN EDUCATORS CORPORATION
(Exact name of registrant as specified in its charter)
DELAWARE 37-0911756
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1 Horace Mann Plaza, Springfield, Illinois 62715-0001
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: 217-789-2500
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ No _____
As of November 1, 1996, 23,525,331 shares of Common Stock, par value $0.001
per share, were outstanding, net of 5,588,098 shares of treasury stock.
Total of sequentially numbered pages 43.
Exhibit index on page number 22.
- --------------------------------------------------------------------------------
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<PAGE>
HORACE MANN EDUCATORS CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED SEPTEMBER 30, 1996
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1996 and December 31, 1995........... 1
Consolidated Statements of Operations for the
Three and Nine Months Ended September 30, 1996
and September 30, 1995............................. 2
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1996
and September 30, 1995............................. 3
Consolidated Statements of Cash Flows for the
Three and Nine Months Ended September 30, 1996
and September 30, 1995............................. 4
Notes to Consolidated Financial Statements.......... 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.............. 11
PART II - OTHER INFORMATION........................................ 19
Item 4. Submission of Matters to a Vote of Security Holders
Item 6. Exhibits and Reports on Form 8-K
SIGNATURES......................................................... 21
</TABLE>
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
SEPTEMBER 30, DECEMBER 31,
1996 1995
------------- ------------
<S> <C> <C>
ASSETS
Investments
Fixed maturities, available for
sale, at market (amortized cost,
1996, $2,595,686; 1995, $2,527,032).............. $2,614,742 $2,643,060
Mortgage loans and real estate.................... 51,443 77,895
Short-term investments............................ 26,768 34,983
Policy loans and other............................ 45,015 42,611
---------- ----------
Total investments............................ 2,737,968 2,798,549
Cash............................................... 12,027 9,518
Accrued investment income.......................... 40,604 43,215
Premiums receivable................................ 64,503 51,144
Value of acquired insurance in force and goodwill.. 121,343 129,843
Other assets....................................... 156,571 142,442
Variable annuity assets............................ 613,269 487,543
---------- ----------
Total assets................................. $3,746,285 $3,662,254
========== ==========
LIABILITIES, REDEEMABLE SECURITIES AND SHAREHOLDERS' EQUITY
Policy liabilities
Annuity contract liabilities...................... $1,282,588 $1,275,117
Interest-sensitive life contract liabilities...... 317,753 289,310
Unpaid claims and claim expenses.................. 368,957 385,064
Future policy benefits............................ 182,407 185,449
Unearned premiums................................. 154,489 141,105
---------- ----------
Total policy liabilities..................... 2,306,194 2,276,045
Other policyholder funds........................... 120,516 119,070
Other liabilities.................................. 105,338 133,855
Short-term debt.................................... 50,000 75,000
Long-term debt..................................... 99,555 100,000
Variable annuity liabilities....................... 613,269 487,543
---------- ----------
Total liabilities............................ 3,294,872 3,191,513
---------- ----------
Warrants, subject to redemption.................... 577 577
---------- ----------
Common stock....................................... 29 29
Additional paid-in capital......................... 327,255 323,920
Net unrealized gains on fixed
maturities and equity securities.................. 12,389 76,151
Retained earnings.................................. 265,465 224,366
Treasury stock, at cost............................ (154,302) (154,302)
---------- ----------
Total shareholders' equity................... 450,836 470,164
---------- ----------
Total liabilities, redeemable
securities and shareholders' equity......... $3,746,285 $3,662,254
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- -----------------
1996 1995 1996 1995
-------- -------- ------- --------
<S> <C> <C> <C> <C>
Insurance premiums written
and contract deposits.................. $191,390 $175,734 $556,821 $518,250
======== ======== ======== ========
Revenues
Insurance premiums and
contract charges earned............... $137,412 $133,043 $408,669 $397,499
Net investment income.................. 49,626 49,548 149,185 148,214
Realized investment gains (losses)..... (134) 1,389 2,611 5,704
-------- -------- -------- --------
Total revenues....................... 186,904 183,980 560,465 551,417
-------- -------- -------- --------
Benefits, losses and expenses
Benefits, claims and
settlement expenses................... 100,369 90,602 296,230 282,632
Interest credited...................... 23,923 23,032 71,225 67,560
Policy acquisition expenses amortized.. 10,792 10,488 32,002 31,698
Operating expenses..................... 25,601 26,617 77,126 77,001
Amortization of intangible assets...... 2,802 2,918 8,501 8,821
Interest expense....................... 2,552 3,582 8,022 8,360
Debt retirement costs.................. - - 1,319 -
Additional rights relating to
share repurchase...................... - - - 1,347
-------- -------- -------- --------
Total benefits, losses and expenses.. 166,039 157,239 494,425 477,419
-------- -------- -------- --------
Income before income taxes.............. 20,865 26,741 66,040 73,998
Income tax expense...................... 4,541 7,584 17,202 21,495
-------- -------- -------- --------
Net income.............................. $ 16,324 $ 19,157 $ 48,838 $ 52,503
======== ======== ======== ========
Earnings per share
Assuming no dilution................... $ 0.69 $ 0.83 $ 2.08 $ 2.05
======== ======== ======== ========
Assuming full dilution................. $ 0.69 $ 0.76 $ 2.08 $ 1.93
======== ======== ======== ========
Weighted average number of shares
and equivalent shares (in thousands)
Assuming no dilution.................. 23,474 23,141 23,449 25,594
Assuming full dilution................ 23,474 26,359 23,449 28,812
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
NINE MONTHS ENDED
SEPTEMBER 30,
---------------------
1996 1995
---- ----
<TABLE>
<CAPTION>
<S> <C> <C>
Common stock
Beginning balance.......................... $ 29 $ 29
Options exercised, 1996, 136,000 shares;
1995, 18,000 shares...................... - -
--------- ---------
Ending balance............................. 29 29
--------- ---------
Additional paid-in capital
Beginning balance.......................... 323,920 323,517
Options exercised.......................... 3,335 378
--------- ---------
Ending balance............................. 327,255 323,895
--------- ---------
Net unrealized gains (losses) on
fixed maturities and equity securities
Beginning balance........................ 76,151 (70,861)
Increase (decrease) for the period....... (63,762) 110,306
--------- ---------
Ending balance........................... 12,389 39,445
--------- ---------
Retained earnings
Beginning balance.......................... 224,366 159,278
Net income................................. 48,838 52,503
Cash dividends, 1996, $0.33 per share;
1995, $0.27 per share.................... (7,739) (6,733)
--------- ---------
Ending balance............................. 265,465 205,048
--------- ---------
Treasury stock, at cost
Beginning balance.......................... (154,302) -
Purchase of 6,500,000 shares (See note 5).. - (174,870)
Issuance of 911,902 shares (See note 5).... - 20,568
--------- ---------
Ending balance............................. (154,302) (154,302)
--------- ---------
Shareholders' equity at end of period....... $ 450,836 $ 414,115
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
HORACE MANN EDUCATORS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- --------------------------
1996 1995 1996 1995
---------- ---------- -------------- ----------
<S> <C> <C> <C> <C>
Cash flows from operating activities
Premiums collected...................... $ 146,670 $ 132,256 $ 427,886 $ 412,585
Policyholder benefits paid.............. (116,876) (104,244) (335,378) (306,207)
Policy acquisition and other
operating expenses paid................ (39,220) (37,669) (121,105) (117,978)
Federal income taxes recovered (paid)... - 4 (10,651) (15,000)
Investment income collected............. 51,094 53,171 151,796 151,578
Interest expense paid................... (4,226) (2,470) (7,382) (5,921)
Other................................... (4,639) 1,211 (2,437) (1,855)
--------- --------- --------- ---------
Net cash provided
by operating activities.............. 32,803 42,259 102,729 117,202
--------- --------- --------- ---------
Cash flows from investing activities
Fixed maturities
Purchases.............................. (206,079) (241,242) (722,154) (746,858)
Sales.................................. 152,155 177,402 512,435 569,142
Maturities............................. 46,391 57,237 149,764 133,581
Reductions in mortgage loans
and real estate........................ 2,629 7,068 27,482 22,093
Net (increase) decrease in
other investments, principally
short-term investments................. (4,950) (25,297) 5,679 (16,818)
--------- --------- --------- ---------
Net cash provided by (used
in) investing activities............. (9,854) (24,832) (26,794) (38,860)
--------- --------- --------- ---------
Cash flows from financing activities
Dividends paid to shareholders.......... (2,580) (2,105) (7,739) (6,733)
Proceeds from issuance of Senior Notes.. - - 98,530 -
Proceeds from issuance of common stock.. - 20,568 - 20,568
Principal borrowings (payments) on
Bank Credit Facility................... (8,000) (38,000) (25,000) 102,000
Retirement of Convertible Notes......... - - (102,890) -
Purchase of treasury stock.............. - (5,392) - (174,870)
Exercise of stock options............... 1,688 378 3,335 378
Annuity contracts, variable and fixed
Deposits............................... 36,698 31,817 122,241 102,566
Maturities and withdrawals............. (33,355) (28,836) (99,982) (87,369)
Net transfer to variable
annuity assets........................ (19,405) (10,781) (62,966) (32,397)
Net increase in interest-sensitive
life account balances.................. 320 492 1,045 1,712
--------- --------- --------- ---------
Net cash used
in financing activities.............. (24,634) (31,859) (73,426) (74,145)
--------- --------- --------- ---------
Net increase (decrease) in cash.......... (1,685) (14,432) 2,509 4,197
Cash at beginning of period.............. 13,712 24,626 9,518 5,997
--------- --------- --------- ---------
Cash at end of period.................... $ 12,027 $ 10,194 $ 12,027 $ 10,194
========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
HORACE MANN EDUCATORS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
Note 1 - Basis of Presentation
The accompanying unaudited consolidated financial statements of Horace Mann
Educators Corporation (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 Company believes that these financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Company's consolidated financial position as of September 30, 1996
and December 31, 1995 and the consolidated results of operations, changes in
shareholders' equity and cash flows for the three and nine months ended
September 30, 1996 and 1995.
It is suggested that these financial statements be read in conjunction with
the financial statements and the notes thereto contained in the December 31,
1995 Form 10-K filed by the Company.
The results of operations for the three and nine months ended September 30,
1996 are not necessarily indicative of the results to be expected for the full
year.
Note 2 - Debt
Indebtedness outstanding was as follows:
<TABLE>
<CAPTION>
September 30, December 31,
1996 1995
------------- ------------
<S> <C> <C>
Short-term debt:
$100,000 Bank Credit Facility, IBOR + 1/2%
(6.1% as of September 30, 1996) .......... $ 50,000 $ 75,000
Long-term debt:
6-5/8% Senior Notes, due January 15, 2006.
Face amount less unaccrued discount
of $445 (6.7% imputed rate) .............. 99,555 -
4%/6-1/2% Convertible Notes, redeemed
February 1996 ............................ - 100,000
-------- --------
Total .................................. $149,555 $175,000
======== ========
</TABLE>
5
<PAGE>
Note 2 - Debt (continued)
Issuance of 6-5/8% Senior Notes ("Senior Notes") and Redemption of
Convertible Notes
On January 17, 1996, the Company issued $100,000 face amount of Senior
Notes at an effective yield of 6.7%, which will mature on January 15, 2006. The
net proceeds from the sale of the Senior Notes were used to finance most of the
cost of the redemption of the Convertible Notes. Interest on the Senior Notes is
payable semi-annually at a rate of 6-5/8%. The Senior Notes are redeemable in
whole or in part, at any time, at the Company's option, at a redemption price
equal to the greater of (i) 100% of their principal amount and (ii) the sum of
the present values of the remaining scheduled payments of principal and interest
thereon discounted, on a semi-annual basis, at the Treasury Yield (as defined in
the indenture) plus 15 basis points, together with accrued interest to the date
of redemption.
Note 3 - Investments
The following sets forth the composition and value of the Company's fixed
maturity securities portfolio by rating category. The Company has classified the
entire fixed maturity securities portfolio as available for sale, which is
carried at market value.
<TABLE>
<CAPTION>
Percent of
Carrying Value September 30, 1996
----------------------------- ------------------------
Rating of Fixed September 30, December 31, Carrying Amortized
Maturity Securities(1) 1996 1995 Value Cost
- ----------------------- ------------- ------------ ---------- ----------
<S> <C> <C> <C> <C>
AAA ...................... 48.1% 45.9% $1,258,334 $1,252,890
AA ....................... 8.2 10.5 215,008 211,010
A ........................ 22.8 24.0 596,918 594,539
BBB ...................... 14.2 14.9 371,910 388,065
BB ....................... 2.6 1.1 66,717 46,852
B ........................ 3.6 3.2 93,415 89,165
CCC or lower ............. 0.1 - 1,391 2,101
Not rated(2) ............. 0.4 0.4 11,049 11,064
----- ----- ---------- ----------
Total ................ 100.0% 100.0% $2,614,742 $2,595,686
===== ===== ========== ==========
</TABLE>
(1) Ratings are as assigned primarily by Standard & Poor's Corporation ("S&P")
when available, with remaining ratings as assigned on an equivalent basis
by Moody's Investors Service, Inc. ("Moody's"). Ratings for publicly traded
securities are determined when the securities are acquired and are updated
monthly to reflect any changes in ratings.
(2) This category is comprised primarily of private placement securities not
rated by either S&P or Moody's. The National Association of Insurance
Commissioners (the "NAIC") has rated 86.7% of these private placements as
investment grade. None of the remaining $0.9 million of private placements
were rated as investment grade by the NAIC in 1994 and are under review for
the assignment of a current rating.
6
<PAGE>
Note 3 - Investments (continued)
The following table presents a maturity schedule of the Company's fixed
maturity securities. Expected maturities will differ from contractual maturities
because borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
Percent Carrying
of Total Value
----------------------------- -------------
September 30, December 31, September 30,
Scheduled Maturity 1996 1995 1996
- ------------------ ------------- ------------ -------------
<S> <C> <C> <C>
One year or less ...................... 6.2% 4.2% $ 161,271
After one year through five years ..... 29.0 30.4 756,719
After five years through ten years .... 33.9 32.4 887,080
After ten years through twenty years .. 18.8 18.7 492,596
After twenty years .................... 12.1 14.3 317,076
----- ----- ----------
Total ............................. 100.0% 100.0% $2,614,742
===== ===== ==========
</TABLE>
There were no past-due, renegotiated or non-accrual mortgage loans as of
September 30, 1996 and December 31, 1995. The Company's valuation reserves for
losses on mortgage loans and real estate totaled $2,640 at September 30, 1996
and December 31, 1995. The Company's investment portfolio included foreclosed
real estate of $8,549 and $10,999 at September 30, 1996 and December 31, 1995,
respectively.
Note 4 - Shareholders' Equity
In September 1996, the common shareholders of HMEC approved and HMEC
adopted the HMEC Deferred Equity Compensation Plan ("Director Stock Plan") for
directors of the Company and reserved 300,000 shares for issuance pursuant to
the Director Stock Plan. Shares of the Company's common stock issued under the
Director Stock Plan may be either authorized and unissued shares or shares that
have been reacquired by the Company.
In September 1996, the common shareholders of HMEC approved authorization
of 1,000,000 shares of $0.001 par value preferred stock in HMEC. The Board of
Directors is authorized to (i) direct the issuance of the preferred stock in one
or more series, (ii) fix the dividend rate, conversion or exchange rights,
redemption price and liquidation preference, of any series of the preferred
stock, (iii) fix the number of shares for any series and (iv) increase or
decrease the number of shares of any series. No shares of preferred stock were
outstanding at September 30, 1996.
7
<PAGE>
Note 5 - Purchase of the Company's Common Stock
On May 3, 1995, the Company entered into an agreement with The Fulcrum III
Limited Partnership and The Second Fulcrum III Limited Partnership (together,
"Fulcrum") providing for the disposition of the Company's common stock owned by
Fulcrum, constituting 44.5% (12.9 million shares) of the then outstanding common
stock.
Pursuant to that agreement, on May 3, the Company repurchased from Fulcrum
6.5 million shares of common stock. The shares were purchased at a price of
$169,000, before a contingent payment and expenses of the transaction. The
Company borrowed $140,000 of the purchase price under its existing Bank Credit
Facility and the balance was paid from cash on hand.
Also pursuant to the May 3, 1995 agreement, 6.1 million shares of common
stock owned by Fulcrum were sold to the public in a secondary public offering
which was completed on July 25, 1995 and the remaining 0.3 million shares were
distributed to Fulcrum's partners.
The secondary public offering also included the sale by the Company of
911,902 over-allotment shares, the $20,568 net proceeds of which were used to
reduce borrowings under the Bank Credit Facility.
8
<PAGE>
Note 6 - Reinsurance
The Company recognizes the cost of reinsurance premiums over the contract
periods for such premiums in proportion to the insurance protection provided.
Amounts recoverable from reinsurers for unpaid claims and claim settlement
expenses, including estimated amounts for unsettled claims, claims incurred but
not reported and policy benefits are estimated in a manner consistent with the
insurance liability associated with the policy. The effect of reinsurance on
premiums written; premiums earned; and benefits, claims and settlement expenses
were as follows:
<TABLE>
<CAPTION>
Ceded to Assumed
Gross Other from State
Amount Companies Facilities Net
-------- --------- ---------- --------
<S> <C> <C> <C> <C>
Three months ended September 30, 1996
- -------------------------------------
Premiums written ............................ $189,651 $ 5,691 $ 7,430 $191,390
Premiums earned ............................. 136,304 5,820 6,928 137,412
Benefits, claims and settlement expenses .... 100,168 7,019 7,220 100,369
Three months ended September 30, 1995
- -------------------------------------
Premiums written ............................ $174,244 $ 6,279 $ 7,769 $175,734
Premiums earned ............................. 132,325 5,607 6,325 133,043
Benefits, claims and settlement expenses .... 92,861 7,869 5,610 90,602
Nine months ended September 30, 1996
- ------------------------------------
Premiums written ............................ $553,374 $17,958 $21,405 $556,821
Premiums earned ............................. 405,474 18,310 21,505 408,669
Benefits, claims and settlement expenses .... 294,471 20,984 22,743 296,230
Nine months ended September 30, 1995
- ------------------------------------
Premiums written ............................ $513,907 $17,569 $21,912 $518,250
Premiums earned ............................. 395,318 15,427 17,608 397,499
Benefits, claims and settlement expenses .... 290,103 22,284 14,813 282,632
</TABLE>
9
<PAGE>
Note 6 - Reinsurance (continued)
The Company maintains an excess and catastrophe treaty reinsurance program.
Beginning in 1996, the Company reinsures 95% of catastrophe losses above a
retention of $5.5 million per occurrence up to $54 million per occurrence with
an aggregate annual deductible of $2.0 million. For liability coverages, the
Company reinsures each loss up to $10 million above a retention of $500,000. In
addition, the Company reinsures each property loss above a retention of $500,000
up to $1.5 million in 1996.
In 1995, the Company reinsured 95% of catastrophe losses above a retention
of $6 million per occurrence up to $19 million per occurrence. With regard to
liability coverages in 1995, the Company reinsured each loss up to $7 million
above a retention of $200,000. The Company reinsured each property loss above a
retention of $200,000 up to $1.5 million in 1995.
10
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Statements made in the following discussion that state the Company's or
management's intentions, hopes, beliefs, expectations or predictions of the
future are forward-looking statements. It is important to note that the
Company's actual results could differ materially from those projected in such
forward-looking statements due to, among other risks and uncertainties inherent
in the Company's business, the following important factors:
. Changes in the composition of the Company's assets and liabilities through
acquisitions or divestitures.
. Prevailing interest rate levels, including the impact of interest rates on
(i) unrealized gains and losses on the Company's investment portfolio and
the related after-tax effect on the Company's shareholders' equity and
total capital and (ii) the book yield of the Company's investment
portfolio.
. The impact of fluctuations in the capital markets on the Company's ability
to refinance outstanding indebtedness or repurchase shares of the Company's
outstanding common stock.
. The frequency and severity of catastrophes such as hurricanes, earthquakes
and storms, and the ability of the Company to maintain a favorable
catastrophe reinsurance program.
. The Company's ability to develop and expand its agency force and its direct
product distribution systems, as well as the Company's ability to maintain
and secure product sponsorships by local, state and national education
associations.
. The competitive impact of new entrants such as mutual funds into the tax
deferred annuity products markets, and the Company's ability to profitably
expand its property and casualty business in highly competitive
environments.
. Changes in insurance regulations, including (i) those effecting the ability
of the Company's insurance subsidiaries to distribute cash to the holding
company and (ii) those impacting the Company's ability to profitably write
property and casualty or health insurance policies in one or more states.
. Changes in federal income tax laws and changes resulting from federal tax
audits effecting corporate tax rates or taxable income, and regulations
changing the relative tax advantages of the Company's life and annuity
products to customers.
. The Company's ability to maintain favorable claims-paying ability ratings.
. Adverse changes in policyholder mortality and morbidity rates.
11
<PAGE>
NINE MONTHS ENDED SEPTEMBER 30, 1996
COMPARED WITH
NINE MONTHS ENDED SEPTEMBER 30, 1995
Insurance Premiums and Contract Charges Earned
Insurance premiums and contract charges earned, which excludes annuity and
life contractholders' deposits, increased 2.8% for the nine months ended
September 30, 1996, compared to the same period in 1995.
Insurance premiums written and contract deposits of $556.8 million for the
nine months ended September 30, 1996 increased 7.4%, compared to $518.3 million
for the same period in 1995, driven principally by 19.1% growth in annuity
deposits. Annual premium of approximately $7 million for Horace Mann's contract
to provide professional liability insurance for the 2.2 million members of the
National Education Association is included in the Company's total insurance
premiums written and contract deposits for the three and nine months ended
September 30, 1996. No such premium was written in 1995. Insurance premiums
written and contract deposits in the Company's primary product lines, automobile
(excluding involuntary), property, annuity and life, grew 7.0%, increasing to
$489.7 million for the nine months ended September 30, 1996, compared to $457.6
million for the same period in 1995. Involuntary automobile business includes
allocations of business from state mandatory automobile insurance facilities and
assigned risk business. Involuntary automobile premiums written for the nine
months ended September 30, 1996 decreased 7.2% compared to the first nine months
of 1995.
Automobile (excluding involuntary) and homeowners earned premiums increased
2.2% to $289.8 million for the nine months ended September 30, 1996, compared to
$283.7 million for the same period in 1995, primarily as a result of a 4.3%
increase in automobile (excluding involuntary) and homeowners policies in force,
partially offset by a 0.3% decrease in average premium earned per automobile
policy. The 773,000 automobile (excluding involuntary) and homeowners policies
in force at September 30, 1996 represented an increase of 32,000 policies since
September 30, 1995 and an increase of 30,000 policies since December 31, 1995.
Automobile (excluding involuntary) and homeowners premiums written
increased 3.4% to $296.9 million for the nine months ended September 30, 1996,
compared to $287.0 million for the same period in 1995. For the nine months
ended September 30, 1996, new direct premiums written of $31.8 million increased
18.7% compared to $26.8 million for the same period last year. Renewal direct
premiums written of $268.4 million for the nine months ended September 30, 1996
increased 1.9% compared to $263.5 million for the same period in 1995.
For the nine months ended September 30, 1996, life insurance premiums and
contract charges earned were $50.9 million, compared to $48.5 million for the
same period in 1995, representing an increase of 4.9%. Life insurance in force
on September 30, 1996 increased 4.2% compared to a year earlier. The lapse rate
of 8.0% for the nine months ended September 30, 1996 increased slightly compared
to 7.7% for the same period in 1995.
12
<PAGE>
Annuity contract charges earned increased 41.3% to $6.5 million for the
nine months ended September 30, 1996, compared to $4.6 million for the same
period in 1995, due to a 39% increase in variable annuity cash value on deposit.
Total annuity deposits received during the nine months ended September 30, 1996
increased 19.1% to $122.2 million, compared to $102.6 million for the same
period in 1995, reflecting a $5.5 million, or 6.6%, increase in scheduled
deposits for retirement annuities and a $14.1 million, or 72.3%, increase in
single premiums and rollover deposits from other companies.
Group insurance segment premiums earned were $44.9 million for the nine
months ended September 30, 1996, compared to $42.1 million for the same period
in 1995. However, premiums written of $13.7 million for the three months ended
September 30, 1996 represented a decrease of 6.8% compared to the $14.7 million
reported for the same period last year as a result of a decline in new business.
Net Investment Income
Net investment income of $149.2 million for the nine months ended September
30, 1996 increased 0.7% compared to the same period in 1995. Investments (at
amortized cost) increased 1.4%, or $36.2 million, from September 30, 1995. The
pretax yield on average investments was 7.4% (4.9% after tax) for both the nine
months ended September 30, 1996 and the same period in 1995.
Realized Investment Gains and Losses
Realized investment gains were $2.6 million for the first nine months of
1996, compared to $5.7 million for the same period in 1995.
Benefits, Claims and Settlement Expenses
Total benefits, claims and settlement expenses increased 4.8% to $296.2
million for the nine months ended September 30, 1996, compared to $282.6 million
for the same period in 1995.
Property and casualty claims and settlement costs were $231.3 million for
the nine months ended September 30, 1996, compared to $224.7 million for the
same period in 1995. The property and casualty loss ratio was 75.5% for the nine
months ended September 30, 1996, compared to 74.3% for the same period in 1995.
After nine months, higher first quarter 1996 losses from severe winter weather
and third quarter 1996 losses from hurricanes were partially offset by continued
favorable trends in voluntary automobile losses. Catastrophe losses for the nine
months ended September 30, 1996 were $19.3 million, compared to catastrophe
losses of $10.7 million for the same period in 1995. Hurricanes Fran and Bertha,
which occurred during the third quarter of 1996, represented $7.8 million in
losses. Catastrophe losses were $2.3 million in the third quarter of 1995.
Life benefits were $24.7 million for the nine months ended September 30,
1996, reflecting a 5.6% increase, compared to $23.4 million for the same period
in 1995. Group life and health claims of $40.2 million for the nine months ended
September 30, 1996 increased 16.5%, compared to the $34.5 million in claims
recorded in the same period in 1995, due to an increase in group medical claims.
The group segment loss ratio was 89.4% for the nine months ended September 30,
1996, compared to 82.7% for the same period in 1995.
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Interest Credited to Policyholders
Interest credited to policyholders was $71.2 million for the nine months
ended September 30, 1996, 5.3% more than the $67.6 million interest credited for
the first nine months of 1995. Interest credited to fixed rate annuity contracts
increased 3.8% to $57.5 million for the nine months ended September 30, 1996,
from $55.4 million for the same period in 1995. The increase reflects a higher
average annual interest rate credited of 5.6% for the nine months ended
September 30, 1996, compared to 5.5% for the first nine months of 1995, and a
growth of fixed rate annuity accumulated deposits of 1.2%.
Life insurance interest credited increased $1.5 million, or 12.3%, to $13.7
million for the nine months ended September 30, 1996, compared to the same
period in 1995, primarily as a result of continued growth in the interest-
sensitive whole life insurance reserves and account balances.
Policy Acquisition and Operating Expenses
Policy acquisition and operating expenses represent the Company's insurance
underwriting expenses. For the nine months ended September 30, 1996, policy
acquisition and operating expenses of $109.3 million increased $0.6 million, or
0.6%, compared to $108.7 million for the first nine months of 1995. For the
nine months ended September 30, 1996, the property and casualty expense ratio
was 19.2% compared to 19.5% for the same period in 1995.
Amortization of Intangible Assets
Amortization of intangible assets decreased by $0.3 million to $8.5 million
for the nine months ended September 30, 1996, compared to $8.8 million for the
same period in 1995, as a result of a scheduled decrease in the non-cash
amortization of the value of acquired insurance in force related to the 1989
acquisition of the Company.
Interest Expense
The Company's interest expense of $8.0 million for the nine months ended
September 30, 1996 was $0.4 million, or 4.8%, less than the same period in 1995
as a result of subsequent repayments of borrowings on the Bank Credit Facility
related to the repurchase of shares of its common stock during the second
quarter of 1995. Interest expense of $2.5 million for the third quarter of 1996
was $1.1 million less than the $3.6 million reported for the same period in 1995
and is expected to decrease in future quarters as the Company continues to repay
this short-term debt.
Income Tax Expense
The 1996 effective income tax rate was 26%, compared to the 1995 effective
income tax rate of 29%. Income from investments in tax-advantaged securities
reduced the effective income tax rate 4 percentage points in both 1996 and 1995.
Acquisition related tax benefits reduced the effective income tax rate 5
percentage points in 1996 and 4 percentage points in 1995. The 1995 effective
income tax rate also reflected the charge for additional rights relating to the
repurchase of shares of the Company's common stock in 1995 that was not
deductible for federal income tax purposes.
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Operating Income
Operating income (income before realized investment gains and losses, 1996
debt retirement costs and the 1995 cost of additional rights related to the
share repurchase) was $48.0 million for the nine months ended September 30,
1996, compared to $50.1 million for the same period in 1995. Operating income in
the first nine months of 1996 reflected high first quarter severe winter storm
losses and high third quarter hurricane losses partially offset by excellent
voluntary auto results and an increase in annuity segment earnings.
Included in the Company's operating income are non-cash charges for the
amortization of the value of acquired insurance in force and goodwill related to
the 1989 acquisition of the Company. Excluding these non-cash charges for the
amortization of intangible assets, operating income was $53.5 million for the
nine months ended September 30, 1996 compared to $55.8 million for the first
nine months of 1995.
Property and casualty segment operating income was $36.5 million for the
nine months ended September 30, 1996, compared to $39.8 million for the same
period in 1995. Higher first quarter 1996 losses from severe winter weather and
after tax catastrophe losses of $5.5 million from hurricanes in the third
quarter of 1996 were partially offset by continued favorable trends in voluntary
automobile losses. The property and casualty combined loss and expense ratio for
the nine months ended September 30, 1996 was 94.7%, compared to the 93.9%
reported for the same period in 1995.
Life insurance segment operating income of $7.3 million for the nine months
ended September 30, 1996 increased 2.8% compared to the $7.1 million reported
for the same period in 1995, although 1996 reflected higher mortality
experience.
Annuity segment operating income of $12.1 million for the nine months ended
September 30, 1996 increased 13.1%, compared to the same period in 1995,
resulting primarily from an increase in cash value on deposit. Total
accumulated fixed and variable annuity cash value on deposit of $2,002.3 million
increased $186.8 million, or 10.3%, compared to September 30, 1995. This
increase resulted from a net increase in funds on deposit of 7.6% plus net
increases in market value of underlying mutual funds of $51.8 million.
The group life and health segment reported an operating loss of $1.7
million for the nine months ended September 30, 1996, compared to operating
income of $0.2 million for the same period in 1995. The group life and health
combined loss and expense ratio increased to 112.9% for the nine months ended
September 30, 1996, compared to 106.9% for the same period in 1995, primarily
due to an increase in group medical claims.
Net Income
Net income, which includes realized investment gains, for the nine months
ended September 30, 1996 was $48.8 million, or $2.08 per share, reflecting a
7.0% decrease in net income and a 7.8% increase in net income per share on a
fully diluted basis compared to the same period in 1995. The share repurchase
completed in May 1995 and the redemption of the convertible notes in February
1996 resulted in the increase in net income per share. Realized investment gains
after tax were $1.7 million for the nine months ended September 30, 1996,
compared to $3.7 million for the same period in 1995. Net income for the nine
months ended September 30, 1996 reflects a reduction of $0.9 million, or $0.04
per share, for the costs of the early redemption of $100 million
15
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of convertible notes. Net income for the nine months ended September 30, 1995
included a reduction of $1.3 million, or $0.05 per share, for the cost of the
additional rights granted in connection with the share repurchase.
LIQUIDITY AND FINANCIAL RESOURCES
Investments
The Company's investment strategy emphasizes high quality investment grade,
publicly traded fixed income securities. At September 30, 1996, fixed income
securities comprised 95.5% of total investments. Of the fixed income investment
portfolio, 94.2% was investment grade and 99.5% was publicly traded. The
average quality of the total fixed income portfolio was AA- at September 30,
1996.
The duration of the investment portfolio is managed to provide cash flow to
satisfy policyholder liabilities as they become due. The average option
adjusted duration of total investments was 4.5 years at September 30, 1996 and
4.4 years at December 31, 1995. The Company has included in its annuity
products substantial surrender penalties to reduce the likelihood of unexpected
increases in policy or contract surrenders. All annuities issued since 1982 and
approximately 60% of all outstanding fixed annuity accumulated cash values are
subject to surrender penalties.
The commercial mortgage obligation ("CMO") segment of the Company's
investment portfolio has more predictable and stable cash flow characteristics
than the broader CMO market and is primarily utilized by the Company to manage
interest rate volatility. At September 30, 1996, approximately 5.9% of the
Company's investment portfolio was invested in CMOs. At September 30, 1996, the
credit quality ratings of the Company's investments in CMOs were AAA and NAIC 1,
which are the highest ratings. The market value of CMOs owned by the Company at
September 30, 1996 was $161.7 million, equal to the amortized cost. The average
duration of the Company's investment in CMOs was 4.1 years at September 30,
1996.
Cash Flow
The short-term liquidity requirements of the Company, within a 12-month
operating cycle, are for the timely payment of claims and benefits to
policyholders, operating expenses, interest payments and federal income taxes.
Cash flow in excess of these amounts has been used to pay dividends to
shareholders and retire short-term debt. Long-term liquidity requirements,
beyond one year, are principally for the payment of future insurance policy
claims and benefits, and retirement of long-term notes.
Operating Activities
As a holding company, HMEC conducts its principal operations in the
personal lines segment of the property and casualty and life insurance
industries through its subsidiaries. HMEC's insurance subsidiaries generate cash
flow from premium and investment income, generally well in excess of their
immediate needs for policy obligations, operating expenses and other cash
requirements. Net cash provided by operating activities was $102.7 million for
the nine months ended September 30, 1996 compared to $117.2 million for the same
period in 1995. In both years, cash provided by operating activities primarily
reflected net cash provided by the insurance subsidiaries.
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Investing Activities
HMEC's insurance subsidiaries maintain significant investments in fixed
maturity securities to meet future contractual obligations to policyholders. In
conjunction with its management of liquidity and other asset/liability
management objectives, the Company, from time to time, will sell fixed maturity
securities prior to maturity and reinvest the proceeds in other investments with
different interest rates, maturities or credit characteristics. Accordingly,
the Company has classified the entire fixed maturities portfolio as available
for sale. During the first nine months of 1996, net cash used in investing
activities was $26.8 million. This net amount reflects $722.2 million in
purchases of fixed maturity and other investments, funded by investment sales or
maturities of $695.4 million and net cash provided by operating activities.
Financing Activities
Financing activities include the receipt and withdrawal of funds by annuity
policyholders, payment of scheduled dividends, transactions related to the
Company's common stock and borrowings and repayments under the Company's debt
facilities. Shareholder dividends paid for the nine months ended September 30,
1996 were $7.7 million.
For the nine months ended September 30, 1996, receipts from annuity
contracts of $122.2 million were greater than contract maturities and
withdrawals of $100.0 million. Net transfers to variable annuity assets were
$63.0 million during the first nine months of 1996 compared to $32.4 million for
the same period last year.
On January 17, 1996, the Company issued $100.0 million face amount of
6 5/8% Senior Notes ("Senior Notes"), which will mature on January 15, 2006, at
a discount of 0.5%. The net proceeds from the sale of the Senior Notes were used
to finance most of the cost of the full redemption of the $100.0 million of
outstanding convertible notes at an aggregate cost of $102.9 million. The
redemption of the convertible notes extended the maturity of the Company's long-
term debt and eliminated the potential dilutive impact of these securities. The
Senior Notes have an investment grade rating from both Standard & Poor's
Corporation ("S&P") (A-) and Moody's Investors Service, Inc. ("Moody's") (Baa2)
and are traded on the New York Stock Exchange (HMN 6 5/8).
As of September 30, 1996, the Company had short-term debt comprised of
$50.0 million outstanding under the Bank Credit Facility. The Company repaid
$25.0 million of Bank Credit Facility indebtedness during the first nine months
of 1996.
Capital Resources
Historically, the Company's insurance subsidiaries have generated capital
in excess of what has been needed to support business growth. These excess
amounts have been paid to HMEC through dividends. HMEC has then utilized these
dividends and its access to the capital markets to retire long-term debt,
repurchase shares of its common stock, increase dividends to its shareholders
and fulfill other corporate purposes. Management anticipates that the Company's
sources of capital will continue to generate capital in excess of the needs for
business growth, debt interest payments and shareholder dividends.
The total capital of the Company was $601.0 million at September 30, 1996,
including $99.6 million of long-term debt and $50.0 million of short-term debt.
Long-term debt as a percentage of total shareholders' equity was 22.1% as of
September 30,
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1996, compared to 21.3% as of December 31, 1995, with the increase occurring as
a result of a reduction in unrealized gains attributable to the Company's
investment portfolio. The Company's ratio of earnings to fixed charges for the
nine months ended September 30, 1996 was 9.3x.
Total shareholder dividends were $7.7 million for the nine months ended
September 30, 1996. In February 1996, the Board of Directors authorized the
fourth consecutive annual increase in the Company's dividend. The regular
quarterly dividend increased by 22% to $0.11 per share.
Shareholders' equity was $450.8 million at September 30, 1996, including an
unrealized gain in the Company's investment portfolio of $12.4 million after tax
($19.1 million pretax). The market value of the Company's common stock and the
market value per share were $773.4 million and $32 7/8, respectively, at
September 30, 1996. Book value per share was $19.16 at September 30, 1996,
$18.63 excluding investment market value adjustments.
In September 1996, the common shareholders of HMEC approved authorization
of 1,000,000 shares of $0.001 par value preferred stock in HMEC. The Board of
Directors is authorized to (i) direct the issuance of the preferred stock in one
or more series, (ii) fix the dividend rate, conversion or exchange rights,
redemption price and liquidation preference, of any series of the preferred
stock, (iii) fix the number of shares for any series and (iv) increase or
decrease the number of shares of any series. No shares of preferred stock were
outstanding at September 30, 1996.
18
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PART II: OTHER INFORMATION
Item 4: Submission of Matters to a Vote of Security Holders
At the Company's Annual Meeting of Shareholders held on September 11,
1996, 21,182,223 shares of Common Stock were represented and entitled to
vote. The results of the matters submitted to a vote of security holders
are shown in the table below.
Votes Votes
For Against Abstentions
---------- -------- -----------
Approval of the Horace Mann
Educators Corporation Deferred
Equity Compensation Plan for
Directors. 19,996,431 1,096,359 67,587
Approval of, for purposes of
Internal Revenue Code Section
162(m), certain provisions of
the Company's 1996 Annual Cash
Incentive Plan. 20,545,670 57,018 65,535
Approval of, for purposes of
Internal Revenue Code Section
162(m), certain provisions of
the Company's 1996 Long-Term
Cash Incentive Plan. 20,539,351 576,772 66,100
Approval of certain amendments
to the Company's 1991 Stock
Incentive Plan. 20,752,249 360,594 69,380
Approval of an amendment to
the Company's Certificate of
Incorporation to authorize the
issuance of 1,000,000 shares
of Preferred Stock. 10,259,760 9,717,687 96,357
Failure of an amendment to the
Company's Certificate of
Incorporation providing that
no action may be taken by the
Shareholders of the Company
except at an annual or special
meeting of the Shareholders. 8,330,061 11,666,346 97,542
Ratification of the
appointment of KPMG Peat
Marwick LLP, independent
certified public accountants,
to serve as the Company's
auditors for the fiscal year
ending December 31, 1996. 21,007,130 145,423 4,730
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Item 6: Exhibits and Reports on Form 8-K
(a) The following items are filed as Exhibits.
(3) Articles of incorporation and bylaws:
3.1 Restated Certificate of Incorporation of HMEC, filed with
the Delaware Secretary of State on October 6, 1989.
3.2 Certificate of Amendment to Restated Certificate of
Incorporation of HMEC, filed with the Delaware Secretary of
State on October 18, 1991.
3.3 Certificate of Amendment to Restated Certificate of
Incorporation of HMEC, filed with the Delaware Secretary of
State on August 23, 1995.
3.4 Certificate of Amendment to Restated Certificate of
Incorporation of HMEC, filed with the Delaware Secretary of
State on September 23, 1996.
(10) Material contracts. Management contracts and compensatory plans
are indicated by an asterisk (*).
10.1* Horace Mann Educators Corporation Deferred Equity
Compensation Plan for Directors.
10.2* Horace Mann Educators Corporation 1991 Stock Incentive Plan,
incorporated by reference to Exhibit 10.4 to HMEC's Annual
Report on Form 10-K for the year ended December 31, 1991,
filed with the Securities and Exchange Commission on March
27, 1992.
10.2(a)* Specimen Employee Stock Option Agreement under the Horace
Mann Educators Corporation 1991 Stock Incentive Plan,
incorporated by reference to Exhibit 10.5 to HMEC's Annual
Report on Form 10-K for the year ended December 31, 1991,
filed with the Securities and Exchange Commission on March
27, 1992.
10.2(b)* Specimen Director Stock Option Agreement under the Horace
Mann Educators Corporation 1991 Stock Incentive Plan,
incorporated by reference to Exhibit 10.6 to HMEC's Annual
Report on Form 10-K for the year ended December 31, 1991,
filed with the Securities and Exchange Commission on March
27, 1992.
10.2(c)* Amendment to Horace Mann Educators Corporation 1991 Stock
Incentive Plan, dated September 11, 1996.
(11) Statement re computation of per share earnings.
(27) Financial Data Schedule.
(b) No reports on Form 8-K were filed by the Company during the third
quarter of 1996.
20
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HORACE MANN EDUCATORS CORPORATION
(Registrant)
Date November 12, 1996 Paul J. Kardos
--------------------------- -----------------------------------
Paul J. Kardos, President and
Chief Executive Officer
Date November 12, 1996 Larry K. Becker
--------------------------- -----------------------------------
Larry K. Becker, Executive
Vice President and Chief
Financial Officer
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Exhibit 3.1
RESTATED CERTIFICATE OF INCORPORATION
of
HORACE MANN EDUCATORS CORPORATION
----------------------------
We, Paul J. Kardos, President, and Marsha M. Murray, Corporate Secretary of
Horace Mann Educators Corporation, a corporation duly organized and existing
under the laws of the State of Delaware as Horace Mann Educators Corporation and
having its original Certificate of Incorporation filed with the Secretary of
State on the 7th day of February 1968, do hereby declare that this Restated
Certificate of Incorporation was duly adopted at a meeting of the Board of
Directors held on September 19, 1989, in accordance with Section 245(c) of the
General Corporation Law of Delaware and that this restated certificate only
restates and integrates and does not further amend the Corporation's Certificate
of Incorporation as theretofore amended or supplemented and there is no
discrepancy between the provisions of the Corporation's Certificate of
Incorporation as theretofore amended or supplemented and the provisions of the
Restated Certificate of Incorporation.
FIRST. The name of the Corporation is
HORACE MANN EDUCATORS CORPORATION.
SECOND. The address of its registered office in the State of Delaware is
1209 Orange Street, in the City of Wilmington, County of New Castle. The name
of its registered agent at such address is The Corporation Trust Company.
THIRD. The nature of the business or purposes to be conducted or promoted
is:
To acquire by purchase, subscription or otherwise, and to own, hold,
sell, negotiate, assign, hypothecate, deal in, exchange, transfer,
mortgage, pledge or otherwise dispose of alone or in syndicate or otherwise
in conjunction with others: any shares of the capital stock, script,
rights, participating certificates, certificates of interest, or any voting
trust certificates in respect of the shares of capital stock of or any
bonds, mortgages, securities, evidences of indebtedness, acceptances,
commercial paper, choses in action and obligations of every kind and
description (all of the foregoing being hereinafter sometimes called
securities) issued or created by any public, quasi-public or private
corporation, joint stock company, association, partnership, common law
trust, firm or individual, or of any combinations, organizations or
entities whatsoever irrespective of their forms or the names by which they
may be described, or of the Government of the United States of America or
any foreign government, or of any state, territory, municipality or other
political
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subdivision, or of any governmental agency; and to issue in exchange
therefor, in the manner permitted by law, shares of the capital stock,
bonds or other obligations of the Corporation; and while the holder or
owners of any such securities, to possess and exercise in respect thereof
any and all rights, powers and privileges of ownership, including the right
to vote thereon; and, to the extent now or hereafter permitted by law, to
aid by loan, guarantee or otherwise those issuing, creating or responsible
for any such securities; and to do any and all lawful things designed to
protect, preserve, improve or enhance the value of any such securities.
To conduct any lawful business, to exercise any lawful purpose and
power, and to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of Delaware.
In general, to possess and exercise all the powers and privileges
granted by the General Corporation Law of Delaware or by any other law of
Delaware or by this Certificate of Incorporation together with any powers
incidental thereto, so far as such powers and privileges are necessary or
convenient to the conduct, promotion or attainment of the business or
purposes of the Corporation.
FOURTH. The total number of shares of all classes of stock which the
Corporation shall have authority to issue is two million three hundred fifty
thousand (2,350,000). All such shares shall consist of Common Stock, par value
$.001 per share.
FIFTH. Each share of Common Stock shall entitle the holder thereof to one
vote, in person or by proxy, at any and all meetings of the Stockholders of the
Corporation, on all propositions before such meetings.
In all elections for Directors every Stockholder shall have the right to
vote, in person or by proxy, for the number of shares owned by him, for as many
persons as there are Directors to be elected, or to cumulate said shares, and
give one candidate as many votes as the number of Directors multiplied by the
number of his shares shall equal, or to distribute them on the same principal
among as many candidates as he shall think fit.
SIXTH. The name and mailing address of the incorporator are Alexander
Polikoff, 231 South LaSalle Street, Chicago, Illinois.
SEVENTH. In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized:
To make, alter or repeal the By-laws of the Corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the Corporation.
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To set apart out of any of the funds of the Corporation available for
dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
To designate one or more committees, by resolution of a majority of
the whole Board, each committee to consist of two or more of the Directors
of the Corporation. The Board may designate one or more Directors as
alternate members of any committee, who may replace any absent or
disqualified member at any meeting of the committee. Any such committee
shall have and may exercise such powers as are provided for in the
resolution creating the same or in the By-laws of the Corporation, and may
authorize the seal of the Corporation to be impressed on all papers which
may require it.
EIGHTH. To the fullest extent permitted by the Delaware General Corporation
Law as the same exists or may hereafter be amended, a Director of this
Corporation shall not be liable to the Corporation or its Stockholders for
monetary damages for breach of fiduciary duty as a Director.
Any repeal or modification of the foregoing paragraph shall not adversely
affect any right or protection of a Director of the Corporation existing
hereunder with respect to any act or omission occurring prior to such repeal or
modification.
NINTH. The Corporation shall indemnify each Director, Officer, employee or
agent of the Corporation and each person who is or was serving at the request of
the Corporation as a Director, Officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise in the manner
and to the extent provided in the By-laws of the Corporation as the same may be
amended from time to time.
TENTH. Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its Stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or Stockholder thereof, or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this Corporation under the provisions of Section 279 of Title 8 of the
Delaware Code order a meeting of the creditors or class of creditors, and/or of
the Stockholders or class of Stockholders of this Corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the Stockholders or class of Stockholders of this
Corporation, as the case may be agree to any compromise or arrangement, and to
any reorganization of this Corporation as a consequence of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made be
binding on all the creditors or class of creditors and/or on all the
Stockholders or class of Stockholders, of this Corporation, as the case may be,
and also on this Corporation.
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<PAGE>
ELEVENTH. Meetings of Stockholders may be held within or without the State
of Delaware, as the By-laws may provide. The books of the Corporation may be
kept (subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the By-laws of the Corporation.
TWELFTH. In the absence of fraud, no contract or other transaction between
the Corporation and any other corporation, and no act of the Corporation, shall
in any way be invalidated or otherwise affected by the fact that any one or more
of the Directors of the Corporation are pecuniarily or otherwise interested in,
or are directors or officers of, such other corporation. Any Director of the
Corporation individually, or any firm or association of which any Director may
be a member, may be a party to, or may be pecuniarily or otherwise interested
in, any contract or transaction of the Corporation, provided that the fact that
he individually or such firm or association is so interested shall be disclosed
or shall have been known to the board of directors of the Corporation or a
majority thereof; and any Director of the Corporation, who is also a director or
officer of such other corporation or who is so interested, may be counted in
determining the existence of a quorum at any meeting of the Board of Directors
or of any committee of the Corporation which shall authorize any such contract
or transaction and may vote thereat to authorize any such contract or
transaction, with like force and effect as if he were not such director or
officer of such other corporation or not so interested. Any contract,
transaction or act of the Corporation of the Directors or of any committee which
shall be ratified by a majority of a quorum of the Stockholders having voting
powers at any annual meeting, or at any special meeting called for such purpose,
shall, so far as permitted by law and by this Certificate of Incorporation, be
as valid and as binding as though ratified by every Stockholder of the
Corporation.
THIRTEENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statue, provided, however, that Article
FIFTH may be amended only upon the affirmative vote of the holders of not less
than seventy-five percent (75%) of the Common Stock, and all rights conferred
upon Stockholders herein are granted subject to this reservation.
IN WITNESS WHEREOF, the undersigned have executed this Restated Certificate
of Incorporation on this 4th day of October, 1989.
/s/ Paul J. Kardos
----------------------------------------
Paul J. Kardos, President
/s/ Marsha M. Murray
----------------------------------------
Marsha M. Murray, Corporate Secretary
STATE OF ILLINOIS )
) SS.
COUNTY OF SANGAMON )
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On this 4th day of October, 1989, before me, a notary public in and for
said County and State, personally appeared Paul J. Kardos, President, and Marsha
M. Murray, Corporate Secretary, known to me to be the persons whose names are
subscribed to the foregoing instrument, and acknowledged to me that they
executed the same.
/s/ Linda L. Sacco
----------------------------------------
Notary Public
(Notary Seal)
My Commission expires October 23, 1989.
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Exhibit 3.2
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HORACE MANN EDUCATORS CORPORATION
HORACE MANN EDUCATORS CORPORATION, a corporation organized and existing
under and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That at a meeting of the Board of Directors of the Corporation held
on October 15, 1991, resolutions were duly adopted setting forth the proposed
Amendments to the Certificate of Incorporation of said Corporation, declaring
said Amendments to be advisable and calling for submission for consideration of
the Amendments to the Stockholder of said Corporation. The resolutions setting
forth the proposed Amendments are as follows:
RESOLVED, that Article Fourth of the Certificate of Incorporation be
amended to read as follows:
FOURTH. The total number of shares of common stock which the
corporation shall have authority to issue is seventy-five million
(75,000,000). All such shares of common stock shall have a par value
of $.001 per share.
BE IF FURTHER RESOLVED, that Article Twelfth of the Certificate of
Incorporation be amended to read as follows:
TWELFTH. In the absence of fraud, no contract or transaction between
the Corporation and any other corporation shall be void or voidable
solely because one or more of the Directors of the Corporation has a
pecuniary or other interest in, or is an officer or director of, the
other corporation. Any Director of the Corporation, either
individually or as a member of any firm or association, may have a
pecuniary or other interest in any contract or transaction of the
corporation; and any such Director who is also a director of such
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corporation, or who has an interest in such contract or transaction,
may be counted in determining the existence of a quorum at any meeting
of the Board or of any Committee meeting of the Corporation, which
authorizes said contract or transaction, and may vote to authorize the
contract or transaction so long as:
1. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the Board or the Committee, and the Board or Committee, in
good faith authorizes the contract or transaction by the
affirmative votes of a majority of the disinterested
directors, even though the disinterested directors be less
than a quorum; or
2. The material facts as to his relationship or interest and as
to the contract or transaction are disclosed or are known to
the stockholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote
of the stockholders; or
3. The contract or transaction is fair as to the Corporation as
of the time it is authorized, approved or ratified, by the
Board, Committee or Stockholders.
Any contract, transaction or act of the Corporation of the
Directors or of any Committee which shall be ratified by a
majority of a quorum of the Stockholders having voting powers at
any annual meeting, or at any special meeting called for such
purpose, shall, so far as permitted by law and by this
Certificate of Incorporation, be as valid and as binding as
though ratified by every Stockholder of the Corporation.
BE IF FURTHER RESOLVED, that the second paragraph of Article Fifth of
the Certificate of Incorporation be amended and a third paragraph added to
Article Fifth to read as follows:
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In all elections for Directors, every Stockholder shall have the right
to one vote for each share of stock owned by that stockholder and that
stockholder can cast his or her votes in person or by proxy for as
many persons as there are Directors to be elected.
All other preferences and rights, and the qualifications, limitations
or restrictions in respect to each class of stock shall be as stated
in the bylaws and on the back of the certificates of such class of
stock.
SECOND: That in lieu of a meeting and vote of stockholders, the
stockholders have given unanimous written consent to said Amendments in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware.
THIRD: That the aforesaid Amendments were duly adopted in accordance with
the applicable provisions of Sections 228 and 242 of the General Corporation Law
of the State of Delaware.
IN WITNESS WHEREOF, said HORACE MANN EDUCATORS CORPORATION has caused this
Certificate of Amendment of the Certificate of Incorporation to be signed by
Paul J. Kardos, its President, and attested by Marsha E. Murray, its Corporate
Secretary, this 15th day of October, 1991.
HORACE MANN EDUCATORS CORPORATION
ATTEST: By: /s/ Paul J. Kardos
-----------------------------
Paul J. Kardos, President
By: /s/ Marsha E. Murray
-----------------------------
Marsha E. Murray,
Corporate Secretary
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Exhibit 3.3
CERTIFICATE OF AMENDMENT OF
THE CERTIFICATE OF INCORPORATION OF
HORACE MANN EDUCATORS CORPORATION
HORACE MANN EDUCATORS CORPORATION (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware, does hereby certify:
FIRST, that at a meeting of the Board of Directors of the Corporation held on 14
June 1995, a resolution was adopted setting forth the proposed Amendment to the
Certificate of Incorporation of said Corporation, declaring said Amendment to be
advisable and calling for submission for consideration of the Amendment to the
Stockholders of said Corporation. The resolution setting forth the proposed
Amendment is as follows:
RESOLVED the following amendment to the Certificate of Incorporation be
recommended to the Stockholders of the Corporation for their approval at the
next Annual Meeting of Stockholders: an amendment to the Company's Certificate
of Incorporation to require the retirement of any Director who is 72 or more
years of age following the completion of his or her then current term in office;
provided, however, that Messrs. Heth and Saul will be eligible to continue to
serve on the Board of Directors, if re-elected until their succcessors are duly
elected and qualified at the 1997 and 1998 Annual Meetings of Shareholders,
respectively.
SECOND, that the proposed amendment to the Certificate of Incorporation was
submitted for consideration to the Stockholders at their Annual Meeting held on
15 August 1995 and the Stockholders did approve said amendment by adding the
following ARTICLE FOURTEENTH.
"FOURTEENTH. Any Director who is 72 or more years of age shall retire following
completion of his or her then current term in office; provided, however, that
Messrs. Heth and Saul will not be obligated to retire pursuant to this ARTICLE
FOURTEENTH until their successors are duly elected and qualified at the 1997 and
1998 Annual Meetings of Shareholders, respectively."
THIRD, that the aforesaid Amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said HORACE MANN EDUCATORS CORPORATION has caused this
Certificate of Amendment of the Certificate of Incorporation to be signed by
Paul J. Kardos, its President, and attested by Ann M. Caparros, its Corporate
Secretary, this 18th day of August 1995.
HORACE MANN EDUCATORS CORPORATION
ATTEST: By: /s/ Paul J. Kardos
-----------------------------
Paul J. Kardos, President
By: /s/ Ann M. Caparros
-----------------------------
Ann M. Caparros,
Corporate Secretary
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Exhibit 3.4
CERTIFICATE OF AMENDMENT OF THE
CERTIFICATE OF INCORPORATION OF
HORACE MANN EDUCATORS CORPORATION
HORACE MANN EDUCATORS CORPORATION, a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST, that at a meeting of the Board of Directors of the Corporation held on 15
May 1996, a resolution was adopted setting forth a proposed Amendment to the
Certificate of Incorporation of said Corporation and calling for submission for
consideration of the Amendment to the Stockholders of said Corporation. The
resolution setting forth the proposed Amendment is as follows:
RESOLVED that the agenda for the Annual Meeting of Stockholders shall consist of
substitution of the following in place of Article Fourth of the Corporation's
Certificate of Incorporation.
"FOURTH. The total number of shares which the corporation shall have authority
to issue is seventy-six million (76,000,000), consisting of:
(a) 75,000,000 shares of common stock, par value $0.001 per share (the "Common
Stock");
(b) 1,000,000 shares of Preferred Stock, par value $0.001 per share ("Preferred
Stock"). The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors of the Corporation is hereby vested with
authority to fix by resolution or resolutions the designations and the powers,
preferences and relative participation, optional or other special rights, and
qualifications, limitations or restrictions thereof, including without
limitation the dividend rate, conversion or exchange rights, redemption price
and liquidation preference, of any series of the Preferred Stock, and to fix the
number of shares constituting any such series, and to increase or decrease the
number of shares of any such series (but not below the number of shares thereof
outstanding). In case the number of shares of any such series shall be so
decreased, the shares constituting such decrease shall resume the status which
they had prior to the adoption of the resolution or resolutions originally
fixing the number of shares of such series."
SECOND, that the proposed amendment to the Certificate of Incorporation was
submitted for consideration to the Stockholders at their Annual Meeting held on
11 September 1996 and the Stockholders did approve said amendment.
THIRD, that the aforesaid Amendment was duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, said HORACE MANN EDUCATORS CORPORATION has caused this
Certificate of Amendment of the Certificate of Incorporation to be signed by
Paul J. Kardos, its President, and attested by Ann M. Caparros, its Corporate
Secretary, this 20th day of September 1996.
HORACE MANN EDUCATORS CORPORATION
ATTEST: By: /s/ Paul J. Kardos
-------------------------
Paul J. Kardos, President
By: /s/ Ann M. Caparros
------------------------------------
Ann M. Caparros, Corporate Secretary
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EXHIBIT 10.1
HORACE MANN EDUCATORS CORPORATION
DEFERRED EQUITY COMPENSATION PLAN FOR DIRECTORS
SECTION 1. INTRODUCTION
1.1 Establishment of Plan. Horace Mann Educators Corporation, a Delaware
corporation (the "Company"), hereby establishes the Horace Mann Educators
Corporation Deferred Equity Compensation Plan for Directors (the "Plan") for
those directors of the Company who are not employees of the Company. The Plan
provides the opportunity for Directors to defer receipt of all or a part of
their cash compensation on a pretax basis and to invest those deferrals in the
Company's Common Stock.
1.2 Purposes. The purposes of the Plan are to align the interests of
Directors more closely with the interests of other shareholders of the Company,
to encourage the highest level of Director performance by providing the
Directors with a direct interest in the Company's attainment of its financial
goals and to help attract and retain qualified Directors.
1.3 Effective Date. The Plan shall be effective upon approval by the
shareholders of the Company at the Company's 1996 annual meeting of
shareholders. To the extent an investment or distribution of Stock may be made
under the Plan, the Plan is intended to qualify for the exemption from short
swing profits liability under Section 16(b) of the Exchange Act, provided by
Rule 16b-3 of the Securities and Exchange Commission as now in effect or
hereafter amended.
SECTION 2. DEFINITIONS
2.1 Definitions. The following terms shall have the meanings set forth
below:
(a) "Administrative Committee" means the committee designated in
Section 3 to administer the Plan.
(b) "Board" means the Board of Directors of the Company.
(c) "Change in Control" means either of the events set forth below:
(i) any person, as defined in Sections 3(a)(9) and 13(d)(3) of the
Exchange Act, becomes the "beneficial owner" (as defined in Rule 13d-3
promulgated pursuant to the Exchange Act), directly or indirectly, of
securities of the Company having 25% or more of the voting power in
the election of directors of the Company; or
(ii) the occurrence within any twelve-month period during the term
of the Plan of a change in the Board with the result that the
Incumbent Members do not constitute a majority of the Company's Board.
(d) "Common Stock Equivalent" means a hypothetical share of Stock
which shall have a value on any date equal to the Fair Market Value of one
share of Stock on that date.
(e) "Deferred Stock Equivalent Account" means the bookkeeping account
established by the Company in respect to each Director pursuant to Section
5.3 hereof and to which shall be credited the fees deferred by the Director
as provided in the Plan and the Common Stock Equivalents into which such
deferred fees are deemed invested pursuant to the Plan.
(f) "Director" means a member of the Board who is not an employee of
the Company. For purposes of the Plan, an employee is an individual whose
wages are subject to the withholding of federal income tax under section
3401 of the Internal Revenue Code.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(h) "Fair Market Value" means as of any applicable date the closing
sale price of a share of Stock on the Composite Tape for New York Stock
Exchange-Listed Stocks, or, if Stock is not quoted on the Composite Tape,
on the New York Stock Exchange, or, if Stock is not listed on such
Exchange, on the principal United States securities exchange registered
under the Exchange Act on which Stock is listed, or, if Stock is not listed
on any
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such exchange, the last closing bid quotation with respect to a share of
Stock immediately preceding the time in question on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use (or any other system of reporting or ascertaining
quotations then available), or if Stock is not so quoted, the fair market
value at the time in question of a share of Stock as determined by the
Board in good faith.
(i) "Incumbent Members" means the members of the Board on the date
immediately preceding the commencement of a twelve-month period, provided
that any person becoming a Director during such twelve-month period whose
election or nomination for election was approved by a majority of the
Directors who, on the date of such election or nomination for election,
comprised the Incumbent Members shall be considered one of the Incumbent
Members in respect of such twelve-month period.
(j) "Internal Revenue Code" means the Internal Revenue Code of 1986,
as amended from time to time.
(k) "Payment Date" means each of the dates each year on which the
Company pays fees to Directors.
(l) "Stock" means the $.001 par value common stock of the
Company.
2.2 Gender and Number. Except when otherwise indicated by the context, the
masculine gender shall also include the feminine gender, and the definitions of
any term herein in the singular shall also include the plural.
SECTION 3. PLAN ADMINISTRATION
The Plan shall be administered by the Administrative Committee, comprised
of the Chief Financial Officer and the Secretary of the Company. Subject to the
limitations of the Plan, the Administrative Committee shall have the sole and
complete authority: (i) to impose such limitations, restrictions and conditions
as it shall deem appropriate, (ii) to interpret the Plan and to adopt, amend and
rescind administrative guidelines and other rules and regulations relating to
the Plan and (iii) to make all other determinations and to take all other
actions necessary or advisable for the implementation and administration of the
Plan. Notwithstanding the foregoing, the Administrative Committee shall have no
authority, discretion or power to alter any terms or conditions specified in the
Plan. The Administrative Committee's determinations on matters within its
authority shall be conclusive and binding upon the Company, the Directors and
all other persons.
SECTION 4. STOCK SUBJECT TO THE PLAN
4.1 Number of Shares. There shall be authorized for issuance under the
Plan, in accordance with the provisions of the Plan, 300,000 shares of Stock.
This authorization may be increased from time to time by approval of the Board
and by the shareholders of the Company if the Board determines that such
shareholder approval is required. The Company shall at all times during the term
of the Plan retain as authorized and unissued Stock at least the number of
shares from time to time required under the provisions of the Plan, or otherwise
assure itself of its ability to perform its obligations hereunder. The shares of
Stock issuable hereunder shall be authorized and unissued shares or previously
issued and outstanding shares of Stock reacquired by the Company.
4.2 Adjustments Upon Changes in Stock. If there shall be any change in the
Stock, through merger, consolidation, reorganization, recapitalization, stock
dividend, stock split, spinoff, split up, dividend in kind or other change in
the corporate structure or distribution to the shareholders, appropriate
adjustments shall be made by the Administrative Committee (or if the Company is
not the surviving corporation in any such transaction, the board of directors of
the surviving corporation) in the aggregate number and kind of shares subject to
the Plan and the number and kind of shares which may be issued under the Plan.
Appropriate adjustments may also be made by the Administrative Committee in the
terms of Common Stock Equivalents under the Plan to reflect such changes and to
modify any other terms on an equitable basis as the Administrative Committee in
its discretion determines.
SECTION 5. DEFERRALS AND DISTRIBUTIONS
5.1 Deferral Elections. A Director may elect to defer receipt of all or a
specified portion of the annual director's fee, the annual committee chair's
fee, the annual chairman of the board's fee and/or meeting and other fees
payable in
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cash to the Director for serving on the Board or any committee thereof. A
Director may make the elections permitted hereunder by giving written notice to
the Company in a form approved by the Administrative Committee. The notice shall
include: (i) the percentage or dollar amount of fees to be deferred, (ii) the
date as of which deferral is to commence and (iii) subject to the limitations of
this Section 5, the year in which distribution is to commence and the form
(i.e., lump sum or installments over a stated number of years) of distribution.
Amounts deferred by a Director pursuant to this Section 5.1 shall be converted
into Common Stock Equivalents in accordance with Section 5.3.
5.2 Time for Electing Deferral and Change in Election. An election to defer
fees shall be made in the first instance prior to the first meeting of the Board
following the Company's 1996 annual meeting of shareholders and, thereafter,
prior to the latest to occur of the following: (i) the beginning of the calendar
year for which the fees are to be earned; (ii) such Director's first day of
Board service in that year; or (iii) the thirty-first day following the date the
Director first becomes eligible to participate in the Plan; provided that, an
election made on or after the first day of a calendar year shall only apply to
fees earned after the date of the election. An election to defer, once made, is
irrevocable for the first calendar year with respect to which the election is
made, except as provided in Section 5.12 hereof. An election to defer, once
made, shall continue to be effective for succeeding calendar years until
revoked or modified by the Director by written request to the Administrative
Committee prior to the beginning of a calendar year for which fees would
otherwise be deferred.
5.3 Deferred Stock Equivalent Accounts. A Deferred Stock Equivalent Account
shall be established for each Director. Fees deferred by a Director shall be
credited to such Account as of the date such amounts would have otherwise been
paid in cash to the Director, and shall be converted into Common Stock
Equivalents based on Fair Market Value as of the date such amounts would have
otherwise been paid in cash to the Director. A Director's Deferred Stock
Equivalent Account shall also be credited with the Company matching deferral
pursuant to Section 5.4 and with dividend equivalents and other distributions
pursuant to Section 5.5.
5.4 Company Matching Deferral. At such time or times as a Director's fees
are deferred and credited to his or her Deferred Stock Equivalent Account as
Common Stock Equivalents pursuant to Section 5.3, the Company shall match 25% of
such deferred fees by crediting such Deferred Stock Equivalent Account with
additional Common Stock Equivalents equal to 25% of the number of Common Stock
Equivalents attributable to the Director's deferred fees.
5.5 Dividend Equivalents. Dividends and other distributions with respect to
Common Stock Equivalents shall be deemed to have paid as if such Common Stock
Equivalents were actual shares of Stock issued and outstanding on the respective
record or distribution dates. Common Stock Equivalents shall be credited to a
Director's Deferred Stock Equivalent Account in respect of cash dividends and
any other securities or property distributed with respect to the Stock in
connection with reclassifications, spinoffs and the like on the basis of the
value of the dividend or other asset distributed and the Fair Market Value of
the Common Stock Equivalents on the date of the announcement of the dividend or
asset distribution, all at the same time and in the same amount as dividends or
other distributions are paid or distributed with respect to the Stock.
Fractional shares shall be credited to a Director's Deferred Stock Equivalent
Account cumulatively, but the balance of shares of Common Stock Equivalents in a
Director's Deferred Stock Equivalent Account shall be rounded to the next
highest whole share for any distribution to such Director pursuant to this
Section 5.
5.6 Statement of Accounts. A statement as to the balance of his or her
Deferred Stock Equivalent Account will be sent to each Director at least once
each calendar year.
5.7 Payment of Accounts. As soon as practicable following termination of
service as a Director, a Director shall receive a distribution of his Deferred
Stock Equivalent Account as directed by the Director in his most recent election
deferral notice, provided, however, that any such notice, other than the initial
such notice, shall not be effective to direct the time and manner of
distribution of the Director's Deferred Stock Equivalent Account unless such
notice is received by the Administrative Committee at least two years prior to
the effective date of the Director's termination of service. Either a lump sum
or the first of a stated number of equal annual installments shall be paid in
the year of such termination. Succeeding installments (if any) shall be paid on
January 31 of each calendar year
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following the calendar year in which the first payment was made. Such
distribution(s) shall consist of one share of Stock for each Common Stock
Equivalent credited to such Director's Deferred Stock Equivalent Account as of
the Payment Date immediately preceding the date of distribution.
5.8 Payments Following the Death of a Director. In the event of a
Director's death before the balance of his Deferred Stock Equivalent Account is
fully paid, payment of the balance of the Director's Deferred Stock Equivalent
Account shall then be made to the beneficiary or beneficiaries, at such time or
times and in such manner as shall be designated by the Director pursuant to
Section 5.9 or, in the absence of a designation as to the time and manner of
payment, in the time and manner selected by the Administrative Committee. The
Administrative Committee may, in its discretion, take into account the
application of any designated beneficiary and direct that the balance of the
Director's Deferred Stock Equivalent Account be paid to such beneficiary in the
manner requested by such application.
5.9 Designation of Beneficiary. A Director shall file with the
Administrative Committee a written designation of one or more persons as the
beneficiary who shall be entitled to receive the amount, if any, payable
hereunder after the Director's death. Such designation shall also specify the
manner and the time or times at which such amount shall be paid. A Director may,
from time to time, revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Administrative Committee. The last such designation received by the
Administrative Committee shall be controlling; provided, however, that no
designation, or change or revocation thereof, shall be effective unless received
by the Administrative Committee prior to the Director's death and in no event
shall it be effective as of a date prior to its receipt. If no such beneficiary
designation is in effect at the time of the Director's death, or if no
designated beneficiary survives the Director, the Director's estate shall be
deemed to have been designated his beneficiary and the executor or administrator
thereof shall receive the amount, if any, payable hereunder after the Director's
death. If the Administrative Committee is in doubt as to the right of any person
to receive all or part of such amount, the Company may retain such amount until
the rights thereto are determined, or the Company may pay such amount into any
court of appropriate jurisdiction and such payment shall be a complete discharge
of the liability of the Company therefor.
5.10 Change in Control. Notwithstanding any provision of this Plan to the
contrary, in the event of a Change in Control, each Director shall receive,
within ten (10) days of the date of such Change in Control a lump sum
distribution in the number of shares of Stock equal to the number of Common
Stock Equivalents credited to such Director's Deferred Stock Equivalent Account
as of the date of the Change in Control.
5.11 Emergency Payments. In the event of an "unforeseeable emergency" as
defined herein, the Administrative Committee may determine the amounts payable
under Section 5 hereof and pay all or a part of such amounts in shares of Stock
without regard to the payment dates otherwise determined pursuant to Sections
5.7, 5.8 and 5.9, to the extent the Administrative Committee determines that
such action is necessary in light of immediate and substantial needs of the
Director (or his beneficiary) occasioned by severe financial hardship. For the
purposes of this Section, an "unforeseeable emergency" is a severe financial
hardship to the Director resulting from a sudden and unexpected illness or
accident of the Director or beneficiary, or of a dependent (as defined in
Section 152(a) of the Internal Revenue Code) of the Director or beneficiary,
loss of the Director's or beneficiary's property due to casualty, or other
similar extraordinary and unforeseeable circumstances arising as a result of
events beyond the control of the Director or beneficiary. Payments shall not be
made pursuant to this Section to the extent that such hardship is or may be
relieved: (a) through reimbursement or compensation by insurance or otherwise,
(b) by liquidation of the Director's or beneficiary's assets, to the extent the
liquidation of such assets would not itself cause severe financial hardship or
(c) by cessation of the Director's deferrals under the Plan. Such action shall
be taken only if a Director (or a Director's legal representatives or
successors) signs an application describing fully the circumstances which are
deemed to justify the payment, together with an estimate of the amounts
necessary to prevent such hardship, which application shall be approved by the
Administrative Committee after making such inquiries as the Administrative
Committee deems necessary or appropriate.
5.12 Payment of Taxable Amount. Notwithstanding any other provision of this
Section 5 or any payment schedule directed by a Director pursuant to Sections
5.7, 5.8 or 5.9 regardless of whether payments have commenced under this Section
5, in the event that the Internal Revenue Service should finally determine that
part or
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all of the value of a Director's Deferred Stock Equivalent Account which has not
actually been distributed to the Director is nevertheless required to be
included in the Director's or beneficiary's gross income for federal income tax
purposes, then the balance of the Deferred Account or the part thereof that was
determined to be includable in gross income shall be distributed in shares of
Stock to the Director or beneficiary, as the case may be, in a lump sum as soon
as practicable after such determination, without any action or approval by the
Administrative Committee. A "final determination" of the Internal Revenue
Service for purposes of this Section is a determination in writing by said
Service ordering the payment of additional tax, reporting of additional gross
income or otherwise requiring Plan amounts to be included in gross income, which
is not appealable or which the Director or beneficiary does not appeal within
the time prescribed for appeals.
SECTION 6. GENERAL CREDITOR STATUS
Each participating Director and beneficiary designated by a Director shall
be and remain an unsecured general creditor of the Company with respect to any
payments due and owing to such Director or beneficiary hereunder. All payments
to persons entitled to benefits hereunder shall be made out of the general
assets and shall be solely the obligation of the Company. The Plan is a promise
by the Company to pay benefits in the future and it is the intention of the
Company and participating Directors that the Plan be "unfunded" for tax purposes
(and for the purposes of Title I of the Employee Retirement Income Security Act
of 1974 ("ERISA")).
SECTION 7. CLAIMS PROCEDURES
If a claim for benefits made by any person (the "Applicant") is denied, the
Administrative Committee shall furnish to the Applicant, within 90 days after
its receipt of such claim (or within 180 days after such receipt if special
circumstances require an extension of time), a written notice which: (i)
specifies the reasons for the denial, (ii) refers to the pertinent provisions of
the Plan on which the denial is based, (iii) describes any additional material
or information necessary for the perfection of the claim and explains why such
material or information is necessary and (iv) explains the claim review
procedures. Upon the written request of the Applicant submitted within 60 days
after receipt of such written notice, the Administrative Committee shall afford
the Applicant a full and fair review of the decision denying the claim and, if
so requested: (i) permit the Applicant to review any documents which are
pertinent to the claim, (ii) permit the Applicant to submit to the
Administrative Committee issues and comments in writing and (iii) afford the
Applicant an opportunity to meet with the Administrative Committee as a part of
the review procedure. Within 60 days after its receipt of a request for review
(or within 120 days after such receipt if special circumstances, such as the
need to hold a hearing, require an extension of time) the Administrative
Committee shall notify the Applicant in writing of its decision and the reasons
for its decision and shall refer the Applicant to the provisions of the Plan
which form the basis for its decision.
SECTION 8. ASSIGNABILITY
The right of a Director and his beneficiary to receive payments or
distributions hereunder shall not be subject in any manner to anticipation,
alienation, sale, transfer (other than by will or the laws of descent and
distribution), assignment, pledge, encumbrance, attachment, or garnishment by
creditors of a participating Director or his beneficiary.
SECTION 9. PLAN TERMINATION, AMENDMENT AND MODIFICATION
The Plan shall automatically terminate at the close of business on the
fifteenth anniversary of the effective date unless sooner terminated by the
Board. The Board may at any time terminate, and from time to time may amend or
modify the Plan, provided, however, that no amendment or modification may become
effective without approval of the amendment or modification by the shareholders
if shareholder approval is required to enable the Plan to satisfy any applicable
federal or state statutory or regulatory requirements, and, provided further
that no termination, amendment or modification shall reduce the then existing
balance of any Director's Deferred Stock Equivalent Account or otherwise
adversely change the terms and conditions thereof without the Director's
consent.
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SECTION 10. GOVERNING LAW/PLAN CONSTRUCTION
The Plan and all agreements hereunder shall be construed in accordance with
and governed by the laws of the State of New York. Nothing in this document
shall be construed as an employment agreement or in any way impairing the right
of the Company, the Board or its committees or the Company's shareholders, to
remove a Director from service as a director, to refuse to renominate or reelect
such person as a director, or to enforce the duly adopted retirement policies of
the Board.
A-6
<PAGE>
Exhibit 10.2(c)
FIRST AMENDMENT TO THE
HORACE MANN EDUCATORS CORPORATION
1991 STOCK INCENTIVE PLAN
The Horace Mann Educators Corporation 1991 Stock Incentive Plan (the "Plan") is
amended effective 11 September 1996, as follows:
1. Amend Section 1(l) to read as follows: "Outside Director" shall mean a
director who satisfies both (i) the requirements for an "outside director" as
set forth in Section 162(m) of the Code and Treasury Reg. Section 1.162-
27(e)(3)(i) promulgated thereunder and (ii) the requirements for a "non-employee
director" set forth in Rule 16b-3 under the Securities and Exchange Act of 1934,
as amended, or successor requirements thereto.
2. Amend the first paragraph of Section 2 to read as follows: The Plan
shall be administered by a committee of the Board composed of not less than two
Outside Directors, appointed by and serving at the pleasure of the Board.
3. Add a new paragraph to become the second paragraph of Section 3, to
read as follows: The number of shares with respect to which Stock Options or
Stock Appreciation Rights may be granted during any calendar year to any one
person (awards of Stock Options and of Stock Appreciation Rights granted in
tandem with each other being deemed to have been granted with respect to the
same shares) shall not in the aggregate exceed 500,000.
<PAGE>
Exhibit 11
Horace Mann Educators Corporation
Computation of Net Income per Share
For the Three and Nine Months Ended September 30, 1996 and 1995
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Primary - reported:
Weighted average number of common shares
outstanding during the period 23,474 23,141 23,449 25,594
------- ------- ------- -------
Net income for the period $16,324 $19,157 $48,838 $52,503
------- ------- ------- -------
Net income per share - assuming no dilution $ 0.69 $ 0.83 $ 2.08 $ 2.05
======= ======= ======= =======
Primary:
Weighted average number of common shares
outstanding during the period 23,474 23,141 23,449 25,594
Weighted average number of common equivalent
shares to reflect the dilutive effect of
common stock equivalent securities:
Warrants 118 112 117 109
Stock options 307 224 291 171
Common stock units related
to Deferred Equity
Compensation Plan for Directors 2 - 1 -
------- ------- ------- -------
Total common and common equivalent shares 23,901 23,477 23,858 25,874
------- ------- ------- -------
Net income per share $ 0.68 $ 0.82 $ 2.05 $ 2.03
======= ======= ======= =======
Percentage of dilution compared to reported
net income per share 1.4% 1.2% 1.4% 1.0%
</TABLE>
(Continued on next page)
<PAGE>
Exhibit 11 (continued)
Horace Mann Educators Corporation
Computation of Net Income per Share
For the Three and Nine Months Ended September 30, 1996 and 1995
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------- ------------------
September 30, September 30,
------------------- ------------------
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary - reported:
Weighted average number of common shares
outstanding during the period 23,474 23,141 23,449 25,594
------- ------- ------- -------
Net income for the period $16,324 $19,157 $48,838 $52,503
------- ------- ------- -------
Net income per share - assuming no dilution $ 0.69 $ 0.83 $ 2.08 $ 2.05
======= ======= ======= =======
Fully diluted:
Weighted average number of common shares
outstanding during the period 23,474 23,141 23,449 25,594
Weighted average number of common equivalent
shares to reflect the dilutive effect of
common stock equivalent securities:
Warrants 118 113 118 113
Stock options 307 248 303 248
Common stock units related
to Deferred Equity
Compensation Plan for Directors 2 - 1 -
Weighted average number of common equivalent
shares to reflect the dilutive effect of
convertible notes - 2,857 - 2,857
------- ------- ------- -------
Total common and common equivalent shares
adjusted to calculate fully diluted
earnings per share 23,901 26,359 23,871 28,812
------- ------- ------- -------
Net income for the period $16,324 $19,157 $48,838 $52,503
Interest expense, net of tax,
on convertible notes - 1,003 - 3,014
------- ------- ------- -------
Adjusted net income for the period $16,324 $20,160 $48,838 $55,517
------- ------- ------- -------
Net income per share -
assuming full dilution $ 0.68 $ 0.76 $ 2.05 $ 1.93
======= ======= ======= =======
Percentage of dilution compared to
reported net income per share 1.4% 8.4% 1.4% 5.9%
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND> This schedule contains summary financial information extracted from
the Consolidated Balance Sheet and the Consolidated Statement of Operations and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-30-1996
<DEBT-HELD-FOR-SALE> 2,614,742<F1>
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 42,894
<REAL-ESTATE> 8,549
<TOTAL-INVEST> 2,737,968
<CASH> 12,027
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 75,173
<TOTAL-ASSETS> 3,746,285
<POLICY-LOSSES> 2,151,705<F2>
<UNEARNED-PREMIUMS> 154,489
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 120,516
<NOTES-PAYABLE> 149,555
<COMMON> 29
0
0
<OTHER-SE> 450,807
<TOTAL-LIABILITY-AND-EQUITY> 3,746,285
408,669
<INVESTMENT-INCOME> 149,185
<INVESTMENT-GAINS> 2,611
<OTHER-INCOME> 0
<BENEFITS> 296,230
<UNDERWRITING-AMORTIZATION> 32,002
<UNDERWRITING-OTHER> 77,126
<INCOME-PRETAX> 66,040
<INCOME-TAX> 17,202
<INCOME-CONTINUING> 48,838
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 48,838
<EPS-PRIMARY> 2.08
<EPS-DILUTED> 2.08
<RESERVE-OPEN> 00000000
<PROVISION-CURRENT> 00000000
<PROVISION-PRIOR> 00000000
<PAYMENTS-CURRENT> 00000000
<PAYMENTS-PRIOR> 00000000
<RESERVE-CLOSE> 00000000
<CUMULATIVE-DEFICIENCY> 00000000
<FN>
<F1> Refer to Note 3 - Investments of the Company's Consolidated Notes to
Financial Statements for September 30, 1996.
<F2> Refer to the Company's Consolidated Balance Sheet as of September 30, 1996.
</FN>
</TABLE>
