<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM 10-K
(MARK ONE) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
[X] OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
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 NO. 1-11195
------------------------
LIFE PARTNERS GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C>
DELAWARE 75-2301836
(State of Incorporation) (I.R.S. Employer
Identification Number)
7887 EAST BELLEVIEW AVENUE
ENGLEWOOD, COLORADO 80111
(Address of principal executive (Zip code)
offices)
</TABLE>
Registrant's telephone number, including area code: (303) 779-1111
Securities registered pursuant to Section 12(b) of the Act:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE ON WHICH
TITLE OF EACH CLASS: REGISTERED:
- ---------------------------------------- ----------------------------------------
<S> <C>
Common Stock, $.001 par value New York Stock Exchange, Inc.
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1935 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. _X_ YES __ NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ X ]
The aggregate market value of the shares of Common Stock held by
non-affiliates of the Registrant, based on the closing price of the Common Stock
on the New York Stock Exchange, Inc. on March 15, 1996, was approximately $363
million. (For the purposes of this computation, all directors, officers and 10%
beneficial stockholders of the Registrant are deemed to be affiliates.)
As of March 15, 1996, 27,921,585 shares of Common Stock were outstanding.
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<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Life Partners Group, Inc. ("Life Partners") is an insurance holding company
that, through its three principal insurance subsidiaries, Massachusetts General
Life Insurance Company ("Massachusetts General"), Philadelphia Life Insurance
Company ("Philadelphia Life"), and Lamar Life Insurance Company ("Lamar Life"),
sells a diverse portfolio of universal life insurance and, to a lesser extent,
annuity products to individuals. The Company's life insurance and annuity
products are designed to encourage persistency and provide a basis for shifting
the cost of early policy termination to the policyholder rather than the Company
through the use of surrender charges. The Company rewards long-term
policyholders by crediting bonus interest to the policyholders account balance
after a period of years specified in the contract. The Company has a substantial
amount of traditional and universal life insurance in force, amounting to $58.7
billion at December 31, 1995. Life Partners' principal subsidiaries are rated "A
(Excellent)" by A.M. Best and have ratings for claims paying ability of "A+"
from Duff & Phelps.
Unless the context otherwise requires, as used herein "Life Partners" refers
to Life Partners Group, Inc.; "Company" refers to Life Partners and its
subsidiaries on a consolidated basis; "Massachusetts General" refers to
Massachusetts General Life Insurance Company; "Philadelphia Life" refers to
Philadelphia Life Insurance Company; "Lamar Life" refers to Lamar Life Insurance
Company; and "Wabash" refers to Wabash Life Insurance Company. Lamar Life is a
wholly owned subsidiary of Philadelphia Life , Massachusetts General and
Philadelphia Life are wholly owned subsidiaries of Wabash, and Wabash is a
wholly owned subsidiary of Life Partners.
Life Partners did not have any significant operations before the acquisition
of its life insurance subsidiaries ("Acquisition") from a subsidiary of I.C.H.
Corporation ("Prior Owner"), which was completed on March 30, 1990. The Company
has accounted for the Acquisition in accordance with the purchase accounting
method. Under this method, the operations of the acquired subsidiaries have been
included in the Company's consolidated financial statements since the date of
the Acquisition. Consequently, in accordance with applicable financial reporting
rules, all financial information included in this report for periods after March
30, 1990, relates to the Company, while all financial information for periods
before March 31, 1990, relates to the predecessor operations of the acquired
subsidiaries (collectively, "Predecessor").
On April 28, 1995, Life Partners acquired Lamar Financial Group, Inc.,
together with all its subsidiaries, including Lamar Life Insurance Company of
Jackson, Mississippi, for a purchase price of $77 million. The acquisition added
$1.2 billion of assets to Life Partners. The acquisition of Lamar Life provided
an additional distribution system in universal life insurance, annuity and group
health products, as well as providing for consolidation efficiencies at the
Englewood, Colorado main administrative center. The acquisition was accounted
for using the purchase method of accounting and the Consolidated Financial
Statements include Lamar's assets and liabilities as of December 31, 1995, and
its results of operations and cash flows from the date of acquisition only. As
such, 1995 amounts and other data may not be comparable to those of prior
periods.
On March 11, 1996, the Company and Conseco, Inc. ("Conseco") jointly entered
into a definitive merger agreement providing for all shareholders of the Company
to receive Conseco stock for each of their shares through a share exchange based
upon a value of $21.00 per share for Life Partners stockholders. The total value
of the transaction would be approximately $840 million, including $600 million
to purchase the Company's outstanding common stock and $240 million of existing
debt to be assumed by Conseco. Under the merger agreement, Life Partners would
become a wholly owned subsidiary of Conseco. Consummation of the merger is
subject to customary terms and conditions, including approval by both the
stockholders of the Company and Conseco and regulatory authorities.
1
<PAGE>
The following table illustrates the historical consolidated direct collected
premiums by product category and total collected premiums for the indicated
periods:
<TABLE>
<CAPTION>
COLLECTED PREMIUMS
FOR THE YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------------------------
FIRST YEAR RENEWAL OVER CONTROL (1) TOTAL
---------------------- ---------------------- ---------------------- ----------------------
1995 $ % $ % $ % $ %
- --------------------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Universal life................... $ 88.2 14.2% $ 256.9 41.4% $ 64.0 10.3% $ 409.1 65.9%
Individual whole and term life... 3.3 0.5 101.5 16.4 104.8 16.9
--------- --- --------- --- --------- --- --------- -----
Total life................... 91.5 14.7 358.4 57.8 64.0 10.3 513.9 82.8
--------- --- --------- --- --------- --- --------- -----
Tax qualified annuities.......... 23.3 3.8 21.9 3.5 45.2 7.3
Non-tax qualified annuities...... 18.1 2.9 43.4 7.0 61.5 9.9
--------- --- --------- --- --------- --- --------- -----
Total annuities.............. 41.4 6.7 65.3 10.5 106.7 17.2
--------- --- --------- --- --------- --- --------- -----
Direct premiums
collected................. $ 132.9 21.4% $ 423.7 68.3% $ 64.0 10.3% 620.6 100.0%
--------- --- --------- --- --------- --- -----
--------- --- --------- --- --------- --- -----
Less reinsurance premiums.. (123.3)
---------
Collected premiums....... $ 497.3
---------
---------
<CAPTION>
1994 $ % $ % $ % $ %
- --------------------------------- --------- ----------- --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Universal life................... $ 71.7 14.9% $ 206.7 43.1% $ 52.1 10.9% $ 330.5 68.9%
Individual whole and term life... 3.4 0.7 48.2 10.1 51.6 10.8
--------- --- --------- --- --------- --- --------- -----
Total life................... 75.1 15.6 254.9 53.2 52.1 10.9 382.1 79.7
--------- --- --------- --- --------- --- --------- -----
Tax qualified annuities.......... 52.6 11.0 20.1 4.2 72.7 15.2
Non-tax annuities................ 22.3 4.6 2.2 0.5 24.5 5.1
--------- --- --------- --- --------- --- --------- -----
Total annuities.............. 74.9 15.6 22.3 4.7 97.2 20.3
--------- --- --------- --- --------- --- --------- -----
Direct premiums
collected................. $ 150.0 31.2% $ 277.2 57.9% $ 52.1 10.9% 479.3 100.0%
--------- --- --------- --- --------- --- -----
--------- --- --------- --- --------- --- -----
Less reinsurance premiums.. (67.5)
---------
Collected premiums....... $ 411.8
---------
---------
</TABLE>
- ------------------------
(1) Amounts paid by the policyholder in excess of fully commissionable control
premiums.
The Company's universal life products are marketed to appeal to a wide array
of consumers in a broad range of income markets. The Company's tax qualified
annuities are primarily marketed as tax qualified salary-reduction retirement
programs to teachers, government employees, and other employees of tax-exempt
organizations. The Company's non-tax qualified annuities are marketed primarily
as tax deferral vehicles to individuals in anticipation of retirement.
LIFE INSURANCE BUSINESS
The Company's in-force life insurance business consists of a diverse
portfolio of universal life and whole life insurance policies, as well as term
life insurance policies. Currently, however, predominantly all life insurance
sales by the Company consist of universal life insurance policies which are sold
to individuals. The Company's universal life insurance policies provide
permanent life insurance with adjustable interest crediting rates based on the
returns earned on the Company's investment portfolio. The Company offers both
flexible premium and fixed premium universal life insurance policies. The
Company's universal life insurance policies provide advantages generally not
available to its whole life and term life policyholders, such as flexibility in
available coverages and timing and amount of premium payments. In addition, the
Company's universal life insurance policies can, depending on policyholder
persistency, provide better long term value, including higher interest returns
and greater cash values, to its policyholders.
2
<PAGE>
The Company's flexible premium and fixed premium universal life insurance
policies differ based on policy provisions affecting the amount and timing of
premium payments. Under the flexible premium universal life policies,
policyholders may vary the frequency and size of their premium payments,
although policy benefits may fluctuate according to such payments. Premium
payments under the fixed premium policies are not variable by the policyholders
during the first five policy years, thereby enhancing the Company's ability to
sell the policies to small pension plans and other tax qualified plan markets.
The Company's universal life insurance products have been designed to
provide a basis for maintaining product profitability after policy issuance
through front-end loads, periodic variable charges, and back-end loads or
surrender charges. Generally, a front-end load is a charge that is paid by the
policyholder to the Company at the time the policy is issued, and such charge
represents the difference between the premium paid by the policyholder and the
amount credited to the policyholder's cash accumulation account. During 1995,
front-end loads and other charges aggregated approximately 35.1% of the total
policy acquisition costs for the Company's universal life policies issued during
the year. Variable charges assessed to the policyholder's accounts on a monthly
basis are generally designed to recover policy administration costs, mortality
costs, and other expenses. Back-end loads or surrender charges are penalties
paid by the policyholder to the Company for early termination. These surrender
charges serve as incentives against a premature or excessive lapse rate.
Policyowners select a "planned premium" which they intend to pay on a regular
basis. Actual premium payments may be increased, decreased or skipped as long as
the account value is sufficient to cover the current month's mortality and
expense charges.
Certain additional information is presented in the table below with respect
to the various categories of the life insurance business in-force.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
(DOLLARS IN
MILLIONS)
In-force at beginning of period (1):
Universal Life.............................................................. $ 35,778 $ 31,210
Traditional whole and term life............................................. 6,638 6,669
--------- ---------
Total..................................................................... $ 42,416 $ 37,879
--------- ---------
--------- ---------
Amount of new business sold during period:
Universal Life.............................................................. $ 9,737 $ 8,928
Traditional whole and term life............................................. 360 383
--------- ---------
Total..................................................................... $ 10,097 $ 9,311
--------- ---------
--------- ---------
Termination rate (2).......................................................... 11.4% 10.9%
--------- ---------
--------- ---------
In-force at end of period (1):
Universal Life.............................................................. $ 46,230 $ 35,778
Traditional whole and term life............................................. 9,273 6,638
--------- ---------
Total..................................................................... $ 55,503 $ 42,416
--------- ---------
--------- ---------
</TABLE>
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(1) Excludes reinsurance assumed, which was $3.2 billion at December 31, 1995
and $2.6 billion at December 31, 1994. Includes in-force of $8.4 billion
acquired with Lamar Life as of December 31, 1995.
(2) Represents the percentage of individual direct policies terminated during
the indicated period by lapse, surrender, conversion, maturity or death.
3
<PAGE>
ANNUITY BUSINESS
In the time between the Company's original entrance into the annuity
marketplace in 1990 and the current period, the economic environment and
interest rates have changed. The Company continues to adjust the marketing and
management of its annuity portfolio to maintain targeted production and to
achieve profitability goals. The following table summarizes the Company's direct
collected annuity premiums and annuity policy account balances:
<TABLE>
<CAPTION>
DIRECT PREMIUMS ACCOUNT BALANCE AT
COLLECTED DECEMBER 31,
------------------------ --------------------------
1995 1994 1995 1994
----------- ----------- ------------- -----------
<S> <C> <C> <C> <C>
(IN THOUSANDS)
Single premium deferred annuities................. $ 32,673 $ 60,431 $ 955,208 $ 745,160
Flexible premium deferred annuities............... 74,022 36,757 286,412 143,549
----------- ----------- ------------- -----------
Total......................................... $ 106,695 $ 97,188 $ 1,241,620 $ 888,709
----------- ----------- ------------- -----------
----------- ----------- ------------- -----------
</TABLE>
The Company's single premium deferred annuities require a one-time lump sum
premium payment and are frequently sold as an alternative to certificates of
deposit. The Company's flexible premium deferred annuities permit annual premium
payments in such amounts as the holder deems appropriate. These are marketed
primarily to teachers, government employees, and employees of tax-exempt
organization as tax qualified salary-reduction retirement programs.
All of the Company's annuity products provide minimum interest rate
guarantees. The minimum guaranteed rates on the Company's annuity products
currently range from 3% to 5% annually and the contracts are designed to permit
the Company to change the crediting rate annually (subject to the minimum
guaranteed rate). The Company takes into account the economic environment of its
annuity business and its relative competitive position in determining the
frequency and extent of the interest crediting rate changes.
The Company's annuity products are designed to ensure persistency and
prevent lapsation. This is accomplished by designing annuity products that
encourage persistency by incorporating surrender charges that exceed the cost of
issuing the annuity. An annuitant may not terminate or withdraw substantial
funds for periods generally ranging from 9 to 12 years without incurring
significant penalties in the form of surrender charges.
MARKETING AND DISTRIBUTION
GENERAL
Life Partners' insurance subsidiaries are collectively licensed to market
the Company's insurance products in all states (except New York) and in the
District of Columbia, and certain protectorates of the United States. The
following table identifies those states that accounted for 5% or more of the
Company's 1995 direct collected premium income from life insurance and annuity
sales to residents in such states.
<TABLE>
<CAPTION>
LIFE INSURANCE PERCENT OF ANNUITIES PERCENT OF
DIRECT COLLECTED PREMIUM INCOME DIRECT COLLECTED PREMIUM INCOME
- ---------------------------------------------------- ----------------------------------------------------
STATE STATE
- --------------------------------------- ---------------------------------------
<S> <C> <C> <C>
California............................. 17% California............................. 30%
Texas.................................. 12 Texas.................................. 16
Florida................................ 7 Illinois............................... 9
Pennsylvania........................... 5 Michigan............................... 6
-- --
Total.............................. 41% Total.................................. 61%
-- --
-- --
</TABLE>
The Company's marketing strategy is based upon its belief that people
generally purchase life insurance or annuity products only after being contacted
and solicited by an insurance agent. Accordingly, the success of the Company's
distribution system is dependent on its ability to attract and retain
4
<PAGE>
independent general agents who are experienced and highly-motivated and who
consistently place with the Company a high volume of life insurance or annuity
products with attractive risk characteristics.
In order to attract and retain such agents, the Company offers commission
rates which increase with sales of new business and bonuses and other
compensation awards which reward persistency and encourage agents to continue to
sell insurance for the Company. Bonuses generally are paid to agents based on
renewal business, although such bonuses also are subject to the agents achieving
a certain minimum level of first year commissions.
LIFE INSURANCE MARKETING SYSTEMS
The Company markets its life insurance products through two primary
marketing systems: the Client Company marketing system (including affiliated
companies) and the regional director marketing system (including Lamar Life
directors of marketing). The Company's use of these two marketing systems for
its life insurance products is the result of the historical independence of its
principal life insurance subsidiaries. The Company also markets a portion of its
sales through an international marketing distribution system. The Company
intends to provide qualified members of its life insurance sales force who meet
certain minimum productivity levels and other criteria with the opportunity to
participate in and share in the profitability of a Client Company.
CLIENT COMPANY MARKETING SYSTEM
The Client Company marketing system is comprised of two distinct types of
organizations. The first is the Agent Owned Reinsurance Company whereby a group
of agents capitalize and form a single state reinsurance company. The second
type is an affiliated company. This is an insurance company or other institution
which has its own distribution system and that may have preferred access to a
client base. In order to enhance its profitability, such institution has entered
into an agreement to market the Company's products through its own distribution
system. Hereafter, the agent owned reinsurance and the affiliated company are
collectively referred to as "Client Company".
The Client Company marketing system utilizes approximately 30 independent
marketing groups. In order for a group to become a Client Company it must
produce at least $2.0 million of annualized premiums on new life insurance
sales. Once a Client Company is established, up to 50% of the business written
by such company is reinsured to the Client Company. This enables it to
participate in the profits and losses attributable to the business it writes.
The Company retains assets equal to the reserves of each Client Company. The
Company provides predominantly all administrative services to the Client
Companies in exchange for a fee.
The Company believes that its Client Company marketing system has a number
of distinct advantages. The Company enjoys the benefits of a highly motivated
agency force while avoiding the costly overhead that normally would be
associated with training and maintaining a captive or direct agency force. In
addition, the Client Company marketing system provides an incentive for the
Client Company to sell a high volume of life insurance having attractive risk
characteristics because the participating Client Company retains an ownership
interest in the business it sells. With respect to the Agent Owned Reinsurance
Company, agents who meet certain production criteria have the opportunity to
receive substantially higher compensation than that typically obtainable under a
traditional agency contract through an ownership interest. Therefore, the agents
have equity capital at risk, and the Company is able to reduce the historical
life insurance industry problem of agents encouraging an existing policy to
lapse and then rewriting the policy with another insurance carrier in order to
obtain another first year commission, which typically is higher than a renewal
commission.
The Company believes that its Client Company marketing system provides it
with a competitive advantage that is not easily duplicated by other insurers.
The success of the Client Company marketing system is highly influenced by an
effective Client Company ownership structure and reinsurance arrangements.
Because of the interdependent nature of the Company's insurance products and the
Client Company marketing system, the development of a Client Company marketing
system takes a
5
<PAGE>
substantial amount of time and cost to design and implement. The structuring of
the products to be sold by the Client Company's marketing system, as compared to
similar products sold by other insurance companies, reflect a reduced front-end
commission and a desire to obtain back-end profitability on the business sold
through this specialized marketing system.
Of the Company's $104.9 million of gross annualized premiums on new life
insurance sales generated during 1995, $75.1 million (or 71.6%) was produced by
agents participating in the Client Company marketing system. This represents an
increase of $3.5 million (or 4.9%) over the Client Company annualized gross
premium production of $71.6 million for 1994. In 1995, the Client Companies
generated aggregate statutory earnings of $2.6 million from their share of the
reinsured business. Such earnings represent a $0.1 million (or 3.7%) decrease
from 1994 client company statutory earnings of $2.7 million due primarily to
expenses charged back to client companies for their prorata share of costs
incurred by the Company in connection with the settlement of a class action
lawsuit in 1995 (See Item 3, Legal Proceedings).
REGIONAL DIRECTOR MARKETING SYSTEM
The Company's regional director marketing system, including the directors of
marketing system acquired with Lamar Life, utilizes 35 regional
directors/directors of marketing, who market the Company's life insurance
products through agents they recruit. Similar to the Client Company marketing
system, none of the regional directors/directors of marketing are employed by
the Company, but each of them is party to a general agency agreement which
governs the terms of their arrangement with the Company. The regional
directors/directors of marketing who represent the Company may also represent
other insurers. Of the $104.9 million of gross annualized premiums on new life
insurance sales generated by the Company during 1995, $16.0 million (or 15.3%)
was derived from sales through the Company's regional director/director of
marketing distribution system. No single regional director/director of marketing
accounted for more than of 5% of the Company's total direct first year life
insurance premiums in 1995.
INTERNATIONAL MARKETING
In addition to its domestic distribution, Lamar Life distributes its
universal life insurance products on a selective basis to wealthy individuals in
certain Asian and Latin American countries. The Company believes that such
products, which are U.S. dollar denominated, appeal to such purchasers for the
savings benefit as well as the death benefit. The Company limits its risk on
such products through selective marketing, control of policy terms, and strict
underwriting standards.
ANNUITY MARKETING
Since 1990, the annuity products offered by the Company have been marketed
through two independent marketing groups. One of the annuity marketing groups
sells primarily retirement-oriented financial products. In addition, the Company
has a marketing arrangement with another annuity marketing group which
distributes annuities to teachers and small businesses. Sales of the Company's
annuity products represent a substantial percentage of the business of each of
these two groups' revenues and, as such, the Company does not believe either of
these groups will discontinue marketing the Company's annuity products in the
near future. In addition, through the acquisition of Lamar Life, the Company
markets annuities through independent agents.
GROUP INSURANCE
With the acquisition of Lamar Life, the Company added a group accident and
health distribution system to its existing life and annuity structure. Lamar
Life's group insurance business is designed primarily to generate fee income for
the Company. Accordingly, substantially all group insurance business written by
Lamar Life is reinsured with qualified reinsurers. The Company's group insurance
strategy is to provide various administrative, marketing, and other services to
a wide range of clients who provide health care programs. The Company also
selectively retains limited insurance risk relating to such health care
programs.
6
<PAGE>
INSURANCE OPERATIONS
The Company's Model Company strategy allows it to be a low cost provider of
life insurance and annuity products, and therefore, provides it with the
opportunity to offer competitive services to agents and policyholders. The
Company promotes operating efficiencies through the centralization,
standardization, and integration of services common to its operating
subsidiaries, including policy and claims administration, underwriting, product
development, marketing, accounting and financial reporting, regulatory
compliance, and investment management. The Company believes that the
centralization of such services promotes cost efficiencies by facilitating the
optimum use of existing personnel and facilities within its holding company
system and by enabling it to reduce or eliminate many duplicate costs connected
with maintaining separate, free standing operations.
The Company also attempts to reduce costs by standardizing, in accordance
with its Model Company strategy, many of the procedures and data processing
systems used for the performance of common services. This standardization also
enables the Company to facilitate cost control through the use of activity
indicators such as cost per policy, employee hours per function, policies per
employee, and total costs per employee to set performance objectives and
evaluate operating efficiency. The Company believes that uniformity in its
procedures and systems permits the effective interchange of employees and the
efficient combination of the facilities and operations of the Company. As a
result, many duplicate costs connected with training and employing personnel and
with leasing or owning offices, data processing equipment, and other facilities
are reduced or eliminated.
In order to continue as a low cost provider of life insurance products and
services, the Company has recently introduced a computerized underwriting
program which will enable it to issue certain policy amounts in a faster and
more efficient manner.
LIFE INSURANCE UNDERWRITING
The Company has adopted and follows detailed, uniform underwriting
procedures designed to assess and quantify insurance risks before issuing life
insurance policies to individuals. To implement these procedures, the Company
employs a professional underwriting staff of 15 persons, each of whom have an
average of 19 years of experience in the insurance industry. The underwriting
practice of the Company is to require medical examinations of applicants for
life insurance in excess of prescribed policy amounts ranging from $50,000 to
$350,000. These requirements are graduated according to the face amount of the
policy and the applicant's age. The Company also carefully reviews medical
records and each applicant's written application for insurance, which is
generally prepared under the supervision of the Company's agents. In accordance
with industry practice and state statutes, material misrepresentations on a
policy application can result in the cancellation by the Company of the policy
upon the return of any premiums paid. The increasing incidence of Acquired
Immune Deficiency Syndrome ("AIDS") is expected to affect mortality adversely
for the life insurance industry. Where permitted by law, the Company has
responded by considering AIDS information in underwriting and pricing decisions.
A prospective policyholder must submit to a blood test, which includes AIDS
antibody screening, if the total amount of coverage applied for plus any
coverage in force is in excess of prescribed amounts. Effective January 15,
1996, the prescribed limits were lowered to coverage in excess of $100,000. Such
reductions, in addition to other underwriting revisions, were implemented to
ensure more thorough and effective underwriting of new policies issued. On its
international business, the Company also uses a variety of risk control
techniques, such as extended contestable periods and violent death exclusions,
in order to limit risk. Over the past five years, the Company has paid
approximately $19.8 million in aggregate death benefits (representing
approximately 4.0% of total death benefits paid by the Company during such
period) on approximately 440 individual life policies due to known AIDS-related
deaths.
REINSURANCE
In keeping with industry practices, and in addition to reinsurance
arrangements entered into with the Client Companies, the Company reinsures
portions of its life insurance exposure with
7
<PAGE>
unaffiliated insurance companies under traditional indemnity reinsurance
agreements. New insurance sales are reinsured above prescribed retention limits
and do not require the reinsurer's prior approval under contracts that are
renewable on an annual basis.
Generally, the Company enters into indemnity reinsurance arrangements to
assist in diversifying its risk and to limit its maximum loss on risks that
exceed the Company's policy retention limits currently ranging from $100,000 to
$500,000 per life. Indemnity reinsurance does not fully discharge the Company's
obligation to pay policy claims on the reinsured business. The ceding insurer
remains responsible for policy claims to the extent the reinsurer fails to pay
such claims. No reinsurer of business ceded by any Life Partners subsidiary has
failed to pay any material policy claims (either individually or in the
aggregate) with respect to such ceded business. At December 31, 1995, excluding
reinsurance with the Client Companies, of the $58.7 billion of life insurance
in-force, the Company had ceded to domestic reinsurers $10.1 billion of
insurance in-force, of which approximately $9.6 billion, or 94.3%, was reinsured
with insurance companies rated "A (Excellent)" or better by A.M. Best. The
Company had also ceded $0.4 billion of insurance in-force to foreign reinsurers.
A.M. Best does issue ratings for foreign life insurance companies; however, such
ratings are not consistent with those issued for domestic life insurers. Also,
at December 31, 1995, the Company reinsured $5.9 billion of life insurance
in-force to the Client Companies.
LIFE INSURANCE AND ANNUITY RESERVES
In accordance with applicable insurance laws, the Company establishes and
carries as liabilities actuarial reserves to meet future obligations under its
life insurance and annuity policies. Life insurance reserves, when added to
interest thereon at certain assumed rates and premiums to be received on
outstanding policies, are calculated to be sufficient to meet policy and
contract obligations. The actuarial factors used in determining such reserves
are based on statutorily prescribed mortality and interest rates. Reserves for
assumed reinsurance are computed on basis essentially comparable to direct
insurance reserves.
COMPETITION
The insurance industry is highly competitive, with approximately 1,800 life
insurance companies in the United States. Many insurance companies and insurance
holding company systems have substantially greater capital and surplus, larger
and more diversified portfolios of life insurance policies and annuities, and
access to larger agency sales forces than the Company. The Company also
encounters increasing competition from banks, securities brokerage firms, and
other financial intermediaries marketing insurance products, annuities, and
other investments such as savings accounts and securities.
The Company believes that the principal competitive factors in the sale of
life insurance and annuity products are product features, perceived stability of
the insurer, service, name recognition, crediting rates, and price. The Company
competes in its markets with numerous major national life insurance companies.
The Company believes that its ability to compete with other insurance companies
is dependent upon its ability to attract and retain agents to market its
insurance products and its ability to develop competitive products that are also
profitable. In connection with the development of its products, the Company
encounters significant competition from other insurance companies, as well as
from other investment alternatives available to its customers. The Company
believes that it has good relationships with its agents and marketing groups,
has an adequate variety of policies approved for issuance, and is generally
competitive within the industry.
REGULATION
The Company is subject to comprehensive regulation in the various states in
which it is authorized to conduct business. The laws of these states establish
supervisory agencies with broad administrative powers, among other things, to
grant and revoke licenses for transacting business, to regulate trade practices,
reserve requirements, the form and content of policies, and the type and amount
of
8
<PAGE>
investments, and to review premium rates for fairness and adequacy. These
supervisory agencies periodically examine the business and accounts of the
Company and require it to file detailed annual convention statements prepared in
accordance with statutory accounting practices.
The Company also may be required, under the solvency or guaranty laws of
most states in which it does business, to pay assessments (up to certain
prescribed limits) to fund policyholder losses or liabilities of insurance
companies that become insolvent. Recent insolvencies of insurance companies
increase the possibility that such assessments may increase. These assessments
may be deferred or forgiven under most guaranty laws if they would threaten an
insurer's financial strength and, in certain instances, may be offset against
future premium taxes. The Company believes that the liability established at
December 31, 1995, is adequate to cover future assessments levied against the
Company. The Company paid $3.6 million and $2.5 million in the years ended
December 31, 1995 and 1994, respectively, as a result of such assessments.
Substantially all states also regulate members of insurance holding company
systems. The Company has registered as a holding company system pursuant to such
legislation in Louisiana, Massachusetts, California, Kentucky and Pennsylvania,
and routinely reports to other jurisdictions. Generally, under insurance holding
company statutes, a state insurance authority must approve in advance the direct
or indirect acquisition of 10% or more of the voting securities of an insurance
company chartered in its state.
The insurance holding company statutes also regulate certain transactions
among affiliates, including the payment of dividends by an insurance company to
its holding company parent. In many states, for example, without the consent of
the state's insurance commissioner, an insurance company may not pay dividends
to its holding company parent in excess of the greater of the insurer's prior
year statutory net gains from operations or 10% of its prior year ending
statutory capital and surplus, subject in either case to sufficient earned
statutory surplus from which such dividends may be paid. Certain states,
however, have recently adopted various, more restrictive dividend tests. Such
recently adopted dividend tests have been adopted in the State of Mississippi,
Lamar Life's state of domicile, but have not been adopted in any of the states
in which any other subsidiary on which the Company currently relies for
dividends is domiciled. Such a test has also been adopted in Kentucky where
Wabash (on which the Company currently relies for surplus debenture payments but
not dividends) is domiciled. Furthermore, the Company believes one of these
tests will be adopted by the other jurisdictions in which a subsidiary on which
the Company currently relies for dividends is domiciled. The Company does not
believe that any new dividend test adopted by such other jurisdictions will have
a material adverse effect on its business as a whole or on the ability of Life
Partners' subsidiaries to pay dividends. If, however, a domiciliary state of any
subsidiary of Life Partners (on which Life Partners relies for dividends)
prohibits the payment of dividends, the Company may not be able to service its
debt obligations.
In addition, the payment of principal under Wabash's surplus debentures
requires the prior consent of the Kentucky Department of Insurance and prior
notification to the California Department of Insurance. Life Partners derives
virtually all of its operating funds directly from surplus debenture payments
and indirectly from dividend payments and tax sharing payments by its insurance
subsidiaries. At December 31, 1995, the aggregate unpaid principal balance of
Wabash's surplus debentures was $269.2 million. Under applicable statutory
accounting practices, the surplus debentures are not treated as liabilities, and
as a result, Wabash's reported statutory capital and surplus totaled $153.6
million at December 31, 1995.
In connection with the receipt of insurance regulatory approval of the
Acquisition, Life Partners entered into certain agreements with various
insurance regulatory authorities relating to the operation of the Company. In
general, Life Partners has agreed with state insurance regulatory authorities
to: (i) restrict Massachusetts General's annual dividends to the amount of net
gain from operations from the preceding calendar year; (ii) cause Massachusetts
General and Philadelphia Life to deposit certain assets into a custodial
account; (iii) furnish certain periodic reports and financial information;
9
<PAGE>
and (iv) cause the percentage of the investment portfolios of the Company that
is invested in non-investment grade debt securities to be no more than 20%. The
approval of the Acquisition by the Massachusetts Department of Insurance also
requires that Massachusetts General maintain its capital and surplus at no less
than $59.7 million. At December 31, 1995, Massachusetts General's capital and
surplus was $74.5 million. Life Partners is in compliance with all such
agreements with insurance regulatory authorities and believes the agreements
will not have a material adverse effect on the operations of its subsidiaries.
Recently, increased scrutiny has been placed upon the insurance regulatory
framework, and a number of state legislatures have considered or enacted
legislative proposals that alter, and in many cases increase, state authority to
regulate insurance companies and their holding company systems. In light of
recent legislative developments, the NAIC and state insurance regulators have
also become involved in a process of re-examining existing laws and regulations
and their application to insurance companies. In particular, this re-examination
has focused on insurance company investment and solvency issues and, in some
instances, has resulted in new interpretations of existing law, the development
of new laws, and the implementation of non-statutory guidelines. The NAIC has
formed committees and appointed advisory groups to study and formulate
regulatory proposals on such diverse issues as the use of surplus debentures,
the accounting for reinsurance transactions, and the adoption of risk-based
capital rules. In addition, in connection with its accreditation of states to
conduct periodic company examinations, the NAIC has encouraged states to adopt
model NAIC laws on specific topics, such as holding company regulations and the
definition of extraordinary dividends.
Legislation has also been introduced in Congress which could result in the
federal government assuming some role in the regulation of the insurance
industry. In addition, budget proposals submitted to Congress in early 1992
included a proposed revision to the Internal Revenue Code of 1986 which would
have eliminated the tax deferral that now applies to investment earnings during
the accumulation period of certain annuities. This proposed revision was
subsequently dropped from consideration and was not enacted by the 102nd
Congress. It is impossible to predict whether similar legislation adversely
affecting the taxation of annuities will be introduced before future sessions of
Congress, whether such legislation would be enacted into law, and, if enacted,
the ultimate content of any such law, including its effective date.
The NAIC has adopted Risk Based Capital ( "RBC" ) rules, which became
effective December 31, 1993, to evaluate the adequacy of statutory capital and
surplus in relation to a company's investment and insurance risks. The RBC
formula will be used by the states as an early warning tool to identify weakly
capitalized companies for the purpose of initiating regulatory action.
Generally, the new RBC requirements provide for four different levels of
regulatory attention depending upon the ratio of a company's total adjusted
capital (defined as the total of its statutory capital, surplus and asset
valuation reserve) to its RBC. The "Company Action Level" is triggered if a
company's total adjusted capital is less than 100% but greater than or equal to
75% of its Company Action Level RBC. At the Company Action Level, the company
must submit a comprehensive plan to the regulatory authority which discusses
proposed corrective actions to improve its capital position. The "Regulatory
Action Level" is triggered if a company's total adjusted capital is less than
75% but greater than or equal to 50% of its Company Action Level RBC. At the
Regulatory Action Level, the regulatory authority will perform a special
examination of the company and issue an order specifying corrective actions that
must be followed. The "Authorized Control Level" is triggered if a company's
total adjusted capital is less than 50% but greater than or equal to 35% of its
Company Action Level RBC, and the regulatory authority may take any action it
deems necessary, including placing the company under regulatory control. The
"Mandatory Control Level" is triggered if a company's total adjusted capital is
less than 35% of its Company Action Level RBC, and the regulatory authority
mandates that the company be placed under its control. At December 31, 1995, the
ratios of the total adjusted capital stated as a percentage of the Company
Action Level RBC were 263%, 222%, 439% and 190% for Philadelphia Life,
Massachusetts General, Lamar Life, and Wabash, respectively.
10
<PAGE>
The Company is also aware of the pending implementation of the Model
Illustration Law as promulgated by the NAIC. This model law will dictate certain
fair practice standards as it relates to an agent's illustration of product
characteristics and profitability to prospective consumers. The Company is not
able to determine the potential effects that those standards may have on product
design, distribution or profitability.
As part of their routine regulatory oversight process, insurance departments
conduct periodic detailed examinations of the books, records, and accounts of
insurance companies domiciled in their states. Such examinations are generally
conducted approximately once every three to five years in cooperation with the
departments of two or three other states under guidelines promulgated by the
NAIC. Massachusetts General, Philadelphia Life and Wabash underwent examinations
by the insurance departments of their respective domiciliary states for the year
ended 1991. The results of those examinations did not have a material impact on
the current capital and surplus of the Company. In addition, Lamar Life
underwent an examination by the insurance department of the State of Mississippi
for the year ended 1994. The results of that examination are still pending.
There can be no assurance that existing insurance-related laws and
regulations will not become more restrictive in the future and thereby have a
material adverse effect on the operations of the Company and the ability of the
Company to pay dividends or on the ability of Wabash to make payments on the
surplus debentures.
EMPLOYEES
At December 31, 1995, the Company employed approximately 730 employees. None
of the employees of the Company or any of its subsidiaries are covered by
collective bargaining agreements, and the Company considers its relations with
its employees to be satisfactory.
ITEM 2. PROPERTIES
The Company's principal operations are conducted from a leased property
consisting of approximately 164,000 square feet of space located at 7887 East
Belleview Avenue, Englewood, Colorado, 80111. The Company leases the space from
an affiliate of the Prior Owner pursuant to a lease that expires in July, 2016.
The Company paid rental expenses under the lease during 1995 of $1.4 million.
The Company previously operated from a leased property consisting of
approximately 11,500 square feet of space located at 200 Crescent Court, Suite
1650, Dallas, Texas, 75201. In the fourth quarter of 1994, the investment
operations of the Company were relocated to Englewood, Colorado and the lease
was subsequently terminated in the first quarter of 1995. The Company incurred
rental and operating expense payments under the Dallas lease of $78,337 and
$207,000 during 1995 and 1994, respectively. The Company's leased space in
Denver and Dallas is sufficient to meet its currently anticipated needs.
With the acquisition of Lamar Life in 1995, the Company also acquired Lamar
Life's home office building located at 317 E. Capitol, Jackson, Mississippi,
39201. This property contains approximately 88,279 square feet of space. Lamar
Life's group accident and health processing facilities remain at the Jackson
location, with approximately 15% of the total square footage under lease to
non-affiliates.
ITEM 3. LEGAL PROCEEDINGS
At December 31, 1994, Philadelphia Life and Massachusetts General were
defendants in a class action originally instituted by a former agent and
policyholder of Philadelphia Life. In the case, the plaintiff alleged that these
companies breached the terms of certain universal life policies by increasing
the cost of insurance rates to pass on a portion of their increased tax
liability resulting from the passage of the Revenue Reconciliation Act in 1990,
which act contained provisions requiring the recognition of taxable income by
the insurer on a percentage of actual premium paid on existing, as well as
subsequently written, individual life policies (the so call "DAC tax"). On July
13, 1995 the Federal District Court in California approved a settlement of this
action, following notice to members of the class. The recording of the liability
associated with this settlement and other related litigation resulted in pre-tax
expense of $14.2 million for the year ended December 31, 1995.
11
<PAGE>
In connection with the Company's acquisition of certain of its insurance
subsidiaries, the seller, I.C.H. Corporation ("I.C.H.") agreed to indemnify the
Company relative to various matters pertaining to the Internal Revenue Service
("IRS") examination for periods prior to the acquisition of said insurance
subsidiaries. To the extent the IRS examination of preacquisition tax years
results in an increase in Philadelphia Life's tax in years subsequent to the
examination, I.C.H. has contractually agreed to reimburse the Company (including
penalties and interest). In addition, Philadelphia Life is a party to an
indemnification agreement between Tenneco Inc. ("Tenneco"), I.C.H. and others
included in the acquisition agreement pursuant to which I.C.H. acquired
Philadelphia Life and other insurance companies from Tenneco.
On October 10, 1995, I.C.H. filed under Chapter 11 for bankruptcy
protection. I.C.H., in publicly released documents, has stated that it had
reached a tentative agreement with the IRS whereby I.C.H.'s insurance
subsidiaries would be subject to approximately $68 million of federal income tax
liability for years in which certain of the Company's insurance subsidiaries
were members of the consolidated federal tax group to which such tax liability
related. All members of a consolidated group of companies may be under federal
law, jointly and severable liable for tax deficiencies related to such group.
The Company has been informed that I.C.H. has paid the tax liability to the IRS.
I.C.H. has orally advised the Company of an intention to file suit against
certain subsidiaries of the Company for contribution of their respective tax
deficiency. At this time, the Company does not believe that it will be
responsible for the payment of said taxes.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not applicable.
12
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
The common stock of the Registrant is listed for trading on the New York
Stock Exchange (the "NYSE") under the symbol LPG. The following table sets forth
the quarterly ranges of high and low sales prices per share on the NYSE and the
dividends paid per share, based upon information supplied by the NYSE.
<TABLE>
<CAPTION>
MARKET PRICE
-------------------- DIVIDEND
PERIOD HIGH LOW PAID
- ------------------------------------------------------------------ --------- --------- -----------
<S> <C> <C> <C>
1995:
First Quarter..................................................... $ 23 1/4 $ 19 5/8 $ 0.02
Second Quarter.................................................... 20 3/4 18 0.03
Third Quarter..................................................... 21 1/8 15 7/8 0.03
Fourth Quarter.................................................... 18 5/8 12 3/8 0.03
1994:
First Quarter..................................................... $ 19 7/8 $ 17 1/8 $ 0.02
Second Quarter.................................................... 19 3/4 15 7/8 0.02
Third Quarter..................................................... 20 3/8 17 1/8 0.02
Fourth Quarter.................................................... 22 18 1/4 0.02
</TABLE>
As of March 15, 1996, there were approximately 114 holders of record of the
27,921,585 outstanding shares of common stock.
DIVIDENDS
The Company's Board of Directors has adopted a policy of paying a regular
quarterly cash dividend on its common stock. The dividends for March 15, 1995,
were $0.02 per share and dividends for June 15, September 15, and December 15,
of 1995, were $0.03 per share. The Company will continue to follow its policy of
retaining most of its earnings in the foreseeable future. The Company's bank
credit facility currently restricts the Company from paying dividends on its
common stock in excess of specified amounts.
The principal operating subsidiaries of the Registrant are life insurance
companies organized under state laws and subject to regulation by state
insurance departments. These laws and regulations limit the ability of an
insurance subsidiary to transfer cash dividends, loans and/or advances to a
holding company such as the Registrant. However, these laws generally permit the
payment, without prior notice or approval, of annual dividends which in the
aggregate do not exceed the greater of (or in some states the lesser of): (i)
the subsidiary's prior year net gain from operations, or (ii) 10 percent of
surplus at the prior year-end, both computed on the statutory basis of
accounting prescribed for insurance companies. See the discussion under Item 7
in this Form 10-K.
13
<PAGE>
ITEM 6. SELECTED HISTORICAL FINANCIAL DATA
Set forth below are the selected consolidated financial data of the Company
as of the dates and for the periods indicated. Statutory data are based upon
statutory accounting practices and were derived from statutory financial
statements filed with state insurance departments. The selected consolidated and
combined financial data below should be read in conjunction with the
consolidated financial statements and the notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Form 10-K.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------------------------------------------
1995 (1) 1994 1993 1992 1991
-------------- ----------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C>
(IN MILLIONS, EXCEPT PER SHARE, POLICY, AND OTHER DATA)
STATEMENT OF OPERATIONS DATA:
Total premium income and other
considerations............................... $ 280.1 $ 217.9 $ 210.8 $ 187.3 $ 187.1
Net investment income......................... 277.1 225.4 221.1 218.6 207.5
Realized gains (losses)....................... 15.8 (19.7) 18.4 23.1 18.6
Other income.................................. 3.1 4.6 5.4 7.5 7.4
-------------- ----------- ----------- ----------- --------------
Total revenues............................ $ 576.1 $ 428.2 $ 455.7 $ 436.5 $ 420.6
Amortization of deferred policy acquisition
costs, cost of insurance acquired, and
deferred policy fees......................... 148.7 46.2 52.0 48.5 32.7
Interest expense.............................. 27.9 20.7 26.0 35.3 43.4
Operating earnings (loss) excluding income
taxes, minority interest, interest expense,
amortization of goodwill, realized gains
(losses) and related amortization (2)........ (9.9) 101.3 96.5 85.7 71.2
Net earnings (loss)........................... (13.4) 34.6 47.2 32.1 22.8
Net earnings (loss) applicable to common
stock........................................ (13.4) 34.6 43.2 16.7 9.4
PER COMMON SHARE AND OTHER DATA:
Net earnings (loss) (3)....................... (0.49) 1.33 1.85 0.62 (0.61)
Operating margin (4).......................... (1.8)% 22.6% 22.1% 20.7% 17.7%
BALANCE SHEET DATA AT END OF PERIOD:
Total cash and invested assets................ $ 3,977.9 $ 2,985.7 $ 2,869.6 $ 2,632.6 $ 2,345.0
Total assets.................................. 4,980.9 3,748.8 3,589.4 3,292.7 2,976.9
Indebtedness.................................. 246.1 210.5 210.1 314.3 335.5
Stockholders' equity.......................... 400.5 293.6 311.2 229.9 111.6
STATUTORY OPERATING AND OTHER DATA:
Life insurance in-force at end of period...... $ 58,663.2 $ 45,062.9 $ 40,330.6 $ 37,613.1 $ 33,253.6
Annualized premiums on new life insurance
sales, gross (5)............................. 104.9 92.3 74.8 71.8 55.5
Annualized premiums on new life insurance
sales, net (5)............................... 100.7 86.2 N/A N/A N/A
Operating earnings before taxes............... 55.5 55.7 59.3 42.5 34.8
Life insurance policies issued................ 96,315 81,300 58,600 66,200 36,800
</TABLE>
FOOTNOTES APPEAR ON THE FOLLOWING PAGE
14
<PAGE>
- ------------------------
(1) Data as of and for the year ended December 31, 1995, includes the operations
and financial position of the Lamar companies for the period subsequent to
the Lamar acquisition on April 28, 1995. See Notes 1 and 2 of Notes to
Consolidated Financial Statements.
(2) Operating earnings (loss) excluding income taxes, minority interest,
interest expense, amortization of goodwill, realized gains (losses), and
related amortization represents the base earnings from the Company's
business, similar to the measurement "Earnings before Interest, Taxes,
Depreciation and Amortization (EBITDA)" used by many noninsurance companies.
To the extent that realized gains (losses) relate to interest sensitive
policies which have unamortized deferred policy acquisition costs, the
realized gains may cause additional amortization and the realized losses
negative amortization of the deferred policy acquisition costs. See Note 4
of Notes to Consolidated Financial Statements.
(3) In July 1992, Common Stock was issued in connection with certain warrants
which were previously mandatorily repurchaseable. In accordance with
Financial Accounting Standards Board Emerging Issues Task Force Issue No.
88-9, "Put Warrants", net earnings (loss) reflects the reduction by $15.0
million in 1991 and $9.3 million in 1992, in each case attributable to the
increase in the fair value of the warrants during such periods. See Notes 1
and 9 of Notes to Consolidated Financial Statements.
(4) Operating margin consists of operating earnings (losses) excluding income
taxes, minority interest, interest expense, amortization of goodwill,
realized gains (losses) and related amortization divided by total revenues
excluding the effects of realized gains (losses).
(5) Annualized premiums on new life insurance sales represents the total
recurring annual premium on a new life insurance contract on which the
Company has collected the first modal premium payment. Gross amounts reflect
the total annualized premium for all policies on which premiums were
received and accepted by the Company, and net amounts are reduced by
annualized premiums on policies which, subsequent to issuance by the
Company, were surrendered by policyholders within the initial grace period.
15
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
THE COMPANY
The Company sells a diverse portfolio of universal life and, to a lesser
extent, annuity products. Premiums shown on the Company's consolidated financial
statements in accordance with GAAP consist of premiums received for whole life
or term life insurance products, as well as that portion of the Company's
annuity products which have life contingencies. In connection with that portion
of single premium annuity contracts without life contingencies, as well as
single and flexible premium deferred annuities and universal life insurance,
premiums collected by the Company are not reported as premium revenues, but
rather are reported as deposit liabilities. With respect to these products,
revenues are recognized over time in the form of investment income on invested
funds, surrender charges and mortality and other charges deducted from the
policyholders' account balance.
Certain costs related to the acquisition of new business are defined as
"deferred policy acquisition costs" and are amortized in proportion to the
recognition of earnings from the business. Costs deferred include principally
commissions, and to a lesser degree, certain expenses of the policy issue and
underwriting departments, and certain variable sales expenses. Under certain
circumstances, deferred policy acquisition costs will be expensed earlier than
originally estimated, including those circumstances where actual mortality
experience is higher than actuarially expected and where interest spreads (the
difference between interest credited to universal life and annuity fund
balances, and related investment yields on assets) are below initial estimates.
The Company has aggressively pursued its strategy of enhancing revenue
growth and profitability since the acquisition of its life insurance
subsidiaries in March 1990 through: (i) the increase in sales by its existing
independent agency force; (ii) the recruitment of additional highly motivated
experienced agents; (iii) the reduction and control of costs; and (iv) the
acquisition of life insurance subsidiaries with consistent or complementary
products and distribution systems.
The Company consummated the acquisition of Lamar Life and certain affiliates
effective April 28, 1995. In accordance with applicable financial reporting
rules, the Company accounted for the acquisition as a purchase. Under purchase
accounting, the Company recorded all assets and liabilities acquired at their
fair values on the purchase date. As a practical matter, the consolidated
operations of the Company include the gross revenues and expenses of Lamar Life
for the nine months ended December 31, 1995, with an offsetting net change
recorded as interest expense of $0.5 million relating to the net earnings of
Lamar Life from April 1, 1995 through April 28, 1995, the date of closing. As a
result of the purchase, the financial condition and results of operations for
1995 may not be directly comparable to 1994. See Notes 1 and 2 to Notes to
Consolidated Financial Statements.
The following table reflects, for the Company's individual life insurance
and annuity lines of business, the growth in the Company's annualized premiums
on new life insurance and annuity sales, and in the approximate number of
applications received, and policies issued.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
----------- --------- -----------
<S> <C> <C> <C>
Life insurance:
Applications received........................................... 119,236 93,600 67,100
Policies issued................................................. 96,315 81,300 58,600
Annualized premiums on new life insurance sales (in
thousands)..................................................... $ 104,863 $ 92,265 $ 74,810
Annuities:
Applications received and annuities issued...................... 6,920 7,700 16,700
Total direct collected premiums (in thousands).................. $ 106,695 $ 97,188 $ 173,226
</TABLE>
16
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the results of operations of the Company:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
(IN MILLIONS)
Revenues:
Universal life and investment product charges.................................... $ 252.9 $ 199.5 $ 180.0
Universal life charges ceded to client companies................................. (29.6) (22.3) (15.9)
Universal life and investment product surrender charges, net..................... 16.4 12.8 13.4
Traditional life and annuity premiums............................................ 56.6 50.5 54.7
Reinsurance premiums ceded....................................................... (40.4) (28.1) (27.5)
Accident and health insurance premiums, net...................................... 24.2 5.5 6.1
--------- --------- ---------
Total premium income and other considerations.................................. 280.1 217.9 210.8
Net investment income............................................................ 277.1 225.4 221.1
Net realized gains (losses)...................................................... 15.8 (19.7) 18.4
Other income..................................................................... 3.1 4.6 5.4
--------- --------- ---------
Total revenues................................................................. 576.1 428.2 455.7
--------- --------- ---------
Benefits, expenses, and costs:
Policyholder benefits............................................................ 153.3 110.9 102.2
Interest credited to policyholders............................................... 165.4 136.8 139.4
Other operating expenses......................................................... 94.8 52.7 51.9
Amortization of deferred policy acquisition costs, costs of insurance acquired,
and deferred policy fees........................................................ 148.7 46.2 52.0
--------- --------- ---------
Total benefits, expenses, and costs............................................ 562.2 346.6 345.5
--------- --------- ---------
Earnings before amortization of goodwill, interest, and taxes...................... 13.9 81.6 110.2
Amortization of goodwill......................................................... 2.7 2.4 2.3
Interest expense................................................................. 27.9 20.7 26.0
--------- --------- ---------
Earnings (loss) before income taxes and extraordinary item......................... (16.7) 58.5 81.9
Federal income tax expense (benefit)............................................. (3.3) 21.3 29.9
--------- --------- ---------
Earnings (loss) before extraordinary item.......................................... (13.4) 37.2 52.0
Extraordinary loss, net of tax effect............................................ 2.6 4.8
--------- --------- ---------
Net earnings (loss)................................................................ (13.4) 34.6 47.2
Less dividends in kind on preferred stock........................................ (4.0)
--------- --------- ---------
Net earnings (loss) applicable to common stock..................................... $ (13.4) $ 34.6 $ 43.2
--------- --------- ---------
--------- --------- ---------
Operating earnings (loss) before income taxes, interest expense, amortization of
goodwill, realized gains and related amortization................................. $ (9.9) $ 101.3 $ 96.5
--------- --------- ---------
--------- --------- ---------
</TABLE>
COMPARISON OF YEARS ENDED DECEMBER 31, 1995 AND 1994
UNIVERSAL LIFE AND INVESTMENT PRODUCT CHARGES
Universal life revenues consist of the monthly mortality charges and
administrative fees earned by the Company on its in force universal life
insurance, excluding net surrender charges on terminating policies. Such
revenues increased 26.8% from $199.5 million in 1994 to $252.9 million in 1995.
The increase in revenues is a result of continued sales of universal life
policies and reflects revenues of Lamar Life since their acquisition totaling
$30.1 million. The Company's net annualized premiums on new life insurance sales
for individual life insurance increased 16.8% from $86.2 million in 1994 to
$100.7 million in 1995, with Lamar Life contributing $13.5 million during 1995.
The Company's growth in sales of its life insurance products will translate
into future increases in the Company's universal life revenues as the premiums
received on most of the Company's insurance
17
<PAGE>
products are accounted for as deposit liabilities. With respect to products that
are accounted for as deposit liabilities, revenues are recognized over time in
the form of investment income on policyholder account balances, surrender
charges and mortality and other charges deducted from the policyholders' account
balances.
UNIVERSAL LIFE CHARGES CEDED TO CLIENT COMPANIES
Universal life charges ceded to client companies consist of monthly
mortality charges and administrative fees which are ceded to entities in the
Company's network of agent owned reinsurance companies and affiliated companies.
The amount of such charges ceded increased 32.7% from $22.3 million in 1994 to
$29.6 million in 1995. This increase is the result of added production in
existing client companies and the merger of certain inactive client companies
into existing active client companies during 1995.
UNIVERSAL LIFE AND INVESTMENT PRODUCT SURRENDER CHARGES, NET
Revenues from surrender charges represent fees assessed on terminating
policies, net of surrender charges ceded to client companies. Such charges are
consistent in 1995 with those in 1994. Increases or decreases in surrender
charges are based on termination rates and the product mix of terminations.
Surrender charges include $2.0 million of charges on Lamar Life policies.
TRADITIONAL LIFE AND ANNUITY PREMIUMS
Premiums on traditional policies increased 12.1% from $50.5 million in 1994
to $56.6 million in 1995. This increase is entirely a result of the acquisition
of Lamar Life, which added $8.8 million in such revenues in 1995. Sales growth
in this product line has not been a strategic goal of the Company. Rather, the
Company's new business strategy emphasizes the sale of universal life products.
REINSURANCE PREMIUMS CEDED
Reinsurance premiums ceded represent coinsured traditional premiums as well
as yearly renewal term reinsurance premiums on traditional and universal life
policies for risks in excess of the Company's maximum retention. The Company
does not retain the mortality risk for any policy to the extent the risk exceeds
the Company's stated retention, which currently ranges from $100,000 to
$500,000. The reinsurance premiums increased by 43.8% from $28.1 million in 1994
to $40.4 million in 1995, relating primarily to reinsurance premiums on Lamar
business of $10.5 million, combined with continued growth of life insurance in
force.
ACCIDENT AND HEALTH INSURANCE PREMIUMS, NET
Accident and health insurance premiums represent premiums earned over the
applicable period on individual and group accident and health policies. Such
revenues increased from $5.5 million in 1994 to $24.2 million in 1995. The
increase relates entirely to the acquisition in 1995 of Lamar Life, which added
considerably to the Company's accident and health business. Lamar Life
underwrites the business and cedes said business to its reinsurers, while
retaining only a small portion of the risk. As such, this business principally
represents a servicing fee to the Company.
NET INVESTMENT INCOME
Net investment income increased $51.7 million, or 22.9%, from $225.4 million
in 1994 to $277.1 million in 1995. This change reflected an increase in the
amount of invested assets, following the Lamar Life acquisition, which was
partially offset by a lower effective yield on investments made during 1995.
Average invested assets, excluding assets subject to reverse repurchase
financing arrangements, were $3.8 billion during 1995, compared to $2.9 billion
during 1994. The increase was due primarily to deposits on annuities and
universal life policies and the Lamar Life acquisition. The effective yield on
invested assets was 7.3% for the year ended December 31, 1995, compared to 7.7%
for the year ended December 31, 1994.
NET REALIZED GAINS (LOSSES)
The Company's realized gains (losses) changed from a net realized loss of
$19.7 million in 1994 to a net realized gain of $15.8 million in 1995. Net
realized losses in 1994 were primarily the result of
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<PAGE>
sales of certain fixed income securities during a period of rising market
interest rates, write-downs of $7.1 million related to other than temporary
declines in the market value of certain invested assets, and $6.8 million of
other realized losses. A substantial portion of the 1995 gain related to the
sale of one equity investment during 1995, offset by $9.2 million of write-downs
for other than temporary declines in market value. In accordance with applicable
financial reporting rules, the net amortization of deferred policy acquisition
costs and deferred policy fees was decelerated by $8.0 million during 1995 and
accelerated by $12,000 during 1994 in conjunction with the recognition of these
gains (losses).
POLICYHOLDER BENEFITS
Total policyholder benefits increased $42.4 million, or 38.2%, from $110.9
million in 1994 to $153.3 million in 1995, due primarily to an increase in death
benefits, which occurred as a result of the growth in the Company's universal
life in-force block of business and the in-force block of business acquired from
Lamar Life. In addition, the Company experienced adverse mortality of
approximately $11.9 million in excess of actuarial expectations in the second
quarter of 1995.
INTEREST CREDITED TO POLICYHOLDERS
Interest credited to policyholders includes interest credited to universal
life and annuity account balances, and the interest accretion inherent in
reserve increases on traditional life insurance policies determined based on
standard actuarial valuation rates. Interest credited increased 20.9% from
$136.8 million in 1994 to $165.4 million in 1995 primarily as a result of
increased policyholder account balances acquired with Lamar Life.
OTHER OPERATING EXPENSES
Other operating expenses consist of general, administrative, and other
operating costs. These costs were $94.8 million in 1995 and $52.7 million in
1994. Included in the 1995 amount were approximately $14.2 million of one-time
litigation charges related to the settlement of a class action lawsuit, $2.2
million related to the write off of certain agent debit balances and $1.9
million related to an increase in the Company's estimate of its guarantee fund
assessment liability. Included in the 1994 amount are charges of $2.4 million
related to guarantee fund assessments and $3.5 million related to litigation
provisions.
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS, COST OF INSURANCE
ACQUIRED,
AND DEFERRED POLICY FEES
Amortization of deferred policy acquisition costs, cost of insurance
acquired and deferred policy fees increased from $46.2 million in 1994 to $148.7
million in 1995. The amortization related to realized gains, included therein,
decreased from $12,000 in 1994 to $(8.0) million in 1995. The amortization of
the cost of insurance acquired is higher in 1995 due to the acquisition of Lamar
Life, which added $14.5 million of amortization in 1995. Also, deferred policy
acquisition costs on universal life type products are amortized with interest in
relation to the present value of expected gross profits on the products. As such
estimates of expected gross profits are revised, retrospective adjustments are
reflected in current operations, causing amortization of deferred policy
acquisition costs to vary from period to period.
As of December 31, 1995, the Company revised its assumptions relating to
expected gross profits on the in-force block of business. These assumptions
included investment yields, interest rates credited to policyholders, expense
levels, and mortality and persistency levels. Such assumptions were revised
based upon standard actuarial and accounting practices, and such revisions were
made specifically to separate products or homogeneous groups of products. This
unlocking of assumptions resulted in increased amortization of deferred policy
acquisition costs and deferred policy fees of $66.6 million in 1995, and will
serve to shorten the amortization period for the remaining deferred costs and
fees.
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<PAGE>
The estimation of future gross profits and losses with respect to cost of
insurance acquired is subject to the same estimation process and is impacted by
the same factors as discussed above regarding deferred policy acquisition costs.
Due to changes in estimates of future gross profits and losses, the estimated
future amortization is expected to increase as compared to prior year estimates.
Deferred policy fees represent front-end loads assessed against policyholder
account balances on universal life insurance contracts. Under applicable
financial reporting rules, such fees are deferred and amortized with interest in
relation to the present value of expected gross profits on the product. Such
amortization is in direct proportion to amortization of deferred policy
acquisition costs for a given group of policies and is included in the statement
of operations as a reduction in amortization of deferred policy acquisition
costs.
INTEREST EXPENSE
The Company's interest expense increased by approximately $7.2 million
between the 1994 and 1995 periods. The 1995 expense includes $4.2 million
relating to interest due or paid to the federal government on tax deficiencies
from prior years and $0.5 million recorded as a one-time expense in purchase
accounting upon the acquisition of Lamar. The above items notwithstanding,
interest expense increased as a result of additional borrowings under the
Company's senior credit facility. The Company borrowed $36 million in April of
1995 relating to the Lamar acquisition and borrowed an additional $14 million in
December of 1995 to further improve the statutory capital and surplus of certain
of its life insurance subsidiaries. Additional borrowings during 1995 were
partially offset by scheduled quarterly principal payments on the senior loan
totaling $15 million. Also, the Company's average borrowing rates (on which
interest expense on the senior credit facility was based) increased from 6%
during 1994 to 7% during 1995. Such rates float with LIBOR and can be fixed by
the Company for periods of up to six months.
FEDERAL INCOME TAX EXPENSE (BENEFIT)
In general, the provision (benefit) for federal income taxes reflected in
the Company's operating results is computed using the prevailing statutory
corporate rate of 35% in 1995 and 1994, as adjusted primarily for the
nondeductibility of certain items such as the amortization of goodwill. The 1995
provision also reflects the recognition of various tax contingencies based on
ongoing examinations of prior tax years. The effective rate reflected in the
Company's financial statements was approximately 20% for 1995, and 36% for 1994.
See Note 12 of the Notes to Consolidated Financial Statements.
OPERATING CASH FLOWS
The Company's Consolidated Statements of Cash Flows reflect net cash used by
operating activities of $56.6 million and $22.7 million for the years ended
December 31, 1995 and 1994, respectively. Included in cash flows from financing
activities are policyholder contract deposits and withdrawals which provided net
cash flows of $196.9 million and $188.5 million for the years ended December 31,
1995 and 1994, respectively. The deposits and withdrawals are reported as
financing activities pursuant to applicable financial reporting rules; however,
the Company considers charges for mortality and administration, net of interest
credited, as assessed against policyholder deposits, to be basic to the
Company's core insurance operations.
COMPARISON OF YEARS ENDED DECEMBER 31, 1994 AND 1993
UNIVERSAL LIFE AND INVESTMENT PRODUCT CHARGES
Universal life revenues consist of the monthly mortality charges and
administrative fees earned by the Company on its in-force universal life
insurance, excluding net surrender charges on terminating policies. Such
revenues increased 10.8% from $180.0 million in 1993 to $199.5 million in 1994.
The increase in revenues is a result of increased sales of universal life
policies. The Company's gross annualized premiums on new life insurance sales
for individual life insurance increased 23.4% from $74.8 million in 1993 to
$92.3 million in 1994.
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<PAGE>
The Company's growth in sales of its life insurance products will translate
into future increases in the Company's universal life revenues as the premiums
received on most of the Company's insurance products are accounted for as
deposit liabilities. With respect to products that are accounted for as deposit
liabilities, revenues are recognized over time in the form of investment income
on policyholder account balances, surrender charges and mortality and other
charges deducted from the policyholders' account balances.
UNIVERSAL LIFE CHARGES CEDED TO CLIENT COMPANIES
Universal life charges ceded to client companies consist of monthly
mortality charges and administrative fees which are ceded to entities in the
Company's network of agent owned reinsurance companies and affiliated companies.
The amount of such charges ceded increased 40.3% from $15.9 million in 1993 to
$22.3 million in 1994. This increase is the result of added production in
existing client companies and an increase in the number of active client
companies from 13 to 15 during 1994.
UNIVERSAL LIFE AND INVESTMENT PRODUCT SURRENDER CHARGES, NET
Revenues from surrender charges represent fees assessed on terminating
policies, net of surrender charges ceded to client companies. Such charges are
consistent in 1994 with those in 1993. Increases or decreases in surrender
charges are based on termination rates and the product mix of terminations.
TRADITIONAL LIFE AND ANNUITY PREMIUMS
Premiums on traditional policies decreased 7.7% from $54.7 million in 1993
to $50.5 million in 1994. Sales growth in this product line has not been a
strategic goal of the Company. Rather, the Company's new business strategy
emphasizes the sale of universal life products that generally have greater
profit margins (after reflecting cost of capital).
REINSURANCE PREMIUMS CEDED
Reinsurance premiums ceded represent coinsured traditional premiums as well
as yearly renewal term reinsurance premiums on traditional and universal life
policies for risks in excess of the Company's maximum retention. The Company
does not retain the mortality risk for any policy to the extent the risk exceeds
the Company's stated retention, which ranged in 1994 from $350,000 to $500,000.
The reinsurance premiums increased by 2.2% from $27.5 million in 1993 to $28.1
million in 1994.
ACCIDENT AND HEALTH INSURANCE PREMIUMS, NET
Accident and health premiums represent premiums earned over the applicable
period on individual or group accident and health policies. Such revenues
decreased from $6.1 million to $5.5 million, from the years ended 1993 to 1994.
Prior to the acquisition of Lamar Life in 1995, such accident and health
business was not a significant line of business for the Company.
NET INVESTMENT INCOME
Net investment income increased $4.3 million, or 1.9%, from $221.1 million
in 1993 to $225.4 million in 1994. This moderate change reflected an increase in
the amount of invested assets, which was partially offset by a lower effective
portfolio yield on investments made during 1994. Average invested assets,
excluding assets subject to reverse repurchase financing arrangements, were $2.9
billion during 1994, compared to $2.8 billion during 1993, and increased due
primarily to deposits to annuities and universal life policies. The effective
yield on invested assets was 7.7% for the year ended December 31, 1994, compared
to 7.9% for the year ended December 31, 1993. During 1993 the Company
experienced significant calls, redemptions, and pay-downs of fixed maturity
investments. The Company continually assesses investment yields, and when
necessary takes action to reduce credited interest rates on its insurance
products to preserve targeted spreads.
NET REALIZED GAINS (LOSSES)
The Company's realized gains (losses) decreased from a net realized gain of
$18.4 million in 1993 to a net realized loss of $19.7 million in 1994. Realized
gains were strong in 1993 principally due to the
21
<PAGE>
declining interest rate environment which produced increases in the market
values of the Company's fixed maturity portfolio. The Company sold certain
appreciated investments, primarily consisting of investment grade fixed
maturities during 1993, which resulted in gains which were partially offset by
realized losses of $54.5 million in 1993 related to other than temporary
declines in the market value of certain debt securities. A substantial portion
of the Company's realized gains in 1993 related to insurance business issued
after Life Partners completed the Acquisition. Net realized losses in 1994 were
primarily the result of sales of certain fixed income securities during a period
of rising market interest rates, write-downs of $7.1 million related to other
than temporary declines in the market value of certain invested assets, and $6.8
million of other realized losses. In accordance with applicable financial
reporting rules, the net amortization of deferred policy acquisition costs and
deferred policy fees was accelerated by $12,000 during 1994 and $4,700,000
during 1993 in conjunction with the recognition of these gains (losses).
POLICYHOLDER BENEFITS
Total policyholder benefits increased $8.7 million, or 8.5%, from $102.2
million in 1993 to $110.9 million in 1994, due primarily to an increase in death
benefits, which occurred as a result of the growth in the Company's universal
life in-force block of business. The Company's mortality experience was lower
than actuarially expected in 1993, while mortality experience was consistent
with that expected in 1994.
INTEREST CREDITED TO POLICYHOLDERS
Interest credited to policyholders decreased 1.9% from $139.4 million in
1993 to $136.8 million in 1994. This change was the result of decreases in
interest rates as determined on a periodic basis by the Company for each
product. Such decreases were in response to continued deterioration in the
Company's investment yield resulting from generally declining market interest
rates. The reduction in rates was partially offset by growth in policyholder
account balances as a result of new life insurance sales.
OTHER OPERATING EXPENSES
Other operating expenses consist of general, administrative, and other
operating costs. These costs were $51.9 million in 1993 and $52.7 million in
1994. Included in the 1994 amount are one-time charges of $2.4 million related
to guarantee fund assessments and $3.5 million related to litigation provisions.
AMORTIZATION OF DEFERRED POLICY ACQUISITION COSTS, COST OF INSURANCE
ACQUIRED
AND DEFERRED POLICY FEES
Amortization of deferred policy acquisition costs, cost of insurance
acquired and deferred policy fees decreased 11.2% between 1993 and 1994 from
$52.0 million to $46.2 million. The amortization related to realized gains,
included therein, decreased from $4,700,000 in 1993 to $12,000 in 1994. The
amortization of the cost of insurance acquired is lower in 1994 due to the aging
of the related blocks of business. Also, amortization of deferred policy
acquisition costs on universal life type products are amortized with interest in
relation to the present value of expected gross profits on the products. As such
estimates of expected gross profits are revised, retrospective adjustments are
reflected in current operations, causing amortization of deferred policy
acquisition costs to vary from period to period.
INTEREST EXPENSE
The Company's interest expense decreased by approximately $5.3 million
between the 1993 and 1994 periods as a result of principal repayments made on
the Company's senior indebtedness in 1993 and the first 3 months of 1994 (which
aggregated $105.7 million) and the refinancing of the Company's senior
indebtedness in June of 1993, which allowed LIBOR interest option. In addition,
the senior indebtedness was also refinanced in August 1994 resulting in a .25%
reduction in the margin attached to the LIBOR interest option. The decrease in
interest expense due to principal paydowns
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<PAGE>
and refinancings was partially offset by an increase in the Company's borrowing
rates (on which such interest expense was based) from an average prime/LIBOR of
4.5% in 1993 to an average LIBOR rate of 6.0% in 1994.
FEDERAL INCOME TAX EXPENSE (BENEFIT)
In general, the provision for federal income taxes reflected in the
Company's operating results is computed using the prevailing statutory corporate
rate of 35% in 1993 and 1994, as adjusted primarily for the nondeductibility of
certain items such as the amortization of goodwill. Additionally, total income
tax expense in 1993 reflects a $1.1 million charge for the cumulative effect on
the deferred tax liability for the adoption by the Company of increased
statutory federal tax rates from 34% to 35% at September 30, 1993. The effective
rate reflected in the Company's financial statements was approximately 37% for
1993, and 36% for 1994. See Note 12 of the Notes to Consolidated Financial
Statements.
INVESTMENTS
The Company derives a substantial portion of its total revenues from
investment income. The Company's investments are managed by an in-house
investment staff and certain external investment managers. The Company's
investment strategy is designed to achieve superior risk-adjusted returns
consistent with its investment philosophy of maintaining a largely investment
grade, fixed maturity portfolio and providing adequate liquidity for expected
liability durations and other requirements. The Company's investment portfolio
is substantially duration matched, with an average aggregate portfolio duration
of 4.8 years at December 31, 1995, as compared to 6.1 years at December 31,
1994. The Company's investments in mortgages and real estate represented 2.9% of
total cash and invested assets at December 31, 1995.
The Company's asset-liability management program includes: (i) designing and
developing products which encourage persistency, thereby creating a stable
liability structure; and (ii) structuring the investment portfolio with duration
and cash flow characteristics consistent with the duration and cash flow
characteristics of the Company's insurance liabilities. The Company's
investments must comply with certain contractual and regulatory restrictions.
See "Business -- Regulation."
The NAIC assigns securities quality ratings and uniform prices called "NAIC
designations" that are used by insurers when preparing their annual statements.
The NAIC assigns designations to publicly traded as well as privately placed
securities. The designations assigned by the NAIC range
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<PAGE>
from class 1 to class 6, with a rating in class 1 being of the highest quality.
The following table sets forth the composition of the Company's fixed maturity
securities according to NAIC designations and Standard and Poors ("S&P") ratings
at December 31, 1995:
<TABLE>
<CAPTION>
CARRYING VALUE CARRYING VALUE
AS A PERCENT AS A PERCENT FAIR VALUE AS A
NAIC DESIGNATION CARRYING OF FIXED OF TOTAL ESTIMATED PERCENT OF
(COMPARABLE S&P RATING(1)) VALUE MATURITIES ASSETS FAIR VALUE(2) CARRYING VALUE
---------- --------------- ----------------- ------------- ----------------
<S> <C> <C> <C> <C> <C>
1 (AAA,AA,A)........................... $ 2,480.9 74.0% 49.8% $ 2,505.5 101.0%
2 (BBB)................................ 658.7 19.7 13.2 676.9 102.8
3 (BB)................................. 108.3 3.2 2.2 108.5 100.2
4 (B).................................. 96.1 2.9 1.9 96.0 99.2
5 (CCC,CC,C)........................... 7.0 0.2 0.1 6.7 95.7
6 (CI,D)............................... 0.2 0.0 0.0 0.2 100.0
---------- ----- --- -------------
Total fixed maturities............. $ 3,351.2 100.0% 67.2% $ 3,393.8 101.3%(3)
---------- ----- --- -------------
---------- ----- --- -------------
</TABLE>
- ------------------------
(1) Comparisons between NAIC designations and S&P ratings are published by the
NAIC. S&P has not rated some of the fixed maturity securities in the
Company's portfolio.
(2) Represents the closing sales price of marketable debt securities. Market
values for privately placed securities and senior secured loans are
estimated by the Company.
(3) Weighted average.
At December 31, 1995, of the fixed maturity securities in the Company's
investment portfolio, 93.7% were in the highest two NAIC designations
representing investment grade debt securities.
Non-investment grade debt securities generally provide higher yields and
involve greater risks than investment grade debt securities because their
issuers typically are more highly leveraged and more vulnerable to adverse
economic conditions than investment grade issuers. In addition, the trading
market for these securities is usually more limited than for investment grade
debt securities. The Company continually reviews the percentage of its portfolio
which is invested in non-investment grade debt securities (NAIC designations 3
through 6) and intends to maintain the percentage holdings of such securities at
or below the current level. Pursuant to the terms of the Senior Credit Facility,
the Company's investments in non-investment grade debt securities are
restricted. At December 31, 1995, the Company's investments in non-investment
grade debt securities were 4.2% of total assets, which was substantially less
than allowed by the Senior Credit Facility.
At December 31, 1995, corporate debt securities, then defaulted as to
principal and/or interest, were marked to market as realized losses from
permanent impairment in value, and constituted less than 1% of the Company's
total fixed maturity securities.
At December 31, 1995, $110.2 million in book value of the Company's
investment portfolio consisted of mortgage loans. As of December 31, 1995,
mortgage loans delinquent by more than 90 days constituted $1.5 million, which
was less than 1% of cash and invested assets at such date. The book value of the
Company's real estate investments constituted less than 1% of the book value of
the Company's total investment portfolio at December 31, 1995. The Company
intends to maintain its real estate exposure at or below such percentage.
During 1994 the Company entered into certain reverse repurchase financing
agreements related to the purchase of certain mortgage-backed securities
acquired as a component of the Company's asset management strategy. Such
financings were extinguished during 1995. In addition, the Company acquired
certain investment borrowings in the Lamar acquisition. These borrowings consist
primarily of a leverage program with the Federal Home Loan Bank of Dallas
(FHLB). In this program, Lamar Life purchased $3.3 million of FHLB Preferred
Stock and is entitled, as provided within FHLB
24
<PAGE>
guidelines, to borrowing against certain fixed maturity investment securities.
Such borrowings are substantially matched for duration characteristics.
Investment borrowings totaled $73.6 million at December 31, 1995.
FINANCIAL RESOURCES AND LIQUIDITY
HOLDING COMPANY OPERATIONS
Life Partners' principal need for liquidity consists of its debt service
obligations under its senior indebtedness ("Senior Loan") and subordinated
indebtedness ("Notes"). The unpaid principal of the Senior Loan totaled $156.2
million at December 31, 1995 and $121.2 million at December 31, 1994, and the
unpaid principal of Life Partners' subordinated indebtedness equaled $95.1
million at December 31, 1995 and December 31, 1994. Life Partners' senior and
subordinated indebtedness are reported at $155.6 million and $90.5 million,
respectively, in the Company's financial statements at December 31, 1995. Such
amounts are net of issuance costs which are being amortized over their remaining
terms in accordance with applicable accounting principles.
The Company increased its indebtedness under the senior credit facility by
$36 million in connection with the acquisition of Lamar Life in April of 1995,
and further increased its indebtedness by $14 million in December of 1995. Such
increases were offset by scheduled quarterly principal payments totaling $15
million during 1995.
Life Partners' principal source of liquidity consists of the periodic
payments of principal and interest made by Wabash on the two surplus debentures
issued by Wabash to Life Partners in connection with the Acquisition. Because
the surplus debentures were issued at the time of the Acquisition, and because
payments on the surplus debentures were intended to be used to make the
respective principal and interest payments due under the Senior Loan and the
subordinated Acquisition indebtedness, the financial terms of the surplus
debentures were designed to correspond, in all material respects, to the
financial terms of the Senior Loan and Life Partners' subordinated Acquisition
indebtedness. Life Partners did not amend the surplus debentures as a result of
the issuance of the Notes in July of 1992, prepayment of a portion of the Senior
Loan to General Electric Capital ("GE Capital") with proceeds from the initial
public offering in March of 1993, or refinancing of the Senior Loan with Chase
Manhattan Bank ("Chase") in June of 1993 and August of 1994. Accordingly, at
December 31, 1995, the subordinated surplus debenture is in the principal amount
of $90.0 million (which is $10.0 million less than the principal amount of the
Notes) and bears interest at 15 1/2% (which is 2 3/4% higher than the interest
rate on the Notes). As a result of this additional 2 3/4% interest, and
notwithstanding the additional $10.0 million of Notes outstanding, Life
Partners' total interest income on the subordinated surplus debentures is
scheduled to exceed its total interest expense on the Notes by $1.2 million per
year. In addition, the unpaid principal of the surplus debenture corresponding
to the Senior Loan totaled $179.2 million at December 31, 1995, or $23.0 million
in excess of the Senior Loan at December 31, 1995. Such differences on the
senior indebtedness could create additional excess cash flow to Life Partners of
more than $1.5 million annually. This excess interest income is available to
meet Life Partners' liquidity requirements. The Company revised the interest
rates, terms and provisions of the senior surplus debenture in 1995 to more
closely match the enhanced credit quality of Life Partners' insurance
subsidiaries.
In order to meet its obligations under the surplus debentures, Wabash uses
funds obtained from its insurance operations, including primarily cash flows
from operations and dividends and tax sharing payments from Massachusetts
General, Philadelphia Life, Lamar Life, and other subsidiaries. Wabash received
$25 million in dividends from its subsidiaries during 1995, $17.0 million during
1994, and $43.5 million during 1993. See "Business -- Regulation" for a
description of certain dividend restrictions imposed by state insurance laws and
orders. Wabash received or accrued $14.6 million, $11.8 million, and $7.3
million in tax sharing payments during 1995, 1994 and 1993, respectively.
Wabash may make payments of principal on the surplus debentures only with
the prior approval of the Kentucky Department of Insurance. Because all surplus
debenture payments made by Wabash
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<PAGE>
through December 31, 1995 have been approved, without objection, by the Kentucky
Department of Insurance, the Company currently does not believe that it will
have any difficulty in obtaining payment approvals for the foreseeable future.
Under the terms of the surplus debentures, payments of principal and
interest may be made only to the extent that Wabash's statutory capital and
surplus exceeds 25% of its total statutory liabilities, exclusive of the surplus
debentures. Wabash's capital and surplus totaled $153.6 million at December 31,
1995, which exceeded the minimum required capital and surplus by $60.9 million.
Also, financial covenants under the Senior Credit Facility require that
Massachusetts General and Philadelphia Life maintain combined year-end capital
and surplus minimums (including an asset contingency reserve) of $195 million in
1995 and 1996, and $200 million in 1997 and later years. At December 31, 1995,
the combined capital and surplus of Massachusetts General and Philadelphia Life,
including such reserve, exceeded the loan covenant requirement by $31.8 million.
As a result of Wabash's operating cash flows, its existing cash and short-term
investments, and such excess capital and surplus of Wabash and subsidiaries, the
Company does not anticipate that Wabash will encounter any difficulty in making
its scheduled payments of principal and interest on the surplus debentures for
the foreseeable future.
INSURANCE OPERATIONS
The primary sources of liquidity for Life Partners' subsidiaries include
their operating cash flows, dividends, tax sharing payments from other
subsidiaries, and short-term investments, which principally consist of
commercial paper, certificates of deposit, money market funds, and U.S. Treasury
Bills generally maturing within 90 days. The net cash provided by operating
activities and net policyholder contract deposits of Life Partners' insurance
subsidiaries after the payment of policyholder contract withdrawals, equaled
$140.3 million in 1995, $165.8 million in 1994, and $288.4 million in 1993.
At December 31, 1995, the investment portfolio of the Company included cash
and short-term investments totaling $197.7 million, as well as $1,297.0 million
of U.S. government, agency-backed and mortgage-backed securities
available-for-sale and $1,226.0 million of publicly traded investment grade
bonds available-for-sale that could be readily converted to cash at or near
carrying value. These liquid investments totaled approximately $2.5 billion and
constituted approximately 63.4% of the Company's cash and invested assets at
December 31, 1995. This investment portfolio provided total interest income and
maturing principal payments of $441.7 million during 1995, $378.0 million during
1994, and $474.5 million during 1993.
The principal requirement for liquidity in connection with the Company's
insurance operations is its contractual obligations to policyholders and
annuitants, including payments of surrender benefits, contract withdrawals,
claims under outstanding insurance policies and annuities, and policy loans.
Although the contractual terms of substantially all of the Company's in force
life insurance policies and annuities give the holders the right to surrender
the policies and annuities, the Company imposes significant penalties for early
surrenders. At December 31, 1995, the Company held reserves that exceeded the
underlying cash surrender values of its in-force life insurance and annuities by
more than $456 million. Contract withdrawals and surrender benefits totaled
$284.8 million during 1995, $224.0 million during 1994, and $226.1 million
during 1993, which in each case represented less than 8.3%, on an annual basis,
of the average related liabilities for the respective year. As a result, the
Company believes that it maintains adequate liquidity to pay anticipated
benefits and claims to policyholders and annuitants.
The NAIC has adopted risk based capital ("RBC") rules which became effective
December 31, 1993. See "Business -- Regulation." In states which adopt the NAIC
regulations, the new RBC rules provide for various regulatory actions when the
ratio of a company's total adjusted capital to its Company Action Level RBC fall
below 100%. At December 31, 1995, Massachusetts General, Philadelphia Life, and
Lamar Life, the only subsidiaries currently writing new business, had total
adjusted capital of 222%, 263%, and 439% of their Company Action Level RBC,
respectively.
26
<PAGE>
Massachusetts General is a party to a financial reinsurance agreement under
which it received statutory surplus of $1.3 million at December 31, 1995, $2.9
million at December 31, 1994, and $4.6 million at December 31, 1993. The surplus
provided by this agreement will be recaptured over the next few years. In
addition, Lamar Life is party to a financial reinsurance agreement under which
it received $8.2 million of statutory surplus at December 31, 1995. Such
financial reinsurance was reduced by $3.3 million from the date of acquisition
of Lamar Life, and is scheduled to be recaptured ratably over the next two
years. See Note 10 of the Notes to Consolidated Financial Statements.
EFFECTS OF INFLATION AND INTEREST RATE CHANGES
The Company does not believe that inflation has had a material effect on its
consolidated results of operations. The Company manages its investment portfolio
in part to reduce its exposure to interest rate fluctuations. In general, the
market value of the Company's fixed maturity portfolio increases or decreases in
inverse relationship with fluctuations in interest rates, and the Company's net
investment income increases or decreases in direct relationship with interest
rate changes. For example, if interest rates decline (as was the case in 1995),
the Company's fixed maturity investments generally will increase in market
value, while net investment income will decrease as fixed income investments
mature or are sold and proceeds are reinvested at the declining rates, and vice
versa.
Also, interest rate changes may have temporary effects on the sale and
profitability of the universal life and annuity products offered by the Company.
For example, if interest rates rise, competing investments (such as certificates
of deposit, mutual funds, and similar instruments) may become more attractive to
potential purchasers of the Company's products until the Company increases the
rate credited to holders of its universal life and annuity products. In
contrast, as interest rates fall, the Company attempts to adjust its credited
rates to compensate for the corresponding declines in its net investment income.
The Company constantly monitors interest rates with respect to a spectrum of
durations and sells policies and annuities that permit flexible responses to
interest rate changes as part of the Company's management of interest spreads.
ACCOUNTING STANDARDS
During 1995, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 121, ACCOUNTING FOR THE
IMPAIRMENT OF LONG LIVED ASSETS AND FOR LONG LIVED ASSETS TO BE DISPOSED OF
("SFAS 121"), which is effective for fiscal years beginning after December 15,
1995. The Company does not believe that the application of the provisions of
SFAS 121 will have a material effect on its financial condition or results of
operations.
Also during 1995, the FASB issued Statement of Financial Accounting Standard
No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION ("SFAS 123"), which is
effective for transactions entered into in fiscal years beginning after December
15, 1995. The Company does have certain stock-based compensation plans which may
fall under the scope of SFAS 123; however, the Company is unable to determine
whether the adoption of the provisions of SFAS 123 will have a material impact
on its financial position or results of operations.
In 1994, the FASB issued Statement of Financial Accounting Standards No.
120, ACCOUNTING AND REPORTING BY MUTUAL LIFE INSURANCE ENTERPRISES AND BY
INSURANCE ENTERPRISES FOR CERTAIN LONG-DURATION PARTICIPATING CONTRACTS ("SFAS
120"), which is effective for fiscal years beginning after December 15, 1995.
The Company does not believe that the application of the provisions of SFAS 120
will have a material effect on its financial condition or results of operations.
27
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
OF LIFE PARTNERS GROUP, INC.
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Management.................................................................................... 29
Report of Independent Accountants....................................................................... 30
Consolidated Balance Sheets at December 31, 1995 and 1994............................................... 31
Consolidated Statements of Operations for the years ended
December 31, 1995, 1994, and 1993...................................................................... 32
Consolidated Statements of Stockholders' Equity for the years ended
December 31, 1995, 1994, and 1993...................................................................... 33
Consolidated Statements of Cash Flows for the years ended
December 31, 1995, 1994, and 1993...................................................................... 34
Notes to Consolidated Financial Statements.............................................................. 35 - 62
</TABLE>
28
<PAGE>
REPORT OF MANAGEMENT
To Our Shareholders
Management of Life Partners Group, Inc. is responsible for the reliability
of the financial information in this annual report. The financial statements are
prepared in accordance with generally accepted accounting principles and the
other financial information in this annual report is consistent with that of the
financial statements.
The integrity of the financial information relies in large part on
maintaining a system of internal control that is established by management to
provide reasonable assurance that assets are safeguarded and transactions are
properly authorized, recorded and reported. Reasonable assurance is based upon
the premise that the cost of controls should not exceed the benefits derived
from them.
Certain financial information presented depends upon management's estimates
and judgments regarding the ultimate outcome of transactions which are not yet
complete. Management believes these estimates and judgments are fair and
reasonable in view of present conditions and available information.
The Company engages independent accountants to audit its financial
statements and express their opinion thereon. They have full access to each
member of management in conducting their audits. Such audits are conducted in
accordance with generally accepted auditing standards and include a review of
internal controls, tests of the accounting records, and such other auditing
procedures as they consider necessary to express an opinion on the Company's
financial statements.
The Audit Committee of the Board of Directors, composed solely of
nonmanagement directors, meets periodically with management and the independent
accountants to review internal accounting control, audit activities and
financial reporting matters. The independent accountants have full and free
access to the Audit Committee.
<TABLE>
<S> <C>
John H. Massey Bernhard M. Koch
Chairman of the Board and Executive Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
29
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Life Partners Group, Inc.
We have audited the accompanying consolidated balance sheets of Life
Partners Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended December 31, 1995. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Life Partners
Group, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995, in conformity with generally
accepted accounting principles.
As more fully explained in Note 1(d) to the consolidated financial
statements, the Company adopted Statement of Financial Accounting Standard No.
115, "Accounting For Certain Investments in Debt and Equity Securities",
effective December 31, 1993.
Coopers & Lybrand L.L.P.
Denver, Colorado
March 27, 1996
30
<PAGE>
LIFE PARTNERS GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------
1995 1994
------------- -------------
<S> <C> <C>
Investments:
Fixed maturities:
Held-to-maturity, at amortized cost.......................................... $ 678,826 $ 1,570,034
Available-for-sale, at fair value............................................ 2,672,365 1,058,710
Equity securities, at fair value............................................... 23,721 27,510
Mortgage loans on real estate, at amortized cost............................... 110,214 34,177
Investment real estate, at cost, net of accumulated depreciation............... 4,921 2,796
Policy loans................................................................... 226,212 192,909
Collateral loans............................................................... 4,373 1,825
Cash and short-term investments................................................ 197,684 41,715
Other invested assets.......................................................... 59,593 56,039
------------- -------------
Total investments............................................................ 3,977,909 2,985,715
Notes and accounts receivable and uncollected premiums........................... 29,303 20,607
Receivable from reinsurers....................................................... 244,828 78,176
Federal income tax recoverable................................................... 6,444
Accrued investment income........................................................ 54,785 46,340
Deferred policy acquisition costs, net........................................... 238,736 276,938
Cost of insurance acquired....................................................... 306,015 234,471
Goodwill, net of accumulated amortization........................................ 100,470 84,079
Other assets..................................................................... 28,819 15,996
------------- -------------
$ 4,980,865 $ 3,748,766
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Future policy benefits and claims................................................ $ 708,226 $ 625,814
Dividends, endowments and other policyholder funds............................... 86,162 64,479
Policyholder account balances.................................................... 3,271,906 2,354,169
Deferred policy fees............................................................. 80,590 78,700
Investment borrowings............................................................ 73,585 63,786
Notes payable:
Due within one year............................................................ 15,000 15,000
Due after one year............................................................. 231,083 195,460
Federal income taxes payable:
Current........................................................................ 13,444
Deferred....................................................................... 25,812 13,889
Other liabilities................................................................ 74,548 43,823
------------- -------------
4,580,356 3,455,120
------------- -------------
Commitments and contingencies
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized; 27,911,851 and
25,530,334 shares issued and outstanding at December 31, 1995 and 1994,
respectively.................................................................... 28 26
Additional paid-in capital....................................................... 287,863 245,652
Net unrealized investment gains (losses)......................................... 58,269 (22,783)
Retained earnings................................................................ 54,349 70,751
------------- -------------
400,509 293,646
------------- -------------
$ 4,980,865 $ 3,748,766
------------- -------------
------------- -------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
31
<PAGE>
LIFE PARTNERS GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Revenues:
Universal life and investment product charges.................. $ 252,925 $ 199,512 $ 180,013
Universal life charges ceded to client companies............... (29,564) (22,275) (15,861)
Universal life and investment product surrender charges, net... 16,364 12,750 13,380
Traditional life and annuity premiums.......................... 56,593 50,501 54,658
Traditional reinsurance premiums............................... (40,416) (28,109) (27,551)
Accident and health insurance premiums, net.................... 24,178 5,512 6,125
-------------- -------------- --------------
Total premium income and other considerations................ 280,080 217,891 210,764
Net investment income.......................................... 277,068 225,378 221,131
Net realized gains (losses).................................... 15,785 (19,652) 18,404
Other income................................................... 3,183 4,626 5,433
-------------- -------------- --------------
Total revenues............................................... 576,116 428,243 455,732
-------------- -------------- --------------
Benefits and expenses:
Policyholder benefits.......................................... 153,307 110,870 102,202
Interest credited to policyholders............................. 165,415 136,853 139,442
Amortization of deferred policy acquisition costs, costs of
insurance acquired, and deferred policy fees.................. 148,659 46,224 52,020
Other operating expenses....................................... 94,784 52,709 51,905
Amortization of goodwill....................................... 2,745 2,388 2,323
Interest expense............................................... 27,861 20,728 25,980
-------------- -------------- --------------
Total expenses............................................... 592,771 369,772 373,872
-------------- -------------- --------------
Earnings (loss) before income taxes and extraordinary items...... (16,655) 58,471 81,860
Federal income tax expense (benefit)........................... (3,271) 21,265 29,868
-------------- -------------- --------------
Earnings (loss) before extraordinary items....................... (13,384) 37,206 51,992
Extraordinary loss, net of tax effect.......................... 2,558 4,776
-------------- -------------- --------------
Net earnings (loss).............................................. (13,384) 34,648 47,216
Less dividends in kind on preferred stock...................... (3,978)
-------------- -------------- --------------
Net earnings (loss) applicable to common stock................... $ (13,384) $ 34,648 $ 43,238
-------------- -------------- --------------
-------------- -------------- --------------
Weighted average common shares and common equivalent share
outstanding..................................................... 27,127,171 26,111,032 23,407,192
-------------- -------------- --------------
-------------- -------------- --------------
Earnings (loss) per common share and common equivalent share
outstanding:
Earnings (loss) before extraordinary items..................... $ (0.49) $ 1.43 $ 2.05
Extraordinary loss............................................. (0.10) (0.20)
-------------- -------------- --------------
Net earnings (loss).......................................... $ (0.49) $ 1.33 $ 1.85
-------------- -------------- --------------
-------------- -------------- --------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE>
LIFE PARTNERS GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
NET
UNREALIZED
CLASS A CLASS B ADDITIONAL INVESTMENT RETAINED
PREFERRED COMMON COMMON COMMON PAID-IN GAINS EARNINGS
STOCK STOCK STOCK STOCK CAPITAL (LOSSES) (DEFICIT)
--------- ------------- ----------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993...... $ 118,005 $ 13 $ 1 $ 69,909 $ 46,081 $ (4,150)
Common stock issued for cash,
net of related offering
costs.......................... $ 11 174,860
Cash dividends paid on Common
Stock.......................... (950)
Conversion of Class A and Class
B Common Stock to Common
Stock.......................... 14 (13) (1)
Preferred stock dividends in
kind........................... 3,978 (3,978)
Redemption of preferred stock... (121,983)
Compensation for management
options........................ 163
Change in unrealized gains
(losses), net.................. (17,977)
Net earnings.................... 47,216
--
--------- --- --- ----------- ----------- -----------
Balance at December 31, 1993.... 0 25 0 0 244,932 28,104 38,138
Common stock issued for cash.... 1 377
Cash dividends paid on Common
Stock.......................... (2,035)
Compensation for and tax benefit
of management options.......... 343
Change in unrealized gains
(losses), net.................. (50,887)
Net earnings.................... 34,648
--
--------- --- --- ----------- ----------- -----------
Balance at December 31, 1994.... 0 26 0 0 245,652 (22,783) 70,751
Common Stock issued for cash.... 1,942
Common Stock issued in
acquisition of subsidiaries.... 2 39,457
Cash dividends paid on Common
Stock.......................... (3,018)
Tax benefit of management
options exercised.............. 812
Change in unrealized gains
(losses), net.................. 81,052
Net earnings (loss)............. (13,384)
--
--------- --- --- ----------- ----------- -----------
Balance at December 31, 1995.... $ 0 $ 28 $ 0 $ 0 $ 287,863 $ 58,269 $ 54,349
--
--
--------- --- --- ----------- ----------- -----------
--------- --- --- ----------- ----------- -----------
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
------------
<S> <C>
Balance at January 1, 1993...... $ 229,859
Common stock issued for cash,
net of related offering
costs.......................... 174,871
Cash dividends paid on Common
Stock.......................... (950)
Conversion of Class A and Class
B Common Stock to Common
Stock..........................
Preferred stock dividends in
kind...........................
Redemption of preferred stock... (121,983)
Compensation for management
options........................ 163
Change in unrealized gains
(losses), net.................. (17,977)
Net earnings.................... 47,216
------------
Balance at December 31, 1993.... 311,199
Common stock issued for cash.... 378
Cash dividends paid on Common
Stock.......................... (2,035)
Compensation for and tax benefit
of management options.......... 343
Change in unrealized gains
(losses), net.................. (50,887)
Net earnings.................... 34,648
------------
Balance at December 31, 1994.... 293,646
Common Stock issued for cash.... 1,942
Common Stock issued in
acquisition of subsidiaries.... 39,459
Cash dividends paid on Common
Stock.......................... (3,018)
Tax benefit of management
options exercised.............. 812
Change in unrealized gains
(losses), net.................. 81,052
Net earnings (loss)............. (13,384)
------------
Balance at December 31, 1995.... $ 400,509
------------
------------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE>
LIFE PARTNERS GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------------
1995 1994 1993
--------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)....................................................... $ (13,384) $ 34,648 $ 47,216
Adjustments to reconcile net earnings (loss) to net cash used by operating
activities:
Extraordinary loss, net of tax effect................................. 2,558 4,776
Net realized (gains) losses........................................... (15,785) 19,652 (18,404)
Adjustments relating to universal life and annuity products:
Interest credited to account balances............................... 138,465 110,946 114,294
Charges for mortality and administration............................ (223,361) (177,237) (164,152)
Depreciation and amortization......................................... 5,494 4,945 5,504
Decrease in future policy benefits.................................... (13,253) (3,470) (20,591)
Increase in reserve liability on modified coinsurance agreements...... 17,571 12,534 5,471
Decrease (increase) in deferred policy acquisition costs, net......... 20,561 (64,912) (61,588)
Amortization of cost of insurance acquired, net....................... 41,406 25,566 27,869
Amortization of deferred policy fees.................................. (17,025) (4,206) (6,275)
Increase (decrease) in currently payable taxes........................ 19,888 (12,738) 6,683
Deferred tax expense (benefit)........................................ (22,539) 19,168 (27,759)
Increase in policy liabilities, other policyholder funds, and other
liabilities.......................................................... 14,959 13,601 15,693
Increase in notes and accounts receivable and accrued investment
income............................................................... (1,311) (2,903) (10,402)
Amortization of bond and mortgage loan discount and premium, net...... 573 (663) (9,472)
Other, net............................................................ (8,908) (190) (3,313)
--------- ----------- -----------
Net cash used by operating activities............................... (56,649) (22,701) (94,450)
--------- ----------- -----------
Cash flows from investing activities:
Sales of fixed maturities:
Available-for-sale.................................................... 301,100 1,303,540 1,011,137
Held-to-maturity...................................................... 33,480 262,355
Maturities of fixed investments:
Available-for-sale.................................................... 92,451 89,173 149,831
Held-to-maturity...................................................... 71,588 64,097 113,031
Sales of other long-term invested assets.................................. 60,670 28,459 141,623
Decrease (increase) in policy loans, net.................................. (4,396) (3,528) 6,689
Purchases of fixed maturities............................................. (389,269) (1,842,038) (1,842,986)
Purchases of other long-term invested assets.............................. (24,809) (43,714) (46,396)
Purchase of subsidiaries, net of cash and short-term investments
acquired................................................................. (20,591)
--------- ----------- -----------
Net cash provided (used) by investing activities.................... 120,224 (404,011) (204,716)
--------- ----------- -----------
Cash flows from financing activities:
Policyholder contract deposits............................................ 458,737 384,738 577,005
Policyholder contract withdrawals......................................... (261,828) (196,261) (194,157)
Proceeds from issuance of common stock.................................... 1,942 408 187,086
Costs related to common stock issuance.................................... (30) (12,215)
Proceeds from notes payable............................................... 50,000 160,000
Proceeds from investment borrowings, net.................................. 63,786
Principal repayments on investment borrowings............................. (92,866)
Principal payments on notes payable and indebtedness to related party..... (60,573) (3,822) (265,025)
Deferred loan costs related to notes payable and indebtedness to related
party.................................................................... (898) (7,087)
Cash dividends paid on common stock....................................... (3,018) (2,035) (950)
Redemption of preferred stock............................................. (121,983)
--------- ----------- -----------
Net cash provided by financing activities........................... 92,394 245,886 322,674
--------- ----------- -----------
Net increase (decrease) in cash and short-term investments.................. 155,969 (180,826) 23,508
Cash and short-term investments at beginning of year........................ 41,715 222,541 199,033
--------- ----------- -----------
Cash and short-term investments at end of year.............................. $ 197,684 $ 41,715 $ 222,541
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Life Partners
Group, Inc. ("Life Partners") and its wholly-owned subsidiaries (together the
"Company") from the date of acquisition. The subsidiaries consist of
Philadelphia Life Insurance Company ("Philadelphia Life"), Massachusetts General
Life Insurance Company ("Massachusetts General"), Lamar Life Insurance Company
("Lamar Life"), Wabash Life Insurance Company ("Wabash"), Independent Processing
Services, Inc. ("IPS"), Travel Partners Group, Inc. ("TPG"), Philadelphia Life
Asset Planning Company ("PLAPCO"), Stratford Capital Group, Inc. ("Stratford
Capital"), Lamar Life International, Inc. ("LLII"), Whitehall Fund Managers,
Inc. ("WFM"), Eagles National Corporation ("ENC"), and Partners Risk Management
Company ("PRMC").
All significant intercompany accounts and transactions have been eliminated
in consolidation.
(b) BASIS OF PRESENTATION
The Company's insurance subsidiaries maintain their accounts in conformity
with accounting practices prescribed or permitted by state insurance regulatory
authorities. In the accompanying financial statements such accounts have been
adjusted to conform with generally accepted accounting principles ("GAAP") (see
Note 13).
(c) NATURE OF OPERATIONS
Life Partners is an insurance holding company that, through its three
principal life insurance subsidiaries, sells a diverse portfolio of universal
life insurance and annuity products to individuals. The Company also maintains
an existing block of traditional, universal life and annuity business in force.
The Company markets its life insurance products through two separate marketing
systems; the Client Company marketing system (including affiliated companies)
and the Regional Director marketing system. While both systems rely on
independent agents to consummate sales, the Client Company System further offers
qualified members of its life insurance sales force the opportunity to
participate in and share in the profitability of an agent-owned reinsurance
company. Of the Company's total gross annualized premiums on new life insurance
sales, 71.6%, 77.6%, and 71.9% were generated by agents participating in the
Client Company marketing system during 1995, 1994 and 1993, respectively.
(d) INVESTMENTS
Effective December 31, 1993, the Company adopted Statement of Financial
Accounting Standard No. 115, ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT AND
EQUITY SECURITIES ("SFAS 115") issued by the Financial Accounting Standards
Board ("FASB"). Under SFAS 115, fixed-maturity securities classified as
investments held-to-maturity are carried at amortized cost because the Company
has the intent and the ability to hold such securities to maturity. Although the
Company has the ability and intent to hold these investments to maturity,
infrequent and unusual conditions could occur under which certain investments
designated as held to maturity would be sold. Such conditions include unforeseen
changes in asset quality, significant changes in tax law affecting the taxation
of securities, significant business acquisitions or dispositions, and changes in
regulatory capital requirements or permissible investments. Fixed-maturities
that may be sold prior to maturity are included in the Company's
available-for-sale account at fair value. The classification of investments is
determined at the date of purchase and is reevaluated at each balance sheet
date.
The effect of the adoption of SFAS 115 was to decrease stockholders' equity
by approximately $0.8 million. This net decrease consisted of an increase of
approximately $6.6 million from securities which were previously classified as
held-to-maturity and transferred to available-for-sale, and a decrease of
approximately $7.4 million for securities which were previously classified as
actively
35
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
managed investments, which were carried at fair value, and were transferred to
held-to-maturity. The adoption of SFAS 115 had no effect on net earnings or cash
flows. SFAS 115 prohibits restatement of prior years' financial statements.
In November 1995, the Company transferred certain securities between the
available-for-sale and held-to-maturity classifications as permitted by an
implementation guide issued by the Financial Accounting Standards Board (See
Note 4).
Premiums and discounts on fixed maturity investments are amortized over the
term of the security, or in the case of mortgage-backed securities, over the
estimated life of the security. Such amortization is included in net investment
income.
Principal prepayments affect the cash flow pattern and yield of
mortgage-backed securities. The amortization of discounts and premiums takes
into consideration actual and future estimated principal prepayments. The
Company utilizes estimated prepayment speed information obtained from published
sources or from estimates developed by its investment advisors. The effects on
the yield of a security from changes in principal prepayments are recognized
retrospectively, except for interest only or residual interest structured
securities which are recognized prospectively. The degree to which a security is
susceptible to yield adjustments is influenced by the difference between its
carrying value and par, the relative sensitivity of the underlying mortgages
backing the assets to prepayment in a changing interest rate environment, and
the repayment priority for structured securities such as collateralized mortgage
obligations.
Mortgage loans are stated at the aggregate unpaid principal balances, less
unamortized discount and less allowance for possible losses. Real estate held
for investment is stated at cost, less allowances for depreciation and, as
appropriate, provisions for possible losses. Real estate acquired through
foreclosure is stated at lower of cost or market.
Policy and collateral loans are stated at the aggregate unpaid principal
balances.
For purposes of the statements of cash flows, cash and short-term
investments include commercial paper, invested cash, and other investments with
original maturities of three months or less, and are reflected at cost.
Other invested assets consist primarily of limited partnerships acquired
prior to 1995, which are accounted for under the cost method. Certain of these
limited partnership investments are related party transactions (see Note 14).
During 1995, 1994 and 1993, the Company owned certain derivative investments
in the form of interest rate swap agreements. During the term of an interest
rate swap, the net swap settlement amount is accrued over the unexpired term as
an adjustment of interest income. Gains or losses on termination are deferred
and amortized as an interest adjustment over the remaining original life of the
underlying financial instrument, or reflected in operations as appropriate.
During 1994 the Company entered into certain reverse repurchase finance
agreements related to the purchase of certain mortgage-backed securities. These
financings were collateralized by mortgage-backed securities with fair market
values in excess of the loan value. Such transactions are accounted for as
short-term collateralized borrowings and generally terminate within 120 days.
Net realized investment gains and losses are included in the determination
of net earnings (loss). Unrealized investment gains and losses on marketable
equity securities and fixed maturity investments available-for-sale, net of
amortization of deferred policy acquisition costs, deferred policy fees and
related deferred tax effect, if any, are charged or credited directly to
stockholders' equity and do
36
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
not affect net earnings (loss). If a decline in the market value of an
individual investment is considered to be other than temporary, the difference
between amortized book value and net realizable value is recorded as a realized
investment loss. Net realizable value is based on quoted market prices or
discounted cash flows in the absence of quoted market prices. The cost of
investments sold is determined on a specific identification basis (see Note 4).
Changes in the interest rate environment have a direct, inverse impact on
the market value of fixed income investments. It is reasonably possible that
changes in interest rates will occur in the near term and that such changes
could have a material effect on the carrying value of available-for-sale fixed
maturity and equity securities, with an offsetting effect to stockholders'
equity, net of the related effects on deferred policy acquisition costs,
deferred policy fees, costs of insurance acquired and related deferred income
taxes. The impact of the adjustment to investments carried at market value
resulting from interest rate fluctuations and related adjustments to other
accounts do not have a direct impact on the Company's results of operations.
During 1995, the FASB issued Statement of Financial Accounting Standards No.
121, ACCOUNTING FOR THE IMPAIRMENT OF LONG LIVED ASSETS AND FOR LONG LIVED
ASSETS TO BE DISPOSED OF ("SFAS 121"), which is effective for fiscal years
beginning after December 15, 1995. The Company does not believe that the
application of the provisions of SFAS 121 will have a material effect on its
financial condition or results of operations.
(e) DEFERRED POLICY ACQUISITION COSTS
Costs which vary with and are primarily related to the acquisition of new
business have been deferred to the extent that such costs are deemed recoverable
through future revenues. These costs include commissions, certain costs of
policy issuance and underwriting, and certain variable agency selling expenses.
For traditional life products, deferred costs are amortized with interest over
the premium paying period in proportion to the ratio of annual premium revenue
to the anticipated total premium revenue. Deferred policy acquisition costs
related to universal life, interest-sensitive life, and annuity products are
amortized with interest in relation to the present value, using the assumed
crediting rate, of expected positive gross profits on the products, with a
provision during earlier profitable periods for losses occurring in latter
periods. Retrospective adjustments of these amounts are made when the Company
revises its estimates of current or future gross profits and losses, including
investment gains and losses related to changes in market interest rates to be
realized from a group of policies. Anticipated investment income is considered
in the determination of recoverability of deferred policy acquisition costs.
Changes in deferred policy acquisitions costs are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year................................................. $ 276,938 $ 200,475 $ 144,307
Capitalization of costs incurred........................................... 103,717 89,776 92,014
Interest accretion......................................................... 16,982 14,322 11,205
Adjustment for unrealized gains and losses on fixed maturity investments
available-for-sale........................................................ (17,641) 11,551 (5,420)
Amortization............................................................... (141,260) (39,186) (41,631)
----------- ----------- -----------
Balance, end of year....................................................... $ 238,736 $ 276,938 $ 200,475
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
The determination of expected future gross profits and losses is based on
historical gross profits and management's estimates and assumptions regarding
future investment spreads, maintenance expenses, mortality and persistency of
the block of business. The accuracy of the estimates and
37
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
assumptions are impacted by several factors, including factors outside the
control of management such as movements in interest rates. It is reasonably
possible that conditions impacting the estimates and assumptions will change and
that changes may result in future adjustments to deferred policy acquisition
costs. At December 31, 1995, the Company reassessed its expectations of future
gross profits and losses resulting in an additional net change in deferred
acquisition costs, deferred policy fees and provision for losses of $66.6
million. This change in estimate related to deferred expenses and fees, and
provision for losses was included as an expense in the 1995 Consolidated
Statement of Operations.
(f) COST OF INSURANCE ACQUIRED
A portion of the purchase price paid for the Company's insurance
subsidiaries was allocated to the cost of insurance acquired based on the
actuarially determined future profits from policies acquired with the purchase
of the insurance subsidiaries. The portion of the asset relating to the
acquisition of subsidiaries in 1990 is amortized without interest in relation to
expected future gross profits, adjusted prospectively for changes in
assumptions, including direct charge-offs for any excess of the unamortized
asset over the present value of projected future profits.
Additionally, the Company assumed a block of annuity business in 1993 and
consummated the Lamar Life acquisition in 1995 (See Note 2), of which portions
of the respective purchase prices were allocated to the cost of the policies
acquired. These assets are amortized with interest in relation to expected gross
profits, using the assumed crediting interest rate, including direct charge-offs
for any excess of the unamortized asset over the present value of expected gross
profits. Retrospective adjustments of the amounts related to the 1993 and 1995
business acquired are made when the Company revises its estimates of expected
future gross profits and losses with respect to the policies acquired.
The estimation of future gross profits and losses with respect to cost of
insurance acquired is subject to the same estimation process and is impacted by
the same factors as discussed above under deferred policy acquisition costs.
Changes in the cost of insurance acquired are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year................................................. $ 234,471 $ 260,037 $ 272,543
Additional cost of insurance acquired...................................... 127,377 15,363
Interest accretion......................................................... 5,695 614 414
Adjustment for unrealized gains and losses on fixed maturity investments
available for sale........................................................ (14,427)
Amortization............................................................... (47,101) (26,180) (28,283)
----------- ----------- -----------
Balance, end of year....................................................... $ 306,015 $ 234,471 $ 260,037
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Future amortization is estimated at $47.8 million, $41.3 million, $36.4
million, $30.9 million, and $26.5 million for the years 1996, 1997, 1998, 1999,
and 2000, respectively. Due to changes in estimates of future gross profits and
losses, the estimated future amortization is expected to increase as compared to
prior year estimates.
(g) GOODWILL
Goodwill is amortized on the straight-line basis over a 40 year period.
Accumulated amortization of goodwill was $13.8 million and $11.1 million at
December 31, 1995 and 1994, respectively. The Company continually evaluates
whether current events and circumstances warrant adjustments to
38
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
the carrying value and/or the estimated amortization period of goodwill and
other intangibles. An adjustment to the carrying value or amortization period is
based on future undiscounted cash flows. At this time, the Company believes that
no significant impairment of the goodwill and other intangibles has occurred and
that no reduction of the estimated amortization period is warranted.
(h) FUTURE POLICY BENEFITS AND CLAIMS
The liability for future policy benefits of traditional life products has
been computed by the net level premium method based on estimated future
investment yield, mortality, and withdrawal experience. Reserve interest
assumptions are graded to rates between 7.25% and 8.5%. Mortality assumptions
are based on the 1965-70 Basic Experience Table. Withdrawal assumptions vary by
year of issue, age of the insured, and type of insurance. Mortality and
withdrawal assumptions are based on actual experience, modified as necessary to
reflect anticipated trends and to include provisions for possible unfavorable
deviations. The assumptions vary by plan, year of issue, and duration.
Substantially all of the traditional life products were issued prior to 1984.
The future policy benefit reserves include a provision for policyholder
dividends based upon dividend scales assumed at the date of purchase of acquired
companies or as presently contemplated.
Policy and contract claims include provisions for reported claims in process
of settlement, valued in accordance with the terms of the related policies and
contracts, as well as provisions for claims incurred and unreported based on
prior experience of the Company.
Future policy benefits and claims are calculated using numerous assumptions
and estimates including interest rates, mortality and persistency, which are
intended to estimate the timing of payment of policyholder benefits and claims.
Actual results could differ from these estimates.
(i) POLICYHOLDER ACCOUNT BALANCES
Benefit reserves for universal life, including both variable and fixed
premium products, and annuity products are determined using the "retrospective
deposit" method and consist of policy account values before any surrender
charges.
(j) DEFERRED POLICY FEES
Certain front-end fees assessed against policyholder account balances on
universal life contracts are deferred and amortized with interest in relation to
the present value of expected gross profits on the product. Such amortization is
in direct proportion to amortization of deferred policy acquisition costs for a
given policy form and is netted with amortization of deferred policy acquisition
costs in the Consolidated Statements of Operations.
Changes in deferred policy fees are as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance, beginning of year..................................................... $ 78,700 $ 59,058 $ 46,142
Capitalization................................................................. 21,348 22,241 19,850
Interest accretion............................................................. 4,867 4,133 3,569
Adjustment for unrealized gains and losses on fixed maturity investments
available-for-sale............................................................ (2,433) 1,607 (659)
Amortization................................................................... (21,892) (8,339) (9,844)
--------- --------- ---------
Balance, end of year........................................................... $ 80,590 $ 78,700 $ 59,058
--------- --------- ---------
--------- --------- ---------
</TABLE>
At December 31, 1995, the Company reassessed its expectations future gross
profits and losses resulting in additional amortization of Deferred Policy Fees
(See Note 1(e)).
39
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(k) LIABILITY FOR GUARANTY FUND ASSESSMENTS
Assessments are levied on the Company from time to time by guaranty fund
associations of states in which it is licensed to provide for payment of covered
claims or to meet other insurance obligations, subject to prescribed limits, of
insolvent insurance enterprises. Assessments are allocated to an insurer based
on the ratio of premiums written by an insurer to total premiums written in the
state. The term of the assessments depend on how each guaranty fund association
elects to fund its obligation. Assessments levied by certain states may be
recoverable through a reduction in future premium taxes. The Company provides a
liability, net of discount and estimated premium tax offsets, for estimated
future assessments of known insolvencies. Such liability was $2.7 million and
$0.5 million at December 31, 1995 and 1994, respectively. The Company determines
the liability utilizing a report prepared annually by the National Organization
of Life, Health and Accident Guaranty Associations which provides estimates of
assessments by insolvency. Although management believes the provision for
guaranty fund assessments is adequate for all known insolvencies, and does not
currently anticipate the need for any material additions to the reserve for
known insolvencies, it is reasonably possible that the estimates on which the
provision is based will change and that such changes may result in future
adjustments.
(l) RECOGNITION OF PREMIUM REVENUE AND RELATED EXPENSES
Premium revenue for traditional life insurance products is reported as
earned when due. Benefits and expenses are associated with earned premiums so as
to result in recognition of profits over the premium paying period. This
association is accomplished by means of a provision for future policy benefit
reserves and the amortization of deferred policy acquisition costs. Revenues for
universal life policies and annuity products consist of policy charges for the
cost of insurance, policy administration charges, amortization of policy
initiation fees, and surrender charges. Expenses related to these products
include interest credited to policy account balances and benefit claims incurred
in excess of policy account balances. Premiums earned on group accident and
health insurance business are recorded as fees net of ceded commissions in
accident and health insurance premiums, net.
(m) EARNINGS PER SHARE
Net earnings per common share is based on the weighted average number of
common and common equivalent shares outstanding during the periods. Net loss per
common share is based on the weighted average number of common shares
outstanding. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, all common shares issued and options and warrants granted by
the Company during the twelve months preceding March 23, 1993, the date of the
Company's initial public offering, except those issued to General Electric
Capital Corporation ("GE Capital") upon exercise of the GE Capital warrants,
have been included in the calculation of common and common equivalent shares
outstanding as if they were outstanding for all periods presented (using the
treasury stock method and a public offering price of $17.00 per share).
(n) POSTRETIREMENT BENEFITS
The Company has no material liabilities for postretirement benefits. The
liabilities for certain individuals who were vested in the prior owner's plan or
in the prior Lamar Life plan are accounted for in accordance with Statement of
Financial Accounting Standards No. 106.
40
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities, the
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(p) RECLASSIFICATIONS
The Company has reclassified the presentation of certain prior period
information to conform with the 1995 presentation. The reclassifications had no
effect on the financial position, results of operations or cash flows of the
Company.
2. ACQUISITION
On April 28, 1995, Life Partners Group, Inc. finalized an agreement to
acquire Lamar Financial Group, Inc. ("Lamar"), together with all its
subsidiaries, including Lamar Life Insurance Company of Jackson, Mississippi,
for a purchase price of $77 million.
The acquisition is summarized as follows (in millions):
<TABLE>
<S> <C>
Assets acquired:
Investments:
Fixed maturities....................................... $ 666
Others................................................. 166
---------
832
Cost of insurance acquired............................... 126
Goodwill................................................. 19
All other................................................ 233
---------
1,210
---------
Liabilities assumed:
Future policy benefits................................... 84
Policyholder account balances............................ 857
Debt..................................................... 46
All other................................................ 146
---------
1,133
---------
Net assets acquired........................................ $ 77
---------
---------
Financed by:
Borrowings under bank credit facility...................... $ 36
Common stock (2,010,645 shares)............................ 39
Cash....................................................... 2
---------
$ 77
---------
---------
</TABLE>
The acquisition was accounted for using the purchase method, and the results
of operations of Lamar were included in the consolidated statement of operations
from the date of acquisition. Also included in the results of operations is a
one time charge of $0.5 million for interest expense on the acquisition purchase
price. The fair value of assets and liabilities of Lamar were reflected in the
Company's consolidated balance sheet as of April 28, 1995, and goodwill recorded
as a result of the acquisition was increased by approximately $4.8 million due
to further evaluation of the fair values of
41
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. ACQUISITION (CONTINUED)
the acquired assets and liabilities. Evaluation of fair values for acquired
assets and liabilities, including investments, cost of insurance purchased, and
insurance and annuity liabilities is continuing and allocation of the purchase
price may be further adjusted.
As of December 31, 1995, the Company had substantially completed the move of
the primary life, annuity and corporate functions of Lamar from its location in
Jackson, Mississippi, to the Company's headquarters in Englewood, Colorado. In
connection with this move, the Company has incurred and anticipates certain
additional closing and moving costs, costs to involuntarily terminate or
relocate employees, and terminate or renegotiate certain contracts. Management
has estimated these costs to total approximately $3.8 million, and has included
such estimated costs in the allocation of the acquired net assets of Lamar. Such
costs may be revised in future periods if actual costs deviate significantly
from the estimates.
The following unaudited pro forma information presents the consolidated
results of operations of the Company and Lamar as if the acquisitions had been
effective at the beginning of the periods presented, after giving effect to
adjustments to reflect the acquisition and the financing related thereto.
<TABLE>
<CAPTION>
PRO FORMA
YEAR ENDED DECEMBER 31,
------------------------------
1995 1994
-------------- --------------
<S> <C> <C>
(IN THOUSANDS, EXCEPT SHARE
AND PER SHARE DATA)
Revenues............................................................ $ 598,313 $ 530,641
Earnings (loss) before income taxes and extraordinary item.......... (14,919) 67,356
Earnings (loss) before extraordinary item........................... (12,289) 43,419
Net earnings (loss)................................................. (12,289) 40,861
Earnings (loss) per share before extraordinary item................. $ (0.44) $ 1.54
Net earnings (loss) per share....................................... $ (0.44) $ 1.45
Weighted average common shares and common equivalent shares
outstanding........................................................ 27,777,188 28,121,677
</TABLE>
The above unaudited pro forma information is intended for informational
purposes only and may not necessarily be indicative of the Company's future
results of operations.
3. NOTES PAYABLE
Notes payable at December 31, 1995, and December 31, 1994, are summarized
below (in thousands):
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
NET OF UNAMORTIZED
AMOUNT OUTSTANDING ISSUANCE COSTS
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Borrowings under bank credit facility (A)........... $ 156,178 $ 121,178 $ 155,581 $ 120,370
12 3/4% Senior Subordinated Notes Due 2002 (B)...... 95,100 95,100 90,502 90,090
----------- ----------- ----------- -----------
$ 251,278 $ 216,278 $ 246,083 $ 210,460
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(A) On August 12, 1994, the unsecured syndicated credit facility was amended and
restated to include a $50 million revolving credit facility and various
other modifications. On April 28, 1995, the Company utilized $36 million of
the revolving credit facility in the acquisition of Lamar Financial
42
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE (CONTINUED)
Group, Inc. (See Note 2). On December 28, 1995, the Company utilized the
remaining $14 million of the facility. According to the amended agreement,
the $50 million outstanding principal will convert to a term loan effective
January 1, 1997, payable in quarterly installments through September 30,
1999. The outstanding principal under the existing term loan is payable in
quarterly installments through September 30, 1999. Both the outstanding term
loan principal and outstanding revolving loan principal may be designated as
a "base rate loan", a "eurodollar loan", or a combination of both at the
Company's option on a periodic basis.
Any principal portion designated as a base rate loan bears interest at a
rate per annum equal to the higher of (a) the Federal Funds Rate for such
day plus 1/2 of 1%, or (b) the Prime rate for such day. Any principal
portion designated as a eurodollar loan bears interest at a rate per annum
based upon the one, two, three, or six month LIBOR rate, plus a 1.0% margin.
At December 31, 1995, the entire outstanding term loan principal amount of
$106.2 million was designated by the Company as a eurodollar loan, bearing
interest based upon the six month LIBOR rate of 6.75%. The outstanding
revolving loan principal amount of $50 million was also designated by the
Company as a eurodollar loan. Of the outstanding revolving loan principal,
$36.0 million bears interest based on the six month LIBOR rate of 6.88%, and
$14.0 million bears interest based upon the three month LIBOR rate of 6.69%.
The loan agreement under the bank credit facility contains covenants, the
most restrictive of which limits payments by the Company for dividends to 3%
of net worth as defined in the agreement.
(B) On July 30, 1992, Life Partners completed a public offering of $100 million
of unsecured senior subordinated notes. The notes bear interest at the rate
of 12 3/4% (payable semi-annually on January 15 and July 15), and the
principal of the notes is payable in a single installment at maturity on
July 15, 2002. The notes are redeemable at Life Partners' option at any time
after July 15, 1997, and there are no sinking fund requirements. The notes
may be redeemed by Life Partners at redemption prices of 103.643% and
101.831% of the outstanding principal balances in the 12-month periods
commencing July 15, 1997 and 1998, respectively, or at 100% thereafter. One
of Life Partners' subsidiaries purchased $4.9 million of the notes in 1993.
The following summary sets forth the principal balance of maturities of
notes payable during each of the next five years (in thousands):
<TABLE>
<S> <C>
1996..................................................... $ 15,000
1997..................................................... 38,182
1998..................................................... 48,182
1999..................................................... 54,814
2000 and thereafter...................................... 95,100
---------
$ 251,278
---------
---------
</TABLE>
The components of interest expense associated with notes payable are as
follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Notes payable........................................................ $ 23,225 $ 20,728 $ 23,584
Indebtedness to related party........................................ 2,396
--------- --------- ---------
Total............................................................ $ 23,225 $ 20,728 $ 25,980
--------- --------- ---------
--------- --------- ---------
</TABLE>
43
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. NOTES PAYABLE (CONTINUED)
Interest expense for the year ended December 31, 1995, as reported in the
consolidated statement of operations, also includes interest paid or accrued to
the Internal Revenue Service relating to assessments on prior tax years of $4.2
million (See Note 12), and interest expense of $0.5 million associated with
purchase accounting of Lamar (See Note 2).
To the extent that loans were payable to GE Capital, which owned
approximately 40% of the outstanding common stock of Life Partners at January 1,
1993, under the Senior Loan Agreement, they were classified as "Indebtedness to
related party." To the extent that loans are payable to unaffiliated third
parties, they are classified as "Notes payable" (see Note 9).
The interest and principal payment terms of surplus debentures payable by
Wabash to Life Partners are structured, subject to certain surplus restrictions,
to provide sufficient cash to meet all payment terms on these loan agreements
(see Note 7).
4. INVESTMENTS
Investment income by type of investment was as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Gross investment income:
Fixed maturities............................................. $ 251,403 $ 211,318 $ 199,164
Policy loans................................................. 14,732 12,212 12,691
Short-term investments....................................... 6,583 4,277 4,848
Other invested assets........................................ 5,360 4,179 4,877
Mortgage loans............................................... 9,445 3,041 4,043
Equity securities............................................ 1,866 1,336 1,113
Collateral loans............................................. 214 106 118
Investment real estate....................................... 1,506 337 246
----------- ----------- -----------
Gross investment income.................................... 291,109 236,806 227,100
----------- ----------- -----------
Less: Investment expenses...................................... 6,060 6,293 5,969
Interest expense on investment borrowings.................. 7,981 5,135
----------- ----------- -----------
Net investment income.......................................... $ 277,068 $ 225,378 $ 221,131
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Following is an analysis of net realized gains (losses) on investments (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------------
1995 1994 1993
--------- ---------- ----------
<S> <C> <C> <C>
Fixed maturities................................................. $ 1,253 $(10,122) $(13,063)
Equity securities................................................ 14,577 (1,126) 33,845
Other............................................................ (45) (8,404) (2,378)
--------- ---------- ----------
$ 15,785 $(19,652) $18,404
--------- ---------- ----------
--------- ---------- ----------
</TABLE>
Realized investment gains (losses) resulted in (decelerated) accelerated net
amortization expense for deferred policy acquisition and deferred policy fees of
$(8,039,000), $12,000 and $4,773,000 during the years ended December 31, 1995,
1994 and 1993, respectively.
Realized investment losses for other than temporary declines in the market
values of debt securities totaled $9.2 million, $7.1 million, and $54.5 million
in 1995, 1994, and 1993, respectively.
44
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
During 1995, the Company sold $35.1 million of fixed maturity investments
which were previously classified as held-to-maturity. Such sales were primarily
the result of significant deterioration of creditworthiness of the issuers.
Based upon available information, the Company concluded that, in all
probability, substantial amounts due would not be collected or there would be
delay in collection, causing the Company to sell these securities. As a result
of such sales, the Company realized net losses of $1.6 million in 1995.
The cost and estimated fair values of equity securities are as follows (in
thousands):
<TABLE>
<CAPTION>
GROSS GROSS ESTIMATED
UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
December 31, 1995:
Preferred stock....................................... $ 18,984 $ 1,123 $ 502 $ 19,605
Common stock.......................................... 1,945 2,271 100 4,116
--------- ----------- ----------- ---------
Totals............................................ $ 20,929 $ 3,394 $ 602 $ 23,721
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
December 31, 1994:
Preferred stock....................................... $ 8,760 $ 231 $ 1,134 $ 7,857
Common stock.......................................... 5,745 14,057 149 19,653
--------- ----------- ----------- ---------
Totals............................................ $ 14,505 $ 14,288 $ 1,283 $ 27,510
--------- ----------- ----------- ---------
--------- ----------- ----------- ---------
</TABLE>
The amortized cost and estimated fair values of debt securities classified
as fixed maturity investments held-to-maturity are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
December 31, 1995:
United States treasury securities and obligations of United
States government corporations and agencies................... $ 2,024 $ 44 $ 2,068
Obligations of states and political subdivisions............... 2,420 307 2,727
Debt securities issued by foreign government................... 16,272 1,014 17,286
Corporate securities........................................... 533,110 36,273 $ 4,280 565,103
Mortgage-backed securities..................................... 74,470 4,959 107 79,322
Other debt securities.......................................... 50,530 4,641 301 54,870
----------- ----------- ----------- -----------
Totals..................................................... $ 678,826 $ 47,238 $ 4,688 $ 721,376
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
45
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1994:
United States treasury securities and obligations of
United States government corporations and agencies....... $ 32,725 $ 44 $ 1,964 $ 30,805
Obligations of states and political subdivisions.......... 757 88 845
Debt securities issued by foreign governments............. 19,077 2,851 16,226
Corporate securities...................................... 1,047,684 7,991 71,981 983,694
Mortgage-backed securities................................ 226,205 55 12,814 213,446
Other debt securities..................................... 243,586 456 20,807 223,235
------------- ----------- ----------- -------------
Totals................................................ $ 1,570,034 $ 8,634 $ 110,417 $ 1,468,251
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
The amortized cost and estimated fair values of debt securities classified
as investments available-for-sale are as follows (in thousands):
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1995:
United States treasury securities and obligations of
United States government corporations and agencies....... $ 93,368 $ 4,620 $ 110 $ 97,878
Obligations of states and political subdivisions.......... 8,443 273 8,716
Debt securities issued by foreign governments............. 18,440 673 66 19,047
Corporate securities...................................... 1,044,051 52,822 11,965 1,084,908
Mortgage-backed securities................................ 1,147,848 52,606 1,345 1,199,109
Other debt securities..................................... 249,325 14,584 1,202 262,707
------------- ----------- ----------- -------------
Totals................................................ $ 2,561,475 $ 125,578 $ 14,688 $ 2,672,365
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED ESTIMATED
COST GAINS LOSSES FAIR VALUE
------------- ----------- ----------- -------------
<S> <C> <C> <C> <C>
December 31, 1994:
United States treasury securities and obligations of United
States government corporations and agencies............... $ 94,245 $ 238 $ 5,629 $ 88,854
Obligations of states and political subdivisions........... 1,427 79 1,348
Debt securities issued by foreign government............... 4,859 615 4,244
Corporate securities....................................... 389,856 3,794 20,066 373,584
Mortgage-backed securities................................. 575,181 3,272 30,974 547,479
Other debt securities...................................... 47,218 365 4,382 43,201
------------- ----------- ----------- -------------
Totals................................................. $ 1,112,786 $ 7,669 $ 61,745 $ 1,058,710
------------- ----------- ----------- -------------
------------- ----------- ----------- -------------
</TABLE>
46
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
The amortized cost and estimated fair value of debt securities at December
31, 1995, by contractual maturity, are shown below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties.
Held-to-Maturity:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
----------- -----------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.................................................. $ 990 $ 983
Due after one year through five years.................................... 75,968 77,322
Due after five years through ten years................................... 214,310 225,881
Due after ten years...................................................... 313,088 337,868
----------- -----------
604,356 642,054
Mortgage-backed securities............................................... 74,470 79,322
----------- -----------
$ 678,826 $ 721,376
----------- -----------
----------- -----------
</TABLE>
Available-for-Sale:
<TABLE>
<CAPTION>
AMORTIZED ESTIMATED
COST FAIR VALUE
------------- -------------
(IN THOUSANDS)
<S> <C> <C>
Due in one year or less.............................................. $ 26,400 $ 26,599
Due after one year through five years................................ 240,530 249,527
Due after five years through ten years............................... 547,760 573,534
Due after ten years.................................................. 598,937 623,596
------------- -------------
1,413,627 1,473,256
Mortgage-back securities............................................. 1,147,848 1,199,109
------------- -------------
$ 2,561,475 $ 2,672,365
------------- -------------
------------- -------------
</TABLE>
In November 1995, the Financial Accounting Standards Board issued "A GUIDE
TO IMPLEMENTATION OF STATEMENT 115 ON ACCOUNTING FOR CERTAIN INVESTMENTS IN DEBT
AND EQUITY SECURITIES" which permitted a one-time reassessment of the
appropriateness of the classifications of all securities. Based on such
reassessment, the Company transferred certain securities from the
held-to-maturity portfolio to the available-for-sale portfolio in November 1995.
The transferred securities had an amortized cost of approximately $1,201.4
million and net unrealized gains of approximately $52.1 million. The transfer
resulted in an increase of approximately $26.4 million to shareholders' equity.
Such reassessment does not change management's intent to hold other debt
securities to maturity.
Gross gains of $25.3 million and gross losses of $14.8 million were realized
in 1995 from the sale of investments in debt securities; gross gains of $19.0
million and gross losses of $22.0 million were realized in 1994; and gross gains
of $47.6 million and gross losses of $6.2 million were realized in 1993.
At December 31, 1995, the Company held cash and short-term investments of
Dreyfus Treasury Cash Management Fund with a carrying amount of $58.7 million,
which was greater than 10% of stockholders' equity at December 31, 1995.
47
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
4. INVESTMENTS (CONTINUED)
At December 31, 1994, the carrying amount, fair value and effective yield of
high-risk collateralized mortgage obligations included in fixed maturities were
$11.6 million, $10.7 million and 14.8%, respectively. At December 31, 1995, the
Company did not hold any collateralized mortgage obligations which would be
considered high-risk.
The carrying value of investments that have produced no investment income
for the three years ended December 31, 1995, 1994 or 1993 was not material to
the Company's consolidated financial position.
The Company has only limited involvement with derivative financial
instruments and does not use them for trading purposes. They are used to manage
well-defined interest rate risks. The Company entered into interest rate swap
agreements during 1991 and 1993 for the purpose of minimizing exposure to
fluctuations in interest rates of specific assets held by the Company. The
notional amount of such matched swaps outstanding at December 31, 1994 and 1993,
was $20 million, and $120 million, respectively. During 1994, certain swaps were
terminated resulting in an aggregate loss of approximately $6.8 million. During
the first quarter of 1995, the Company terminated its remaining swaps which
resulted in an aggregate loss of approximately $116,000.
Following is an analysis of the components of net unrealized gains (losses),
net of tax on investments (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------------
1995 1994
----------- ----------
<S> <C> <C>
Investments carried at estimated fair value:
Available-for-sale fixed maturities..................................... $ 110,890 $ (54,076)
Equity securities....................................................... 2,792 13,005
----------- ----------
113,682 (41,071)
Less effect on other balance sheet accounts:
Deferred policy acquisition costs....................................... (11,510) 6,131
Cost of insurance acquired.............................................. (14,427)
Deferred policy fees.................................................... 1,485 (244)
Deferred income taxes................................................... (31,140) 12,535
Other................................................................... 179 (134)
----------- ----------
Net unrealized gains (losses) on investments............................ $ 58,269 $ (22,783)
----------- ----------
----------- ----------
</TABLE>
5. CONCENTRATIONS OF CREDIT RISK
The Company held unrated or non-investment grade corporate debt securities,
excluding senior secured debt securities and mezzanine financing securities, as
follows (in millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Carrying value, net of loss reserves.......................................... $ 146.2 $ 101.9
Market value.................................................................. 150.0 100.8
Percentage of fixed maturity investments...................................... 4% 4%
Percentage of total cash and invested assets.................................. 4% 3%
Number of issuers............................................................. 74 77
</TABLE>
48
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. CONCENTRATIONS OF CREDIT RISK (CONTINUED)
Additionally, the Company held investments in non-investment grade senior
secured debt securities and mezzanine financing securities as follows (in
millions):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1995 1994
--------- ---------
<S> <C> <C>
Carrying value....................................................... $ 61.8 $ 68.3
Market value......................................................... 61.3 68.3
Percentage of fixed maturity investments............................. 2% 3%
Percentage of total cash and invested assets......................... 2% 2%
Numbers of issuers................................................... 20 24
</TABLE>
6. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instrument required to be valued by SFAS 107 for
which it is practicable to estimate that value. None of the financial
instruments are held for trading purposes.
(a) FIXED MATURITIES HELD-TO-MATURITY AND AVAILABLE-FOR-SALE
For those securities held-to-maturity and available-for-sale, fair value
equals quoted market price, if available. If a quoted market price is not
available, fair value is estimated using quoted market prices for similar
securities or discounted future cash flows.
(b) EQUITY SECURITIES
For equity securities, fair value equals quoted market price, if available.
If a quoted market price is not available, fair value is estimated using quoted
market prices for similar securities.
(c) MORTGAGE LOANS ON REAL ESTATE
Fair value is estimated by grouping mortgage loans into homogeneous
categories and using quoted market prices for securities backed by similar
loans, adjusted for differences in loan characteristics.
(d) SHORT-TERM INVESTMENTS
For short-term instruments, the carrying amount is a reasonable estimate of
fair value.
(e) INVESTMENT CONTRACT LIABILITIES
For annuity contracts which do not possess significant insurance risks, cash
surrender value is a reasonable estimate of fair value.
(f) NOTES PAYABLE
For borrowings under the senior loan agreement and the bank credit facility,
which are subject to floating rates of interest, the outstanding balance is a
reasonable estimate of fair value. Fair value of borrowings under the senior
subordinated notes due in 2002 equals quoted market price at the reporting date.
(g) INTEREST RATE SWAP AGREEMENTS
The fair value of interest rate swaps is the estimated amount that the
Company would receive or pay to terminate the swap agreements at the reporting
date, taking into account current interest rates and the current
creditworthiness of the swap counterparties.
49
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
6. DISCLOSURES ABOUT FAIR VALUES OF FINANCIAL INSTRUMENTS (CONTINUED)
(h) NOTES AND ACCOUNTS RECEIVABLE AND UNCOLLECTED PREMIUMS
Notes and accounts receivable and uncollected premiums are primarily
insurance contract related receivables which are determined based upon the
underlying insurance liabilities and related reinsurance amounts, and thus are
excluded for the purpose of fair value disclosure by paragraph 8(c) of SFAS 107.
The estimated fair values of the Company's financial instruments required to
be valued by SFAS 107 are as follows as of December 31 (in thousands):
<TABLE>
<CAPTION>
1995 1994
---------------------------- ----------------------------
CARRYING ESTIMATED CARRYING ESTIMATED
AMOUNT FAIR VALUE AMOUNT FAIR VALUE
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities:
Held-to-maturity................................. $ 678,826 $ 721,376 $ 1,570,034 $ 1,468,251
Available-for-sale............................... 2,672,365 2,672,365 1,058,710 1,058,710
Equity securities.................................. 23,721 23,721 27,510 27,510
Mortgage loans on real estate...................... 110,214 100,003 34,177 34,184
Policy loans (A)................................... 226,212 192,909
Short-term investments............................. 71,744 71,744 5,537 5,537
Other invested assets (B).......................... 59,593 56,039
Financial liabilities:
Investment contract liabilities.................... 1,246,807 1,152,950 888,514 810,187
Notes payable:
Senior subordinated notes due 2002............... 90,502 101,548 90,090 101,282
Bank credit facility............................. 155,581 155,581 120,370 120,370
Unrecognized financial instruments:
Interest rate swaps in a net receivable position
(C)............................................... 76 (219)
</TABLE>
(A) It is not practicable to estimate the fair value of policy loans as they
have no stated maturity and their rates are set at a fixed spread to related
policy liability rates. Policy loans are carried at the aggregate unpaid
principal balances in the consolidated balance sheets, and earn interest at
rates ranging from 4% to 9%. Individual policy liabilities in all cases
equal or exceed outstanding policy loan balances.
(B) Other invested assets consist primarily of limited partnership investments
acquired prior to 1995 and carried at cost, for which the determination of
fair value is not practicable. The carrying value of limited partnership
investments were $42.1 million and $45.8 million at December 31, 1995 and
1994, respectively.
(C) The amount shown under "carrying amount" represents accrued interest on the
unrecognized notional amounts of interest rate swaps.
7. STOCKHOLDERS' EQUITY AND RESTRICTIONS
At December 31, 1995 and 1994, substantially all of consolidated
stockholders' equity represented net assets of insurance subsidiaries that
cannot be transferred to Life Partners in the form of dividends, loans, or
advances without prior regulatory approval. Funds are transferred from Wabash to
Life Partners in the form of interest and principal payments on the surplus
debentures (see Note 3).
50
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. STOCKHOLDERS' EQUITY AND RESTRICTIONS (CONTINUED)
Generally, the net assets of the other insurance subsidiaries available for
transfer to Wabash are limited to the greater of the respective insurance
subsidiary's net gain from operations during the preceding year or 10% of the
respective subsidiary's net surplus as of the end of the preceding year, as
determined in accordance with accounting practices prescribed or permitted by
insurance regulatory authorities. Payment of dividends in excess of such amounts
would generally require approval by the regulatory authorities. During 1996,
$37.7 million is available for payment of dividends by insurance subsidiaries to
Wabash without prior approval.
8. PREFERRED STOCK
At December 31, 1995 and 1994, Life Partners has 10,000,000 authorized
shares of Series Life Partners Series Preferred Stock with $.01 par value and
$1,000 per share stated value, 250,000 shares of which are designated as 15%
Series A Exchangeable Preferred Stock.
On March 31, 1993, as a result of the receipt of proceeds from the issuance
of common stock through an initial public offering, all outstanding shares of
Series A Exchangeable Preferred Stock and accrued PIK Dividends were redeemed.
There were no outstanding shares at December 31, 1995 and 1994 (See Note 9).
9. COMMON STOCK
On March 23, 1993, the Company amended its certificate of incorporation to,
among other things, change its authorized Class A Common Stock and Class B
Common Stock into one class of stock of the Company designated as Common Stock.
Upon the effectiveness of such amendment, each of the 13,150,749 issued and
outstanding shares of Class A Common Stock and 1,234,675 issued and outstanding
shares of Class B Common Stock were automatically converted into one share of
Common Stock. During 1995 and 1994 the Company paid approximately $3,018,192, or
$0.11 per share, and $2,035,000, or $0.08 per share, in cash dividends on the
Common Stock, respectively.
On March 31, 1993, the Company issued 11,000,000 shares of $.001 par value
Common Stock through an initial public offering at a price of $17 per share.
Also included in the offering were 5,806,440 shares of Common Stock previously
owned by GE Capital. The Company did not receive any proceeds from the sale of
the GE Capital shares. The net proceeds to the Company from the offering were
used to redeem all outstanding shares of Series A Exchangeable Preferred Stock
and accrued PIK Dividends for $122.0 million and to prepay $51.7 million on the
notes payable.
At December 31, 1993, there were 37,719 shares of Common Stock reserved for
issuance to three directors pursuant to warrants issued during 1991 and 1992.
During 1994, two of the directors exercised their warrants and were each issued
12,573 shares of Common stock at an exercise price of $3.98 per share. The
remaining warrant has an exercise price of $3.98 per share, is currently
exercisable by the holder, and, if unexercised, will expire on November 12,
1996. The option price was determined by the Compensation Committee of the Board
of Directors in February 1991 and represented a 25% premium over the previous
sale of stock in March 1990. In August 1993, the Board of Directors formally
granted options to a director to purchase 10,000 shares of Common Stock at an
exercise price of $21.00 per share. The options vest in equal amounts in 1994,
1995, and 1996, and expire in 2003.
At December 31, 1995, and 1994, there were 352,941 shares of Common Stock
reserved for issuance pursuant to an option which was granted to an officer in
1991 at an exercise price of $5.31 per share. The option vested in October 1992
and expires on November 1, 2001. Upon issuance the shares will be subject to
transfer and voting restrictions imposed under an agreement among Life Partners
51
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
and its stockholders. At issuance, the option price was greater than the fair
value of the stock, based on the value negotiations with the option holder and
the restrictions placed on the sale of the stock by virtue of a pledge and a
stockholders agreement.
On November 30, 1994 the Company granted options to purchase 250,000 shares
of Common Stock to the Company's chief executive officer. The options are
exercisable at $20.25 per share, vest equally over a five year period, and
expire in 2003.
In addition, Life Partners has reserved 800,000 shares of Common Stock for
future issuance pursuant to a stock option plan which is for the benefit of
officers and key employees. Stock options were formally granted by the
Compensation Committee of the Life Partners Board of Directors at a price not
less than market value on the date of grant. They are exercisable for up to ten
years from the date of grant and vest equally over a three or five year period.
Options outstanding under this stock option plan are as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
----------------------------------
OPTION PRICE 1995 1994 1993
------------------------------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at January 1.......................... $ 3.28 to $20.25 612,101 606,134 606,400
Granted during the year........................... $19.13 to $20.25 84,400
$16.75 100,800
$12.62 to $18.50 685,600
Exercised during the year......................... $ 3.28 to $20.25 (370,872) (93,766) (25,998)
Forfeited during the year......................... (53,734) (1,067) (58,668)
Transferred into plan............................. 250,000
--------- --------- ----------- --------- ----------
Outstanding at December 31........................ $ 3.28 to $20.25 1,123,095 612,101 606,134
----------- --------- ----------
----------- --------- ----------
Portion thereof that is exercisable at
December 31..................................... $ 3.28 to $20.25 202,022 278,469 166,512
----------- --------- ----------
----------- --------- ----------
Available for future grant........................ 186,269 68,135 167,868
----------- --------- ----------
----------- --------- ----------
</TABLE>
52
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
Capital stock activity for the years 1995, 1994, and 1993 was as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES
AUTHORIZED --------------------------------------------
PER SERIES 1995 1994 1993
----------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Preferred stock (authorized 10,000,000 shares):
15% Series A Exchangeable Preferred Stock............ 250,000
Balance, beginning of year........................... 118,005
Preferred stock dividends in kind.................... 3,978
Redemption of preferred stock........................ (121,983)
------------- ------------- --------------
Balance, end of year................................. 0
------------- ------------- --------------
------------- ------------- --------------
Common Stock Class A (authorized 50,000,000 shares):
Balance, beginning of year........................... 13,150,749
Conversion of Class A Common Stock to
Common Stock....................................... (13,150,749)
------------- ------------- --------------
Balance, end of year................................. 0
------------- ------------- --------------
------------- ------------- --------------
Common Stock, Class B (authorized 2,000,000 shares):
Balance, beginning of year........................... 1,234,675
Conversion of Class B Common Stock to
Common Stock....................................... (1,234,675)
------------- ------------- --------------
Balance, end of year................................. 0
------------- ------------- --------------
------------- ------------- --------------
Common Stock (authorized 50,000,000 shares):
Balance, beginning of year........................... 25,530,334 25,411,422
Common Stock issued in initial public
offering........................................... 11,000,000
Common Stock issued in acquisition of
subsidiaries....................................... 2,010,645
Exercise of stock options to
purchase Common Stock.............................. 370,872 93,766 25,998
Exercise of stock warrants to purchase
common stock....................................... 25,146
Conversion of Class A Common Stock to
Common Stock....................................... 13,150,749
Conversion of Class B Common Stock to
Common Stock....................................... 1,234,675
------------- ------------- --------------
Balance, end of year................................. 27,911,851 25,530,334 25,411,422
------------- ------------- --------------
------------- ------------- --------------
</TABLE>
In October 1995, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 123, ACCOUNTING FOR STOCK-BASED
COMPENSATION ("SFAS 123"). SFAS 123 establishes fair value based accounting and
reporting standards for all transactions in which a company acquires goods or
services by issuing equity securities, including stock-based compensation plans.
Under SFAS 123, compensation cost is measured at the grant date based on the
value of the award and is recognized over the service period, which is usually
the vesting period. The fair value of
53
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK (CONTINUED)
stock options is determined using an option-pricing model. This statement
encourages, but does not require, companies to adopt the fair value based method
of accounting to recognize compensation expense for employee stock compensation
plans. However, it does require a company to comply with the disclosure
requirements set forth in the statement. The Company expects to continue to
utilize the accounting in Accounting Principles Board Opinion No. 25, ACCOUNTING
FOR STOCK ISSUED TO EMPLOYEES, and in 1996, and thereafter, expects to make pro
forma disclosures of net income as if the fair value based method of accounting
defined in SFAS 123 had been applied.
10. REINSURANCE
The life insurance subsidiaries have retention limits for acceptance of risk
on life insurance policies at various levels up to $1 million, for business
issued prior to 1987. Effective January 1, 1987, the retention limit for new
policy issues has been set at various levels up to $500,000. There are
reinsurance agreements with various companies whereby insurance in excess of the
respective subsidiaries' retention limits is reinsured. To the extent that
reinsuring companies become unable to meet their obligations under these
agreements, the subsidiaries remain contingently liable. Insurance in force
ceded at December 31, 1995 and 1994 under risk sharing arrangements totaled
approximately $16.4 billion and $11.0 billion, respectively. The liability for
future policy benefits is stated exclusive of amounts applicable to such risk
sharing reinsurance ceded as of December 31, 1995, and 1994 of $86.5 million and
$75.2 million, respectively. Policyholder benefits reflects the reduction of
death and accident and health claims by amounts recovered from reinsurers of
$114.3 million, $42.9 million and $41.4 million for the years ended December 31,
1995, 1994, and 1993, respectively.
Accident and health premiums are net of assumed premiums of $41.4 million
and ceded premiums of $71.4 million for the year ended December 31, 1995. The
Company did not have material reinsurance for accident and health business prior
to the Lamar acquisition in 1995.
Massachusetts General has ceded a block of insurance under a coinsurance
agreement generally known as "financial reinsurance." Net statutory surplus
provided by this treaty was $1.3 million and $2.9 million at December 31, 1995
and 1994, respectively. Lamar Life has also ceded a block of insurance under a
coinsurance agreement that is considered financial reinsurance. Net surplus
provided by this treaty was $8.2 million at December 31, 1995. These reinsurance
agreements represent financing arrangements and, in accordance with generally
accepted accounting principles, are not reflected as reinsurance in the
accompanying financial statements except for the risk fees paid to or received
from the reinsurers.
The Company held assets and reserves of approximately $192.0 million and
$161.6 million at December 31, 1995 and 1994, respectively, under modified
coinsurance agreements with reinsurance companies owned by certain of the
Company's agents.
During July 1993 the Company entered into a coinsurance agreement whereby
the Company received $140.1 million in cash and assumed $154.6 million in
annuity fund liabilities, which were subject to surrender penalties aggregating
$17.2 million.
11. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES
IPS leases office facilities in Englewood, Colorado. In July, 1994 the
Company renegotiated certain provisions of the master lease agreement. The
minimum rental commitment under the revised noncancelable lease is $1.1 million
per year through June, 2014 and $2.6 million per year through the lease
expiration date in July, 2016. The Company has no other significant long-term
leases. Rental expense for the years 1995, 1994, and 1993 was approximately $1.9
million, $2.0 million, and $2.7 million, respectively.
54
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES (CONTINUED)
Wabash and Life Partners, as guarantor of the obligations of Wabash, entered
into an agreement with Perot Systems Corporation ("Perot") to provide data
processing services to the Company through February, 2001. Fees under the
servicing agreement are based upon usage, with minimum annual fees of $3.6
million. The agreement is subject to an option available in 1996 whereby Wabash
could pay a fee of approximately $4 million to terminate the agreement. The
Company is negotiating with Perot regarding this option as part of a review of
its data processing arrangements.
At December 31, 1994, Philadelphia Life and Massachusetts General were
defendants in a class action originally instituted by a former agent and
policyholder of Philadelphia Life. In the case, the plaintiff alleged that these
companies breached the terms of certain universal life policies by increasing
the cost of insurance rates to pass on a portion of their increased tax
liability resulting from the passage of the Revenue Reconciliation Act in 1990,
which act contained provisions requiring the recognition of taxable income by
the insurer on a percentage of actual premium received on existing, as well as
subsequently written, individual life policies (the so called "DAC tax"). On
July 31, 1995 the Federal District Court in California approved a settlement of
this action following notice to members of the class. The recording of the
liability associated with this settlement and other related litigation resulted
in a pre-tax expense of $14.2 million for the year ended December 31, 1995.
In addition, various other lawsuits and claims are pending against the
Company. The Company has established a liability of approximately $1 million in
its financial statements, as of December 31, 1995, for litigation contingencies.
While this provision was established based upon management's judgment as to the
probable exposure associated with the disposition of these lawsuits, there can
be no assurance that the Company's ultimate liability, if any, in connection
with such lawsuits will not exceed the provisions established therefor.
In connection with the Company's acquisition of certain of its insurance
subsidiaries, the seller, I.C.H. Corporation ("I.C.H.") agreed to indemnify the
Company relative to various matters pertaining to the Internal Revenue Service
("IRS") examination for periods prior to the acquisition of said insurance
subsidiaries. To the extent the IRS examination of preacquisition tax years
results in an increase in the Company's tax in years subsequent to the
examination, I.C.H. has contractually agreed to reimburse the Company for
certain disallowed deductions relating to Philadelphia Life. In addition, the
Company believes that I.C.H. is liable for damages in postacquisition tax years
with respect to Massachusetts General and other insurance subsidiaries resulting
from I.C.H.'s failure to satisfy certain contractual covenants in connection
with such tax examinations. Philadelphia Life is also a party to an
indemnification agreement between Tenneco Inc. ("Tenneco"), I.C.H. and others
included in the acquisition agreement pursuant to which I.C.H. acquired
Philadelphia Life and other insurance companies from Tenneco pursuant to which
Tenneco agreed to indemnify Phliadelphia Life for certain lost deductions.
On October 10, 1995, I.C.H. filed under Chapter 11 for bankruptcy
protection. I.C.H., in publicly released documents, has stated that it has
reached a tentative agreement with the IRS for tax years through 1989 whereby
I.C.H.'s insurance subsidiaries would be subject to approximately $68 million of
federal income tax liability and interest for years in which certain of the
Company's insurance subsidiaries were members of the consolidated federal tax
group to which such tax liability related. All members of a consolidated group
of companies may be, under federal law, jointly and severally liable for tax
deficiencies related to such group. The Company has been informed that I.C.H.
has made payment to the IRS for the tax liability and interest. I.C.H. has
orally advised the Company of an intention to file suit against certain
subsidiaries of the Company for contribution of their respective shares of such
tax deficiency. Based upon the indemnification provisions and other relevant
documents, the Company does not believe that it will be responsible for an
allocable share of said taxes.
55
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. COMMITMENTS, LITIGATION AND CONTINGENT LIABILITIES (CONTINUED)
The Company has received a determination from an IRS examination of certain
agent compensation practices in certain of its life insurance subsidiaries. The
Company has protested and appealed the assessment. It is possible that the
ultimate resolution of this examination could result in additional employment
taxes, interest and penalties for the period under examination, as well as
future periods which are subject to examination. The Company believes that it
has made adequate provision for the potential outcome of the appeal.
12. FEDERAL INCOME TAXES
Life Partners and its direct non-life subsidiary companies acquired in the
Lamar acquisition file a consolidated non-life federal income tax return. The
life insurance subsidiaries file a consolidated life federal income tax return.
Non-life subsidiaries of the insurance companies each file a separate federal
income tax return.
The components of the provision (benefit) for income taxes on operating
earnings (loss) before income taxes and extraordinary items are as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current tax provision................................................ $ 19,268 $ 2,097 $ 39,971
Deferred tax provision (benefit)..................................... (22,539) 19,168 (10,103)
--------- --------- ---------
Total income tax provision (benefit)............................. $ (3,271) $ 21,265 $ 29,868
--------- --------- ---------
--------- --------- ---------
</TABLE>
A reconciliation of the income tax provision (benefit) based on the
prevailing corporate tax rate of 35% to the provision reflected in the
consolidated financial statements is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Computed expected income tax expense (benefit) at statutory regular
tax rate............................................................ $ (5,829) $ 20,465 $ 28,651
Amortization of goodwill............................................. 961 835 813
Dividends received deduction......................................... (379) (93) (91)
Change in corporate tax rate......................................... 479
Other................................................................ 1,976 58 16
--------- --------- ---------
Total income tax provision (benefit)............................. $ (3,271) $ 21,265 $ 29,868
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company recorded a general provision for tax contingencies of $2.0
million at December 31, 1995. The result of this provision was to decrease the
Company's 1995 effective tax rate by 12%.
56
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
12. FEDERAL INCOME TAXES (CONTINUED)
The temporary differences that give rise to a deferred tax asset (liability)
at December 31, 1995 and 1994, relate to the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------
1995 1994
------------ ------------
<S> <C> <C>
Investments.............................................................. $ (24,696) $ 13,862
Deferred policy acquisition costs and cost of insurance acquired......... (216,668) (181,267)
Future policy benefits and policyholder account balances................. 173,940 117,797
Policy acquisition expenses.............................................. 37,280 26,087
Net operating loss carryforwards......................................... 3,103 6,672
Other.................................................................... 3,259 2,960
------------ ------------
Deferred tax liability................................................... (23,782) (13,889)
Valuation allowance...................................................... (2,030)
------------ ------------
Deferred tax liability -- net of valuation allowance..................... $ (25,812) $ (13,889)
------------ ------------
------------ ------------
</TABLE>
As of December 31, 1995, Life Partners has $8.9 million in federal net
operating loss carryforwards which have expiration dates from 2006 through 2009.
A valuation allowance of $2.0 million has been established as of the
purchase date for certain operating loss carryforwards and temporary differences
of non-life companies acquired in the Lamar acquisition. The valuation allowance
against deferred tax assets will be continually evaluated and any adjustments
will be allocated to reduce goodwill or other noncurrent intangible assets of
the acquired companies.
Included in interest expense in the consolidated statement of operations for
the year ended December 31, 1995, is a provision for interest of $4.2 million on
federal income tax deficiencies relating to prior year taxes. I.C.H. has reached
a settlement agreement with the IRS whereby certain of the Company's tax
deductions which relate to amortization of purchased intangibles have been
disallowed. The provision for interest includes the interest cost related to
these lost deductions. As a result of the IRS settlement, the tax basis of
certain assets of Philadelphia Life was increased. The effect of this increase
will result in a refund of federal income taxes paid in years these assets were
sold with a corresponding receipt of interest. No receivable has been
established for the interest attributable to the refund of taxes since the
amount and timing are uncertain at this time.
The IRS has examined federal income tax returns of certain Life Partners
companies through the 1991 tax year. An examination was also performed on
certain Lamar Financial Group subsidiary returns through the 1994 preacquisition
tax years. In addition, the Company has been informed that the IRS intends to
begin an examination of certain Life Partners' insurance subsidiaries income tax
returns for 1992, 1993, and 1994 tax years. The Company does not anticipate any
significant adjustments which would materially affect the financial position or
results of operations of the Company.
Under previous life insurance company tax laws, a portion of the Company's
gain from operations which was not subject to current income taxation was
accumulated for tax purposes as Policyholders' Surplus Accounts. The aggregate
accumulation in this account was approximately $7.6 million at December 31,
1995. Should the accumulation in the Policyholders' Surplus Accounts exceed
certain stated maximums, or if certain other events occur, all or a portion of
the amount may be subject to federal income taxes at rates then in effect.
Deferred taxes have not been established for such amounts since the Company does
not anticipate paying taxes on the Policyholders' Surplus Accounts.
57
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13.PERMITTED STATUTORY ACCOUNTING PRACTICES AND SUPPLEMENTAL STATUTORY FINANCIAL
INFORMATION
Life Partners' insurance subsidiaries prepare their statutory financial
statements in accordance with accounting practices prescribed or permitted by
their respective state insurance departments. Prescribed statutory accounting
practices include a variety of publications of the National Association of
Insurance Commissioners (NAIC), as well as state laws, regulations, and general
administrative rules. Permitted statutory accounting practices encompass all
accounting practices not so prescribed.
Wabash received written approval from Kentucky Department of Insurance to
acquire certain Life Partners insurance subsidiaries as of March 30, 1990 and
further received permission for the acquisition of Lamar as of April 28, 1995.
Investment practices prescribed by the Commonwealth of Kentucky limit such
investments in subsidiaries to 50% of the excess of capital and surplus over the
minimum required capital and surplus of $1 million, or such higher percentage of
the excess as may be approved. At December 31, 1995, Wabash's investment in
affiliates exceeded the 50% limitation by $108.1 million, as permitted by the
Kentucky Department of Insurance.
Combined statutory surplus for Life Partner's insurance subsidiaries at
December 31, 1995 and 1994 was $153.6 million and $127.9 million, respectively,
and combined statutory net income for the years ended December 31, 1995, 1994
and 1993 was $36.7 million, $15.4 million and $38.5 million, respectively.
Combined statutory operating earnings, excluding income tax and interest
expense, was $78.1 million, $75.8 million, and $83.5 million for the years ended
December 31, 1995, 1994 and 1993, respectively.
14. RELATED PARTY TRANSACTIONS
In connection with the purchase of the life insurance subsidiaries on March
30, 1990, Wabash entered into a financial advisory agreement with certain
shareholders pursuant to which certain shareholders provide financial advisory
services to Wabash and the other insurance subsidiaries for an annual fee. This
fee was $0.5 million for 1993 and 1994. The financial advisory agreement was
terminated on December 31, 1994. During 1994, the Company entered into another
agreement with these shareholders in which the Company agreed to pay a fee for
services rendered in connection with the acquisition of Lamar Life Insurance
Company. The fee agreed upon is 1% of the aggregate consideration paid and
amounted to $1.3 million. The Company anticipates entering into similar
agreements with the shareholders regarding future acquisitions.
In August 1990, the Company committed to invest $10 million, as a limited
partner, in acquisition transactions in which an affiliate of a stockholder is
the ultimate managing partner. In 1993, the Company increased its commitment in
these transactions by an additional $10 million. As of December 31, 1994 and
1995, the Company had invested approximately $17.4 million and $23.4 million as
a limited partner in twelve acquisitions. During 1995, the Company committed to
invest an aggregate of $4.5 million in two limited partnerships in which this
affiliate is also the ultimate managing partner. Of this commitment, $1.4
million is on a standby basis and is subject to increase by $0.8 million upon
the occurrence of certain contingencies. As of December 31, 1995, the Company
had invested $1.2 million in these limited partnerships. In 1993, a senior term
loan and approximately $5 million of senior subordinated notes the Company had
previously loaned to certain of the companies acquired were repaid. During 1993,
the remaining senior subordinated notes were written off.
In June 1990, the Company committed to invest $10 million, as a limited
partner, in acquisition transactions in which another stockholder serves as the
ultimate general partner. During 1992, the Company's previous investment as a
limited partner in three acquisitions totaling $7.1 million was converted to
common stock of the acquired companies. All of the stock was sold during 1993
and 1994.
58
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
14. RELATED PARTY TRANSACTIONS (CONTINUED)
During 1993, the Company's previous investment as a limited partner in a fourth
acquisition of $2.9 million was converted to common stock of the acquired
company. All of the stock was sold during 1994 and 1995.
During 1992 and 1993, the Company committed to invest an aggregate of $10
million, as a limited partner, in real estate transactions in which an affiliate
of a stockholder is the ultimate managing partner. As of December 31, 1994 and
1995, the Company had invested $9.1 million and $13.9 million, respectively, in
this limited partnership. As of December 31, 1993, the Company had invested $2.5
million in another limited partnership controlled by an affiliate of this
stockholder. During 1994, the Company committed to invest an additional $5.0
million in the limited partnership. As of December 31, 1995, the Company's
investment in this limited partnership totaled $6.5 million.
As of December 31, 1995 and 1994, the Company had invested $2 million, as a
limited partner in an acquisition in which an affiliate of a stockholder is the
managing partner. In addition, as of December 31, 1993, the Company had invested
$7.1 million, in a Senior Loan of the company acquired. The loan was paid off in
March 1994. During 1994, the Company committed to invest $1.0 million in another
acquisition sponsored by an affiliate of this stockholder. As of December 31,
1995, no investment had been made in this acquisition.
During 1993, the Company invested $4.0 million as a limited partner in an
investment transaction in which another stockholder serves as the ultimate
general partner.
In 1993, the Company paid GE Capital a quarterly agency fee of $100,000 and
a loan administration fee of $221,000 for its capacity as agent under the Senior
Loan Agreement. Additionally, GE Capital was paid $1.1 million in Senior Loan
consent fees in connection with the March 1993 public offering.
59
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15. LINES OF BUSINESS
The Company operates principally in the individual life insurance, annuity
and accident and health lines of business. Assets and related investment income
are allocated to the lines of business on their respective liabilities and to
corporate based on the total capital structure. Information as to the Company's
lines of business is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------
1995 1994 1993
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Individual life.......................................................... $ 411,043 $ 332,131 $ 329,960
Annuity products......................................................... 83,414 69,715 56,629
Accident and health...................................................... 25,377 6,497 6,827
Corporate................................................................ 40,497 39,552 43,912
Net realized gains (losses).............................................. 15,785 (19,652) 18,404
----------- ----------- -----------
Total revenues......................................................... $ 576,116 $ 428,243 $ 455,732
----------- ----------- -----------
----------- ----------- -----------
Earnings (loss):
Individual life.......................................................... $ (63,070) $ 64,825 $ 40,486
Annuity products......................................................... 3,855 (4,594) 10,348
Accident and health...................................................... 8,846 1,468 1,746
Corporate................................................................ 40,497 39,552 43,912
Net realized gains (losses).............................................. 15,785 (19,652) 18,404
Amortization related to individual life realized gains (losses).......... (289) (476)
Amortization related to annuity products realized gains (losses)......... 8,327 (12) (4,257)
Amortization of goodwill................................................. (2,745) (2,388) (2,323)
Interest expense......................................................... (27,861) (20,728) (25,980)
----------- ----------- -----------
Earnings (loss) before income taxes and extraordinary item............. $ (16,655) $ 58,471 $ 81,860
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
Earnings on the individual life and annuity lines include net charges of
$58.5 million and $8.1 million, respectively, relating to the revision of
estimated future gross profits used to amortize deferred policy acquisition
costs and deferred policy fees (See Note 1).
16. SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash payments for interest expense and income taxes were as follows (in
thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Interest expense..................................................... $ 23,862 $ 18,628 $ 23,263
Income taxes......................................................... 18,229 14,500 44,380
</TABLE>
Noncash financing activities include and the payment of dividends in kind on
the preferred stock (see Note 8).
Purchases of fixed maturities available-for-sale and held-to-maturity in
1995, totaled $376.0 million and $13.3 million, respectively. Purchases of fixed
maturities available-for-sale and held-to-maturity in 1994 totaled $853.2
million and $988.8 million, respectively.
60
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
16. SUPPLEMENTAL DATA TO CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
In connection with the acquisition of Lamar, liabilities were assumed as
follows (in thousands):
<TABLE>
<S> <C>
Fair value of assets acquired.......................... $1,004,182
Cash paid.............................................. (37,937)
Common stock issued.................................... (39,459)
----------
Fair value of liabilities assumed...................... $ 926,786
----------
----------
</TABLE>
17. EXTRAORDINARY LOSS
In 1993, the Company realized extraordinary losses in the aggregate of $7.3
million resulting from the extinguishment of debt. The extraordinary losses are
reflected net of the estimated tax effect of $2.5 million.
An extraordinary loss in the amount of $3.9 million was realized by the
Company in 1994 due to the amendment and restatement of the borrowings under the
bank credit facility, and is reflected net of $1.4 million in estimated taxes.
18. QUARTERLY FINANCIAL DATA (UNAUDITED)
Earnings (loss) per common share for each quarter are computed independently
of earnings per share for the year. Due to the transactions affecting the
weighted average number of shares outstanding in each quarter and due to the
uneven distribution of earnings during the year, the sum of the quarterly
earnings (loss) per share may not equal the earnings (loss) per share for the
year.
<TABLE>
<CAPTION>
1995
------------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- ----------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total premium income and other considerations............................. $ 55.8 $ 73.6 $ 75.2 $ 75.5
Earnings (loss) before income taxes....................................... 10.9 6.7 23.2 (57.5)
Net earnings (loss) applicable to common stock............................ 6.9 4.4 14.8 (39.5)
Net earnings (loss) per common share and common equivalent share.......... $ 0.26 $ 0.16 $ 0.53 $ (1.42)
</TABLE>
<TABLE>
<CAPTION>
1994
------------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
----------- ----------- ----------- ---------
(IN MILLIONS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
Total premium income and other considerations............................. $ 54.1 $ 54.1 $ 55.3 $ 54.4
Earnings (loss) before income taxes and extraordinary item................ 20.5 17.9 20.4 (0.3)
Net earnings (loss) applicable to common stock............................ 13.2 11.4 10.4 (0.4)
Earnings (loss) per common share and common equivalent share:
Earnings (loss) before extraordinary item............................... $ 0.51 $ 0.44 $ 0.50 $ (0.01)
Extraordinary loss...................................................... (0.10)
----- ----- ----- ---------
Net earnings (loss)................................................... $ 0.51 $ 0.44 $ 0.40 $ (0.01)
----- ----- ----- ---------
----- ----- ----- ---------
</TABLE>
Quarterly results of operations are based on numerous estimates, principally
related to policy reserves, the amortization of cost of policies purchased, the
amortization of cost of policies produced and income taxes. Such estimates are
revised quarterly and are ultimately adjusted to year-end amounts. When such
revisions are determined, they are reported as part of operations of the current
quarter. During the fourth quarter of 1995, the Company reassessed its estimates
relating to deferred
61
<PAGE>
LIFE PARTNERS GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
policy acquisition costs and deferred policy fees, resulting in a $66.6 million
net reduction in such balances (See Note 1). Also during the fourth quarter of
1995, the Company revised its liability for guarantee fund assessments,
resulting in a $1.9 million increase in the liability (See Note 1).
19. SUBSEQUENT EVENT
On March 11, 1996, the Company and Conseco, Inc. ("Conseco") jointly entered
into a definitive merger agreement providing for all shareholders of the Company
to receive Conseco stock for each of their shares through a share exchange based
upon a value of $21.00 per share for Life Partners stockholders. The total value
of the transaction would be approximately $840 million, including $600 million
to purchase the Company's outstanding common stock and $240 million of existing
debt to be assumed by Conseco. Under the merger agreement, Life Partners would
become a wholly owned subsidiary of Conseco. Consummation of the merger is
subject to customary terms and conditions, including approval by both the
stockholders of the Company and Conseco and regulatory authorities. A
termination fee of $20 million is payable under certain circumstances by either
party if its shareholders do not approve the transaction.
62
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10.DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
CURRENT BOARD OF DIRECTORS
<TABLE>
<CAPTION>
NAME AGE CAPACITY
- ---------------------------------- --- ---------------------------
<S> <C> <C>
Gene H. Bishop (1)(2)(3)(5) 65 Director
Thomas O. Hicks (1)(2)(3)(5) 50 Director
John H. Massey (1)(2)(3) 56 Chairman of the Board
M. D. Moross (1) 64 Director
John R. Muse (1)(3)(5) 45 Director
Dudley B. Sanger (4) 60 Director
Bruce W. Schnitzer (2)(4) 51 Director
Roger T. Staubach (4) 54 Director
Robert E. Witt (4) 56 Director
</TABLE>
- ------------------------
(1) Member of Executive Committee.
(2) Member of Investment Committee.
(3) Member of Compensation Committee.
(4) Member of Audit Committee.
(5) Member of Stock Option Committee.
GENE H. BISHOP. Mr. Bishop served as Chairman of the Board and Chief
Executive Officer of the Company from November 1991 until September 30, 1994,
and as a director of the Company since July 1991. Prior to joining the Company,
Mr. Bishop served from October 1990 to November 1991 as Vice Chairman and Chief
Financial Officer of Lomas Financial Corporation and as President, Chief
Operating Officer, and a director of Lomas Mortgage USA, both located in Dallas,
Texas. From 1975 to July 1990, Mr. Bishop served as Chairman of the Board and
Chief Executive Officer of MCorp, a bank holding company located in Dallas,
Texas. Mr. Bishop currently serves as a director of various civic organizations
and publicly held corporations, including Drew Industries Incorporated, First
USA Paymentech, Inc., Liberte Investors, Southwest Airlines Co., Southwestern
Public Service Co., and First USA, Inc.
THOMAS O. HICKS. Mr. Hicks has served as a director of the Company since
its inception in September 1989 and previously served as Chairman of the Board
and Chief Executive Officer of the Company from its inception until November
1991. Since May 1989, Mr. Hicks has also served as Chairman of the Board and
Chief Executive Officer of Hicks Muse. From 1984 to May 1989, Mr. Hicks was
Co-Chairman of the Board and Co-Chief Executive Officer of Hicks & Haas
Incorporated, a Dallas-based private investment firm. Mr. Hicks currently serves
as a director of various companies, including Neodata Corporation, Berg
Electronics, Inc., Olympus Real Estate Corporation and Sybron Corporation. He
also serves as Vice Chairman of the University of Texas Board of Regents.
JOHN H. MASSEY. Mr. Massey has served as Chairman of the Board and Chief
Executive Officer of the Company since October 1, 1994 and as a director of the
Company since November 1991. From August 1992 until September 1994, Mr. Massey
served as Chairman of the Board and Chief Executive Officer of First Southwest
Asset Management, Inc. Previously, Mr. Massey served as President and a
63
<PAGE>
director of Gulf-California Broadcast Company, a privately-owned investment and
operating company located in Dallas, Texas. From 1973 to 1986, Mr. Massey held
various positions with Gulf United Corporation, a holding company with interests
in insurance, broadcasting, data processing, and real estate. Mr. Massey's most
recent positions with Gulf United Corporation were as President of Gulf United
Corporation from 1984 to 1985 and as President of Gulf Broadcast Company from
1976 to 1986. Mr. Massey also currently serves as a member of the boards of
directors of a number of other companies, including FSW Holdings, Inc.,
Gulf-California Broadcast Company, The Paragon Group, Inc., Chancellor
Communications, Inc., and Central Texas Bankshare Holdings, Inc. Mr. Massey has
served since 1989 on the Executive Committee of the Cox School of Business at
Southern Methodist University in Dallas, Texas.
M. D. MOROSS. Mr. Moross has served as a director of the Company since May
1995 and currently serves as a member of the Executive Committee. Mr. Moross'
principal business activity is as a private investor. Mr. Moross served as
Chairman of the Board of Lamar Financial Group, Inc. from 1991 until the
acquisition of that company by Life Partners Group in 1995. Mr. Moross also
served as Chairman of the Board of Kalvin Miller Holdings Ltd. from 1991 to 1995
and currently serves as Chairman of the Board of Whitehall Financial Group, a
position he has held since 1991. He has served on the Board of Directors of
Norex of America Inc. since November of 1995.
JOHN R. MUSE. Mr. Muse has served as a director of the Company since its
inception in September 1989. Since May 1989, Mr. Muse has served as Executive
Vice President, Managing Director, and a director of Hicks Muse. From 1984 to
May 1989, Mr. Muse was Managing Director of Prudential Securities Incorporated
in Dallas, Texas, where he served as head of investment/merchant banking
activities for the southwestern region of the United States. Mr. Muse currently
serves as a director of Hedstrom Corporation, The Morningstar Group, Inc., Hat
Brands, Inc. and Olympus Real Estate Corporation. Mr. Muse also serves on the
Boards of Directors for the Southern Methodist University Edwin L. Cox School of
Business, St. Philip's School and Community Center, University of Texas at Tyler
Health Center, the Dallas Summer Musicals and Goodwill Industries.
DUDLEY B. SANGER. Mr. Sanger has served as a director of the Company since
May 1995 and currently serves as a member of the Audit Committee. Mr. Sanger's
principal business activity is as a private investor in a variety of
enterprises. He is a British citizen and has served on the Board of Directors of
Norex of America Inc. since 1985.
BRUCE W. SCHNITZER. Mr. Schnitzer has served as a director of the Company
since March 1990. Since 1987, Mr. Schnitzer has served as Chairman of the Board
of Wand Partners Inc., which serves as the general partner of Wand Partners
L.P., a private investment firm located in New York City. From 1985 to 1987, Mr.
Schnitzer was principally engaged as a private merchant banker in New York City.
From 1983 to 1985, Mr. Schnitzer served as President and Chief Executive Officer
of Marsh & McLennan, Incorporated, an insurance brokerage firm. Mr. Schnitzer
currently serves as a director of AMRESCO, Inc., a specialty manager of real
estate assets, Chartwell Re Corporation, a property and casualty insurance
holding company, PennCorp Financial Group, Inc., a life insurance holding
company, and Nestor, Inc., a technology development company.
ROGER T. STAUBACH. Mr. Staubach was elected a director of the Company in
March 1992 and currently serves as a member of the Audit Committee. Since 1981,
Mr. Staubach has served in various capacities with The Staubach Company,
including as Chairman of the Board and Chief Executive Officer since 1990 and as
President from 1981 to 1990. The Staubach Company is a Dallas, Texas-based real
estate consulting and transaction services company. Prior to forming The
Staubach Company, Mr. Staubach served, from 1977 to 1981, as President of The
Holloway-Staubach Corporation, a Dallas, Texas-based real estate brokerage firm.
In addition, from 1970 to 1979 Mr. Staubach played quarterback in the National
Football League for the Dallas Cowboys Football Club. Mr. Staubach currently
serves as a director of Halliburton Company, Gibson Greetings, Inc., Brinker
International, Inc. and First USA, Inc.
ROBERT E. WITT. Dr. Witt has served as a director of the Company since
August 1993 and currently serves as a member of the Audit Committee. Dr. Witt
served as the Dean of the College and Graduate
64
<PAGE>
School of Business at the University of Texas at Austin, Texas, from 1985 to
1995. Effective June 1, 1995, Dr. Witt became Interim President of the
University of Texas at Arlington. Since 1978, Dr. Witt has served as a director
for a number of companies and currently serves as a director and chairman of the
Audit Committee for LaQuinta Realty Corporation.
BOARD OF DIRECTORS AND COMMITTEE ORGANIZATION
The Board of Directors of the Company is currently divided into three
classes serving staggered three-year terms. Directors for each class will be
elected at the annual meeting of stockholders held in the year in which the term
for such class expires and will serve for three years. The terms of Thomas O.
Hicks, Bruce W. Schnitzer, M. D. Moross and Dudley B. Sanger will expire at the
1996 annual meeting; the terms of Gene H. Bishop, Roger T. Staubach and Robert
E. Witt will expire at the 1997 annual meeting; and the terms of John H. Massey
and John R. Muse will expire at the 1998 annual meeting.
During the Company's fiscal year ended December 31, 1995, the Board of
Directors of the Company held a total of four meetings. Each incumbent director
attended not less than 75% of the aggregate of the meetings of the Board and the
committees of which he was a member which were held during such director's
tenure during such fiscal year.
Each outside director is generally entitled to receive a $25,000 annual fee
and a $1,000 fee for each board or committee meeting attended. Each outside
director serving as the Chairman of a Board Committee is entitled to receive a
$2,500 annual fee; and outside directors serving on the Executive Committee of
the Board receive a fee of $500 each month. Currently, Messrs. Bishop, Hicks,
Moross, Muse, Sanger, Schnitzer, Staubach and Witt are the directors entitled to
receive fees as described above. Each director is provided a term life insurance
policy in the amount of $100,000 and health insurance coverage secondary to
primary coverage otherwise provided by the director.
Previously, the Board of Directors adopted a plan under which outside
directors were granted the right to purchase Common Stock and warrants. In
accordance with this plan, Life Partners sold to each of Messrs. Bishop, Massey,
and Staubach 12,572 shares of Common Stock and warrants to purchase 12,573
shares of Common Stock for a purchase price of $50,000. The warrants are
immediately exercisable at $3.98 per share and are subject to certain
adjustments in the event of stock distributions, stock splits, or similar
recapitalizations. During 1994, Messrs. Massey and Staubach each exercised their
respective warrants by paying to the Company the exercise price therefor and
each acquired 12,573 shares of Common Stock; the warrants issued to Mr. Bishop
expire in November 1996 if not exercised prior to that time. Mr. Bishop was an
outside director at the time Life Partners agreed to sell him the shares of
Common Stock and warrants described above. Dr. Witt was granted an option to
purchase 10,000 shares of Common Stock at a price per share equal to the closing
market price for the Company's stock on the date of the grant, which was $21.00
per share. The option vests in equal one-third installments on August 31, 1994,
August 31, 1995 and August 31, 1996. The option expires on August 31, 2003.
Effective January 1, 1995, the Board of Directors revised the plan to
provide that new directors shall be granted only a stock option to purchase
10,000 shares of the Common Stock at a price per share equal to the closing
market price for the Company's stock on the date of the grant, such option to
vest in equal one-third installments each year over a three year period.
The Board has established several standing committees to assist it in the
discharge of its responsibilities. The principal responsibilities of each
committee are described in the succeeding paragraphs. Actions taken by any
committee of the Board are reported to the Board of Directors, usually at its
next meeting.
The AUDIT COMMITTEE is composed of four outside directors, currently Messrs.
Sanger, Schnitzer, Staubach and Witt. Mr. Schnitzer serves as Chairman of the
Audit Committee. The functions of the Audit Committee include reviewing the
accounting policies and practices employed by the Company, meeting with the
Company's independent auditors to review their report on their audit of the
65
<PAGE>
Company's financial statements and their comments on the internal accounting
controls of the Company and reviewing the action taken by the Company's
management with regard to such comments. The Audit Committee met three times
during 1995.
The COMPENSATION COMMITTEE is composed of four directors, currently Messrs.
Bishop, Hicks, Massey and Muse. Mr. Muse serves as Chairman of the Compensation
Committee. The Board has delegated to this Committee the authority to administer
all compensation programs of the Company and its subsidiaries other than with
respect to the Company's Stock Option Plan. The Compensation Committee met in
formal session on two occasions during 1995. The Committee is responsible for
approving all salaries in excess of $100,000, and for overseeing the actions of
management in fixing salaries of officers whose salaries are less than $100,000
per year. Under the terms of the Compensation Committee's charter, no member of
the committee who is an employee of the Company or any of its subsidiaries is
permitted to vote with respect to any action affecting the compensation payable
to or benefits accorded to such member or any other Compensation Committee
member who is an employee.
The EXECUTIVE COMMITTEE consists of five directors, currently Messrs.
Bishop, Hicks, Massey, Moross and Muse. Mr. Bishop serves as Chairman of the
Executive Committee. The Executive Committee met in formal session four times
during 1995. The Executive Committee has the power to manage the business and
affairs of the Company to the same extent as the Board of Directors, to the
extent not in conflict with specific powers conferred by the Board of Directors
upon other committees of the Board, PROVIDED HOWEVER, the Executive Committee
may not itself approve or disapprove any transaction or other corporate action
involving the expenditure by or obligation of the Company or any of its
subsidiaries in an aggregate amount exceeding $10 million or any lesser
applicable limitations imposed by the Company's senior loan agreement.
The INVESTMENT COMMITTEE consists of four directors, currently Messrs.
Bishop, Hicks, Massey and Schnitzer. Mr. Hicks serves as Chairman of the
Investment Committee. This committee has the authority, subject to various
restrictions relating to dollar amounts, insurance regulatory and other legal
concerns, per issuer limitations, security categories, security ratings and
investments in affiliates, to manage the business and affairs of the Company
solely insofar as the same involve the purchase, sale or holding of investments
by the Company and to supervise the investment policies and decisions of its
subsidiaries.
The STOCK OPTION COMMITTEE consists of three non-employee directors,
currently Messrs. Bishop, Hicks and Muse. Mr. Hicks serves as Chairman of the
Stock Option Committee. The Stock Option Committee met in formal session on two
occasions during 1995. This committee is charged with the responsibility of
administering the Company's 1992 Incentive and Nonstatutory Stock Option Plan
under which options to purchase shares of the Company's Common Stock may be
awarded to employees of the Company or its subsidiaries. None of the members of
the Stock Option Committee are eligible to receive any awards or grants under
the plan.
EXECUTIVE OFFICERS
DAVID GUBBAY. Mr. Gubbay, 43, has served as President and Chief Operating
Officer of the Company since May 1995, shortly after joining the Company.
Previously, he was Chairman of the Board and Chief Executive Officer of Lamar
Financial Group, Inc. from 1993 through May 1995 and served as President and
Chief Executive Officer of Lamar Financial Group from 1990 through May 1995. Mr.
Gubbay has been a Certified Public Accountant in the United States, a Fellow of
the Institute of Chartered Accountants in England and Wales, and an Associate of
the Institute of Chartered Accountants in Ontario, Canada.
ROGER E. DUNKER. Mr. Dunker, 49, has served as President and Chief
Marketing Officer of the Company's three principal insurance operating
companies, Massachusetts General Life, Philadelphia Life, and Lamar Life since
June 1995. Since 1988, Mr. Dunker has been associated with Prudential
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Insurance Company of America, most recently as president of Prudential Select
Life Insurance Company, and until 1994 as Prudential Select's senior vice
president for brokerage marketing/strategic initiatives.
BERNHARD M. KOCH. Mr. Koch, 41, has served as Chief Financial Officer of
the Company since December 1995. From May 1988 to November 1995, Mr. Koch was
Chief Financial Officer of Laurentian Capital Corporation. Mr. Koch held various
positions with The Laurentian Group Corporation of Montreal, Quebec, Canada from
August 1985 to May 1988. Prior to August 1985, Mr. Koch was a senior audit
manager and consultant for Price Waterhouse in Toronto, Ontario, Canada. Mr.
Koch is an Associate of the Institute of Chartered Accountants in Ontario,
Canada.
KEITH GUBBAY. Mr. Gubbay, 41, is the Executive Vice President of Corporate
Development at Life Partners. Prior to joining Life Partners in May 1995, Mr.
Gubbay was Executive Vice President and Chief Financial Officer of Lamar
Financial Group, Inc. which he joined in 1993. Mr. Gubbay joined Tillinghast in
1980 and worked in the United Kingdom, Canada, and the United States until 1985
when he formed the Australian Life Insurance practice of Tillinghast. Mr. Gubbay
is a fellow of the Society of Actuaries and the Canadian Institute of Actuaries.
DONALD CAMPBELL. Mr. Campbell, 55, has served as general counsel for the
Company since May 1993. Prior to joining the Company in 1993, Mr. Campbell
accumulated approximately 25 years of experience in the private practice of law
in Texas, most recently with the law firm of Johnson & Gibbs in Dallas, Texas
from 1989 to May 1993.
JAMES R. MCDONOUGH. Mr. McDonough, 62, currently serves as a Senior
Executive Vice President -- Marketing with the Company, a position he has held
since July 1991. Prior to that time he was associated with E.F. Hutton & Co.,
Inc. and its affiliated and successor companies for a period of fourteen years,
serving during that time as senior vice president with those companies.
LESLIE L. DURLAND. Mr. Durland, 48, has served as Senior Executive Vice
President of Life Partners Group since November 1995. Previously, he had served
in various capacities with Midland Life Insurance Company, Columbus, Ohio, AIM
Management Group, Houston, Texas, National Nederlanden U.S., Washington, D.C.,
and Security Life of Denver, Denver, Colorado. He is a member of the American
Academy of Actuaries and the Society of Actuaries.
RICHARD A. SELDIN. Mr. Seldin, 63, joined Massachusetts General Life in May
of 1978. In March of 1982 he became a Senior Vice President and in January 1994
was promoted to Executive Vice President and Chief Marketing Officer for
Massachusetts General Life, the position he currently holds.
ROBERT L. PASHBY. Mr. Pashby, 51, currently serves as an Executive Vice
President and Senior Marketing Officer of Philadelphia Life, a position he has
held since 1986.
KENNETH G. LUZIETTI. Mr. Luzietti, 50, has served as Executive Vice
President of Insurance Operations of the Company since October 1992. From June
1984 through October 1992, Mr. Luzietti held various positions with the
Company's life insurance subsidiaries including senior vice president and
assistant treasurer.
PAUL CARMODY. Mr. Carmody, 45, has served as Senior Vice President and
Chief Actuary of Life Partners since March 1990. Mr. Carmody also serves as an
executive officer and a director of certain subsidiaries of Life Partners. From
1983 to March 1990, Mr. Carmody served as Senior Vice President -- Chief Actuary
of the predecessor owner of the Company's life insurance subsidiaries.
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth aggregate cash compensation for services in
all capacities paid by the Company during 1993, 1994 and 1995 to or for the
benefit of the Chief Executive Officer and the four other executive officers of
Life Partners who were, for 1995, the most highly compensated officers. (See
footnote on next page).
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ANNUAL COMPENSATION (1)
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
OTHER ANNUAL SECURITIES
SALARY BONUS (2) COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) OPTIONS
- ------------------------------------------------- --------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
John H. Massey, Chairman and Chief 1995 $ 450,000 $ 112,500 $ 3,037
Executive Officer 1994 112,500 1,913 250,000
Gregory J. Palmquist, 1995 97,623 241,500 891
President -- Life Companies (3) 1994 238,265 152,500 3,564
1993 230,000 117,334 3,748 40,000
George Paz, Executive Vice President 1995 183,333 80,000 39,851
and Chief Financial Officer (3) 1994 161,200 40,000 626 22,000
1993 26,867 26,758 10,000
John W. Gardiner, President 1995 241,250 50,000 3,335
and Chief Operating Officer (3) 1994 765,000 50,000 13,338
1993 765,000 70,010 13,338 65,600
James R. McDonough, Senior 1995 200,000 70,000 12,648
Executive Vice President -- 1994 200,000 65,000 12,414
Field Management and Marketing 1993 150,000 81,253 5,323 40,000
</TABLE>
- ------------------------
(1) Includes payments made by the Company for portions of group life insurance
policies and matching payments made by the Company under the Life Partners
Group Savings and Investment Plan. The Company provides to certain executive
officers the use of automobiles, club memberships, insurance policies and
certain other benefits. The aggregate incremental costs of these benefits to
the Company for each executive officer did not exceed the lesser of either
$50,000 or 10% of the total of annual salary and bonus reported for each
such officer.
(2) Includes compensation deferred under employment agreements and compensation
plans described below, but excludes deferred compensation accumulated before
March 1990 and interest paid or accrued thereon in 1994.
(3) Mr. Palmquist resigned from his position effective March 31, 1995; Mr. Paz
resigned from his position effective November 30, 1995; and Mr. Gardiner
resigned from his position effective May 30, 1995.
STOCK OPTION/SAR GRANTS DURING 1995
There were no stock option grants made to any of the executive officers of
the Company who were among the five most highly compensated officers during
1995.
STOCK OPTIONS HELD BY EXECUTIVE OFFICERS
The following table sets forth the stock option rights held by the Chief
Executive Officer and each of the other executive officers of the Company who
were the four most highly compensated officers during 1995, together with the
option values at December 31, 1995. The values shown were determined by
multiplying the applicable number of share options times the difference between
the per share closing market price of the Company's Common Stock as traded on
the New York Stock Exchange on December 31, 1995 (which closing price was
$13.625), and the applicable exercise price per share. Except as set forth in
the preceding table entitled "Options/SAR Grants in the Last Fiscal Year", no
stock options were granted to any of the listed executive officers, and, except
as set forth in the table below, none of such officers exercised any stock
options.
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<PAGE>
AGGREGATE OPTION EXERCISES DURING 1995
AND OPTION VALUES AT DECEMBER 31, 1995
<TABLE>
<CAPTION>
VALUE OF
NUMBER OF UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS (1) OPTIONS
(#) ($)
SHARES VALUE ------------------ -------------
ACQUIRED ON REALIZED EXERCISABLE/ EXERCISABLE/
EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE
NAME (A) (B) (C) (D) (E)
- -------------------------- ------------ ----------- ------------------ -------------
<S> <C> <C> <C> <C>
John H. Massey 50,000/200,000 0/0
Gregory J. Palmquist 40,000 $ 679,000 0/0 0/0
George Paz 0/0 0/0
John W. Gardiner 65,600 121,760 0/0 0/0
James R. McDonough 32,000 431,200 0/0 0/0
</TABLE>
EMPLOYMENT AGREEMENTS
John H. Massey is employed by Life Partners under an employment agreement
which expires on September 30, 1999. Mr. Massey's employment agreement provides
for an annual salary of $450,000 during the term of the agreement. The
employment agreement also provides that Mr. Massey may participate in each of
the Company's employee benefit plans and other arrangements. In connection with
the employment agreement, Mr. Massey entered into a stock option agreement with
the Company which is described above under "Stock Options."
David Gubbay is employed by Life Partners under an employment agreement
which expires on May 22, 1998. Mr. Gubbay's employment agreement provides for an
annual salary of $300,000 during the term of the agreement. The employment
agreement also provides that Mr. Gubbay may participate in each of the Company's
employee benefit plans and other arrangements. In connection with the employment
agreement, Mr. Gubbay also entered into a stock option agreement with the
Company.
Keith Gubbay is employed by Life Partners under an employment agreement
which expires on May 22, 1998. Mr. Gubbay's employment agreement provides for an
annual salary of $200,000 during the term of the agreement. The employment
agreement also provides that Mr. Gubbay may participate in each of the Company's
employee benefit plans and other arrangements. In connection with the employment
agreement, Mr. Gubbay also entered into a stock option agreement with the
Company.
Roger Dunker is employed by Life Partners under an employment agreement
which expires on June 30, 1998. Mr. Dunker's employment agreement provides for
an annual salary of $250,000 during the term of the agreement. The employment
agreement also provides that Mr. Dunker may participate in each of the Company's
employee benefit plans and other arrangements. In connection with the employment
agreement, Mr. Dunker also entered into a stock option agreement with the
Company.
Don Campbell is employed by Life Partners under an employment agreement
which expires on January 31, 1998. Mr. Campbell's employment agreement provides
for an annual salary of $200,000 during the term of the agreement. The
employment agreement also provides that Mr. Campbell may participate in each of
the Company's employee benefit plans and other arrangements. In connection with
the employment agreement, Mr. Campbell also entered into a stock option
agreement with the Company.
BENEFIT PLANS
DEFERRED COMPENSATION PLAN
Effective April 1, 1990, the Company adopted the Life Partners Group
Deferred Compensation Plan ("Deferred Compensation Plan") under which certain
employees may defer the receipt of a portion of salary otherwise payable to
them. Participation in the Deferred Compensation Plan is restricted to key
management and highly compensated employees designated by the Company. As
69
<PAGE>
provided in the Deferred Compensation Plan, each eligible employee may elect to
defer compensation under the plan by entering into a salary reduction agreement
with the Company. In addition, under the plan, the Company may make bonus awards
to eligible employees based upon their performance. During 1995, certain
executive officers of Life Partners deferred an aggregate of $50,000 in salary
payments and $111,000 in bonus awards under the Deferred Compensation Plan.
Deferred salary amounts and bonus awards accrue interest at rates determined
by the Company from time to time. Each employee's deferred salary amounts and
interest thereon are 100% vested at all times, and bonus awards and interest
thereon will vest 20% for each year of an employee's employment by the Company.
However, the Deferred Compensation Plan is unfunded, and no assets of the
Company are irrevocably committed to paying deferred compensation to plan
participants. Participants are permitted to withdraw vested deferred amounts
earlier than the time specified in their salary reduction agreements in the
event of a defined financial hardship. In cases other than financial hardship,
benefits are required to be distributed as soon as practicable on or after the
January 1 following an employee's termination from employment. Payment may be in
monthly installments over 5, 10, or 15 years, or in some other manner or time
period acceptable to the participant and the plan administrator.
SAVINGS PLAN
Effective April 1, 1990, the Company adopted The Life Partners Group Savings
Investment Plan ("Savings Plan"). The Savings Plan is a voluntary, contributory
plan under which employees may elect to defer compensation for federal income
tax purposes under Section 401(k) of the Internal Revenue Code of 1986.
Generally, upon the completion of one year of service, the employee is entitled
to participate in the Savings Plan by contributing through payroll deductions up
to 15% of the employee's compensation. The Company may match the employee's
contribution up to 2.5% of the employee's compensation.
The participating employee is not taxed on these contributions until they
are distributed. Moreover, the employer's contributions vest at the rate of 20%
per year over a five year period. Amounts credited to employees' accounts under
the Savings Plan are invested by an employer-appointed investment committee.
Generally, a participating employee is entitled to distributions from the
Savings Plan upon termination of employment, retirement, death, or disability.
Savings Plan participants who qualify for distributions may receive a single
lump sum, have the assets transferred directly to another qualified plan or
individual retirement account, or receive a series of specified installment
payments. Total matching contributions for officers under the Savings Plan were
less than $13,109 in 1995.
MANAGEMENT BONUS PLAN
The Compensation Committee of the Board of Directors has adopted a bonus
plan ("Management Bonus Plan") for certain officers and key employees of the
Company. Under the Management Bonus Plan, eligible officers and key employees of
the Company will be entitled to receive a cash bonus generally equal to a
specified percentage of the participant's base salary. The percentage is
determined based upon the office or position held by the participant and the
ratio of the Company's actual pre-tax operating earnings to its budgeted pre-tax
operating earnings for a given calendar year. Amounts paid to executive officers
under the Management Bonus Plan during 1995 were $768,780 pertaining to the 1994
fiscal period.
Generally, if the ratio of actual pre-tax operating earnings to budgeted
pre-tax operating earnings is 100% or greater for any given calendar year, each
participant will be entitled to the maximum bonus (which ranges from 100% of
base salary for the Chief Executive Officer, to 20% of base salary as a pool for
individuals at the level of Second Vice President of the Life Partners
subsidiaries). No bonuses will be paid under the Management Bonus Plan if the
ratio of actual pre-tax operating earnings to budgeted pre-tax operating
earnings is less than 90%.
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<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board of Directors currently has four
members -- Messrs. Muse, Bishop, Hicks and Massey. Mr. Massey was, during 1995,
an executive officer of the Company. Mr. Bishop served as the Chief Executive
Officer of the Company from November 1991 until September 30, 1994. Mr. Hicks
served as the Chief Executive Officer of the Company from its inception until
November 1991. Mr. Muse served as an executive officer of the Company from its
inception until December 1991. See "Certain Transactions" and "Certain
Agreements" hereinafter for a description of transactions between Messrs. Hicks,
Muse, Massey and the Company and their respective affiliates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth information concerning the amount and nature
of beneficial ownership of Common Stock by each stockholder who is known by the
Company to own beneficially in excess of 5% of the outstanding Common Stock, by
all directors of the Company, individually, and by all officers and directors of
the Company as a group, as of December 31, 1995. Except as otherwise indicated,
all persons listed below have (i) sole voting power and investment power with
respect to their shares of Common Stock, except to the extent that authority is
shared by spouses under applicable law, and (ii) record and beneficial ownership
with respect to their shares of Common Stock.
The shares and percentages set forth below with respect to the Common Stock
include shares of Common Stock which are outstanding or issuable within 60 days
upon the exercise of options granted prior to December 31, 1995.
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
----------- -----------
<S> <C> <C>
First Pacific Advisors, Inc. (1).............................................. 4,162,000 14.9%
FPA Paramount Fund, Inc. (2).................................................. 1,830,000 6.6%
11400 West Olympic Blvd., Suite 1200
Los Angeles, CA 90064
Government of Singapore Investment Corp. Pte Ltd. (3)......................... 1,631,000 5.8%
250 North Bridge Road
#33-00 Raffles City Tower
Singapore 0617
The Kaufmann Fund, Inc. (4)................................................... 1,450,000 5.2%
140 E. 45th Street, 43rd Floor
New York, NY 10017
Putnam Investments, Inc....................................................... 2,121,992 7.6%
Putnam Investment Management, Inc.
The Putnam Advisory Company, Inc. (5)
One Post Office Square
Boston, MA 02109
HM Parties (6)(7)............................................................. 3,387,335 12.1%
Gene H. Bishop (8)............................................................ 458,480 1.6%
Thomas O. Hicks (6)(7)........................................................ 3,387,335 12.1%
John H. Massey................................................................ 16,445 *
M. D. Moross (9).............................................................. 1,948,463 7.0%
John R. Muse (10)............................................................. 945,830 3.4%
Dudley B. Sanger (11)......................................................... 1,727,355 6.2%
Bruce W. Schnitzer............................................................ 320,369 1.1%
Roger T. Staubach............................................................. 12,572 *
Robert E. Witt................................................................ 0 0
All officers and directors as a group (31 persons) (12)....................... 5,822,957 20.9%
</TABLE>
- ------------------------
*
Represents less than 1%.
71
<PAGE>
(1) Based on information set forth in the Schedule 13G of First Pacific
Advisors, Inc., a Massachusetts corporation, for the year ended December 31,
1995, filed with the Securities and Exchange Commission, First Pacific
Advisors, Inc. holds sole voting power for 0 shares, shared voting power for
2,087,000 shares, sole dispositive power for 0 shares and shared dispositive
power for 4,162,000 shares.
(2) Based on information set forth in the Schedule 13G of FPA Paramount Fund,
Inc., a Maryland corporation, FPA Paramount Fund, Inc. holds sole voting
power for 1,830,000 shares, shared voting power for 0 shares, sole
dispositive power for 0 shares and shared dispositive power for 1,830,000
shares.
(3) Based on information set forth in the Schedule 13D of Government of
Singapore Investment Corporation Pte Ltd. filed with the Securities and
Exchange Commission on April 11, 1994, the Government of Singapore
Investment Corporation Pte Ltd. holds sole voting power for 0 shares, shared
voting power for 1,631,000 shares, sole dispositive power for 0 shares and
shared dispositive power for 1,631,000 shares; the Government of Singapore
holds sole voting power for 0 shares, shared voting power for 1,223,500
shares, sole dispositive power for 0 shares and shared dispositive power for
1,223,500 shares; and the Monetary Authority of Singapore holds sole voting
power for 0 shares, shared voting power for 407,500 shares, sole dispositive
power for 0 shares and shared dispositive power for 407,500 shares.
(4) Based on information set forth in the Schedule 13G of The Kaufmann Fund,
Inc., a Maryland corporation, filed with the Securities and Exchange
Commission for the year ended December 31, 1995, The Kaufmann Fund, Inc.
holds sole voting power for 1,450,000 shares and sole dispositive power for
1,450,000 shares.
(5) Based on information set forth in the Schedule 13G of Putnam Investments,
Inc., a Massachusetts corporation, filed with the Securities and Exchange
Commission for the year ended December 31, 1994, Putnam Investments, Inc.
holds sole voting power for 0 shares, shared voting power for 541,575
shares, sole dispositive power for 0 shares and shared dispositive power for
2,121,992 shares; Putnam Investment Management, Inc. holds sole voting power
for 0 shares, shared voting power for 0 shares, sole dispositive power for 0
shares and shared dispositive power for 1,090,860 shares; and The Putnam
Advisory Company, Inc. holds sole voting power for 0 shares, shared voting
power for 541,575 shares, sole dispositive power for 0 shares and shared
dispositive power for 1,031,132 shares.
(6) Pursuant to the terms of a Voting Agreement (herein so called) among the
Company, certain former and existing shareholders of the Company and
HMC/Life Partners, L.P., a limited partnership which is no longer active and
in which the sole general partner was HMC Partners, L.P., a limited
partnership of which Hicks, Muse & Co. (TX) Incorporated ("Hicks Muse")
served as the managing general partner, all the shares of Common Stock held
by stockholders who were parties to the Voting Agreement or became subject
thereto pursuant to the transfer provisions thereof have granted a proxy in
favor of Hicks Muse with respect to the election of directors. Thomas O.
Hicks is a controlling stockholder of Hicks Muse and serves as Chairman of
the Board and Chief Executive Officer of Hicks Muse. Accordingly, Mr. Hicks
may be deemed to be the beneficial owner of Common Stock held by
stockholders subject to the Voting Agreement. John R. Muse is an officer,
director and minority shareholder of Hicks Muse and as such may be deemed to
share with Mr. Hicks the power to vote or dispose of Common Stock held by
stockholders subject to the Voting Agreement. Each of Messrs. Hicks and Muse
disclaims beneficial ownership of Common Stock in the Company not
respectively owned of record by him. Hicks Muse, Mr. Hicks and Mr. Muse are
referred to above collectively as the "HM Parties."
(7) Includes: (i) 970,842 shares of Common Stock owned directly by Thomas O.
Hicks and a trust of which Thomas O. Hicks serves as the sole trustee; (ii)
3,142 shares of Common Stock owned by an employee of Hicks, Muse, Tate &
Furst, Inc. which shares are subject to an irrevocable proxy in favor of
Thomas O. Hicks; (iii) 317,316 shares of Common Stock owned of record by
Hicks Muse;
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<PAGE>
and (iv) all the outstanding shares as of December 31, 1995 held by other
stockholders which are subject to a proxy in favor of Hicks Muse, pursuant
to the terms of the Voting Agreement entered into by such stockholders, with
respect to the election of directors.
(8) Includes an immediately exercisable option to purchase 352,941 shares of
Common Stock at approximately $5.31 per share and an immediately exercisable
warrant under which Mr. Bishop may purchase 12,573 shares of the Common
Stock at approximately $3.98 per share. Also includes 7,500 shares held by
Mr. Bishop as custodian for family members and 10,000 shares held by Mr.
Bishop as trustee under a trust for a family member.
(9) Includes (i) 1,579,616 shares of Common Stock owned of record by Nimrod
Holdings Inc., all the voting securities of which are owned by the Kara
Trust, a revocable trust established for the benefit of Mr. Moross'
grandchildren; (ii) 147,739 shares of Common Stock owned of record by the
Moross Family Protection Trust, a trust formed for the benefit of Mr.
Moross' children and grandchildren; and (iii) 221,108 shares of Common Stock
owned of record by the Moross Family Foundation, a charitable trust. To the
extent Mr. Moross may be deemed to be the beneficial owner of these shares,
he disclaims any beneficial interest in these shares.
(10)Includes (i) 628,514 shares of Common Stock owned directly by Mr. Muse, (ii)
3,135 shares of Common Stock held by Mr. Muse as custodian for family
members, and (iii) 317,316 shares of Common Stock held of record by Hicks
Muse.
(11)Includes (i) 1,579,616 shares of Common Stock owned of record by Nimrod
Holdings Inc., all the voting securities of which are owned by the Kara
Trust, a revocable trust established for the benefit of Mr. Moross'
grandchildren and with respect to which Mr. Sanger serves as one of three
protectors of the trust; and (ii) 147,739 shares of Common Stock owned of
record by the Moross Family Protection Trust, a trust formed for the benefit
of Mr. Moross' children and grandchildren and with respect to which Mr.
Sanger serves as one of three protectors of the trust. To the extent Mr.
Sanger may be deemed to be the beneficial owner of these shares, he
disclaims any beneficial interest in the shares.
(12)Includes, as of December 31, 1995, (i) options exercisable within 60 days to
purchase 105,095 shares of Common Stock at $3.28 per share held by 19
officers of the Company pursuant to the Life Partners Group, Inc. 1992
Incentive and Nonstatutory Stock Option Plan, as amended (the "1992 Plan"),
and (ii) the options and warrants described in the foregoing note numbered
(8). Does not include vested options under the 1992 Plan which were
out-of-the-money options at December 31, 1995.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
LIFE PARTNERS POLICY ON AFFILIATE INVESTMENTS
The Company recognizes that potential conflicts of interest may arise in the
conduct of its business, particularly with respect to its investment activities.
As a result, the Company adopted and maintains a policy restricting investments
in affiliates, which generally include Hicks Muse, Wand Partners, Inc., the
officers and directors of the Company, and each of their respective affiliates.
Under the policy, no investments in affiliates may be made at any time after May
1, 1993, except through one or more investment funds, which funds must each have
five or more non-affiliated investors who invest amounts comparable to the
amount invested by the Company and on terms no more favorable than those on
which the Company invests. No such investment may exceed the lesser of 10% of
the total investment commitments of all participants in the fund or $10 million.
Total affiliate investments by the Company cannot exceed the greater of 2%
of consolidated GAAP assets or 25% of consolidated GAAP stockholders' equity.
Accordingly, at December 31, 1995, total affiliate investments could not exceed
$100.1 million. The cost of the Company's total investments in affiliates at
December 31, 1995 totaled $27.6 million, or $72.5 million less than the maximum
amount permitted pursuant to the Company's policy.
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<PAGE>
CERTAIN INVESTMENTS
In August 1990, the Company committed to invest $10.0 million as a limited
partner in acquisition transactions in which Hicks Muse Equity Fund, L.P. ("HM
Equity Fund") is an investor. In September, 1993, the Company committed to make
fund investments aggregating $10 million as a limited partner in transactions in
which Hicks, Muse, Tate & Furst Equity Fund II, L.P. ("HM Fund II") is an
investor. Approximately 30 investors (including the Company) committed more than
$255 million to the HM Equity Fund and in excess of 50 investors have committed
approximately $800 million to the HM Fund II. HM Equity Fund and HM Fund II are
limited partnerships in which Hicks Muse has an indirect interest and serves as
the ultimate managing partner. In connection with its commitment to HM Equity
Fund, Wabash paid to HMC Partners, L.P., a Delaware limited partnership ("HMC
Partners"), which serves as the sole general partner of HM Equity Fund and of
which Hicks Muse serves as the managing general partner, an annual management
fee equal to 1% of its commitment amount. Wabash paid a management fee of
$150,000 to HMC Partners in each of 1990, 1991, 1992, and 1993.
As a limited partner of HM Fund II, the Company funds its share of each
investment made from time to time by HM Fund II. The terms of HM Fund II were
established through arm's length negotiations between Hicks Muse and the limited
partner investors. Through December 31, 1995, the Company had invested an
aggregate of $23.4 million as a limited partner in various acquisitions and
other investments by HM Equity Fund and HM Equity Fund II. The Company's
obligation to fund investments made by HM Equity Fund expired on January 4,
1994; and the obligation to fund investments made by HM Fund II will expire on
January 2, 1999.
In July of 1995 the Company committed to invest $4.5 million in Stratford
Capital Partners, L.P., a limited partnership in which Hicks Muse serves as the
ultimate managing partner. Of this commitment, $1.4 million is on a standby
basis and is subject to increase by $0.8 million upon the occurrence of certain
contingencies. In August of 1995, the Company made an initial investment of $1.2
million in this limited partnership. In December of 1995, the standby commitment
was transferred to Stratford Equity Partners, L.P., another limited partnership
in which Hicks Muse serves as the ultimate managing partner.
In December 1992, the Company invested $2.5 million as a limited partner in
Crescent Shared Opportunity Fund, L.P. ("Crescent Opportunity Fund"). During
1994, the Company's investment in Crescent Opportunity Fund was transferred into
a new partnership, Crescent Shared Opportunity Fund II ("Crescent Opportunity
Fund II"), at which time the Company committed to invest an additional $3
million and, provided the fund raises at least $100 million, such committed
amount will be increased to $5 million. Through December 31, 1995, the Company
had invested an aggregate of $6.5 million in Crescent Opportunity Fund II
(including amounts transferred from Crescent Opportunity Fund). In August 1992,
the Company committed to invest $5.0 million as a limited partner in
transactions in which Crescent Realty Associates, L.P., ("Crescent Realty") is
an investor. In addition, in June 1993, the Company committed to invest $5
million as a limited partner in transactions in which Crescent Realty is an
investor. Through December 31, 1995, the Company had invested an aggregate of
$13.9 million as a limited partner in various investments made by these limited
partnerships. Crescent Opportunity Fund, Crescent Opportunity Fund II and
Crescent Realty are limited partnerships, the general partner of which is
controlled by the principals of Hicks Muse.
In December 1993, the Company committed to make fund investments aggregating
$4 million as a limited partner in transactions in which Crescent/MACH I
Partners, L.P. ("MACH") is an investor. At December 31, 1995, the Company had
made investments aggregating $4.0 million as a limited partner in various
investments by MACH. The general partner of MACH is controlled by the principals
of Hicks Muse.
In October 1994, the Company committed to make a fund investment in the
amount of $1 million in a limited partnership, Wand/Universal Investments L.P.,
which would acquire up to $5 million of convertible preferred stock issued by
Universal Holding Corp., a life insurance holding company. The
74
<PAGE>
general partner of the limited partnership is Wand Partners Inc. ("Wand"). Bruce
W. Schnitzer is a majority stockholder and Chairman of the Board of Wand. At
December 31, 1995, the Company had invested $1 million in the limited
partnership.
CERTAIN AGREEMENTS
In connection with the proposed acquisition of Lamar (see, "Lamar Stock
Purchase Agreement" above), the Company entered into a financial advisory
arrangement with Hicks, Muse, Tate & Furst, Inc. ("HMT&F") pursuant to which
HMT&F agreed to provide financial advisory and other services to the Company in
connection with the proposed acquisition of Lamar. The fee, which was contingent
upon the consummation of the Lamar acquisition, was equal to 1% of the purchase
price paid for the acquired company. The fee, in the amount of $1.3 million, was
paid on May 5, 1995.
Thomas O. Hicks currently serves as a director of Life Partners and served
as Chairman of the Board and Chief Executive Officer of Life Partners from its
inception until November 1991. John R. Muse currently serves as a director of
Life Partners and served as Executive Vice President, Secretary, and Treasurer
of Life Partners from its inception until December 1991. Each of Messrs. Hicks
and Muse is an executive officer, director, and shareholder of Hicks Muse and
HMT&F. Bruce W. Schnitzer is a director, majority stockholder, and Chairman of
the Board of the general partner of Wand and currently serves as a director of
Life Partners.
First Southwest Asset Management, Inc. ("FSWAM") provides, pursuant to an
arrangement entered into during 1991, certain investment services to the
Company. John H. Massey (Chairman of the Board and Chief Executive Officer of
the Company) formerly served as Chairman of the Board and Chief Executive
Officer of FSWAM. Mr. Massey currently serves as a director of FSW Holdings,
Inc. ("FSW"), the parent company of FSWAM; otherwise, Mr. Massey holds no
financial interest in any of those companies. At year-end 1995, the Company held
$2.25 million in principal amount of subordinated notes issued by FSW which
notes are convertible under certain conditions into common stock of FSW. In
January of 1996, the Company converted the subordinated notes into common stock
of FSW and thereafter contributed the shares obtained to a partnership which is
the majority owner of FSW in return for a limited partnership interest therein.
The Company paid $369,116 during 1995 for the investment services provided by
FSWAM.
VOTING AGREEMENT
Certain existing stockholders of the Company (consisting of the persons and
entities listed under "Security Ownership of Certain Beneficial Owners and
Management," certain other officers and employees of the Company, and various
other persons and entities, which persons and entities collectively beneficially
own as of December 31, 1995 approximately 12% of the Common Stock of the
Company) have entered into, or have become subject to, a voting agreement with
Life Partners and HMC/Life Partners, L.P., a limited partnership which is no
longer active and in which the sole general partner was HMC Partners, L.P., a
limited partnership of which Hicks Muse served as the managing general partner
("Voting Agreement"). During the term of the Voting Agreement, Hicks Muse is
entitled to vote, pursuant to an irrevocable proxy in its favor, all shares of
Common Stock held by the parties subject to the Voting Agreement in connection
with the election of directors. The Voting Agreement generally terminates upon
the earlier of (i) the election by Hicks Muse to terminate the Voting Agreement,
(ii) the date on which Hicks Muse and its affiliates cease to own beneficially
at least 5% of the then outstanding Common Stock of the Company, or (iii) ten
years after the effective date of the Voting Agreement, which effective date was
March 24, 1993.
75
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)The following documents are filed or incorporated by reference as part of
this Form 10-K:
1. FINANCIAL STATEMENTS
The audited consolidated financial statements of the Registrant as listed in
the Index to Financial Statements appearing in Item 8 on page 28 of this Form
10-K are incorporated herein by reference.
2. FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statement schedules of the Registrant
are included as part of this Report immediately following the signature pages:
<TABLE>
<CAPTION>
PAGE
---------
<S> <C> <C> <C>
Report of Independent Accountants 81
Schedule I -- Condensed Financial Information of Registrant at December 31, 1995 and 82-86
1994 and for the years ended December 31, 1995, 1994, and 1993
Schedule V -- Supplementary Insurance Information at December 31, 1995, 1994 and 1993 87
and for the years ended December 31, 1995, 1994 and 1993
Schedule VI -- Reinsurance at December 31, 1995, 1994 and 1993 and for the years ended 88
December 31, 1995, 1994 and 1993
</TABLE>
Schedules other than those listed above have been omitted since they are either
not required or not applicable, or since the required information is shown in
the financial statements or related notes.
3. EXHIBITS:
<TABLE>
<C> <S>
3.1 Certificate of Incorporation of the Registrant, dated December 20, 1989.(1)
3.2 Certificate of Agreement of Merger of the Registrant, dated December 20, 1989.(1)
3.3 Amendment to Certificate of Incorporation of the Registrant, dated March 27,
1990.(1)
3.4 Certificate of Stock Designation of the Registrant, dated March 29, 1990.(1)
3.5 Amendment to Certificate of Incorporation of the Registrant, dated May 7, 1990.(1)
3.6 Amendment to Certificate of Incorporation of the Registrant, dated April 23,
1992.(1)
3.7 Amendment to Certificate of Incorporation of the Registrant, dated June 29, 1992.(1)
3.8 Amended and Restated Bylaws of the Registrant.(1)
3.9 Amendment to Certificate of Incorporation of the Registrant, dated March 24,
1993.(1)
3.10 Amendment to Certificate of Incorporation of the Registrant, dated August 9,
1995.(1)
4.1 Specimen Certificate evidencing Common Stock.(2)
4.2 Voting Agreement dated as of April 23, 1992, as amended, by and among the
Registrant, Hicks, Muse & Co. (TX) Incorporated, and each of the persons and
entities listed on the signature pages thereof.(2)
4.3 Indenture dated as of July 15, 1992 between Life Partners Group, Inc. and
NationsBank of Texas, N.A.(3)
4.4 Amendment, Waiver and Consent to the Senior Loan Agreement dated as of March 17,
1993, among the Registrant, the lenders party to the Senior Loan Agreement referred
to therein, and General Electric Capital Corporation.(2)
4.5 GECC Voting Agreement dated as of March 17, 1993 by and among the Registrant, Hicks,
Muse & Co. (TX) Incorporated, HMC/Life Partners, L.P., and General Electric Capital
Corporation.(2)
</TABLE>
76
<PAGE>
<TABLE>
<C> <S>
4.6 Amendment No. 2, dated as of March 17, 1993, to the Securities Purchase Agreement
dated as of March 30, 1990 among the Registrant, Wabash Life Insurance Company,
General Electric Capital Corporation, and Employers Reinsurance Corporation.(2)
9.1 The Gardiner Voting Trust Agreement, dated as of March 26, 1990, among the persons
listed on Exhibit A thereto and John W. Gardiner, as Trustee.(2)
10.1 Stock Purchase Agreement dated as of October 3, 1989, by and between I.C.H.
Corporation and the Registrant.(2)
10.2 Amendment to Stock Purchase Agreement dated as of March 29, 1990, by and between
I.C.H. Corporation and the Registrant.(2)
10.3 Compromise and Settlement Agreement dated as of September 1, 1990, by and between
I.C.H. Corporation and the Registrant.(2)
10.4 Surplus Debenture No. 1 in the amount of $320,000,000 dated March 30, 1990, issued
by Wabash Life Insurance Company to the Registrant.(2)
10.5 Surplus Debenture No. 2 in the amount of $90,000,000 dated March 30, 1990, issued by
Wabash Life Insurance Company to the Registrant.(2)
10.6 Registration Rights Agreement dated as of March 30, 1990, by the Registrant for the
benefit of The Gardiner Voting Trust.(2)
10.7 Management and Service Agreement dated March 30, 1990, between Facilities Management
Installation, Inc. and Philadelphia Life Insurance Company.(2)
10.8 Real Estate Purchase Agreement dated as of March 30, 1990, between Massachusetts
General Life Insurance Company and I.C.H. Corporation.(2)
10.9 Amendment to Real Estate Purchase Agreement dated as of March 30, 1990, between
Massachusetts General Life Insurance Company and I.C.H. Corporation.(2)
10.10 Management and Leasing Agreement dated as of March 30, 1990, between Massachusetts
General Life Insurance Company and I.C.H. Corporation.(2)
10.11 Real Estate Purchase Agreement dated as of September 1, 1990, between All American
Assurance Company and I.C.H. Corporation.(2)
10.12 Management and Leasing Agreement dated as of September 1, 1990, between All American
Assurance Company and I.C.H. Corporation.(2)
10.13 Real Estate Purchase Agreement dated as of September 1, 1990, between National
American Life Insurance Company and I.C.H. Corporation.(2)
10.14 Management and Leasing Agreement dated as of September 1, 1990, between National
American Life Insurance Company and I.C.H. Corporation.(2)
10.15 Real Estate Purchase Agreement dated as of September 1, 1990, between Wabash Life
Insurance Company and I.C.H. Corporation.(2)
10.16 Management and Leasing Agreement dated as of September 1, 1990, between Wabash Life
Insurance Company and I.C.H. Corporation.(2)
10.17 Purchase Agreement dated as of March 30, 1990, between Philadelphia Life Insurance
Company and I.C.H. Corporation.(2)
10.18 Financial Advisory Agreement dated as of March 30, 1990, between Wabash Life
Insurance Company and Hicks, Muse & Co. Incorporated.(2)
10.19 Sublease Agreement with respect to Leasehold dated effective March 30, 1990, among
Facilities Management Installation, Inc., Wabash Life Insurance Company, and S&R
Partnership.(2)
10.20 Amendment Number One to Sublease Agreement entered into and effective as of the 1st
day of January, 1992, among S&R Partnership, Facilities Management Installation,
Inc., and Wabash Life Insurance Company.(2)
</TABLE>
77
<PAGE>
<TABLE>
<C> <S>
10.21 Securities Purchase Agreement dated as of March 30, 1990, among the Registrant,
Wabash Life Insurance Company, General Electric Capital Corporation, and Employers
Reassurance Corporation.(2)
10.22 Amendment dated as of April 23, 1992, to the Securities Purchase Agreement dated as
of March 30, 1990, among the Registrant, Wabash Life Insurance Company, General
Electric Capital Corporation, and Employers Reassurance Corporation.(2)
10.23 Compensation and Fees Side Letter dated March 30, 1990, among General Electric
Capital Corporation, the Registrant, Wabash Life Insurance Company, and Hicks, Muse
& Co. Incorporated.(2)
10.24 Investment Management Agreement dated March 30, 1990, between the Registrant and
Webster Management Corporation.(2)
10.25* Third Amended and Restated Employment Agreement dated as of April 1, 1990, by and
between Wabash Life Insurance Company and John W. Gardiner.(2)
10.26* Employment Agreement dated as of April 1, 1990, by and between Wabash Life Insurance
Company and Gregory J. Palmquist.(2)
10.27* Employment Agreement dated as of November 1, 1991, by and between the Registrant and
Gene H. Bishop.(2)
10.28* Stock Option Agreement dated as of November 1, 1991, by and between the Registrant
and Gene H. Bishop.(2)
10.29* Registration Rights dated as of November 1, 1991, by and between the Registrant and
Gene H. Bishop.(2)
10.30 Form of Indemnification Agreement to be entered into between the Registrant and each
of the Registrant's officers and directors.(2)
10.31* Life Partners Management Cash Bonus Plan.(3)
10.32* Life Partners 1992 Incentive and Nonstatutory Stock Option Plan.(3)
10.33 Subscription Agreement dated and effective as of August 21, 1990, between Wabash
Life Insurance Company and Hicks, Muse Equity Fund, L.P. (without exhibits).(2)
10.34 Letter Agreement dated as of November 12, 1991, by and between Gene H. Bishop and
the Registrant.(2)
10.35 Letter Agreement dated as of November 12, 1991, by and between Gene H. Bishop and
Wabash Life Insurance Company.(2)
10.36 Letter Agreement dated as of November 12, 1991, by and between John H. Massey and
the Registrant.(2)
10.37 Letter Agreement dated as of November 12, 1991, by and between John H. Massey and
Wabash Life Insurance Company.(2)
10.38 Letter Agreement dated as of April 6, 1992, by and between Roger T. Staubach and
Wabash Life Insurance Company.(2)
10.39 Letter Agreement dated as of April 6, 1992, by and between Roger T. Staubach and
Wabash Life Insurance Company.(2)
10.40 Agreement and Plan of Reorganization, dated as of April 23, 1992, made and entered
into by and among the Registrant, General Electric Capital Corporation, and the
other holders of the common stock of the Registrant and Wabash Life Insurance
Company, as listed on Exhibits A and B thereto, and Wabash Life Insurance
Company.(2)
10.41* Employment Agreement dated as of May 1, 1993, between the Registrant and Gene H.
Bishop.(7)
10.42 Credit Agreement dated as of June 11, 1993, between the Registrant and the lenders
as listed therein.(7)
</TABLE>
78
<PAGE>
<TABLE>
<C> <S>
10.43 Office Building Lease dated as of July 1, 1993, between Wabash Life Insurance
Company and S&R Partnership.(7)
10.44* Stock option agreement between Don Campbell and the Registrant dated June 12,
1995.(1)
10.45* Employment agreement between Don Campbell and the Registrant dated January 30,
1995.(1)
10.46* Employment agreement between Roger E. Dunker and the Registrant dated June 12,
1995.(1)
10.47* Stock option agreement between Roger E. Dunker and the Registrant dated June 12,
1995.(1)
10.48* Stock option agreement between David Gubbay and the Registrant dated June 12,
1995.(1)
10.49* Stock option agreement between Keith Gubbay and the Registrant dated June 12,
1995.(1)
10.50* Employment agreement between John H. Massey and the Registrant dated October 1,
1994.(1)
10.51* Stock option agreement between John H. Massey and the Registrant dated December 1,
1994.(1)
10.52* Amendment No. 1 to Life Partners Group, Inc. 1992 Incentive and Nonstatutory Stock
Option Plan, dated as of February 14, 1995.(1)
10.53* Employment Agreement between David Gubbay and the Registrant dated May 22, 1995. (1)
10.54* Employment Agreement between Keith Gubbay and the Registrant dated May 22, 1995. (1)
11.1 Computation of earnings (loss) per common share and common equivalent share.(1)
27 Financial Data Schedule(1)
</TABLE>
- ------------------------
(1) Filed herewith.
(2) Incorporated by reference to Amendment No. 7 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-47433).
(3) Incorporated by reference to Amendment No. 5 to the Registrant's
Registration Statement on Form S-1 (Registration No. 33-47621).
(4) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
1992.
(5) Incorporated by reference to the Registrant's Annual Report on Form 10-K for
1993.
(6) Incorporated by reference to the Registrant's Quarterly Report on Form 10-Q
for September 30, 1994.
(7) Incorporated by reference to the Registrant's Quarterly Report on Form 10-K
for 1994.
*
Denotes a management contract or compensatory plan or arrangement.
(b) Reports on Form 8-K
The Registrant did not file any report on Form 8-K during the last quarter
of the period covered by this Annual Report on Form 10-K.
79
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Englewood, State of Colorado, on March 27, 1996.
LIFE PARTNERS GROUP, INC.
by: /s/_JOHN H. MASSEY________________
John H. Massey
CHAIRMAN OF THE BOARD
CHIEF EXECUTIVE OFFICER AND
DIRECTOR
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------------------------ ------------------------------------------- ------------------
<C> <S> <C>
/s/ JOHN H. MASSEY Chairman of the Board, Chief Executive
-------------------------------------- Officer, and Director March 27, 1996
John H. Massey (Principal Executive Officer)
/s/ DAVID GUBBAY
-------------------------------------- President and Chief March 27, 1996
David Gubbay Operating Officer
Executive Vice President
/s/ BERNHARD M. KOCH and Chief Financial Officer
-------------------------------------- (Principal Financial and Accounting March 27, 1996
Bernhard M. Koch Officer)
/s/ GENE H. BISHOP
-------------------------------------- Director March 27, 1996
Gene H. Bishop
-------------------------------------- Director March 27, 1996
Thomas O. Hicks
/s/ MANDY D. MOROSS
-------------------------------------- Director March 27, 1996
Mandy D. Moross
/s/ JOHN R. MUSE
-------------------------------------- Director March 27, 1996
John R. Muse
/s/ DUDLEY B. SANGER
-------------------------------------- Director March 27, 1996
Dudley B. Sanger
-------------------------------------- Director March 27, 1996
Bruce W. Schnitzer
/s/ ROGER T. STAUBACH
-------------------------------------- Director March 27, 1996
Roger T. Staubach
/s/ ROBERT E. WITT
-------------------------------------- Director March 27, 1996
Robert E. Witt
</TABLE>
80
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders
Life Partners Group, Inc.
Our report on the consolidated financial statements of Life Partners Group,
Inc. and Subsidiaries is included on page 30 of this Form 10-K. In connection
with our audits of such financial statements, we have also audited the related
financial statement schedules listed in the index on page 76 of this Form 10-K.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly, in all material respects, the information required to be
included therein. This information should be read in conjunction with the last
paragraph of our report.
Coopers & Lybrand, L.L.P.
Denver, Colorado
March 27, 1996
81
<PAGE>
SCHEDULE I
LIFE PARTNERS GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEETS
AT DECEMBER 31, 1995 AND 1994
(IN THOUSANDS)
ASSETS
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Cash and short-term investments...................................................... $ 10,965 $ 9,568
Fixed maturities available-for-sale, at fair value................................... 22,871
Investments in and advances to subsidiaries and related party:
Investments in subsidiaries........................................................ 371,693 214,800
Advances to subsidiaries........................................................... 274,244 289,423
Accounts receivable.................................................................. 368 573
Other assets......................................................................... 3,226 2,541
----------- -----------
$ 683,367 $ 516,905
----------- -----------
----------- -----------
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable:
Due within one year................................................................ $ 15,000 $ 15,000
Due after one year................................................................. 235,746 200,102
Investment borrowings.............................................................. 21,070
Accrued expenses and other liabilities............................................... 11,042 8,157
----------- -----------
282,858 223,259
----------- -----------
Stockholders' equity:
Common stock, $.001 par value; 50,000,000 shares authorized; 27,911,851 and
25,530,334 shares issued and outstanding at December 31, 1995 and 1994,
respectively...................................................................... 28 26
Additional paid-in capital........................................................... 287,863 245,652
Net unrealized investment gains (losses)............................................. 58,269 (22,783)
Retained earnings.................................................................... 54,349 70,751
----------- -----------
400,509 293,646
----------- -----------
$ 683,367 $ 516,905
----------- -----------
----------- -----------
</TABLE>
The accompanying notes are an integral part of this financial statement
schedule.
82
<PAGE>
SCHEDULE I (CONTINUED)
LIFE PARTNERS GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Income:
Net investment income:
Subsidiaries.............................................................. $ 28,879 $ 31,802 $ 30,679
Other..................................................................... 1,484 161 441
Realized gain............................................................... 103
---------- --------- ---------
30,466 31,963 31,120
---------- --------- ---------
Expenses:
Administrative and general expenses......................................... 651 903 636
Interest expense............................................................ 23,871 21,371 26,140
---------- --------- ---------
24,522 22,274 26,776
---------- --------- ---------
Earnings before federal income taxes,
equity in undistributed earnings (loss) of subsidiaries
and extraordinary loss....................................................... 5,944 9,689 4,344
Federal income tax expense.................................................. (2,081) (3,654) (1,520)
---------- --------- ---------
Earnings before equity in undistributed earnings (loss) of subsidiaries and
extraordinary loss........................................................... 3,863 6,035 2,824
Equity in undistributed earnings (loss) of subsidiaries..................... (17,247) 31,171 48,421
---------- --------- ---------
Earnings (loss) before extraordinary loss..................................... (13,384) 37,206 51,245
Extraordinary loss, net of tax effect....................................... (2,558) (4,029)
---------- --------- ---------
Net earnings (loss)........................................................... (13,384) 34,648 47,216
Less dividends in kind on preferred stock................................... (3,978)
---------- --------- ---------
Net earnings (loss) applicable to common stock................................ $ (13,384) $ 34,648 $ 43,238
---------- --------- ---------
---------- --------- ---------
</TABLE>
The accompanying notes are an integral part of this financial statement
schedule.
83
<PAGE>
SCHEDULE I (CONTINUED)
LIFE PARTNERS GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
STATEMENT OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
1995 1994 1993
---------- ---------- ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss)...................................................... $ (13,384) $ 34,648 $ 47,216
Adjustments to reconcile to net cash used by operating activities:
Realized gain.......................................................... (103)
Equity in undistributed (earnings) loss of subsidiaries................ 17,247 (31,171) (48,421)
Extraordinary loss..................................................... 2,558 4,029
Amortization of note payable discount.................................... 644 1,177 2,026
(Decrease) increase in accrued expenses and other liabilities............ (6,323) 1,840 873
Other, net............................................................... 2,196 3,646 2,298
---------- ---------- ------------
Net cash provided by operating activities............................ 277 12,698 8,021
---------- ---------- ------------
Cash flows from investing activities:
Payments received on notes receivable, subsidiary........................ 15,000 7,500 27,100
Purchase of subsidiaries, net of cash and short-term investments
acquired................................................................ (34,766)
Advances to subsidiaries................................................. (5,000)
Cash contributions to subsidiaries....................................... (14,000)
Payments received on other assets from subsidiary........................ 145 231 327
Proceeds from sale of fixed maturities available-for-sale................ 2,022
Proceeds from sale of equity securities.................................. 926
---------- ---------- ------------
Net cash provided (used) by investing activities..................... (30,673) 2,731 27,427
---------- ---------- ------------
Cash flows from financing activities:
Proceeds from issuance of notes payable.................................. 50,000 160,000
Deferred loan costs related to notes payable............................. (898) (7,087)
Redemption of preferred stock............................................ (121,983)
Costs related to common stock issuance................................... (30) (12,215)
Proceeds from issuance of common stock................................... 1,942 408 187,086
Cash dividends paid on common stock...................................... (3,019) (2,035) (950)
Principal repayment on notes payable and indebtedness to related party... (15,000) (3,822) (260,125)
Principal repayment on investment borrowings............................. (2,130)
---------- ---------- ------------
Net cash provided (used) by financing activities..................... 31,793 (6,377) (55,274)
---------- ---------- ------------
Net increase (decrease) in cash and short-term investments................. 1,397 9,052 (19,826)
Cash and short-term investments at beginning of year....................... 9,568 516 20,342
---------- ---------- ------------
Cash and short-term investments at end of year............................. $ 10,965 $ 9,568 $ 516
---------- ---------- ------------
---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of this financial statement
schedule.
84
<PAGE>
SCHEDULE I (CONTINUED)
LIFE PARTNERS GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
NOTES TO CONDENSED FINANCIAL STATEMENT SCHEDULES
1. NOTES PAYABLE
Notes payable at December 31, 1995 and December 31, 1994 are summarized
below (in thousands):
<TABLE>
<CAPTION>
AMOUNT OUTSTANDING
NET OF UNAMORTIZED
AMOUNT OUTSTANDING ISSUANCE COSTS
------------------------ ------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Borrowing under bank credit facility (A)...................... $ 156,178 $ 121,178 $ 155,581 $ 120,370
12 3/4% Senior Subordinated Notes Due 2002 (B)................ 100,000 100,000 95,165 94,732
----------- ----------- ----------- -----------
$ 256,178 $ 221,178 $ 250,746 $ 215,102
----------- ----------- ----------- -----------
----------- ----------- ----------- -----------
</TABLE>
(A) On August 12, 1994, the syndicated credit facility was amended and restated
to include a $50 million revolving credit facility and various other
modifications. On April 28, 1995, the Company utilized $36 million of the
revolving credit facility in the acquisition of Lamar Financial Group, Inc.
(See Note 2). On December 28, 1995, the Company utilized the remaining $14
million of the facility. According to the amended agreement, the $50 million
outstanding principal will convert to a term loan effective January 1, 1997,
payable in quarterly installments through September 30, 1999. The
outstanding principal under the existing term loan is payable in quarterly
installments through September 30, 1999. Both the outstanding term loan
principal and outstanding revolving loan principal may be designated as a
"base rate loan", a "eurodollar loan", or a combination of both at the
Company's option on a periodic basis.
Any principal portion designated as a base rate loan bears interest at a
rate per annum equal to the higher of (a) the Federal Funds Rate for such
day plus 1/2 of 1%, or (b) the Prime rate for such day . Any principal
portion designated as a eurodollar loan bears interest at a rate per annum
based upon the one, two, three, or six month LIBOR rate, plus a 1.0% margin.
At December 31, 1995, the entire outstanding term loan principal amount of
$106.2 million was designated by the Company as a eurodollar loan, bearing
interest based upon the six month LIBOR rate of 6.75%. The outstanding
revolving loan principal amount of $50 million was also designated by the
Company as a eurodollar loan. Of the outstanding revolving loan principal,
$36.0 million bears interest based on the six month LIBOR rate of 6.88%, and
$14.0 million bears interest based upon the three month LIBOR rate of 6.69%.
The loan agreement under the bank credit facility contains covenants, the
most restrictive of which limits payments by the Company for dividends to 3%
of net worth as defined in the agreement.
(B) On July 30, 1992, Life Partners completed a public offering of $100 million
of unsecured senior subordinated notes. The notes bear interest at the rate
of 12 3/4% (payable semi-annually on January 15 and July 15), and the
principal of the notes is payable in a single installment at maturity on
July 15, 2002. The notes are redeemable at Life Partners' option at any time
after July 15, 1997, and there are no sinking fund requirements. The notes
may be redeemed by Life Partners on or after July 15, 1997 at redemption
prices of 103.643% and 101.831% of the outstanding principal balances in the
12-month periods commencing July 15, 1997 and 1998, respectively, or at 100%
thereafter. Of the total principal amount outstanding, $4.9 million was held
by a direct subsidiary of Life Partners at December 31, 1995 and 1994.
85
<PAGE>
SCHEDULE I (CONTINUED)
LIFE PARTNERS GROUP, INC.
CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONTINUED)
1. NOTES PAYABLE (CONTINUED)
The following summary sets forth the principal balance of maturities of
notes payable during each of the next five years (in thousands):
<TABLE>
<S> <C>
1996.................................................... 15,000
1997.................................................... 38,182
1998.................................................... 48,182
1999.................................................... 54,814
2000 and thereafter..................................... 100,000
---------
$256,178
---------
---------
</TABLE>
The components of interest expense are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Notes Payable........................................................ $ 23,871 $ 21,372 $ 23,744
Indebtedness to related party........................................ 2,396
--------- --------- ---------
Total............................................................ $ 23,871 $ 21,372 $ 26,140
--------- --------- ---------
--------- --------- ---------
</TABLE>
To the extent that loans were payable to GE Capital, which owned
approximately 40% of the outstanding common stock of Life Partners at January 1,
1993, under the Senior Loan Agreement, they were classified as "Indebtedness to
related party." To the extent that loans are payable to unaffiliated third
parties, they are classified as "Notes payable."
The interest and principal payment terms of surplus debentures payable by
Wabash to Life Partners are structured, subject to certain surplus restrictions,
to provide sufficient cash to meet all payment terms on these loan agreements.
2. EXTRAORDINARY LOSS
In 1993, the Company realized extraordinary losses in the aggregate of $6.1
million resulting from the extinguishment of debt. The extraordinary losses are
reflected net of the estimated tax effect of $2.1 million.
An extraordinary loss in the amount of $3.9 million was realized by the
Company in 1994 due to the amendment and restatement of the borrowings under the
bank credit facility, and is reflected net of $1.4 million in estimated taxes.
3. SUBSEQUENT EVENT
On March 11, 1996, Life Partners and Conseco, Inc. ("Conseco") jointly
entered into a definitive merger agreement providing for all shareholders of the
Company to receive Conseco stock for each of their shares through a share
exchange based upon a value of $21.00 per share for Life Partners stockholders.
The total value of the transaction would be approximately $840 million,
including $600 million to purchase Life Partner's outstanding common stock and
$240 million of existing debt to be assumed by Conseco. Under the merger
agreement, Life Partners would become a wholly owned subsidiary of Conseco.
Consummation of the merger is subject to customary terms and conditions,
including approval by both the stockholders of Life Partners and Conseco and
regulatory authorities. A termination fee of $20 million is payable under
certain circumstances by either party if its shareholders do not approve the
transaction.
86
<PAGE>
SCHEDULE V
LIFE PARTNERS GROUP, INC.
SUPPLEMENTARY INSURANCE INFORMATION
AT DECEMBER 31, 1995, 1994, AND 1993 AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
AMORTIZATION
OF DEFERRED
POLICY
DEFERRED ACQUISITION
POLICY COSTS, COST OF
ACQUISITIONS NET INSURANCE
COSTS AND COST PREMIUM INCOME INVESTMENT ACQUIRED AND OTHER
OF INSURANCE POLICYHOLDER AND OTHER AND OTHER POLICYHOLDER DEFERRED OPERATING
LINE OF BUSINESS: ACQUIRED LIABILITIES CONSIDERATIONS INCOME BENEFITS POLICY FEES EXPENSES
- ----------------------------- -------------- ----------- -------------- ----------- ----------- -------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1995:
Individual life.............. $ 419,661 $2,808,095 $ 247,391 $ 163,652 $ 260,530 $ 137,490 $ 76,381
Annuity products............. 125,090 1,315,814 8,511 74,903 45,953 11,169 14,110
Accident & Health............ 22,975 24,178 1,199 12,239 4,293
Corporate.................... 40,497
-------------- ----------- -------------- ----------- ----------- -------------- -----------
Total.................... $ 544,751 $4,146,884 $ 280,080 $ 280,251 $ 318,722 $ 148,659(A) $ 94,784
-------------- ----------- -------------- ----------- ----------- -------------- -----------
-------------- ----------- -------------- ----------- ----------- -------------- -----------
December 31, 1994:
Individual life.............. $ 420,430 $2,148,441 $ 207,284 $ 124,847 $ 177,179 $ 46,387 $ 43,740
Annuity products............. 90,979 956,787 5,095 64,620 66,279 (163) 8,204
Accident & Health............ 17,934 5,512 985 4,265 765
Corporate.................... 39,552
-------------- ----------- -------------- ----------- ----------- -------------- -----------
Total.................... $ 511,409 $3,123,162 $ 217,891 $ 230,004 $ 247,723 $ 46,224(B) $ 52,709
-------------- ----------- -------------- ----------- ----------- -------------- -----------
-------------- ----------- -------------- ----------- ----------- -------------- -----------
December 31, 1993:
Individual life.............. $ 379,750 $2,074,046 $ 202,264 $ 127,396 $ 194,370 $ 51,207 $ 44,368
Annuity products............. 80,762 901,553 2,375 54,254 43,004 813 6,721
Accident & Health............ 17,180 6,125 1,052 4,270 816
Corporate.................... 43,862
-------------- ----------- -------------- ----------- ----------- -------------- -----------
Total.................... $ 460,512 $2,992,779 $ 210,764 $ 226,564 $ 241,644 $ 52,020(C) $ 51,905
-------------- ----------- -------------- ----------- ----------- -------------- -----------
-------------- ----------- -------------- ----------- ----------- -------------- -----------
</TABLE>
- ------------------------------
(A) Includes $(8,039,000) related to realized gains (losses)
(B) Includes $12,000 related to realized gains (losses)
(C) Includes $4,733,000 related to net realized gains (losses)
87
<PAGE>
SCHEDULE VI
LIFE PARTNERS GROUP, INC.
REINSURANCE
AT DECEMBER 31, 1995, 1994, AND 1993 AND
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993
(IN THOUSANDS)
<TABLE>
<CAPTION>
PERCENTAGE
ASSUMED FROM OF AMOUNT
CEDED TO OTHER OTHER ASSUMED TO
GROSS AMOUNT COMPANIES COMPANIES NET AMOUNT NET
-------------- -------------- ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Year Ended December 31, 1995
Life Insurance in-force.............. $ 55,503,440 $ 16,373,681 $ 3,159,717 $ 42,289,476 7%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Premium income and other
considerations:
Interest Sensitive Product
Charges........................... $ 267,127 $ 29,564 $ 2,162 $ 239,725 1%
Traditional Premiums............... 50,672 40,416 5,921 16,177 37%
Accident and Health Premiums....... 54,165 71,378 41,391 24,178 171%
-------------- -------------- ------------- --------------
Total............................ $ 371,964 $ 141,358 $ 49,474 $ 280,080 18%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Year Ended December 31, 1994
Life Insurance in-force.............. $ 42,416,626 $ 11,008,310 $ 2,646,234 $ 34,054,550 8%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Premium income and other
considerations:
Interest Sensitive Product
Charges........................... $ 210,024 $ 22,275 $ 2,238 $ 189,987 1%
Traditional Premiums............... 45,838 28,109 4,663 22,392 21%
Accident and Health Premiums....... 5,757 616 371 5,512 7%
-------------- -------------- ------------- --------------
Total............................ $ 261,619 $ 51,000 $ 7,272 $ 217,891 3%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Year Ended December 31, 1993
Life Insurance in-force.............. $ 37,909,250 $ 9,666,874 $ 2,421,320 $ 30,663,696 8%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
Premium income and other
considerations:
Interest Sensitive Product
Charges........................... $ 191,719 $ 15,861 $ 1,674 $ 177,532 1%
Traditional Premiums............... 48,851 27,551 5,807 27,107 21%
Accident and Health Premiums....... 6,097 397 425 6,125 7%
-------------- -------------- ------------- --------------
Total............................ $ 246,667 $ 43,809 $ 7,906 $ 210,764 4%
-------------- -------------- ------------- --------------
-------------- -------------- ------------- --------------
</TABLE>
88
<PAGE>
CERTIFICATE OF INCORPORATION
OF
HMS INSURANCE HOLDINGS, INC.
- --------------------------------------------------------------------------------
I, the undersigned natural person acting as an incorporator of a
corporation (hereinafter called the "Corporation") under the General
Corpooration Law of the State of Delaware, do hereby adopt the following
Certificate of Incorporation for the Corporation:
FIRST: The name of the Corporation is HMS Insurance Holdings, Inc.
SECOND: The registered office of the Corporation in the State of
Delaware is located at Corporation Trust Center, 1209 Orange Street, in the City
of Wilmington, County of New Castle. The name of the registered agent of the
Corporation at such address is The Corporation Trust Company.
THIRD: The purpose for which the Corporation is organized is to engage
in any and all lawful acts and activity for which corporations may be organized
under the General Corporation Law of Delaware. The Corporation will have
perpetual existence.
FOURTH: The total number of shares of stock which the Corporation shall
have authority to issue is 1,500,000 shares of capital stock, classified as (i)
500,000 shares of preferred stock, par value $.01 per share (Preferred
Stock"), and (ii) 1,000,000 shares of common stock, par value $.01 per share
("Commom Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted by the board of directors of the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the board
of directors of the Corporation to authorize the issuance of the Preferred Stock
from time to time in one or more classes or series, and with respect to each
class or series of the Preferred Stock, to fix and state by the resolution or
<PAGE>
resolutions from time to time adopted providing for the issuance therof the
following:
(i) whether or not the class or series is to have voting
rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes
or series of stock;
(ii) the number of shares to constitute the class or series and
the designations thereof;
(iii) the preferences, and relative, participating, optional, or
other special rights, if any, and the qualifications, limitations, or
restrictions therof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall be
redeemable at the option of the Corporation or the holders thereof or upon the
happening of any specified event, and, if redeemable, the redemption price or
prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement
or sinking fund or funds are to be established, the annual amount thereof, and
the terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which the
holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(viii) whether or not the shares of any class or series, at the
option of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for, the shares of
any other class or classes or of any other series of the same or any other class
or
2
<PAGE>
classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective provisions with
respect to any class or series as may to the board of directors of the
Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of the
foregoing repects. The board of directors of the Corporation may increase the
number of shares of the Preferred Stock designated for any existing class or
series by a resolution adding to such class or series authorized and unissued
shares of the Preferred Stock not designated for any other class or series. The
board of directors of the Corporation may decrease the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
subtracting from such class or series authorized and unissued shares of the
Preferred Stock designated for such existing class or series, and the shares so
subtracted shall become authorized, unissued, and undesignated shares of the
Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the stockholders of the Corporation and shall be entitled to one vote for each
share of Common Stock held.
(b) Subject to the prior rights and preferences, if any, applicable
to shares of the Preferred Stock or any series thereof, the holders of shares of
the Common Stock shall be entitled to receive such dividends (payable in cash,
stock, or otherwise) as may be declared thereon by the board of directors at any
time and from time to time out of any funds of the Corporation legally available
therefor.
(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in full of the
preferential amounts, if any, to be distributed to the holders of shares of the
Preferred Stock or any series thereof, the holders of shares of the Common Stock
shall be entitled to receive all of the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to the
number of shares of the Common Stock held by them. A liquidation, dissolution,
or winding-up of the Corporation, as such terms are used in this Paragraph (c),
shall
3
<PAGE>
not be deemed to be occasioned by or to include any consolidation or merger of
the Corporation with or into any other corporation or corporations or other
entity or a sale, lease, exchange, or conveyance of all or a part of the assets
of the Corporation.
3. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of its Preferred Stock and
Common Stock from time to time for such consideration (not less than the par
value thereof) as may be fixed by the board of directors of the Corporation,
which is expressly authorized to fix the same in its absolute and uncontrolled
discretion subject to the foregoing conditions. Shares so issued for which the
consideration shall have been paid or delivered to the Corporation shall be
deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue rights
and options entitling their holders to purchase shares of the Corporation's
capital stock of any class or series or other securities of the Corporation, and
such rights and options shall be evidenced by instrument(s) approved by the
board of directors of the Corporation. The board of directors of the
Corporation shall be empowered to set the exercise price, duration, times for
exercise, and other terms of such options or rights; PROVIDED, HOWEVER, that the
consideration to be received for any shares of capital stock subject thereto
shall not be less than the par value thereof.
FIFTH: The name of the incorporater of the Corporation is Mark C. Hoey,
and the mailing address of such incorporator is Founders Square, Suite 100, 900
Jackson Street, Dallas, Texas 75202-4499.
SIXTH: The number of directors constituting the initial board of
directors is two, and the name and mailing address of each person who is to
serve as director until the first annual meeting of stockholders or until his
successor is elected and qualified are as follows:
Name Address
---- -------
Thomas O. Hicks 200 Crescent Court, Suite 1600
Dallas, Texas 75201
John R. Muse 200 Crescent Court, Suite 1600
Dallas, Texas 75201
4
<PAGE>
SEVENTH: Directors of the Corporation need not be elected by written
ballot unless the by-laws of the Corporation otherwise provide.
EIGHTH: The directors of the Corporation shall have the power to adopt,
amend, and repeal the by-laws of the Corporation.
NINTH: No contract or transaction between the Corporation and one or
more of its directors, officers, or stockholders or between the Corporation and
any person (as used herein "person" means other corporation, partnership,
association, firm, trust, joint venture, political subdivision, or
instrumentality) or other organization in which one or more of its directors,
officers, or stockholders are directors, officers, or stockholders, or have a
financial interest, shall be void or voidable solely for this reason, or solely
because the director or officer is present at or participates in the meeting of
the board or committee which authorizes the contract or transaction, or solely
because his, her, or their votes are counted for such purpose, if: (i) the
material facts as to his or her relationship or interest and as to the contract
or transaction are disclosed or are known to the board of directors or the
committee, and the board of directors 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 (ii) the material facts as to his or her 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 (iii) the
contract or transaction is fair as to the Corporation as of the time it is
authorized, approved, or ratified by the board of directors, a committee
thereof, or the stockholders. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the board of directors or
of a committee which authorizes the contract or transaction.
TENTH: The Corporation shall indemnify any person who was, is, or is
threatened to be made a party to a proceeding (as hereinafter defined) by reason
of the fact that he or she (i) is or was a director or officer of the
Corporation or (ii) while a director or officer of the Corporation, is or was
serving at the request of the Corporation as a director, officer, partner,
venturer, proprietor, trustee, employee, agent, or similar functionary of
another foreign or domestic corporation, partnership, joint venture, sole
proprietorship, trust, employee benefit plan, or other enterprise, to the
fullest extent permitted under the Delaware General Corporation Law, as the same
exists or may hereafter be amended. Such right shall be a contract right and as
such shall run to the benefit of any director or officer who is elected and
accepts the position of director or officer of the
5
<PAGE>
Corporation or elects to continue to serve as a director or officer of the
Corporation while this Article TENTH is in effect. Any repeal or amendment of
the Article TENTH shall be prospective only and shall not limit the rights of
any such director or officer or the obligations of the Corporation with respect
to any claim arising from or related to the services of such director or officer
in any of the foregoing capacities prior to any such repeal or amendment to
this Article TENTH. Such right shall include the right to be paid by the
Corporation expenses incurred in defending any such proceeding in advance of
its final disposition to the maximum extent permitted under the Delaware
General Corporation Law, as the same exists or may hereafter be amended. If
a claim for indemnification or advancement of expenses hereunder is not paid
in full by the Corporation within sixty (60) days after a written claim has
been received by the Corporation, the claimant may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the claim,
and if successful in whole or in part, the claimant shall also be entitled to
be paid the expenses of prosecuting such claim. It shall be a defense to any
such action that such indemnification or advancement of costs of defense are
not permitted under the Delaware General Corporation Law, but the burden of
proving such defense shall be on the Corporation. Neither the failure of the
Corporation (including its board of directors or any committee thereof,
independent legal counsel, or stockholders) to have made its determination
prior to the commencement of such action that indemnification of, or
advancement of costs of defense to, the claimant is permissible in the
circumstances nor an actual determination by the Corporation (including its
board of directors or any committee thereof, independent legal counsel, or
stockholders) that such indemnification or advancement is not permissible
shall be a defense to the action or create a presumption that such
indemnification or advancement is not permissible. In the event of the death
of any person having a right of indemnification under the foregoing
provisions, such right shall inure to the benefit of his or her heirs,
executors, administrators, and personal representatives. The rights
conferred above shall not be exclusive of any other right which any person
may have or hereafter acquire under any statute, by-law, resolution of
stockholders or directors, agreement, or otherwise.
The Corporation may additionally indemnify any employee or agent of the
Corporation to the fullest extent permitted by law.
As used herein, the term "proceeding" means any threatened, pending, or
completed action, suit, or proceeding, whether civil, criminal, administrative,
arbitrative, or investigative, any appeal in such an action, suit, or
proceeding, and any inquiry or investigation that could lead to such an action,
suit, or proceeding.
6
<PAGE>
ELEVENTH: A director of the Corporation shall not be personally liable to
the Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any transaction from which the director derived an improper
personal benefit. Any repeal or amendment of this Article ELEVENTH by the
stockholders of the Corporation shall be prospective only, and shall not
adversely affect any limitation on the personal liability of a director of the
Corporation arising from an act or omission occurring prior to the time of such
repeal or amendment. In addition to the circumstances in which a director of
the Corporation is not personally liable as set forth in the foregoing
provisions of this Article ELEVENTH, a director shall not be liable to the
Corporation or its stockholders to such further extent as permitted by any law
hereafter enacted, including without limitation any subsequent amendment to the
Delaware General Corporation Law.
TWELFTH: The Corporation expressly elects not to be governed by Section
203 of the General Corporation Law of Delaware.
I, the undersigned, for the purpose of forming the Corporation under the
laws of the State of Delaware, do make, file, and record this Certificate of
Incorporation and do certify that this is my act and deed and that the facts
stated herein are true and, accordingly, I do hereunto set my hand on this 20th
day of December, 1989.
/s/ Mark C. Hoey
-------------------------------------------
MARK C. HOEY
7
<PAGE>
STATE OF DELAWARE
PAGE 1
OFFICE OF THE SECRETARY OF STATE
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AGREEMENT OF MERGER (DELAWARE & FOREIGN) OF "HMS INSURANCE HOLDINGS, INC." FILED
IN THIS OFFICE ON THE TWENTIETH DAY OF DECEMBER, A.D. 1989, AT 11:01 O'CLOCK
A.M.
* * * * * * * * * *
/SEAL/
/s/William T. Quillen
---------------------------
WILLIAM T. QUILLEN, SECRETARY
OF STATE
AUTHENTICATION: *3836107
DATE: 03/26/1993
<PAGE>
ARTICLES OF MERGER
AND
AGREEMENT AND PLAN OF MERGER
THESE ARTICLES OF MERGER AND AGREEMENT AND PLAN OF MERGER (hereinafter
referred to as the "Merger Agreement"), dated as of December 20, 1989, are
entered into by and between HMS Acquisition Corporation, a Texas corporation
(the "Company"), and HMS Insurance Holdings, Inc., a Delaware corporation
("HMS").
The authorized capital stock of the Company consists of (i) 10,000,000
shares of Common Stock, $.01 par value per share, and (ii) 5,000,000 shares of
Preferred Stock, $.01 par value per share. The authorized capital stock of HMS
consists of (i) 1,000,000 shares of Common Stock, $.01 par value per share and
(ii) 500,000 shares of Preferred Stock, $.01 par value per share. The directors
of the Company and the directors of HMS deem it advisable and to the advantage
of said corporations that the Company merge with and into HMS upon the terms and
conditions herein provided.
NOW, THEREFORE, the parties do hereby adopt the plan of reorganization
encompassed by this Merger Agreement and do hereby agree that the Company shall
merge with and into HMS on the following terms, conditions and other provisions:
ARTICLE I
1.01. MERGER. The Company shall be merged with and into HMS (the
"Merger"), and HMS shall be the surviving corporation (the "Surviving
Corporation") effective upon the later of the dates when this Merger
Agreement is filed with the Secretary of State of Delaware or the Secretary
of State of Texas (the "Effective Date"). The Surviving Corporation shall be
governed by the laws of the State of Delaware.
1.02. EFFECT OF MERGER. On the Effective Date and for all purposes, the
separate existence of the Company shall cease and shall be merged with and into
HMS which, as the Surviving Corporation, shall thereupon and thereafter possess
al the rights, privileges, powers, immunities and franchises and be subject to
all the restrictions, disabilities and duties of the Company; and the rights,
privileges, powers, immunities, and franchises (whether of a public or private
nature) of the Company, and all property (real, personal and mixed), all debts
due on whatever account, all choses in action, and all and every other interest
of or belonging to or due to the Company shall continue and be taken and deemed
to be transferred to and vested in HMS without further act or deed; and the
title to any real estate, or any interest therein, vested in the Company shall
not revert or be in any way impaired by reasons of such Merger; and HMS shall
thenceforth be responsible and liable for all the liabilities and obligations
of the Company; and, to the extent permitted by law, any claim existing, or
action or proceeding pending, by or against the Company may be prosecuted as if
the Merger had not
<PAGE>
taken place, or HMS may be substituted in the place of such corporation.
Neither the rights of creditors nor any liens upon the property of the Company
shall be impaired by the Merger.
1.03. SUCCESSION. On the Effective Date, HMS shall succeed to the Company
in the manner of and as more fully set forth in Section 259 of the General
Corporation Law of the State of Delaware.
1.04. CERTIFICATE OF INCORPORATION AND BYLAWS.
(a) The Certificate of Incorporation of HMS shall be the
Certificate of Incorporation of the Surviving Corporation.
(b) The Bylaws of HMS shall be the Bylaws of the Surviving
Corporation.
1.05. DIRECTORS. The directors of HMS, immediately preceding the Effective
Date, shall continue to serve as the directors of the Surviving Corporation
until the expiration of their terms and until their successors are duly elected
and qualified.
1.06. OFFICERS. The officers of HMS, immediately preceding the
Effective Date, shall continue to serve as the officers of the Surviving
Corporation at the pleasure of the board of directors.
ARTICLE II
2.01. STOCK OF THE COMPANY. Upon the Effective Date, by virtue of the
Merger and without any action on the part of holders thereof, each share of the
Company's Common Stock, $.01 par value per share, outstanding immediately prior
thereto shall be cancelled. No shares of the Company's Preferred Stock, $.01
par value per share, are outstanding.
2.02. STOCK OF HMS. Each share of HMS's Common Stock, $.01 par value per
share, outstanding as of the Effective Date, shall be unaffected by the Merger.
No shares of HMS's Preferred Stock, $.01 par value per share, are outstanding.
ARTICLE III
3.01. GOVERNING LAW. This Merger Agreement shall be governed by, and
construed in accordance with, the laws of the State of Texas, except to the
extent that the Delaware General Corporation Law governs the internal corporate
affairs of HMS.
3.02. ABANDONMENT. At any time before the Effective Date, this Merger
Agreement may be terminated and the Merger contemplated hereby may be abandoned
by the board of directors of either the Company or HMS, or both, notwithstanding
approval of this Merger Agreement by the sole shareholder of the Company or by
the sole shareholder of HMS, or both.
2
<PAGE>
3.03. AMENDMENT. At any time before or after approval by the sole
shareholder of the Company and by the sole shareholder of HMS, this Merger
Agreement may be amended in any manner (except that any of the principal terms
may not be amended without the approval of the respective shareholders of the
Company and of HMS) as may be determined in the judgment of the respective
boards of directors of the Company and HMS to be necessary, desirable, or
expedient in order to clarify the intention of the parties hereto or to effect
or facilitate the purpose and intent of this Merger Agreement.
3.04. REGISTERED AGENT AND REGISTERED OFFICE. In the State of Delaware,
the registered agent of HMS is The Corporation Trust Company and the registered
office of HMS is Corporation Trust Center, 1209 Orange Street, Wilmington,
Delaware 19801.
3.05. COUNTERPARTS. This Merger Agreement may be executed in counterparts,
each of which shall be deemed to be an original, but all of which together shall
constitute, collectively, one and the same instrument.
3.06. SHARES OUTSTANDING; APPROVAL OF MERGER AGREEMENT.
(a) The number and designation of shares of the Company's capital
stock outstanding and entitled to vote on the Merger Agreement consisted of
1,000 shares of common stock, $.01 par value per share ("Company Common Stock").
The number and designation of shares of HMS's capital stock outstanding and
entitled to vote on the Merger Agreement consisted of 100 shares of common
stock, $.01 par value per share ("HMS Common Stock").
(b) The sole shareholder and holder of the 1,000 shares of the
Company's Common Stock has executed a consent of shareholder approving of the
Merger Agreement. The sole shareholder and holder of the 100 shares of HMS
Common Stock has executed a consent of shareholder approving the Merger
Agreement.
3.07. COMPLIANCE WITH DELAWARE LAW AND CONSTITUENT DOCUMENTS. The approval
of the Merger Agreement was duly authorized by all action required by the laws
of the State of Delaware, which is the state of incorporation of HMS, and by
HMS's constituent documents.
3
<PAGE>
IN WITNESS WHEREOF, this Merger Agreement, having first been duly approved
by the respective boards of directors of the Company and HMS, is hereby executed
on behalf of each said corporation by their respective duly authorized officers.
HMS ACQUISITION CORPORATION,
a Texas corporation
By: /s/ John R. Muse
----------------------------
John R. Muse,
Executive Vice President
ATTEST:
/s/ Becky McConnell
- ----------------------------
Becky McConnell,
Assistant Secretary
HMS INSURANCE HOLDINGS, INC.
a Delaware corporation
By: /s/ John R. Muse
----------------------------
John R. Muse,
Executive Vice President
ATTEST:
/s/ Becky McConnell
- ----------------------------
Becky McConnell,
Assistant Secretary
<PAGE>
CERTIFICATE OF SECRETARY
OF
HMS ACQUISITION CORPORATION
The undersigned, John R. Muse, hereby certifies that he is the duly elected
and presently incumbent Secretary of HMS Acquisition Corporation, a Texas
corporation (the "Company"), and hereby further certifies as follows:
The Articles of Merger and Agreement and Plan of Merger (the "Agreement")
to which this Certificate of Secretary is attached, was duly executed by the
presently incumbent executive vice president and assistant secretary of the
Company, respectively, and was duly adopted and approved by the sole shareholder
of the Company pursuant to the execution of a Consent of Sole Shareholder, dated
December 20, 1989, approving and adopting the Agreement.
IN WITNESS WHEREOF, the undersigned does hereby execute this Certificate of
Secretary.
Dated: December 20, 1989 /s/ John R. Muse
----------------------------------
John R. Muse, Secretary
<PAGE>
CERTIFICATE OF SECRETARY
OF
HMS INSURANCE HOLDINGS, INC.
The undersigned, John R. Muse, hereby certifies that he is the duly elected
and presently incumbent Secretary of HMS Insurance Holdings, Inc., a Delaware
corporation (the "Company"), and hereby further certifies as follows:
The Articles of Merger and Agreement and Plan of Merger (the "Agreement")
to which this Certificate of Secretary is attached, was duly executed by the
presently incumbent executive vice president and assistant secretary of the
Company, respectively, and was duly adopted and approved by the sole stockholder
of the Company pursuant to the execution of a Consent of Sole Stockholder, dated
December 20, 1989, approving and adopting the Agreement.
IN WITNESS WHEREOF, the undersigned does hereby execute this Certificate of
Secretary.
Dated: December 20, 1989 /s/ John R. Muse
----------------------------------
John R. Muse, Secretary
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
STOCK DESIGNATION OF "HMS INSURANCE HOLDINGS, INC." FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF MARCH, A.D. 1990, AT 2 O'CLOCK P.M.
* * * * * * * * * *
/s/ William T. Quillen
------------------------------------
(SEAL) WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION:
*3836113
DATE: 03/26/1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AFTER PAYMENT OF CAPITAL
OF
HMS INSURANCE HOLDINGS, INC.
HMS Insurance Holdings, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is HMS Insurance Holdings, Inc.
SECOND: The Board of Directors of the Corporation, by the unanimous
consent of its members, adopted a resolution proposing and declaring advisable
the following amendment to the Certificate of Incorporation of the Corporation:
Article FOURTH shall be amended in its entirety as follows:
ARTICLE FOURTH
The total number of shares of stock which the Corporation shall have
authority to issue is 1,500,000 shares, divided into three classes as
follows: (i) 500,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"); (ii) 800,000 shares of Class A Common Stock, par value
$.01 per share ("Class A Common"); and (iii) 200,000 shares of Class B
Common Stock, par value $.01 per share ("Class B Common").
The Class A Common and the Class B Common are hereafter collectively
referred to as the "Common Stock."
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are
as follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or more
classes or series, the shares of
1
<PAGE>
each class or series to have such designations and powers, preferences, and
rights, and qualifications, limitations, and restrictions thereof, as are
stated and expressed herein and in the resolution or resolutions providing
for the issue of such class or series adopted by the Board of Directors of
the Corporation as hereafter prescribed.
(b) Authority is hereby expressly granted to and vested in the
Board of Directors of the Corporation to authorize the issuance of the
Preferred Stock from time to time in one or more classes or series, and
with respect to each class or series of the Preferred Stock, to fix and
state by the resolution or resolutions from time to time adopted providing
for the issuance thereof the following:
(i) whether or not the class or series is to have voting
rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other
classes or series of stock;
(ii) the number of shares to constitute the class or series
and the designations thereof;
(iii) the preferences, and relative, participating, optional,
or other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
(iv) whether or not the shares of any class or series shall
be redeemable at the option of the Corporation or the holders thereof or
upon the happening of any specified event, and, if redeemable, the
redemption price or prices (which may be payable in the forms of cash,
notes, securities, or other property), and the time or times at which, and
the terms and conditions upon which, such shares shall be redeemable and
the manner of redemption;
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to
the purchase or redemption of such shares for retirement, and, if such
retirement or sinking fund or funds are to be established, the annual
amount thereof, and the terms and provisions relative to the operation
thereof;
(vi) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other
2
<PAGE>
property, the conditions upon which and the times when such dividends are
payable, the preference to or the relation to the payment of dividends
payable on any other class or classes or series of stock, whether or not
such dividends shall be cumulative or noncumulative, and if cumulative, the
date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive
upon the voluntary or involuntary dissolution of, or upon any distribution
of the assets of, the Corporation;
(viii) whether or not the shares of any class or series, at
the option of the Corporation or the holder thereof or upon the happening
of any specified event, shall be convertible into or exchangeable for, the
shares of any other class or classes or of any other series of the same or
any other class or classes of stock, securities, or other property of the
Corporation and the conversion price or prices or ratio or ratios or the
rate or rates at which such exchange may be made, with such adjustments, if
any, as shall be stated and expressed or provided for in such resolution or
resolutions; and
(ix) such other special rights and protective provision with
respect to any class or series as may to the Board of Directors of the
Corporation seem advisable.
(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of
the foregoing respects. The Board of Directors of the Corporation may
increase the number of shares of the Preferred Stock designated for any
existing class or series by a resolution adding to such class or series
authorized and unissued shares of the Preferred Stock not designated for
any other class or series. The Board of Directors of the Corporation may
decrease the number of shares of the Preferred Stock designated for any
existing class or series by a resolution subtracting from such class or
series authorized and unissued shares of the Preferred Stock designated for
such existing class or series, and the shares so subtracted shall become
authorized, unissued, and undesignated shares of the Preferred Stock.
3
<PAGE>
2. Provisions Relating to the Common Stock.
"Except as otherwise provided herein, or as otherwise required by
applicable law, all shares of Class A Common and Class B Common will be
identical and will entitle the holders thereof to the same rights and
privileges.
(a) VOTING RIGHTS AND AMENDMENTS.
(1) Except as otherwise required by law, on all matters to be
voted on by the Corporation's stockholders, the Class A Common will be
entitled to one vote per share and the Class B Common will be entitled to
one vote per share.
(2) The Class A Common and Class B Common will vote as a single
class on all matters to be voted on by the Corporation. Neither the Class
A Common nor the Class B Common will vote as a separate class, except as
expressly required under the General Corporation Law of Delaware.
(b) DIVIDENDS: STOCK SPLITS. Subject to the prior rights and
preferences, if any, applicable to the shares of Preferred Stock or any
series thereof, when and as dividends are declared thereon, whether payable
in cash, property or securities of the Corporation, the holders of the
Class A Common will be entitled to share equally on a share-for-share basis
in such dividends. The holders of the Class B Common shall not be entitled
to receive dividends. If the Corporation in any manner subdivides or
combines the outstanding shares of any class of Common Stock, the
outstanding shares of each other class of Common Stock will be
proportionately subdivided or combined.
(c) CONVERSION.
(1) CONVERSION OF CLASS B COMMON.
(i) At any time, all, but not less than all, of the
outstanding shares of Class B Common may, subject to any applicable law or
regulation, be converted, at the option of the Corporation, into shares of
Class A Common, on a share-for-share basis.
(ii) On or after the third anniversary of the issuance of
the Class B Common, all, but not less than all, of the outstanding shares
of Class B Common may, subject to any applicable law or regulation, be
converted, upon the election of all holders
4
<PAGE>
thereof, into shares of Class A Common, on a share-for-share basis.
(iii) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Class A Common or
its treasury shares of Class A Common, solely for the purpose of issue
upon the conversion of the Class B Common as provided in this Certificate
such number of shares of Class A Common as are then issuable upon the
conversion of all outstanding shares of Class B Common. The Corporation
covenants that all shares of Class A Common which are issuable upon
conversion shall, when issued, be duly and validly issued, fully paid and
nonassessable and free from all liens and charges.
(2) CONVERSION PROCEDURE.
(i) Effective as of the close of business on the date on
which the Board of Directors of the Corporation adopts a resolution declaring
that the Corporation shall exercise its right pursuant to Article Fourth,
Paragraph 2(c)(1)(i) to convert all of the outstanding shares of Class B
Common into shares of Class A Common, on a share-for-share basis, each share of
Class B Common that is issued and outstanding on such date shall automatically,
without further action taken on the part of the holders thereof, be converted
into one share of Class A Common. The Corporation shall issue a certificate or
certificates representing such number of shares of Class A Common upon
surrender of the certificate or certificates representing shares of Class B
Common, at the principal office of the Corporation at any time during normal
business hours, PROVIDED, HOWEVER, that the surrender of the certificate or
certificates representing shares of the Class B Common shall not be necessary
to effect such conversion.
(ii) The conversion of the shares of Class B Common
pursuant to Article Fourth, Paragraph 2(c)(1)(ii) will be effected by the
surrender of the certificate or certificates representing all shares of
the Class B Common at the principal office of the Corporation at any time
during normal business hours, together with written notice by all holders
of the Class B Common, stating that such holders are surrendering such
shares of Class B Common for new certificates representing Class A Common.
Such conversion will be deemed to have been effective as of the close of
business on the date on which the last such Class B Common certificate and
the last such notice shall have
5
<PAGE>
been received by the Corporation, and at such time the rights of each
holder of the converted Class B Common as such holder will cease and
the person or persons in whose name or names the certificate or
certificates for shares of Class A Common are to be issued will become
the holder of record of the shares of Class A Common represented
thereby.
(iii) Promptly after the conversion pursuant to Article
Fourth, Paragraph 2(c)(1)(ii), the Corporation will issue and deliver
in accordance with the surrendering holders' instructions one or more
new certificates for Class A Common issuable in connection with such
conversion.
(iv) The issuance of certificates for Class A Common
upon the conversion of Class B Common will be made without charge to
the holders of such shares for any issuance tax in respect thereof or
other costs incurred by the Corporation in connection with such
conversion and the related issuance of Class A Common.
(v) The Corporation will not close its books against
the transfer of Class B Common, or of Class A Common issued or
issuable upon conversion of Class B Common, in any manner which would
interfere with the timely conversion of the Class B Common pursuant to
Article Fourth paragraph 2(c)(1)(ii).
D. LIQUIDATION. With respect to distributions to the holders
of the Common Stock in any liquidation, dissolution or winding up of
the Corporation, (1) the Class B Common shall rank junior to the Class A
Common until the holders of the Class A Common have received in such
liquidation, dissolution or winding up, an aggregate of $18,333,333 in
cash and/or market value of property as determined by the Board of
Directors of the Corporation, (2) thereafter, the Class B Common shall
rank senior to the Class A Common until the holders of the Class B
Common have received in such liquidation, dissolution or winding up,
an aggregate of $2,619,048 in cash and/or market value of property as
determined by the Board of Directors of the Corporation, and (3)
thereafter, the Class A Common and the Class B Common shall share
ratably on a share-for-share basis. If no shares of Class B Common
are outstanding, the Class A Common shall share equally on a share-
for-share basis in any liquidation, dissolution or winding up.
THIRD: In accordance with Section 211 of the General Corporation Law of
the State of Delaware, the resolution adopted
6
<PAGE>
by the Board of Directors was proposed to the sole stockholder of the
Corporation and duly adopted by the sole stockholder as an amendment to the
Certificate of Incorporation of the Corporation.
FOURTH: 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, HMS Insurance Holdings, Inc. has caused this
certificate to be signed by its Executive Vice President, and attested by its
Assistant Secretary, this 26th day of March, 1990.
HMS INSURANCE HOLDINGS, INC.
By: /s/ John R. Muse
--------------------------------
Name: John R. Muse
Title: Executive Vice President
ATTEST:
/s/ Thomas O. Hicks
- -----------------------------------
Name: Thomas O. Hicks
Title: Assistant Secretary
7
<PAGE>
STATE OF TEXAS )
)
COUNTY OF DALLAS )
Before me this 26th day of March, 1990, appeared John R. Muse, Executive
Vice President of HMS Insurance Holdings, Inc., who acknowledged that the
foregoing instrument is the act and deed of the Corporation and that the facts
stated therein are true.
/s/ Becky A. McConnell
------------------------------
Notary Public in and for the State
of Texas
My Commission Expires:
4-11-91
- ----------------------
STATE OF TEXAS )
)
COUNTY OF DALLAS )
Before me this 26th day of March, 1990, appeared Thomas O. Hicks, Assistant
Secretary of HMS Insurance Holdings, Inc., who acknowledged that the foregoing
instrument is the act and deed of the Corporation and that the facts stated
therein are true.
/s/ Becky A. McConnell
------------------------------
Notary Public in and for the State
of Texas
My Commission Expires:
4-11-91
- ----------------------
8
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
----------------------------------
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "HMS INSURANCE HOLDINGS, INC." FILED IN THIS OFFICE ON THE SEVENTH
DAY OF MAY, A.D. 1990, AT 9 O'CLOCK A.M.
* * * * * * * * * *
/s/ William T. Quillen
------------------------------------
[SEAL] WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION:
*3836114
DATE: 03/26/1993
<PAGE>
HMS INSURANCE HOLDINGS, INC.
CERTIFICATE OF THE POWERS, DESIGNATIONS,
PREFERENCES AND RIGHTS OF THE
15% SERIES A EXCHANGEABLE PREFERRED STOCK
Pursuant to Section 151
of the
Corporation Law of the State of Delaware
The following resolutions were duly adopted by the Board of Directors of
HMS Insurance Holdings, Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, on February 15, 1990 by unanimous written consent of the
Board of Directors of the Corporation:
WHEREAS, the Board of Directors of the corporation is authorized, within
the limitations and restrictions stated in the Certificate of Incorporation of
the Corporation, to fix by resolution or resolutions the designation of such
series of stock and the powers, preferences, and relative participating,
optional, or other special rights, and qualifications, limitations, or
restrictions thereof, including, without limiting the generality of the
foregoing, such provisions as may be desired concerning voting, redemption,
dividends, dissolution, or the distribution of assets, conversion or exchange,
and such other subjects or matters as may be fixed by resolution or resolutions
of the Board of Directors under the General Corporation Law of the State of
Delaware; and
WHEREAS, it is the desire of the Board of Directors of the Corporation,
pursuant to its authority as aforesaid, to authorize and fix the terms of a
series of preferred stock and the number of shares constituting such series.
NOW, THEREFORE, BE IT RESOLVED, that a series of preferred stock is hereby
authorized on the terms and with the provisions herein set forth:
1. DESIGNATION, NUMBER OF SHARES AND STATED VALUE. The designation of
said series of preferred stock authorized by this resolution shall be "15%
Series A Exchangeable Preferred Stock," which shall consist of a maximum of
250,000 shares of such 15% Series A Exchangeable Preferred Stock, par value
$0.01 per share, including any additional shares of 15% Series A Exchangeable
Preferred Stock as are issued in lieu of cash dividends pursuant to Section 2
below. The stated value of each share of 15% Series A Exchangeable Preferred
Stock is $1,000.00, and each share of 15% Series A Exchangeable Preferred Stock
shall be validly issued and fully paid upon receipt by the Corporation of legal
1
<PAGE>
consideration in an amount at least equal to such stated value and shall not
thereafter be assessable.
2. DIVIDENDS. The holders of 15% Series A Exchangeable Preferred Stock
shall be entitled to receive cumulative cash dividends per annum per share as
set forth below out of funds of the Corporation legally available for the
payment of dividends when, as, and if declared by the Corporation's Board of
Directors. Such dividends, whether payable in cash or Additional Shares
(hereafter defined) as provided below, shall be payable annually on April 1 of
each year, commencing on April 1, 1991 (unless such day is not a business day,
in which event on the next succeeding business day) (each a "Dividend Payment
Date"), to holders of record as they appear on the register of the Corporation
for the 15% Series A Exchangeable Preferred Stock (the "15% Series A
Exchangeable Preferred Stock Register") on the March 15 immediately preceding
such Dividend Payment Date. The holders of 15% Series A Exchangeable Preferred
Stock shall be entitled to receive cash dividends at the rate of 15% per annum
per share (based upon the stated value thereof) subject, in any case, to
appropriate adjustment in the event of any stock split, reverse stock split, or
similar transaction with respect to the 15% Series A Exchangeable Preferred
Stock.
At the option of the Corporation, on declaration of the Board of Directors
of the Corporation, dividends payable on any or all Dividend Payment Dates
through and including April 1, 1997 may be paid, in whole or in part, by issuing
additional fully paid and nonassessable shares of 15% Series A Exchangeable
Preferred Stock (the "Additional Shares"), instead of in cash, to the extent
there is sufficient capital in the Corporation. The issuance of such Additional
Shares shall constitute full payment of such dividends. If a dividend is to be
paid in Additional Shares, the number of Additional Shares to be issued in
payment of the dividend with respect to each outstanding share of 15% Series A
Exchangeable Preferred Stock shall be determined by dividing the amount of the
dividend to be paid with respect to such share by $1,000.00. In the event of
any stock split, reverse stock split, or similar transaction with respect to the
15% Series A Exchangeable Preferred Stock, an appropriate adjustment shall be
made to the divisor referred to in the preceding sentence. The Corporation
shall at all times reserve and keep available for issue, upon declaration of
dividends to be paid in Additional Shares, such number of its authorized but
unissued shares of 15% Series A Exchangeable Preferred Stock as would be
sufficient at such time to permit the payment of all future dividends through
and including April 1, 1997 to be made in Additional Shares.
Dividends on shares of 15% Series A Exchangeable Preferred Stock for which
an escrow deposit has been accepted by the Corporation shall accumulate from the
later of (a) February 15,
2
<PAGE>
1990 or (b) the date the purchaser of such shares made such escrow deposit;
dividends on shares of 15% Series A Exchangeable Preferred Stock for which no
such escrow deposit has been accepted shall accumulate from the date of issuance
of such shares. Through and including April 1, 1997, annual dividends that are
not paid in full in cash or in Additional Shares will cumulate as if (A) annual
dividends had been paid in Additional Shares and (B) such Additional Shares were
outstanding on each succeeding Dividend Payment Date. After April 1, 1997,
annual dividends shall cumulate without interest on all shares of 15% Series A
Exchangeable Preferred Stock (including all Additional Shares deemed to be
outstanding pursuant to the preceding sentence). Any such declaration may be
for a portion, or all, of the then accumulated dividends.
No dividend or distribution in cash, shares of capital stock, or other
property shall be paid or declared and set apart for payment on any date on or
in respect of the Common Stock, $0.01 per value per share, of the Corporation
(the "Common Stock") or on any other series of stock issued by the Corporation
ranking junior to the 15% Series A Exchangeable Preferred Stock in payment of
dividends or distributions or upon liquidation, dissolution, or winding-up of
the Corporation (the Common Stock and such other series of stock are
collectively hereinafter referred to as the "Junior Securities") (any such
dividend or distribution is hereinafter referred to as a "Junior Securities
Distribution") unless all dividends with respect to the 15% Series A
Exchangeable Preferred Stock for all periods ending on or before the payment
date set for any Junior Securities Distribution have been paid or have been
declared and set apart for payment. No dividend or distribution in cash or
other property (excluding shares of the Corporation's capital stock) shall be
paid or declared and set apart for payment on any date on or in respect of
Junior Securities unless all dividends with respect to the 15% Series A
Exchangeable Preferred Stock for the most recent dividend period ending on or
before the payment date set for the Junior Securities Distribution have been
paid in cash or declared and cash set apart for payment thereof. No dividend or
distribution in cash, shares of capital stock, or other property shall be paid
or declared and set apart for payment on any date on or in respect of any series
of stock issued by the Corporation ranking PARI PASSU with the 15% Series A
Exchangeable Preferred Stock in payment of dividends or distributions or upon
liquidation, dissolution, or winding-up of the Corporation (collectively, the
"Pari Passu Stock") (any such dividend or distribution is hereinafter referred
to as a "Pari Passu Stock Distribution") unless at the same time a like
proportionate dividend with respect to the 15% Series A Exchangeable Preferred
Stock for all periods ending on or before the payment date set for any Pari
Passu Stock Distribution shall have been paid or shall have been declared and
set apart for payment. In no avant may the Corporation redeem, purchase, or
otherwise acquire for
3
<PAGE>
value any Junior Securities or Pari Passu Stock (or set aside monies for any
such purpose) unless all dividends with respect to 15% Series A Exchangeable
Stock for all dividend periods ending on or before the date of such redemption,
purchase, or acquisition (or such setting aside of monies) shall have been paid
or shall have been declared and set apart for payment. Except as provided in
this paragraph, this Section 2 shall not prohibit (A) the payment of declaration
and setting aside of a dividend payable on shares of Junior Securities or Pari
Passu Stock in shares of Junior Securities or Pari Passu Stock, respectively, or
(B) a redemption, purchase, or acquisition of Junior Securities or Pari Passu
Stock with shares of Junior Securities or Pari Passu Stock, respectively.
3. PREFERENCE ON LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution, or winding-up of the Corporation, before
any payment or distribution of the assets of the Corporation (whether capital or
surplus), or proceeds thereof, shall be made to or set apart for the holders of
shares of any Junior Securities, the holders of shares of 15% Series A
Exchangeable Preferred Stock shall be entitled to receive payment of $1,000.00
per share held by them (or deemed pursuant to the second sentence of the third
paragraph of Section 2 hereof to be held by them), plus an amount in cash equal
to all accumulated and unpaid cash dividends thereon to the date of such
payment, whether or not declared, subject to appropriate adjustment in the event
of any stock split, reverse stock split, or similar transaction with respect to
the 15% Series A Exchangeable Preferred Stock. If, upon any voluntary or
involuntary liquidation, dissolution, or winding-up of the Corporation, the
assets of the Corporation, or proceeds thereof, available for distribution among
the holders of shares of 15% Series A Exchangeable Preferred Stock and any Pari
Passu Stock shall be insufficient to pay in full the respective preferential
amounts on shares of 15% Series A Exchangeable Preferred Stock and such Pari
Passu Stock, then such assets, or the proceeds thereof, shall be distributed
among the holders of all such stock ratably in accordance with the respective
amounts which would be payable on such shares if all amounts payable thereon
were paid in full. After payment of the full amount of the liquidation
preference to which the holders of 15% Series A Exchangeable Preferred Stock are
entitled, such holders will not be entitled to any further participation in any
distribution of assets of the Corporation. For the purpose of this Section 3,
neither the merger or the consolidation of the Corporation into or with another
corporation, or the merger or consolidation of any other corporation into or
with the Corporation, or the voluntary sale, conveyance, exchange, transfer, or
other disposition (for cash, shares of stock, securities, or other
consideration) of all or substantially all the property or assets of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation.
4
<PAGE>
4. REISSUANCE OF SHARES. Shares of 15% Series A Exchangeable Preferred
Stock that have been issued and have been redeemed, repurchased, or reacquired
in any manner by the Corporation may be reissued by the Corporation.
5. REDEMPTION. The 15% Series A Exchangeable Preferred Stock shall be
redeemed on or before the earlier to occur of (a) April 1, 2000, or (b) 90 days
following a Change In Control (hereinafter defined) of the Corporation or of
Hicks, Muse Equity Fund, L.P. (other than among affiliates of the Corporation or
Hicks, Muse Equity Fund, L.P., respectively), PROVIDED, HOWEVER, that no shares
of 15% Series A Exchangeable Preferred Stock shall be redeemed pursuant to the
preceding provisions, in whole or in part, unless and until (i) all loans made
by any lender (including, without limitation, General Electric Capital
Corporation) to the Corporation in connection with the March 30, 1990
acquisition of insurance companies from I.C.H. Corporation (the "Loans") have
been repaid in full and (ii) any refinancings (the "Refinancings") of the Loans
have been repaid in full PROVIDED FURTHER, HOWEVER, that the requirement that
the Refinancings be repaid in full is only applicable if (x) the maturity date
of any Refinancing does not extend past April 1, 2000, (y) the dollar amount of
interest payable annually on any Refinancing does not exceed the dollar amount
of interest then payable annually on the Loans being refinanced and (g) the
amortization terms of any Refinancing are not substantially more onerous on the
Corporation than the future amortization terms of the Loans being refinanced. A
"Change in Control" shall occur if (i) there has been a sale or other conveyance
of their shares such that Hicks, Muse & Co., Incorporated and Hicks, Muse Equity
Fund, L.P. and their affiliates shall own, directly or indirectly, in the
aggregate, less than 50% of the number of shares of capital stock of the
Corporation which Hicks, Muse & Co., Incorporated, Hicks, Muse Equity Fund,
L.P., Thomas O. Hicks, John R. Muse and Jack D. Furst owned, in the aggregate on
March 31, 1990 or (ii) there is a change of the general partner of Hicks, Muse
Equity Fund, L.P. and such new general partner is not controlled, directly
or indirectly, by Thomas O. Hicks or John R. Muse. For purposes of the
preceding clause, a person shall "control" a corporation if that person owns
50% or more of the voting capital stock of such corporation or a partnership
if that person is a general partner of the partnership. The 15% Series A
Exchangeable Preferred Stock shall be redeemed at a cash redemption price per
share equal to $1,000.00 per share (including Additional Shares held by the
holders of shares of 15% Series A Exchangeable Preferred Stock, or deemed
held by such holders pursuant to the second sentence of the third paragraph
of Section 2 hereof) plus accrued and unpaid cash dividends to the date fixed
for redemption by the Board of Directors of the Corporation (the "Redemption
Date"). Unless the mandatory redemption provided above shall have been made,
no redemptions, conversions, acquisitions or exchanges of
5
<PAGE>
any other class or series of stock of the Corporation shall be made after April
1, 2000 (except (i) redemptions or acquisitions made with, or with the proceeds
of the sale of, any Junior Securities and (ii) conversions into, or exchanges
for, such Junior Securities).
The shares of 15% Series A Exchangeable Preferred Stock (including
Additional Shares) may be redeemed at the option of the Corporation, at any time
as a whole or from time to time in part, at a cash redemption price per share
equal to $1,000.00 per share plus accrued and unpaid dividends to the Redemption
Date.
If the Corporation shall, or shall elect to, redeem shares of this 15%
Series A Exchangeable Preferred Stock, a notice of redemption of shares of this
15% Series A Exchangeable Preferred Stock (the "Redemption Notice") shall be
given by first-class mail, postage prepaid, mailed at least 3 calendar days but
not more than 60 calendar days before the Redemption Date, to each holder of the
shares to be redeemed, at such holder's address as the same appears on the Stock
Register of the Corporation. If fewer than all of the shares of 15% Series A
Exchangeable Preferred Stock are to be redeemed on any Redemption Date, the
shares to be redeemed shall be redeemed pro rata according to the number of
shares held by each holder of 15% Series A Exchangeable Preferred Stock.
Each Redemption Notice shall state the Redemption Date; the number of shares
of the 15% Series A Exchangeable Preferred Stock to be redeemed and, if fewer
than all the shares held by such holder are to be redeemed, the number of
such shares to be redeemed from such holder and (if deemed appropriate by the
Corporation) the number(s) of the certificate(s) representing such shares;
the redemption price per share; and the place or places where certificates
for such shares are to be surrendered for payment of the redemption price.
Neither the failure by the Corporation to cause proper Redemption Notice to
be given, nor any defect in the Redemption Notice, shall affect the legality
or validity of the proceedings for such redemption.
On or after the Redemption Date, the holders of shares of 15% Series A
Exchangeable Preferred Stock which have been called for redemption shall
surrender certificates representing such shares to the Corporation at its
principal place of business or as otherwise notified, and thereupon the
redemption price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof.
The Redemption Notice having been given as aforesaid, from and after the
Redemption Date, unless there shall have been a default in the payment of the
redemption price, all rights of the holders of such shares of 15% Series A
Exchangeable Preferred Stock called for redemption, except the right to receive
the redemption price together with an amount equal to all accumulated and unpaid
cash dividends to the Redemption Date without interest upon surrender of their
certificate or certificates, shall cease with
6
<PAGE>
respect to such shares, and, pending reissuance, such shares shall not
thereafter be transferred on the books of the Corporation or be deemed to be
outstanding for any purpose whatsoever.
6. OPTIONAL EXCHANGE. The 15% Series A Exchangeable Preferred Stock may
be exchanged at any time at the Corporation's option (subject to the legal
availability of surplus of the Corporation), in whole or in part, for 15% Junior
Subordinated Debentures Due 2000 (substantially in the form attached hereto as
EXHIBIT A) to be issued by the Corporation (the "Exchange Debentures") at the
rate of $1,000 principal amount of Exchange Debentures for each $1,000 of
liquidation preferences of 15% Series A Exchangeable Preferred Stock being
exchanged, subject to appropriate adjustment in the event of any stock split,
reverse stock split, or similar transaction with respect to the 15% Series A
Exchangeable Preferred Stock. No exchange, in whole or in part, may be made if
at the time of exchange, an Event of Default (as defined in the Exchange
Debentures or in any indenture pursuant to which such Exchange Debentures are
issued), or an event that with the passage of time or the giving of notice, or
both, would constitute an Event of Default, under the Exchange Debentures (or
any such indenture) shall have occurred and be continuing or will occur as a
result of the exchange. An amount equal to any accumulated and unpaid cash
dividends that accumulated up to the date fixed for exchange on any such shares
of 15% Series A Exchangeable Preferred Stock (including on all Additional Shares
deemed to be outstanding pursuant to the second sentence of the third paragraph
of Section 2 hereof) exchanged for Exchange Debentures shall be paid on the date
of exchange, and shall be paid, at the option of the Corporation, either in cash
or in additional Exchange Debentures in a principal amount equal to the amount
of such accumulated and unpaid dividends up to the date fixed for exchange.
If fewer than all of the shares of 15% Series A Exchangeable Preferred
Stock are to be exchanged, the shares to be exchanged shall be redeemed pro
rata according to the number of shares held by each holder of 15% Series A
Exchangeable Preferred Stock. Notice of any exchange, in whole or in part,
of 15% Series A Exchangeable Preferred Stock for Exchange Debentures shall be
mailed to each holder of 15% Series A Exchangeable Preferred Stock to be
exchanged at his last address as it appears upon the 15% Series A
Exchangeable Preferred Stock Register at least 30 days and not more than 60
days prior to the date fixed for exchange. Notice having been given as
aforesaid, at the date fixed for exchange, the rights of holders of 15%
Series A Exchangeable Preferred Stock shall cease. Holders who surrender
their shares of 15% Series A Exchangeable Preferred Stock and receive
Exchange Debentures shall be treated as the registered holder or holders of
such Exchange Debentures. Interest will accrue on the Exchange Debentures
from the date fixed for exchange. Failure to provide such notice, or any
defect in such
7
<PAGE>
notice, shall not affect the validity of the exchange, except as to any holder
of 15% Series A Exchangeable Preferred Stock who did not receive such notice or
whose notice was defective.
7. VOTING. Except as required by law or any provision of the Certificate
or Incorporation of the Corporation, the holders of the outstanding shares of
15% Series A Exchangeable Preferred Stock shall not be entitled to vote on any
matter submitted to a vote of stockholders.
8. OTHER RIGHTS. Without the written consent of the holders of a majority
of the outstanding shares of 15% Series A Exchangeable Preferred Stock, or the
affirmative vote of the holders of a majority of the outstanding shares of 15%
Series A Exchangeable Preferred Stock (voting as a class to the exclusion of
any other series of preferred stock of the Corporation) at a meeting of the
holders of 15% Series A Exchangeable Preferred Stock called for such purpose,
the Corporation shall not (i) increase the authorized number of shares of 15%
Series A Exchangeable Preferred Stock; (ii) amend, alter, or repeal any
provision of the Certificate of Incorporation of the Corporation so as to
materially and adversely affect the preferences, rights or powers of the holders
of the 15% Series A Exchangeable Preferred Stock; PROVIDED, HOWEVER, that (x)
the creation or issuance of, or any increase or decrease in the amount of, any
class or series of authorized capital stock or the Corporation (other than the
15% Series A Exchangeable Preferred Stock) or (y) any increase, decrease or
change in the par value of any such class or series shall not require the
consent of any holder of the 15% Series A Exchangeable Preferred Stock and shall
not be deemed to materially and adversely affect the preferences, rights, or
powers of the holders of the 15% Series A Preferred Stock; PROVIDED FURTHER,
HOWEVER, that any such amendment, alteration, or repeal that (A) reduces the
amount or changes the type or timing of the dividends payable on the 15% Series
A Exchangeable Preferred Stock; (B) reduces the amount payable on redemption
thereof pursuant to Section 5, or the amount payable in the event of
liquidation, dissolution, or winding up of the Corporation pursuant to Section
3; or (C) reduces the amount of Exchange Debentures issuable upon exchange
thereof pursuant to Section 6, or otherwise amends or alters provisions of the
Exchange Debentures or any indenture pursuant to which they are issued that
would otherwise not be subject to amendment or alteration under the provisions
of the Trust indenture Act of 1939, as amended, without the consent of all
holders of Exchange Debentures, shall require the affirmative vote of the holder
of each share of 15% Series A Exchangeable Preferred Stock at a meeting of
holders of 15% Exchangeable Preferred Stock called for such purpose or the
written consent of the holder of each share of 15% Exchangeable Preferred Stock.
8
<PAGE>
9. REPORTS. So long as any of the 15% Series A Exchangeable Preferred
Stock is outstanding, the corporation will furnish the holders thereof with any
quarterly and annual financial statements (including a balance sheet and income
statement) regularly prepared by or for the corporation.
10. GENERAL PROVISIONS
(a) The term "person" as used herein means any corporation,
partnership, trust, organization, association, other entity, or individual.
(b) The term "outstanding," when used in reference to shares of
stock, shall mean issued shares, excluding (i) shares held by the Corporation
and (ii) in the case of Section 5, shares owned by any affiliate of the
Corporation.
(c) The headings of the sections herein are for convenience of
reference only and shall not define, limit, or affect any of the provisions
hereof.
(d) Each holder of 15% Series A Exchangeable Preferred Stock or
Exchange Debentures, by acceptance thereof, acknowledges and agrees that
payments of dividends, interest, premium and principal on, and exchange,
redemption, and repurchase of, such securities by the Corporation are subject to
restrictions contained in certain credit and financing agreements of the
Corporation.
IN WITNESS WHEREOF, HMS Insurance Holdings, Inc. has caused this
certificate to be made under the seal of the Corporation signed by its President
and Secretary, respectively, this 29th day of March, 1990.
/s/unreadable
-----------------------------------
Chairman of the Board
/s/unreadable
-----------------------------------
Secretary
[Seal]
<PAGE>
EXHIBIT A
FORM OF 15% JUNIOR SUBORDINATED DEBENTURE
THIS 15% JUNIOR SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT OR ANY APPLICABLE STATE SECURITIES LAWS OR
THE RULES AND REGULATIONS THEREUNDER.
HMS INSURANCE HOLDINGS, INC.
15% JUNIOR SUBORDINATED DEBENTURE
DUE APRIL 1, 2000
$ , 19
------------------ -------------- --
FOR VALUE RECEIVED, HMS Insurance Holdings, Inc. a Delaware corporation
(the "Company"), hereby promises to pay to the order of __________________ (the
"Lender"), or its assigns, at _______________________________ or such other
place as the holder hereof may designate from time to time in writing to the
Company, the principal sum of ___________________ Dollars ($_________), an
amount equal to the aggregate stated value of all shares of the Company's 15%
Series A Exchangeable Preferred Stock in exchange for which this 15% Junior
Subordinated Debenture is issued, plus all cash dividends accrued but unpaid
thereon to the date fixed for exchange in lawful money to the United States of
America in immediately available funds, on April 1, 2000, together with interest
on the principal balance hereof at a rate of the lesser of (i) fifteen percent
(15%) per annum; or (ii) the highest rate allowed by applicable law.
The principal of and interest upon this 15% Junior Subordinated Debenture
shall be due and payable as follows:
(a) Interest on the unpaid principal balance hereof from time to time
outstanding shall be computed, as aforesaid, annually and shall accrue from the
date hereof and shall be payable in full on April 1 of each year PROVIDED,
HOWEVER, that, at the option of the Company, interest accrued and payable on any
interest date through and including April 1, 1997 may be paid, in whole or in
part instead of in cash, by issuing additional 15% Junior Subordinated
Debentures in a principal amount equal to the amount of interest then due.
(b) The principal amount of this 15% Junior Subordinated Debenture shall
be due and payable in full on April 1, 2000.
Notwithstanding the foregoing, the Company may prepay this 15% Junior
Subordinated Debenture, as a whole or in part, as hereinafter set forth, without
premium, penalty, or fee.
A-1
<PAGE>
This is a 15% Junior Subordinated Debenture issued upon exchange of shares
of 15% Series A Exchangeable Preferred Stock in accordance with that certain
certificate of the Powers, Designations, Preferences and Rights of the 15%
Series A Exchangeable Preferred Stock, filed with the Secretary of State if
Delaware in March 29, 1990 (the "Certificate of Designation").
The holder hereof by acceptance of this 15% Junior Subordinated Debenture
agrees that the indebtedness evidenced by this 15% Junior Subordinated Debenture
(including interest accruing after bankruptcy, if any), and any renewals or
extensions thereof, shall at all times and in all respects be subordinate and
junior in right of payment to (i) the Company's senior and subordinated
indebtedness issued pursuant to the terms and conditions of a Senior Loan
Agreement dated as of March 30, 1990 between the Company, GICC and certain
lenders named therein (the "Debt"), (ii) all indebtedness ranking senior to or
pari passu with any of the Debt, and (iii) any and all Refinancings, as defined
in, and meeting the conditions of (x) - (z) of, Section 5 of the Certificate of
Designation, extensions or renewals of any of the Debt or senior or pari passu
indebtedness, in whole or in part (collectively, the "Senior Debt").
The terms "subordinate" and "junior" shall mean:
(i) In the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization, arrangement, or other similar
proceedings in connection therewith, relative, relative to the Company or to its
creditors, as such, or to its property, and in the event of any proceedings, for
voluntary liquidation, dissolution, or other winding-up of the Company, whether
or not involving insolvency or bankruptcy, than the holders of Senior Debt shall
be entitled to receive payment in full of all principal, premium and interest
(including interest thereon accruing after the commencement of such proceedings)
on all Senior Debt before the holder of this 15% Junior Subordinated Debenture
is entitled to receive for application in payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of this 15% Junior Subordinated Debenture, except securities which are
subordinate and junior in right of payment to the payment of all Senior Debt
than outstanding. Each holder of this 15% Junior Subordinated Debenture agrees
that it will not, in any proceeding described above,
A-2
<PAGE>
voluntarily cancel or forgive any of the indebtedness evidenced by this 15%
Junior Subordinated Debenture.
(ii) In the event that this 15% Junior Subordinated Debenture or any
portion hereof is declared or become due and payable before its expressed
maturity for any reason (under circumstances when the provisions of the
foregoing paragraph (i) or the following paragraph (iii) shall not be
applicable), no amount shall be paid by the Company in respect of the principal
of or interest on this 15% Junior Subordinated Debenture except at the stated
maturity hereof (all subject to the provisions of paragraphs (i) and (iii)
hereof), unless and until all Senior Debt outstanding at the time this 15%
Junior Subordinated Debenture so becomes due and payable shall have been paid in
full or payment thereof shall have been provided for in a manner satisfactory to
the holders of such outstanding Senior Debt.
(iii) In the event that any default shall occur and be continued with
respect to any Senior Debt which involves a payment of default or which permits,
or which, with the giving of notice, lapse of time or both, would permit the
holders of such Senior Debt to accelerate the maturity thereof, the holders of
this 15% Junior Subordinated Debenture shall not be entitled to receive any
payment on account of principal, premium, or interest hereon (including any such
payment which would cause such default) unless payment in full shall have been
made on all principal of, and premium and interest on, all Senior Debt if either
(a) notice of such default, in writing or by telegram, shall have been given to
the Company, or (b) judicial proceedings shall be pending in respect if such
default, or (c) such default shall be in the payment of principal of, or premium
or interest on, Senior Debt. The Company, forthwith upon receipt of any notice
received by it pursuant to this paragraph (iii), shall send a copy thereof by
certified mail or by telegram to the holder of this 15% Junior Subordinated
Debenture.
(iv) In the event the holder of this 15% Junior Subordinated Debenture
shall receive any payment in cash, property, or securities or distribution in
respect of this 15% Junior Subordinated Debenture which would contravene the
provisions of the preceding paragraph (i), (ii), or (iii), the holder of this
15% Junior Subordinated Debenture agrees to hold any such payment or
distribution in trust and immediately to pay over such payment or distribution
to the holders of Senior Debt for application to the Senior Debt in accordance
with the terms and conditions of such Senior Debt.
(v) No present or future holder of Senior Debt shall at any time be
prejudiced or impaired in any way in his right to enforce subordination of this
15% Junior Subordinated Debenture by any act or failure to act on the part of
the Company, or by any act or failure to act, in good faith, by any such holder
of Senior
A-3
<PAGE>
Debt, or by any noncompliance by the Company with the terms, provisions and
obligations hereof, regardless of any knowledge any holder of Senior Debt may be
charged with. The provisions of this 15% Junior Subordinated Debenture are
solely for the purpose of defining the relative rights of the holders of Senior
Debt on the one hand and the holder of this 15% Junior Subordinated Debenture
on the other hand and nothing herein shall impair as between the Company and the
holder and the holder of this 15% Junior Subordinated Debenture the obligation
of the Company, which is unconditional and absolute, to pay to the holder hereof
the principal, premium, if any, and interest, if any, thereon in accordance with
its terms, nor shall anything herein prevent the holder of this 15% Junior
Subordinated Debenture from exercising all remedies otherwise permitted by
applicable law or hereunder upon default hereunder, subject to the rights, if
any, under this 15% Junior Subordinated Debenture of holders of Senior Debt to
receive cash, property, or securities otherwise payable or deliverable to the
holder of this 15% Junior Subordinated Debenture.
(vi) The Company agrees, for the benefit of the holders of Senior Debt,
that, in the event that this 15% Junior Subordinated Debenture or portion hereof
shall become due and payable before its expressed maturity for any reason, the
Company shall give prompt notice in writing of such happening to the holders of
Senior Debt.
(vii) Each and every holder of this 15% Junior Subordinated Debenture by
acceptance hereof shall undertake and agree for the benefit of each holder of
Senior Debt to execute, verify, deliver, and file any proofs of claim, consents,
assignments, or other instruments which any holder of Senior Debt may at any
time require to prove and realize upon any rights or claims pertaining to this
15% Junior Subordinated Debenture and to effectuate the full benefit of the
subordination contained herein; and upon failure of the holder of this 15%
Junior Subordinated Debenture so to do, any such holder of Senior Debt shall
be deemed to be irrevocably appointed the agent and attorney-in-fact of the
holder of this 15% Junior Subordinated Debenture to execute, verify, deliver,
and file any such proofs of claim, consents, assignments, or other instruments.
Upon (a) liquidation of the Company, or (b) the expiration of 90 days or
more after a Change In Control (as defined in the Certificate of Designation) of
the Comapny or of Hicks, Muse Equity Fund, L.P. (other than among affiliates of
the Company or of Hicks, Muse Equity Fund, L.P.) the principal of, and accrued
and unpaid interest on, this 15% Junior Subordinated Debenture may, without
demand, notice, or legal process of any kind, be declared by the holder hereof,
and in such event immediately shall become, due and payable in full, subject,
however, to the provisions of the preceding paragraphs (i), (ii) and (iii).
A-4
<PAGE>
No recourse shall be had for the payment of the principal of, or the
interest on, this 15% Junior Subordinated Debenture, or for any claims based
hereon or otherwise in respect hereof, against any past, present, or future
incorporator, stockholders, officer, or director of the Company; such liability
being, by acceptance and as a part of the consideration for the issuance hereof,
expressly released.
It is the intention of the Company and the holder of this 15% Junior
Subordinated Debenture that the Company and the holder of this 15% Junior
Subordinated Debenture strictly comply with applicable usury laws so that in no
event shall the amount paid, agreed to be paid, or requested to be paid to the
holder of this 15% Junior Subordinated Debenture exceed the maximum amount
permitted by applicable law, and the Company and the holder of this 15% Junior
Subordinated Debenture agree that the amounts agreed to be paid or requested to
be paid hereby shall not exceed the maximum amount permitted by applicable law,
and in the event the amount paid exceeds the amount permitted by applicable
law, such excess shall be applied to the principal of this 15% Junior
Subordinated Debenture and any excess refunded to the Company.
This 15% Junior Subordinated Debenture shall be deemed to be a contract
made under the laws of the state of Delaware, and for all purposes shall be
governed by, and shall be construed in accordance with, the internal laws of
such state, without regard to the conflicts of law principles thereof.
The Company and every guarantor and endorser hereof hereby waive
presentment, demand, notice of nonpayment, notice of dishonor, notice of intent
to accelerate, notice of acceleration, protest, and all other demands and
notices in connection with the delivery, acceptance, performance, and
enforcement of this 15% Junior Subordinated Debenture. The nonexercise by the
holder of any of its rights hereunder in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance.
HMS INSURANCE HOLDINGS, INC.
By:
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
A-5
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "HMS INSURANCE HOLDINGS, INC." FILED IN THIS OFFICE ON THE TWENTY-
SEVENTH DAY OF MARCH, A.D. 1990, AT 12:20 O'CLOCK P.M.
* * * * * * * * *
[SEAL] /s/ William T. Quillen
---------------------------------------
WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION: *3806379
DATE: 03/03/1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
HMS INSURANCE HOLDINGS, INC.
HMS Insurance Holdings, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify that:
FIRST: The name of the Corporation is HMS Insurance Holdings, Inc.
SECOND: That ARTICLE FIRST and the first paragraph of ARTICLE FOURTH of
the Corporation's Certificate of Incorporation are hereby amended to read as
follows:
ARTICLE FIRST
The name of the Corporation is Life Partners Group, Inc.
ARTICLE FOURTH
The total number of shares of stock which the Corporation shall have
authority to issue is 15,000,000 shares, divided into three classes as
follows: (i) 5,000,000 shares of Preferred Stock, per value $.01 per
share ("Preferred Stock"); (ii) 8,000,000 shares of Class A Common
Stock, per value $.001 per share ("Class A Common"); and (iii) 2,000,000
shares of Class B Common Stock, par value $.001 per share ("Class B
Common").
THIRD: In accordance with section 211 of the General Corporation Law of
the State of Delaware, the resolution adopted by the Board of Directors was
proposed to the stockholders of the Corporation and duly adopted by the
stockholders as an amendment to the Certificate of Incorporation of the
Corporation.
FOURTH: 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.
<PAGE>
IN WITNESS WHEREOF, HMS Insurance Holdings, Inc. has caused this
certificate to be signed by its Chairman of the Board, and attested by its
Secretary, this 3rd day of May, 1990.
HMS INSURANCE HOLDINGS, INC.
By: /s/ Thomas O. Hicks
-------------------------
Thomas O. Hicks,
Chairman of the Board
ATTEST:
/s/John R. Muse
- -----------------------------
John R. Muse, Secretary
2
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "LIFE PARTNERS GROUP, INC." FILED IN THIS OFFICE ON THE TWENTY-
THIRD DAY OF APRIL, A.D. 1992, AT 9 O'CLOCK A.M.
* * * * * * * * * *
[SEAL] /s/ William T. Quillen,
------------------------------------------
WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION: *3836116
DATE: 03/26/1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
AFTER PAYMENT OF CAPITAL
OF
LIFE PARTNERS GROUP, INC.
Pursuant to Section 242 of
the Delaware General Corporation Law
Life Partners Group, Inc. (the "Corporation"), a corporation organized and
existing under and by virtue of the Delaware General Corporation Law, does
hereby certify that:
FIRST: The name of the Corporation is Life Partners Group, Inc.
SECOND: The Board of Directors of the Corporation, by the unanimous
consent of its members, adopted a resolution proposing and declaring advisable
certain amendments to the terms of the Corporation's 15% Series A Exchangeable
Preferred Stock, the terms of such Preferred Stock, as amended, being set forth
as Exhibit A hereto.
THIRD: The Certificate of Incorporation of the Corporation, as amended,
is hereby further amended by deleting the Certificate of the Powers,
Designations, Preferences and Rights of the 15% Series A Exchangeable Preferred
Stock forming a part thereof in its entirety and by substituting Exhibit A
hereto.
<PAGE>
Passu Stock Distribution") unless at the same time a like proportionate
dividend with respect to the 15% Series A Exchangeable Preferred Stock for
all periods ending on or before the payment date set for any Pari Passu Stock
Distribution shall have been paid or shall have been declared and set apart
for payment. In no event may the Corporation redeem, purchase, or otherwise
acquire for value any Junior Securities or Pari Passu Stock (or set aside
monies for any such purpose) unless all dividends with respect to 15% Series
A Exchangeable Stock for all dividend periods ending on or before the date of
such redemption, purchase, or acquisition (or such setting aside of monies)
shall have been paid or shall have been declared and set apart for payment.
Except as provided in this paragraph, this Section 2 shall not prohibit (A)
the payment or declaration and setting aside of a dividend payable on shares
of Junior Securities or Pari Passu Stock in shares of Junior Securities or
Pari Passu stock, respectively, or (B) a redemption, purchase, or acquisition
of Junior Securities or Pari Passu Stock with shares of Junior Securities or
Pari Passu Stock, respectively.
3. PREFERENCE ON LIQUIDATION. In the event of any voluntary or
involuntary liquidation, dissolution, or winding-up of the Corporation, before
any payment or distribution of the assets of the Corporation (whether capital or
surplus), or proceeds thereof, shall be made to or set apart for the holders of
shares of any Junior Securities, the holders of 15% Series A Exchangeable
(Preferred Stock shall be entitled to receive payment of $1,000.00 per share
held by them (or deemed pursuant to the second sentence of the third
paragraph of Section 2 hereof to be held by them), plus an amount in cash
equal to all accumulated and unpaid cash dividends thereon to the date of
such payment, whether or not declared, subject to appropriate adjustment in
the event of any stock split, reverse stock split, or similar transaction
with respect to the 15% Series A Exchangeable Preferred Stock. If, upon any
voluntary or involuntary liquidation, dissolution, or winding-up of the
Corporation, the assets of the Corporation, or proceeds thereof, available
for distribution among the holders of shares of 15% Series A Exchangeable
Preferred Stock and any Pari Passu Stock shall be insufficient to pay in full
the respective preferential amounts on shares of 15% Series A Exchangeable
Preferred Stock and such Pari Passu Stock, then such assets, or the proceeds
thereof, shall be distributed among the holders of all such stock ratably in
accordance with the respective amounts which would be payable on such shares
if all amounts payable thereon were paid in full: After payment of the full
amount of the liquidation preference to which the holders of 15% Series A
Exchangeable Preferred Stock are entitled, such holders will not be entitled
to any further participation in any distribution of assets of the
Corporation. For the purposes of this Section 3, neither the merger or the
consolidation of the Corporation into or with another corporation, or the
merger or consolidation of any other corporation into or
-4-
<PAGE>
with the Corporation, or the voluntary sale, conveyance, exchange, transfer,
or other disposition (for cash, shares of stock, securities, or other
consideration) of all or substantially all the property or assets of the
Corporation, shall be deemed to be a voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation.
4. REISSUANCE OF SHARES. Shares of 15% Series A Exchangeable
Preferred Stock that have been issued and have been redeemed, repurchased, or
reacquired in any manner by the Corporation may be reissued by the Corporation.
5. REDEMPTION. The 15% Series A Exchangeable Preferred Stock shall be
redeemed on or before 90 days following a Change In Control (hereinafter
defined) of the Corporation or of Hicks, Muse Equity Fund, L. P. (other than
among affiliates of the Corporation or Hicks, Muse Equity Fund, L. P.,
respectively); PROVIDED, HOWEVER, that no shares of 15% Series A Exchangeable
Preferred Stock shall be redeemed pursuant to the preceding provision, in whole
or in part, unless and until (i) all loans made by any lender (including,
without limitation, General Electric Capital Corporation) to the Corporation in
connection with the March 30, 1990 acquisition of insurance companies from I. C.
H. Corporation (the "Loans") have been repaid in full and (ii) any refinancing
(the "Refinancing") of the Loans have been repaid in full; PROVIDED FURTHER,
HOWEVER, that the requirement that the Refinancing be repaid in full is
only applicable if (x) the maturity date of any Refinancing does not extend past
April 1, 2000, (y) the Dollar amount of interest payable annually on any
Refinancing does not exceed the dollar amount of interest then payable annually
on the Loans being refinanced and (z) the amortization terms of any Refinancing
are not substantially more onerous on the Corporation than the future
amortization terms of the Loans being refinanced. A "Change In Control" Shall
occur if (i) there has been a sale or other conveyance of their shares such that
Hicks, Muse & Co., Incorporated and Hicks, Muse Equity Fund, L. P. and their
affiliates shall own, directly or indirectly, in the aggregate, less than 50% of
the number of shares of capital stock of the Corporation which Hicks, Muse &
Co., Incorporated, Hicks, Muse Equity Fund, L. P., Thomas O. Hicks, John R. Muse
and Jack D. Furst owned, in the aggregate, on March 31, 1990 or (ii) there is a
change of the general partner of Hicks, Muse Equity Fund, L. P. and such new
general partner is not controlled, directly or indirectly, by Thomas O. Hicks or
John R. Muse. For purposes of the preceding clause, a person shall "control" a
corporation if that person owns 50% or more of the voting capital stock of such
corporation or a partnership if that person is a general partner of the
partnership. The 15% Series A Exchangeable preferred Stock shall be redeemed at
a cash redemption price per share equal to $1,000.00 per share (including
Additional Shares held by the holders of shares of 15% Series A Exchangeable
Preferred Stock, or deemed held by such
-5-
<PAGE>
holders pursuant to the second sentence of the third paragraph of Section 2
hereof) plus accrued and unpaid cash dividends to the date fixed for redemption
by the Board of Directors of the Corporation (the "Redemption Date"). If all
outstanding shares of the 15% Series A Exchangeable Preferred Stock have not
been redeemed on or before April 1, 2000 or if a Change In Control has occurred,
no redemptions, conversions, acquisitions or exchanges of any other class or
series of stock of the Corporation (except (i) redemptions or acquisitions
made with, or with the proceeds of the sale of, any Junior Securities and
(ii) conversions into, or exchanges for such Junior Securities) shall be made
until all outstanding shares of the 15% Series A Exchangeable Preferred Stock
have been redeemed as provided in this Section 5.
The shares of 15% Series A Exchangeable Preferred Stock (including
Additional Shares) may be redeemed at the option of the Corporation, at any time
as a whole or from time to time in part, at a cash redemption price per share
equal to $1,000.00 per share plus accrued and unpaid dividends to the Redemption
Date.
If the Corporation shall, or shall elect to, redeem shares of the 15%
Series A Exchangeable Preferred Stock, a notice of redemption of shares of the
15% Series A Exchangeable Preferred Stock (the "Redemption Notice") shall be
given by first-class mail, postage prepaid, mailed at least 3 calender days but
not more than 60 calendar days before the Redemption Date, to each holder of the
shares to be redeemed, at such holder's address as the same appears on the 15%
Series A Exchangeable Preferred Stock Register. If fewer than all of the
shares of 15% Series A Exchangeable Preferred Stock are to be redeemed on any
Redemption Date, the shares to be redeemed shall be redeemed pro rata according
to the number of shares held by each holder of 15% Series A Exchangeable
Preferred Stock. Each Redemption Notice shall state the Redemption Date; the
number of shares of the 15% Series A Exchangeable Preferred Stock to be redeemed
and, if fewer than all the shares held by such holder are to be redeemed, the
number of such shares to be redeemed from such holder and (if deemed appropriate
by the Corporation) the number(s) of the certificate(s) representing such
shares; the redemption price per share; and the place or places where
certificates for such shares are to be surrendered for payment of the
redemption price. Neither the failure by the Corporation to cause proper
Redemption Notice to be given, nor any defect in the Redemption Notice, shall
affect the legality or validity of the proceedings for such redemption.
On or after the Redemption Date, the holders of the shares of 15% Series A
Exchangeable Preferred Stock which have been called for redemption shall
surrender certificates representing such shares to the Corporation at its
principal place of business or as otherwise notified, and thereupon the
redemption price of such shares shall be payable to the order of the person
whose name
-6-
<PAGE>
appears on such certificate or certificates as the owner thereof. The
Redemption Notice having been given as aforesaid, from and after the Redemption
Date, unless there shall have been a default in the payment of the redemption
price, all rights of the holders of such shares of 15% Series A Exchangeable
Preferred Stock called for redemption, except the right to receive the
redemption price together with an amount equal to all accumulated and unpaid
cash dividends to the Redemption Date without interest upon surrender of their
certificate or certificates, shall cease with respect to such shares, and,
pending reissuance, such shares shall not thereafter be transferred on the books
of the Corporation or be deemed to be outstanding for any purpose whatsoever.
6. OPTIONAL EXCHANGE. The 15% Series A Exchangeable Preferred Stock
may be exchanged at any time on or before April 1, 2000 at the Corporation's
option (subject to the legal availability of surplus of the Corporation), in
whole or in part, for 15% Junior Subordinated Debentures Due 2000
(substantially in the form attached hereto as EXHIBIT 1) to be issued by the
Corporation (the "Exchange Debentures") at the rate of $1,000 Principal
Amount of Exchange Debentures For Each of liquidation preference of 15%
Series A Exchangeable Preferred Stock being exchanged, subject to appropriate
adjustment in the event of any stock split, reverse stock split, or similar
transaction with respect to the 15% Series A Exchangeable Preferred Stock.
No exchange, in whole or in part, may be made if at the time of exchange, an
Event of Default (as defined in the Exchange Debentures or in any indenture
pursuant to which such Exchange Debentures are issued), or an event that with
the passage of time or the giving of notice, or both, would constitute an
Event of Default, under the Exchange Debentures (or any such indenture) shall
have occurred and be continuing or will occur as a result of the exchange.
An amount equal to any accumulated and unpaid cash dividends that accumulated
up to the date fixed for exchange on any such shares of 15% Series A
Exchangeable Preferred Stock (including on all Additional Shares deemed to be
outstanding pursuant to the second sentence of the third paragraph of Section
2 hereof) exchanged for Exchange Debentures shall be paid on the date of
exchange, and shall be paid, at the option of the Corporation, either in cash
or in additional Exchange Debentures in a principal amount equal to the
amount of such accumulated and unpaid dividends up to the date fixed for
exchange.
If fewer than all of the shares of 15% Series A Exchangeable Preferred
Stock are to be exchanged, the shares to be exchanged shall be exchanged pro
rata according to the number of shares held by each holder of 15% Series A
Exchangeable Preferred Stock. Notice of any exchange, in whole or in part,
of 15% Series A Exchangeable Preferred Stock for Exchange Debentures shall be
mailed to each holder of 15% Series A Exchangeable Preferred Stock to be
exchanged at his last address as it appears upon the 15% Series A
-7-
<PAGE>
Exchangeable Preferred Stock Register at least 30 days and not more than 60
days prior to the date fixed for exchange. Notice having been given as
aforesaid, at the date fixed for exchange, the rights of holders of 15% Series
A Exchangeable Preferred Stock shall cease. Holders who surrender their shares
of 15% Series A Exchangeable Preferred Stock and receive Exchange Debentures
shall be treated as the registered holder or holders of such Exchange
Debentures. Interest will accrue on the Exchange Debentures from the date
fixed for exchange. Failure to provide such notice, or any defect in such
notice, shall not affect the validity of the exchange, except as to any
holder of 15% Series A Exchangeable Preferred Stock who did not receive such
notice or whose notice was defective.
7. VOTING. Except as required by law or any provision of the
Certificate of Incorporation of the Corporation, the holders of the outstanding
shares of 15% Series A Exchangeable Preferred Stock shall not be entitled to
vote on any matter submitted to a vote of stockholders.
8. OTHER RIGHTS. Without the written consent of the holders of a
majority of the outstanding shares of 15% Series A Exchangeable Preferred
Stock, or the affirmative vote of the holders of a majority of the
outstanding shares of 15% Series A Exchangeable Preferred Stock (voting as a
class to the exclusion of any other series of preferred stock of the
Corporation) at a meeting of the holders of 15% Series A Exchangeable
Preferred Stock called for such purpose, the Corporation shall not (i)
increase the authorized number of shares of 15% Series A Exchangeable
Preferred Stock; (ii) amend, alter, or repeal any provision of the
Certificates of Incorporation of the Corporation so as to materially and
adversely affect the preferences, rights, or powers of the holders of the 15%
Series A Exchangeable Preferred Stock; PROVIDED, HOWEVER, that (x) the
creation or issuance of, or any increase or decrease in the amount of, any
class or series of authorized capital stock of the Corporation (other than
the 15% Series A Exchangeable Preferred Stock) or (y) any increase, decrease
or change in the par value of any such class or series shall not require the
consent of any holder of the 15% Series A Exchangeable Stock and shall not be
deemed to materially and adversely affect the preferences, rights, or powers
of the holders of the 15% Series A Exchangeable Preferred Stock; PROVIDED
FURTHER, HOWEVER, that any such amendment, alteration, or repeal that (A)
reduces the amount or changes the type or timing of the dividends payable on
the 15% Series A Exchangeable Preferred Stock; (B) reduces the amount payable
on redemption thereof pursuant to Section 5, or the amount payable in the
event of liquidation, dissolution, or winding up of the Corporation pursuant
to Section 3; or (C) reduces the amount of Exchange Debentures issuable upon
exchange thereof pursuant to Section 6, or otherwise amends or alters
provisions of the Exchange Debentures or any indenture pursuant to which they
are issued that
-8-
<PAGE>
would otherwise not be subject to amendment or alteration under the provisions
of the Trust Indenture Act of 1939, as amended, without the consent of all
holders of Exchange Debentures, shall require the affirmative vote of the holder
of each share of 15% Series A Exchangeable Preferred Stock at a meeting of
holders of 15% Series A Exchangeable Preferred Stock called for such purpose or
the written consent of the holder of each share of 15% Series A Exchangeable
Preferred Stock.
9. REPORTS. So long as any of the 15% Series A Exchangeable Preferred
Stock is outstanding, the Corporation will furnish the holders thereof with any
quarterly and annual financial statements (including a balance sheet and income
statement) regularly prepared by or for the Corporation.
10. GENERAL PROVISIONS.
(a) The term "person" as used herein means any corporation,
partnership, trust, organization, association, other entity, or individual.
(b) The term "outstanding," when used with reference to shares of
stock, shall mean issued shares, excluding (i) shares held by the Corporation
and (ii) in the case of Section 9, shares owned by any affiliate of the
Corporation.
(c) The headings of the sections herein are for convenience of
reference only and shall not define, limit, or affect any of the provisions
hereof.
(d) Each holder of 15% Series A Exchangeable Preferred Stock or
Exchange Debentures, by acceptance thereof, acknowledges and agrees that
payments of dividends, interest, premium and principal on, and exchange,
redemption, and repurchase of, such securities by the Corporation are
subject to restrictions contained in certain credit and financing agreements
of the Corporation.
-9-
<PAGE>
IN WITNESS WHEREOF, Life Partners Group, Inc. has caused this certificate
to be made under the seal of the Corporation signed by its Chairman of the Board
and Assistant Secretary, respectively, this______day of_______________, 1992.
-------------------------------------
Chairman of the Board
-------------------------------------
Assistant Secretary
[SEAL]
-10-
<PAGE>
EXHIBIT 1 to
EXHIBIT A to
CERTIFICATE
OF AMENDMENT
FORM OF 15% JUNIOR SUBORDINATED DEBENTURE
THIS 15% JUNIOR SUBORDINATED DEBENTURE HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT OR ANY APPLICABLE STATE SECURITIES LAWS
OR THE RULES AND REGULATIONS THEREUNDER.
LIFE PARTNERS GROUP, INC.
15% JUNIOR SUBORDINATED DEBENTURE
DUE APRIL 1, 2000
$________________________ _____________________, 19______
FOR VALUE RECEIVED, Life Partners Group, Inc., a Delaware corporation (the
"Company"), hereby promises to pay to the order of______________________________
(the "Lender"), or its assigns, at______________________________or such
other place as the holder hereof may designate from time to time in writing to
the Company, the principal sum of_____________________ Dollars ($_____________),
an amount equal to the aggregate stated value of all shares of the Company's 15%
Series A Exchangeable Preferred Stock in exchange for which this 15% Junior
Subordinated Debenture is issued, plus all cash dividends accrued but unpaid
thereon to the date fixed for exchange in lawful money of the United States of
America in immediately available funds, on April 1, 2000, together with interest
on the principal balance hereof at a rate of the lesser of (i) fifteen percent
(15%) per annum or (ii) the highest rate allowed by applicable law.
The principal of and interest upon this 15% Junior Subordinated Debenture
shall be due and payable as follows:
(a) Interest on the unpaid principal balance hereof from time to time
outstanding shall be computed, as aforesaid, annually and shall accrue from the
date hereof and shall be payable in full on April 1 of each year; PROVIDED,
HOWEVER, that, at the option of the Company, interest accrued and payable on any
interest payment date through and including April 1, 1997 may be paid, in whole
or in part instead of in cash, by issuing additional 15% Junior Subordinated
Debentures in a principal amount equal to the amount of interest then due.
<PAGE>
(b) The principal amount of this 15% Junior Subordinated Debenture shall be
due and payable in full on April 1, 2000.
Notwithstanding the foregoing, the Company may prepay this 15% Junior
Subordinated Debenture, as a whole or in part, as hereinafter set forth, without
premium, penalty, or fee.
This is a 15% Junior Subordinated Debenture issued upon exchange of shares
of 15% Series A Exchangeable Preferred Stock in accordance with that certain
Exhibit A to the Certificate of Amendment of Certificate of Incorporation of the
Company, filed with the Secretary of State of Delaware on the____day of________,
1992 (the "Certificate of Designation").
The holder hereof by acceptance of this 15% Junior Subordinated Debenture
agrees that the indebtedness evidenced by this 15% Junior Subordinated Debenture
(including interest accruing after bankruptcy, if any), and any renewals or
extensions thereof, shall at all times and in all respects be subordinate and
junior in right of payment to (i) the Company's senior and subordinated
indebtedness issued pursuant to the terms and conditions of a Senior Loan
Agreement dated as of March 30, 1990 between the Company, General Electric
Capital Corporation, a New York Corporation ("GECC"), and certain lenders named
therein, and a Subordinated Loan Agreement dated as of March 30, 1990 between
the Company, GECC and certain lenders named therein (the "Debt"), (ii) all
indebtedness ranking senior to or pari passu with any of the Debt, and (iii) any
and all Refinancings, as defined in, and meeting the conditions of (x)-(z) of,
Section 5 of the Certificate of Designation, extentions or renewals of any of
the Debt or senior or pari passu indebtedness, in whole or in part
(collectively, the "Senior Debt").
The terms "subordinate" and "junior" shall mean:
(i) In the event of any insolvency or bankruptcy proceedings, and any
receivership, liquidation, reorganization, arrangement, or other similar
proceedings in connection therewith, relative to the Company or to its
creditors, as such, or to its property, and in the event of any proceedings, for
voluntary liquidation, dissolution, or other winding-up of the Company, whether
or not involving insolvency or bankruptcy, then the holders of Senior Debt shall
be entitled to receive payment in full of all principal, premium, and interest
(including interest thereon accruing after the commencement of such proceedings)
on all Senior Debt before the holder of this 15% Junior Subordinated Debenture
is entitled to receive any payment on account of principal, premium, or interest
upon this 15% Junior Subordinated Debenture, and to that end the holders of
Senior Debt shall be entitled to receive for application in payment thereof any
payment or distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceedings in
respect of
<PAGE>
this 15% Junior Subordinated Debenture, except securities which are subordinate
and junior in right of payment to the payment of all Senior Debt then
outstanding. Each holder of this 15% Junior Subordinated Debenture agrees that
it will not, in any proceeding described above, voluntarily cancel or forgive
any of the indebtedness evidenced by this 15% Junior Subordinated Debenture.
(ii) In the event that this 15% Junior Subordinated Debenture or any
portion hereof is declared or becomes due and payable before its expressed
maturity for any reason (under circumstances when the provisions of the
foregoing paragraph (i) or the following paragraph (iii) shall not be
applicable), no amount shall be paid by the Company in respect of the principal
of or interest on this 15% Junior Subordinated Debenture except at the stated
maturity hereof (all subject to the provisions of paragraphs (i) and (iii)
hereof), unless and until all other Senior Debt outstanding at the time this 15%
Junior Subordinated Debenture so becomes due and payable shall have been paid in
full or payment thereof shall have been provided for in a manner satisfactory to
the holders of such outstanding Senior Debt.
(iii) In the event that any default shall occur and be continuing with
respect to any Senior Debt which involves a payment default or which permits, or
which, with the giving of notice, lapse of time or both, would permit the
holders of such Senior Debt to accelerate the maturity thereof, the holders of
this 15% Junior Subordinated Debenture shall not be entitled to receive any
payment on account of principal, premium, or interest hereon (including any such
payment which would cause such default) unless payment in full shall have been
made on all principal of, and premium and interest on, all Senior Debt if either
(a) notice of such default, in writing or by telegram, shall have been given to
the Company, or (b) judicial proceedings shall be pending in respect of such
default, or (c) such default shall be in the payment of principal of, or premium
or interest on, Senior Debt. The Company, forthwith upon receipt of any notice
received by it pursuant to this paragraph (iii), shall send a copy thereof by
certified mail or by telegram to the holder of this 15% Junior Subordinated
Debenture.
(iv) In the event the holder of this 15% Junior Subordinated Debenture
shall receive any payment in cash, property, or securities or distribution in
respect of this 15% Junior Subordinated Debenture which would contravene the
provisions of the preceding paragraph (i), (ii), or (iii), the holder of this
15% Junior Subordinated Debenture agrees to hold any such payment or
distribution in trust and immediately to pay over such payment or
distribution to the holders of Senior Debt for application to the Senior Debt
in accordance with the terms and conditions of such Senior Debt.
(v) No present or future holder of Senior Debt shall at any time be
prejudiced or impaired in any way in his right to enforce subordination of this
15% Junior Subordinated Debenture by any
<PAGE>
act or failure to act on the part of the Company, or by any act or failure to
act, in good faith, by any such holder of Senior Debt, or by any noncompliance
by the Company with the terms, provisions and obligations hereof, regardless of
any knowledge any holder of Senior Debt may be charged with. The provisions of
this 15% Junior Subordinated Debenture are solely for the purpose of defining
the relative rights of the holders of Senior Debt on the one hand and the holder
of this 15% Junior Subordinated Debenture on the other hand and nothing herein
shall impair as between the Company and the holder of this 15% Junior
Subordinated Debenture the obligation of the Company, which is unconditional and
absolute, to pay to the holder hereof the principal, premium, if any, and
interest, if any, thereon in accordance with its terms, nor shall anything
herein prevent the holder of this 15% Junior Subordinated Debenture from
exercising all remedies otherwise permitted by applicable law or hereunder upon
default hereunder, subject to the rights, if any, under this 15% Junior
Subordinated Debenture of holders of Senior Debt to receive cash, property, or
securities otherwise payable or deliverable to the holder of this 15% Junior
Subordinated Debenture.
(vi) The Company agrees, for the benefit of the holders of Senior Debt,
that, in the event that this 15% Junior Subordinated Debenture or portion hereof
shall become due and payable before its expressed maturity for any reason, the
Company shall give prompt notice in writing of such happening to the holders of
Senior Debt.
(vii) Each and every holder of this 15% Junior Subordinated Debenture by
acceptance hereof shall undertake and agree for the benefit of each holder of
Senior Debt to execute, verify, deliver, and file any proofs of claim, consents,
assignments, or other instruments which any holder of Senior Debt may at any
time require to prove and realize upon any rights or claims pertaining to this
15% Junior Subordinated Debenture and to effectuate the full benefit of the
subordination contained herein; and upon failure of the holder of this 15%
Junior Subordinated Debenture so to do, any such holder of Senior Debt shall be
deemed to be irrevocably appointed the agent and attorney-in-fact of the holder
of this 15% Junior Subordinated Debenture to execute, verify, deliver, and file
any such proofs of claim, consents, assignments, or other instruments.
Upon (a) liquidation of the Company, or (b) the expiration of 90 days or
more after a Change In Control (as defined in the Certificate of Designation) of
the Company or of Hicks, Muse Equity Fund, L.P. (other than among affiliates of
the Company or of Hicks, Muse Equity Fund, L.P.), the principal of, and accrued
and unpaid interest on, this 15% Junior Subordinated Debenture may, without
demand, notice or legal process of any kind, be declared by the holder hereof,
and in such event immediately shall become, due and payable in full, subject,
however, to the provisions of the preceding paragraphs (i), (ii), and (iii).
<PAGE>
No recourse shall be had for the payment of the principal of, or the
interest on, this 15% Junior Subordinated Debenture, or for any claims based
hereon or otherwise in respect hereof, against the past, present, or future
incorporator, stockholder, officer, or director of the Company; such liability
being, by acceptance and as a part of the consideration for the issuance hereof,
expressly released.
It is the intention of the Company and the holder of this 15% Junior
Subordinated Debenture that the Company and the holder of this 15% Junior
Subordinated Debenture strictly comply with applicable usury laws so that in
no event shall the amount paid, agreed to be paid, or requested to be paid to
the holder of this 15% Junior Subordinated Debenture exceed the maximum
amount permitted by applicable law, and the Company and the holder of this
15% Junior Subordinated Debenture agree that the amounts agreed to be paid or
requested to be paid hereby shall not exceed the maximum amount permitted by
applicable law, and in the event the amount paid exceeds the amount permitted
by applicable law, such excess shall be applied to the principal of this 15%
Junior Subordinated Debenture and any excess refunded to the Company.
This 15% Junior Subordinated Debenture shall be deemed to be a contract
made under the laws of the State of Delaware, and for all purposes shall be
governed by, and shall be construed in accordance with, the internal laws of
such state, without regard to the conflicts of law principles thereof.
The Company and every guarantor and endorser hereof hereby waive
presentment, demand, notice of nonpayment, notice of dishonor, notice of intent
to accelerate, notice of acceleration, protest, and all other demands and
notices in connection with the delivery, acceptance, performance, and
enforcement of this 15% Junior Subordinated Debenture. The nonexercise by the
holder of any of its rights hereunder in any particular instance shall not
constitute a waiver thereof in that or any subsequent instance.
LIFE PARTNERS GROUP, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
<PAGE>
STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE
PAGE 1
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE OF
AMENDMENT OF "LIFE PARTNERS GROUP, INC." FILED IN THIS OFFICE ON THE TWENTY-
FOURTH DAY OF MARCH, A.D. 1993, AT 12:15 O'CLOCK P.M.
A CERTIFIED COPY OF THIS CERTIFICATE HAS BEEN FORWARDED TO NEW CASTLE
COUNTY RECORDER OF DEED FOR RECORDING.
* * * * * * * * * *
/s/William T. Quillen
[SEAL] --------------------------------------
WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION: *3836121
DATE: 03/26/1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LIFE PARTNERS GROUP, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Life Partners Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"),
does hereby certify as follows:
FIRST: The Certificate of Incorporation of the Corporation, as
amended, is hereby amended by replacing paragraph 2(b) of Article FOURTH
with new paragraph 2(b) as set forth on EXHIBIT A attached hereto and
incorporated herein by this reference.
SECOND: The Board of Directors of the Corporation duly
adopted resolutions setting forth the above-referenced amendment, declaring
such amendment to be advisable, and calling for a vote of the stockholders of
the Corporation entitled to vote on such amendment for consideration thereof.
THIRD: The holders of a majority of each class of capital stock of
the Corporation entitled to vote on the above-referenced amendment executed
written consents in accordance with the provisions of Section 228 of the
General Corporation Law of the State of Delaware adopting such amendment,
and written notice of the taking of such corporate action was given in
accordance with such Section 228 to those stockholders entitled to vote thereon
who did not execute such written consents.
FOURTH: The above-referenced amendment was duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate
of Amendment to be signed and attested as of the 29th day of June, 1992.
LIFE PARTNERS GROUP, INC.
By: /s/Patrick J. McLaughlin
-----------------------------
Name: Patrick J. McLaughlin
---------------------------
Title: Executive Vice President
--------------------------
ATTEST:
/s/George E. Councill
- ----------------------------------
Name: George E. Councill
-----------------------------
Title: Secretary
----------------------------
<PAGE>
EXHIBIT A
(b) DIVIDENDS; STOCK SPLITS. Subject to the prior rights
and preferences, if any, applicable to the shares of Preferred Stock or any
series thereof, when and as dividends are declared thereon, whether payable
in cash, property, or securities of the Corporation, the holders of the Class
A Common will be entitled to share equally on a share-for-share basis in
such dividends. The holders of the Class B Common shall not be entitled to
receive dividends, it being understood, however, that this prohibition shall
not apply to dividends payable solely in shares of Class B Common issued to
effect a subdivision of Common Stock as contemplated by the next sentence. If
the Corporation in any manner subdivides or combines the outstanding shares of
any class of Common Stock, the outstanding shares of each other class of
Common Stock will be proportionately subdivided or combined.
<PAGE>
EXHIBIT B
AMENDED AND
RESTATED BYLAWS
OF
LIFE PARTNERS GROUP, INC.
A Delaware Corporation
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE: OFFICES
1.1 Registered Office and Agent. . . . . . . . . . . . . . . . . . . . . . .1
1.2 Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
2.2 Special Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.3 Place of Meetings. . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.4 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
2.5 Notice of Stockholder Business; Nomination of Director Candidates. . . .2
2.6 Voting List. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.7 Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
2.8 Required Vote; Withdrawal of Quorum. . . . . . . . . . . . . . . . . . .4
2.9 Method of Voting; Proxies. . . . . . . . . . . . . . . . . . . . . . . .5
2.10 Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.11 Conduct of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . .5
2.12 Inspectors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
ARTICLE THREE: DIRECTORS
3.1 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
3.2 Number; Qualification; Election; Term. . . . . . . . . . . . . . . . . .6
3.3 Change in Number . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.4 Removal; Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . .7
3.5 Meetings of Directors. . . . . . . . . . . . . . . . . . . . . . . . . .8
3.6 First Meeting. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.7 Election of Officers . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.8 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.9 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
3.10 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.11 Quorum; Majority Vote. . . . . . . . . . . . . . . . . . . . . . . . . .9
3.12 Procedure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
3.13 Presumption of Assent. . . . . . . . . . . . . . . . . . . . . . . . . .9
3.14 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
ARTICLE FOUR: COMMITTEES
4.1 Designation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.2 Number; Qualification; Term. . . . . . . . . . . . . . . . . . . . . . 10
4.3 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
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4.4 Committee Changes. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.5 Alternate Members of Committees. . . . . . . . . . . . . . . . . . . . 10
4.6 Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.7 Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
4.8 Quorum; Majority Vote. . . . . . . . . . . . . . . . . . . . . . . . . 10
4.9 Minutes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.10 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.11 Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE FIVE: NOTICE
5.1 Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
5.2 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE SIX: OFFICERS
6.1 Number; Titles; Term of Office . . . . . . . . . . . . . . . . . . . . 12
6.2 Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.3 Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.4 Authority. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.5 Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.6 Chairman of the Board. . . . . . . . . . . . . . . . . . . . . . . . . 12
6.7 President. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
6.8 Vice Presidents. . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.9 Treasurer. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.10 Assistant Treasurers . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.11 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
6.12 Assistant Secretaries. . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 Certificates for Shares. . . . . . . . . . . . . . . . . . . . . . . . 14
7.2 Replacement of Lost or Destroyed Certificates. . . . . . . . . . . . . 14
7.3 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.4 Registered Stockholders. . . . . . . . . . . . . . . . . . . . . . . . 14
7.5 Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
7.6 Legends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE EIGHT: MISCELLANEOUS; PROVISIONS
8.1 Dividends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.2 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.3 Books and Records. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.4 Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.5 Seal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
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8.6 Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
8.7 Securities of Other Corporations . . . . . . . . . . . . . . . . . . . 15
8.8 Telephone Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . 16
8.9 Action Without a Meeting . . . . . . . . . . . . . . . . . . . . . . . 16
8.10 Invalid Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.11 Mortgages. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.12 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.13 References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
8.14 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
iii
<PAGE>
AMENDED AND RESTATED
BYLAWS
OF
LIFE PARTNERS GROUP, INC.
A Delaware Corporation
PREAMBLE
These Bylaws are subject to, and governed by, the General Corporation Law
of the State of Delaware (the "Delaware Corporation Law") and the certificate of
incorporation of Life Partners Group, Inc., a Delaware corporation (the
"Corporation"). In the event of a direct conflict between the provisions of
these Bylaws and the mandatory provisions of the Dalaware Corporation Law or the
provisions of the certificate of incorporation of the Corporation, such
provisions of the Delaware Corporation Law or the certificate of incorporation
of the Corporation, as the case may be, will be controlling. These Bylaws will
become effective on the effective date of the Corporation's Registration
Statement on Form S-1 (No. 33-47433), as amended, with respect to the initial
public offering of shares of common stock of the Corporation.
ARTICLE ONE: OFFICES
1.1 REGISTERED OFFICE AND AGENT. The registered office and registered
agent of the Corporation shall be designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
the State of Delaware.
1.2 OTHER OFFICES. The Corporation may also have offices at such other
places, both within and without the State of Delaware, as the board of directors
may from time to time determine or as the business of the Corporation may
require.
ARTICLE TWO: MEETINGS OF STOCKHOLDERS
2.1 ANNUAL MEETING. An annual meeting of stockholders of the Corporation
shall be held each calendar year on such date and at such time as shall be
designated from time to time by the board of directors and stated in the notice
of the meeting or in a duly executed waiver of notice of such meeting. At such
meeting, the stockholders shall elect directors and transact such other business
as may be properly brought before the meeting.
<PAGE>
2.2 SPECIAL MEETING. A special meeting of the stockholders may be called
by the board of directors pursuant to a resolution adopted by a majority of the
Classified Directors (as defined in Section 3.2 hereof) then serving, by the
Chairman of the Board, or by any holder or holders of record of at least 25% of
the outstanding shares of capital stock of the Corporation then entitled to vote
on any matter for which the respective special meeting is being called. A
special meeting shall be held on such date and at such time as shall be
designated by the person(s) calling the meeting and stated in the notice of the
meeting or in a duly executed waiver of notice of such meeting. Only such
business shall be transacted at a special meeting as may be stated or indicated
in the notice of such meeting given in accordance with these Bylaws or in a duly
executed waiver of notice of such meeting.
2.3 PLACE OF MEETINGS. An annual meeting of stockholders may be held at
any place within or without the State of Delaware designated by the board of
directors. A special meeting of stockholders may be held at any place within or
without the State of Delaware designated in the notice of the meeting or a duly
executed waiver of notice of such meeting. Meetings of stockholders shall be
held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein.
2.4 NOTICE. Written or printed notice stating the place, day, and time of
each meeting of the stockholders and, in case of a special meeting, the purpose
or purposes for which the meeting is called shall be delivered not less than ten
nor more than 60 days before the date of the meeting, either personally or by
mail, by or at the direction of the President, the Secretary, or the officer or
person(s) calling the meeting, to each stockholder of record entitled to vote at
such meeting. If such notice is to be sent by mail, it shall be directed to
such stockholder at his address as it appears on the records of the Corporation,
unless he shall have filed with the Secretary of the Corporation a written
request that notices to him be mailed to some other address, in which case it
shall be directed to him at such other address. Notice of any meeting of
stockholders shall not be required to be given to any stockholder who shall
attend such meeting in person or by proxy and shall not, at the beginning of
such meeting, object to the transaction of any business because the meeting is
not lawfully called or convened, or who shall, either before or after the
meeting, submit a signed waiver of notice, in person or by proxy.
2.5 NOTICE OF STOCKHOLDER BUSINESS: NOMINATION OF DIRECTOR
CANDIDATES.
(a) At annual or special meetings of the stockholders, only such
business shall be conducted as shall have been brought before the meetings
(i) pursuant to the Corporation's notice of meeting, (ii) by or at the
direction of the board of directors, or (iii) by any stockholder of the
Corporation who is a stockholder of record at the time of giving of notice
provided for in this Section 2.5, who shall be entitled to vote at such
meeting, and who complies with the notice procedures set forth in this
Section 2.5.
(b) Only persons who are nominated in accordance with the
procedures set forth in these Bylaws shall be eligible to serve as
directors. Nominations of persons for election to
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the board of directors may be made at an annual or special meeting of
stockholders (i) by or at the direction of the board of directors, (ii) by
Hicks, Muse & Co. Incorporated pursuant to the Voting Agreement dated as of
April 23, 1992 among the stockholders of the Corporation party thereto, or
(iii) by any other stockholder of the Corporation who is a stockholder of
record at the time of giving of notice provided for in this Section 2.5,
who shall be entitled to vote for the election of directors at the meeting,
and who complies with the notice procedures set forth in this Section 2.5.
(c) A stockholder must give timely, written notice to the
Secretary of the Corporation to nominate directors at an annual or special
meeting pursuant to Section 2.5(b) hereof or to propose business to be
brought before an annual or special meeting pursuant to clause (iii) of
Section 2.5(a) hereof. To be timely in the case of an annual meeting, a
stockholder's notice must be received at the principal executive offices of
the Corporation not less than 120 days before the first anniversary of the
preceding year's annual meeting (or by January 28 with respect to the 1994
annual meeting). To be timely in the case of a special meeting or in the
event that the date of the annual meeting was changed by more than 30 days
from such anniversary date, a stockholder's notice must be received at the
principal executive offices of the Corporation no later than the close of
business on the tenth day following the earlier of the day on which notice
of the meeting date was mailed or public disclosure of the meeting date
was made. Such stockholder's notice shall set forth (i) with respect to each
matter, if any, that the stockholder proposes to bring before the meeting,
a brief description of the business desired to be brought before the meeting
and the reasons for conducting such business at the meeting, (ii) with
respect to each person, if any, whom the stockholder proposes to nominate
for election or re-election as a director, all information relating to such
person (including such person's written consent to being named in the proxy
statement as a nominee and to serving as a director) that is required under
the Securities Exchange Act of 1934, as amended, (iii) the name and address,
as they appear on the Corporation's records, of the stockholder proposing
such business or nominating such persons (as the case may be), and the name
and address of the beneficial owner, if any, on whose behalf the proposal or
nomination is made, (iv) the class and number of shares of capital stock
of the Corporation that are owned beneficially and of record by such
stockholder of record and by the beneficial owner, if any, on whose behalf
the proposal or nomination is made, and (v) any material interest or
relationship that such stockholder of record and/or the beneficial owner,
if any, on whose behalf the proposal or nomination is made may
respectively have in such business or with such nominee. At the request of
the board of directors, any person nominated for election as a director
shall furnish to the Secretary of the Corporation the information required
to be set forth in a stockholder's notice of nomination which pertains
to the nominee.
(d) Notwithstanding anything in these Bylaws to the contrary, no
business shall be conducted, and no person shall be nominated to serve as a
director, at an annual or special meeting of stockholders, except in
accordance with the procedures set forth in this Section 2.5 and elsewhere
in these Bylaws. The chairman of the meeting shall, if the facts warrant,
determine that business was not properly brought before the meeting, or
that a nomination
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was not made, in accordance with the procedures prescribed by these Bylaws
and, if he shall so determine, he shall so declare to the meeting, and any
such business not properly brought before the meeting shall not be
transacted and any defective nomination shall be disregarded.
Notwithstanding the forgoing provisions of these Bylaws, a stockholder
shall also comply with all applicable requirements of the Securities
Exchange Act of 1934, as amended, and the rules and regulations thereunder
with respect to the matters set forth in this Section 2.5.
2.6 VOTING LIST. At least ten days before each meeting of stockholders,
the Secretary or other officer of the Corporation who has charge of the
Corporation's stock ledger, either directly or through another officer appointed
by him or through a transfer agent appointed by the board of directors, shall
prepare a complete list of stockholders entitled to vote thereat, arranged in
alphabetical order and showing the address of each stockholder and number of
shares of capital stock registered in the name of each stockholder. For a period
of ten days prior to such meeting, such list shall kept on file at a place
within the city where the meeting was to be held, which place shall be specified
in the notice of meeting or a duly executed waiver of notice of such meeting or,
if not so specified, at the place where the meeting is to be held and shall be
open to examination by any stockholder during ordinary business hours. Such list
shall be produced at such meeting and kept at the meeting at all times during
such meeting and may be inspected by any stockholder who is present.
2.7 QUORUM. The holders of a majority of the outstanding shares of capital
stock entitled to vote on a matter, present in person or by proxy, shall
constitute a quorum at any meeting of stockholders, except as otherwise provided
by law, the certificate of incorporation of the Corporation, or these Bylaws. If
a quorum shall not be present, in person or by proxy, at any meeting of
stockholders, the stockholders entitled to vote thereat who are present, in
person or by proxy (or, if no stockholder entitled to vote is present, any
officer of the Corporation), may adjourn the meeting from time to time without
notice other than announcement at the meeting (unless the board of directors,
after such adjournment, fixes a new record date for the adjourned meeting),
until a quorum shall be present, in person or by proxy. At any adjourned meeting
at which a quorum shall be present, in person or by proxy, any business may be
transacted which may have been transacted at the original meeting had a quorum
been present, provided that, if the adjournment is for more than 30 days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the adjourned meeting.
2.8 REQUIRED VOTE: WITHDRAWAL OF QUORUM. When a quorum is present at any
meeting, the vote of the holders of at least a majority of the outstanding
shares of capital stock entitled to vote thereat who are present, in person or
by proxy, shall decide any question brought before such meeting, unless the
question was one on which, by express provision of law, the certificate of
incorporation of the Corporation, or these Bylaws, a different vote is
required, in which case such express provision shall govern and control the
decision of such question. The stockholders present at a duly constituted
meeting may continue to transact business until adjournment, notwithstanding
the withdrawal of enough stockholders to leave less than a quorum.
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2.9 METHOD OF VOTING; PROXIES. Except as otherwise provided in the
certificate of incorporation of the Corporation or by law, each outstanding
share of capital stock, regardless of class, shall be entitled to one vote on
each matter submitted to a vote at a meeting of stockholders. Elections of
directors need not be by written ballot. At any meeting of stockholders, every
stockholder having the right to vote may vote either in person or by a proxy
executed in writing by the stockholder or by his duly authorized attorney-in-
fact. Each such proxy shall be filed with the Secretary of the Corporation
before or at the time of the meeting. No proxy shall be valid after three years
from the date of its execution, unless otherwise provided in the proxy. If no
date is stated in a proxy, such proxy shall be presumed to have been executed
on the date of the meeting at which it is to be voted. Each proxy shall be
revocable unless expressly provided therein to be irrevocable and coupled
with an interest sufficient in law to support an irrevocable power or
unless otherwise made irrevocable by law.
2.10 RECORD DATE. For the purpose of determining stockholders
entitled (a) to notice of or to vote at any meeting of stockholders or any
adjournment thereof, (b) to receive payment of any dividend or other
distribution or allotment of any rights, or (c) to exercise any rights in
respect of any change, conversion, or exchange of stock or for the purpose of
any other lawful action, the board of directors may fix a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted by the board of directors, for any such determination of
stockholders, such date in any case to be not more than 60 days and not less
than ten days prior to such meeting nor more than 60 days prior to any other
action. If no record date is fixed:
(i) The record date for determining stockholders
entitled to notice of or to vote at a meeting of stockholders shall be at
the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held.
(ii) The record date for determining stockholders for
any other purpose shall be at the close of business on the day on which the
board of directors adopts the resolution relating thereto.
(iii) A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; provided, however, that the board of directors
may fix a new record date for the adjourned meeting.
2.11 CONDUCT OF MEETING. The Chairman of the Board, if such office
has been filled, and, if not or if the Chairman of the Board is absent or
otherwise unable to act, the President shall preside at all meetings of
stockholders. The Secretary shall keep the records of each meeting of
stockholders. In the absence or inability to act of any such officer, such
officer's duties shall be performed by the officer given the authority to act
for such absent or non-acting officer under these Bylaws or by some person
appointed by the meeting.
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2.12 INSPECTORS. The board of directors may, in advance of any
meeting of stockholders, appoint one or more inspectors to act at such meeting
or any adjournment thereof. If any of the inspectors so appointed shall fail to
appear or act, the chairman of the meeting shall, or if inspectors shall not
have been appointed, the chairman of the meeting may, appoint one or more
inspectors. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute the duties of inspector at
such meeting with strict impartiality and according to the best of his ability.
The inspectors shall determine the number of shares of capital stock of the
Corporation outstanding and the voting power of each, the number of shares
represented at the meeting, the existence of a quorum, and the validity and
effect of proxies and shall receive votes, ballots, or consents, hear and
determine all challenges and questions arising in connection with the right to
vote, count, and tabulate all votes, ballots, or consents, determine the
results, and do such acts as are proper to conduct the election or vote with
fairness to all stockholders. On request of the chairman of the meeting, the
inspectors shall make a report in writing of any challenge, request, or matter
determined by them and shall execute a certificate of any fact found by them.
No director or candidate for the office of director shall act as an inspector of
an election of directors. Inspectors need not be stockholders.
ARTICLE THREE: DIRECTORS
3.1 MANAGEMENT. The business and property of the Corporation shall
be managed by the board of directors. Subject to the restrictions imposed by
law, the certificate of incorporation of the Corporation, or these Bylaws, the
board of directors may exercise all the powers of the Corporation.
3.2 NUMBER; QUALIFICATION; ELECTION; TERM. The board of directors
shall consist of no fewer than six and no more than nine directors (plus such
number of directors as may be elected from time to time pursuant to the terms of
any series of preferred stock that may be issued and outstanding from time to
time). The directors of the Corporation (exclusive of directors who are elected
pursuant to the terms of, and serve as representatives of the holders of, any
series of preferred stock of the Corporation) shall be referred to herein as
"Classified Directors" and shall be divided into three classes, with the first
class referred to herein as "Class 1," the second class as "Class 2," and the
third class as "Class 3." If the total number of Classified Directors equals
six or nine, then the number of directors in each of Class 1, Class 2, and Class
3 shall be two or three, respectively. If, however, the total number of
Classified Directors equals seven or eight, each such class of directors shall
consist of no more than three and no fewer than two directors as determined by
the board of directors in advance of each respective election of directors by
holders of shares of capital stock of the Corporation then entitled to vote in
such election. The term of office of the initial Class 1 directors shall expire
at the 1994 annual meeting of stockholders, the term of office of the initial
Class 2 directors shall expire at the 1995 annual meeting of stockholders, and
the term of office of the initial Class 3 directors shall expire at the 1996
annual meeting of stockholders, with each director to hold office until his
successor shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1994 annual meeting, directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual
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meeting of stockholders after their election, with each director to hold office
until his successor shall have been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of preferred stock issued by the Corporation shall have
the right, voting separately by series or by class (excluding holders of common
stock), to elect directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features of such
directorships shall be governed by the terms of the certificate of incorporation
(including any amendment to the certificate of incorporation that designates a
series of preferred stock), and such directors so elected by the holders of
preferred stock shall not be divided into classes pursuant to this Section 3.2
unless expressly provided by the terms of the certificate of incorporation.
3.3 CHANGE IN NUMBER. No decrease in the number of directors
constituting the entire board of directors shall have the effect of shortening
the term of any incumbent director.
3.4 REMOVAL; VACANCIES.
(a) Any or all Classified Directors may be removed, with cause,
at any annual or special meeting of stockholders, upon the affirmative vote
of the holders of a majority of the outstanding shares of each class of
capital stock then entitled to vote in person or by proxy at an election of
such Classified Directors, provided that notice of the intention to act
upon such matter shall have been given in the notice calling such meeting.
Any or all Classified Directors may be removed, without cause, upon the
affirmative vote of the holders of a majority of the outstanding shares of
each class of capital stock of the Corporation then entitled to vote at an
election of such Classified Directors, provided that if the Corporation's
board of directors does not approve such removal or if the Corporation's
board of directors has approved such removal and the Voting Agreement (as
hereinafter defined) is no longer in effect, the affirmative vote of the
holders of at least two-thirds (2/3) of the outstanding shares of each
class of capital stock of the Corporation then entitled to vote at an
election of Classified Directors shall be required in order to remove any
or all Classified Directors without cause. Newly created directorships
resulting from any increase in the authorized number of Classified
Directors and any vacancies occurring in the board of directors caused by
death, resignation, retirement, disqualification, removal or other
termination from office of any Classified Directors may be filled by the
vote of a majority of the Classified Directors then in office, though less
than a quorum, or by the affirmative vote, at any annual meeting or any
special meeting of the stockholders called for the purpose of filling such
directorship, of the holders of a majority of the outstanding shares of
each class of capital stock then entitled to vote in person or by proxy at
an election of such Classified Directors. Each successor Classified
Director so chosen shall hold office until the next election of the class
for which such director shall have been chosen and until his respective
successor shall have been duly elected and qualified. As used herein, the
term Voting Agreement shall mean the Voting Agreement dated as of April 23,
1992 by and among the Corporation, Hicks, Muse & Co. (TX) Incorporated, and
each of the persons and entities listed on the signature pages thereto.
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(b) Unless otherwise provided by the terms of the certificate of
incorporation (including any amendment thereto that designates a series of
preferred stock), any or all directors other than Classified Directors may
be removed, with or without cause, at any annual or special meeting of
stockholders, upon the affirmative vote of the holders of a majority of the
outstanding shares of each class of capital stock then entitled to vote in
person or by proxy at an election of such directors, provided that notice
of the intention to act upon such matter shall have been given in the
notice calling such meeting. Unless otherwise provided by the terms of the
certificate of incorporation (including any amendment thereto that
designates a series of preferred stock), any vacancies occurring in the
board of directors caused by death, resignation, retirement,
disqualification, removal or other termination from office of any directors
other than Classified Directors may be filled by the vote of a majority of
the board of directors then in office, though less than a quorum, or by the
affirmative vote, at any annual meeting or any special meeting of the
stockholders called for the purpose of filling such directorship, of the
holders of a majority of the outstanding shares of each class of capital
stock then entitled to vote in person or by proxy at an election of such
directors. Each successor director so chosen shall hold office until the
next election of the class for which such director shall have been chosen
and until his respective successor shall have been duly elected and
qualified.
3.5 MEETINGS OF DIRECTORS. The directors may hold their meetings and
may have an office and keep the records of the Corporation, except as otherwise
provided by law, in such place or places within or without the State of Delaware
as the board of directors may from time to time determine or as shall be
specified in the notice of such meeting or duly executed waiver of notice of
such meeting.
3.6 FIRST MEETING. Each newly elected board of directors may hold
its first meeting for the purpose of organization and the transaction of
business, if a quorum is present, immediately after and at the same place as the
annual meeting of stockholders, and no notice of such meeting shall be
necessary.
3.7 ELECTION OF OFFICERS. At the first meeting of the board of
directors after each annual meeting of stockholders at which a quorum shall be
present, the board of directors shall elect the officers of the Corporation.
3.8 REGULAR MEETINGS. Regular meetings of the board of directors
shall be held at such times and places as shall be designated from time to time
by resolution of the board of directors. Notice of such regular meetings shall
not be required.
3.9 SPECIAL MEETINGS. Special meetings of the board of directors
shall be held whenever called by the Chairman of the Board, the President, or
any director.
3.10 NOTICE. The Secretary shall give notice of each special meeting
to each director at least 24 hours before the meeting. Notice of any such
meeting need not be given to any director who, either before or after the
meeting, submits a signed waiver of notice or who shall attend such
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meeting without protesting, prior to or at its commencement, the lack of notice
to him. The purpose of any special meeting shall be specified in the notice or
waiver of notice of such meeting.
3.11 QUORUM: MAJORITY VOTE. At all meetings of the board of
directors, a majority of the directors fixed in the manner provided in these
Bylaws shall constitute a quorum for the transaction of business. If at any
meeting of the board of directors there is less than a quorum present, a
majority of those present or any director solely present may adjourn the meeting
from time to time without further notice. Unless the act of a greater number is
required by law, the certificate of incorporation of the Corporation, or these
Bylaws, the act of a majority of the directors present at a meeting at which a
quorum is in ATTENDANCE shall be the act of the board of directors. At any time
that the certificate of incorporation of the Corporation provides that directors
elected by the holders of a class or series of stock shall have more or less
than one vote per director on any matter, every reference in these Bylaws to a
majority or other proportion of directors shall refer to a majority or other
proportion of the votes of such directors.
3.12 PROCEDURE. At meetings of the board of directors, business shall
be transacted in such order as from time to time the board of directors may
determine. The Chairman of the Board, if such office has been filled, and, if
not or if the Chairman of the Board is absent or otherwise unable to act, the
President shall preside at all meetings of the board of directors. In the
absence or inability to act of either such officer, a chairman shall be chosen
by the board of directors from among the directors present. The secretary of
the Corporation shall act as the secretary of each meeting of the board of
directors unless the board of directors appoints another person to act as
secretary of the meeting. The board of directors shall keep regular minutes of
its proceedings which shall be placed in the minute book of the Corporation.
3.13 PRESUMPTION OF ASSENT. A director of the Corporation who is
present at the meeting of the board of directors at which action on any
corporate matter is taken shall be presumed to have assented to the action
unless his dissent shall be entered in the minutes of the meeting or unless he
shall file his written dissent to such action with the person acting as
secretary of the meeting before the adjournment thereof or shall forward any
dissent by certified or registered mail to the Secretary of the Corporation
immediately after the adjournment of the meeting. Such right to dissent
shall not apply to a director who voted in favor of such action.
3.14 COMPENSATION. The board of directors shall have the authority to
fix the compensation, including fees and reimbursement of expenses, paid to
directors for attendance at regular or special meetings of the board of
directors or any committee thereof, provided, that nothing contained herein
shall be construed to preclude any director from serving the Corporation in any
other capacity or receiving compensation therefor.
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ARTICLE FOUR: COMMITTEES
4.1 DESIGNATION. The board of directors may, by resolution adopted
by a majority of the entire board of directors, designate one or more
committees.
4.2 NUMBER: QUALIFICATION: TERM. Each committee shall consist of
one or more directors appointed by resolution adopted by a majority of the
entire board of directors. The number of committee members may be increased or
decreased from time to time by resolution adopted by a majority of the entire
board of directors. Each committee member shall serve as such until the
earliest of (i) the expiration of his term as director, (ii) his resignation as
a committee member or as a director, or (iii) his removal as a committee member
or as a director.
4.3 AUTHORITY. Each committee, to the extent expressly provided in
the resolution establishing such committee, shall have and may exercise all of
the authority of the board of directors in the management of the business and
property of the Corporation except to the extent expressly restricted by such
resolution or by law, the certificate of incorporation of the Corporation, or
these Bylaws.
4.4 COMMITTEE CHANGES. The board of directors shall have the power
at any time to fill vacancies in, to change the membership of, and to discharge
any committee.
4.5 ALTERNATE MEMBERS OF COMMITTEES. The board of directors may
designate one or more directors as alternate members of any committee. Any such
alternate member may replace any absent or disqualified member at any meeting of
the committee. If no alternate committee members have been so appointed to a
committee or each such alternate committee member is absent or disqualified, the
member or members of such committee present at any meeting and not disqualified
from voting, whether or not he or they constitute a quorum, may unanimously
appoint another member of the board of directors to act at the meeting in the
place of any such absent or disqualified member.
4.6 REGULAR MEETINGS. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.7 SPECIAL MEETINGS. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice of any special meeting.
4.8 QUORUM: MAJORITY VOTE. At meetings of any committee, a majority
of the number of members designated by the board of directors shall constitute a
quorum for the transaction of
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business. If a quorum is not present at a meeting of any committee, a majority
of the members present may adjourn the meeting from time to time, without notice
other than an announcement at the meeting, until a quorum is present. The act
of a majority of the members present at any meeting at which a quorum is in
attendance shall be the act of a committee, unless the act of a greater number
is required by law, the certificate of incorporation of the Corporation, or
these Bylaws.
4.9 MINUTES. Each committee shall cause minutes of its proceedings
to be prepared and shall report the same to the board of directors upon the
request of the board of directors. The minutes of the proceedings of each
committee shall be delivered to the Secretary of the Corporation for placement
in the minute books of the Corporation.
4.10 COMPENSATION. Committee members may, by resolution of the board
of directors, be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary..
4.11 RESPONSIBILITY. The designation of any committee and the
delegation of such authority to it shall not operate to relieve the board of
directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE FIVE: NOTICE
5.1 METHOD. Whenever by statute, the certificate of incorporation of
the Corporation , or these Bylaws, notice is required to be given to any
committee member, director, or stockholder and no provision is made as to how
such notice shall be given, personal notice shall not be required and any such
notice may be given (a) in writing, by mail, postage prepaid, addressed to such
committee member, director, or stockholder at his address as it appears on the
books or (in the case of a stockholder) the stock transfer records of the
Corporation, or (b) by any other method permitted by law (including but not
limited to overnight courier service, telegram, telex, or telefax). Any notice
required or permitted to be given by mail shall be deemed to be delivered and
given at the time when the same is deposited in the United States mail as
aforesaid. Any notice required or permitted to be given by overnight courier
service shall be deemed to be delivered and given at the time delivered to such
service with all charges prepaid and addressed as aforesaid. Any notice
required or permitted to be given by telegram, telex, or telefax shall be deemed
to be delivered and given at the time transmitted with all charged prepaid and
addressed as aforesaid.
5.2 WAIVER. Whenever any notice is required to be given to any
stockholder, director, or committee member of the Corporation by statute, the
certificate of incorporation of the Corporation, or these Bylaws, a waiver
thereof in writing signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be equivalent to the
giving of such notice. Attendance of a stockholder, director, or committee
member at a meeting shall constitute a waiver of notice of such meeting, except
where such person attends for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
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ARTICLE SIX: OFFICERS
6.1 NUMBER: TITLES: TERM OF OFFICE. The officers of the Corporation
shall be a Chairman of the Board, a President, a Secretary, and such other
officers as the board of directors may from time to time elect or appoint,
including one or more Vice Presidents (with each Vice President to have such
descriptive title, if any, as the board of directors shall determine) and a
Treasurer. Each officer shall hold office until his successor shall have been
duly elected and shall have qualified, until his death, or until he shall resign
or shall have been removed in the manner hereinafter provided. Any two or more
offices may be held by the same person. None of the officers need be a
stockholder or a director of the Corporation or a resident of the State of
Delaware.
6.2 REMOVAL. Any officer or agent elected or appointed by the board
of directors may be removed by the board of directors whenever in its judgment
the best interest of the Corporation will be served thereby, but such removal
shall be without prejudice to the contract rights, if any, of the person so
removed. Election or appointment of an officer or agent shall not of itself
create contract rights.
6.3 VACANCIES. Any vacancy occurring in any office of the
Corporation (by death, resignation, removal, or otherwise) may be filled by the
board of directors.
6.4 AUTHORITY. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these Bylaws or
as may be determined by resolution of the board of directors not inconsistent
with these Bylaws.
6.5 COMPENSATION. The compensation, if any, of officers and agents
shall be fixed from time to time by the board of directors; provided, however,
that the board of directors may delegate the power to determine the compensation
of any officer and agent (other than the officer to whom such power is
delegated) to the Chairman of the Board or the President.
6.6 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be the
chief executive officer of the Corporation and, subject to the supervision of
the board of directors of the Corporation, shall have the general management and
control of the Corporation. Such officer shall preside at all meetings of the
stockholders and of the board of directors. Such officer may sign all
certificates for shares of stock of the Corporation.
6.7 PRESIDENT. The President shall be the chief operating officer of
the Corporation and, subject to the supervision of the Chairman of the Board, he
shall have general executive charge, management, and control of the properties
and operations of the Corporation in the ordinary course of its business, with
all such powers with respect to such properties and operations as may be
reasonably incident to responsibilities. In the absence or inability to act of
the Chairman of the Board, the President shall exercise all of the powers and
discharge all of the duties of the Chairman of the Board. As between the
Corporation and third parties, any action taken by the President in the
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performance of the duties of the Chairman of the Board shall be conclusive
evidence that the Chairman of the Board is absent or unable to act.
6.8 VICE PRESIDENTS. Each Vice President shall have such powers and
duties as may be assigned to him by the board of directors, the Chairman of the
Board, or the President, and (in order of their seniority as determined by the
board of directors or, in the absence of such determination, as determined by
the length of time they have held the office of Vice President) shall exercise
the powers of the President during that officer's absence or inability to act.
As between the Corporation and third parties, any action taken by a Vice
President in the performance of the duties of the President shall be conclusive
evidence of the absence or inability to act of the President at the time such
action was taken.
6.9 TREASURER. The Treasurer shall have custody of the
Corporation's funds and securities, shall keep full and accurate account of
receipts and disbursements, shall deposit all monies and valuable effects in the
name and to the credit of the Corporation in such depository or depositories as
may be designated by the board of directors, and shall perform such other duties
as may be prescribed by the board of directors, the Chairman of the Board, or
the President.
6.10 ASSISTANT TREASURERS. Each Assistant Treasurer shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Treasurers (in the order
of their seniority as determined by the board of directors or, in the absence of
such a determination, as determined by the length of time they have held the
office of Assistant Treasurer) shall exercise the powers of the Treasurer during
that officer's absence or inability to act.
6.11 SECRETARY. Except as otherwise provided in these Bylaws, the
Secretary shall keep the minutes of all meetings of the board of directors and
of the stockholders in books provided for that purpose, and he shall attend to
the giving and service of all notices. He may sign with the Chairman of the
Board or the President, in the name of the Corporation, all contracts of the
Corporation and affix the seal of the Corporation thereto. He may sign with the
Chairman of the Board or the President all certificates for shares of stock of
the Corporation, and he shall have charge of the certificate books, transfer
books, and stock papers as the board of directors may direct, all of which
shall at all reasonable times be open to inspection by any director upon
application at the office of the Corporation during business hours. He shall
in general perform all duties incident to the office of the Secretary,
subject to the control of the board of directors, the Chairman of the Board,
and the President.
6.12 ASSISTANT SECRETARIES. Each Assistant Secretary shall have such
powers and duties as may be assigned to him by the board of directors, the
Chairman of the Board, or the President. The Assistant Secretaries (in the
order of their seniority as determined by the board of directors or, in the
absence of such determination, as determined by the length of time they have
held the office of Assistant Secretary) shall exercise the powers of the
Secretary during that officer's absence or inability to act.
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ARTICLE SEVEN: CERTIFICATES AND STOCKHOLDERS
7.1 CERTIFICATES FOR SHARES. Certificates for shares of stock of
the Corporation shall be in such form as shall be approved by the board of
directors. The certificates shall be signed by the Chairman of the Board or the
President or a Vice President and also by the Secretary or an Assistant.
Secretary or by the Treasurer or an Assistant Treasurer. Any and all signatures
on the certificate may be a facsimile and may be sealed with the seal of the
Corporation or a facsimile thereof. If any officer, transfer agent, or
registrar who has signed, or whose facsimile signature has been placed upon, a
certificate has ceased to be such officer, transfer agent, or registrar before
such certificate is issued, such certificate may be issued by the Corporation
with the same effect as if he were such officer, transfer agent, or registrar at
the date of issue. The certificates shall be consecutively numbered and shall
be entered in the books of the Corporation as they are issued and shall exhibit
the holder's name and the number of shares.
7.2 REPLACEMENT OF LOST OR DESTROYED CERTIFICATES. The board of
directors may direct a new certificate or certificates to be issued in place of
a certificate or certificates theretofore issued by the Corporation and alleged
to have been lost or destroyed, upon the making of an affidavit of that fact by
the person claiming the certificate or certificates representing shares to be
lost or destroyed. When authorizing such issue of a new certificate or
certificates the board of directors may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost or destroyed
certificate or certificates, or his legal representative, to advertise the same
in such manner as it shall require and/or to give the Corporation a bond with a
securities or sureties satisfactory to the Corporation in such sum as it may
direct as indemnity against any claim, or expense resulting form a claim, that
may be made against the Corporation with respect to the certificate or
certificates alleged to have been lost or destroyed.
7.3 TRANSFER OF SHARES. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the holders thereof in
person or by their duly authorized attorneys or legal representatives. Upon
surrender to the Corporation or the transfer agent of the Corporation of a
certificate representing shares duly endorsed or accompanied by proper evidence
of succession, assignment, or authority to transfer, the Corporation or its
transfer agent shall issue a new certificate to the person entitled thereto,
cancel the old certificate, and record the transaction upon its books.
7.4 REGISTERED STOCKHOLDERS. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder in fact
thereof and, accordingly, shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by law.
7.5 REGULATIONS. The board of directors shall have the power and
authority to make all such rules and regulations as they may deem expedient
concerning the issue, transfer, and registration or the replacement of
certificates for shares of stock of the Corporation.
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7.6 LEGENDS. The board of directors shall have the power and
authority to provide that certificates representing shares of stock bear such
legends as the board of directors deems appropriate to assure that the
Corporation does not become liable for violations of federal or state securities
laws or other applicable law.
ARTICLE EIGHT: MISCELLANEOUS: PROVISIONS
8.1 DIVIDENDS. Subject to provisions of law and the certificate of
incorporation of the Corporation, dividends may be declared by the board of
directors at any regular or special meeting and may be paid in cash, in
property, or in shares of stock of the Corporation. Such declaration and
payment shall be at the discretion of the board of directors.
8.2 RESERVES. There may be created by the board of directors out of
funds of the Corporation legally available therefor such reserve or reserves as
the directors from time to time, in their discretion, consider proper to provide
for contingencies, to equalize dividends, or to repair or maintain any property
of the Corporation, or for such other purpose as the board of directors shall
consider beneficial to the Corporation, and the board of directors may modify or
abolish any such reserve in the manner in which it was created.
8.3 BOOKS AND RECORDS. The Corporation shall keep correct and
complete books and records of account, shall keep minutes of the proceedings of
its stockholders and board of directors and shall keep at its registered office
or principal place of business, or at the office of its transfer agent or
registrar, a record of its stockholders, giving the names and addresses of all
stockholders and the number and class of the shares held by each.
8.4 FISCAL YEAR. The fiscal year of the Corporation shall be fixed
by the board of directors; provided, that if such fiscal year is not fixed by
the board of directors and the selection of the fiscal year is not expressly
deferred by the board of directors, the fiscal year shall be the calendar year.
8.5 SEAL. The seal of the Corporation shall be such as from time to
time may be approved by the board of directors.
8.6 RESIGNATIONS. Any director, committee member, or officer may
resign by so stating at any meeting of the board of directors or by giving
written notice to the board of directors, the Chairman of the Board, the
President, or the Secretary. Such resignation shall take effect at the time
specified therein or, if no time is specified therein, immediately upon its
receipt. Unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
8.7 SECURITIES OF OTHER CORPORATIONS. The Chairman of the Board,
the President, or any Vice President of the Corporation shall have the power and
authority to transfer, endorse for transfer, vote, consent, or take any other
action with respect to any securities of another issuer which may be
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held or owned by the Corporation and to make, execute, and deliver any waiver,
proxy, or consent with respect to any such securities.
8.8 TELEPHONE MEETINGS. Stockholders (acting for themselves or
through a proxy), members of the board of directors, and members of a committee
of the board of directors may participate in and hold a meeting of such
stockholders, board of directors, or committee by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other, and participation in a meeting
pursuant to this section shall constitute presence in person at such meeting,
except where a person participates in the meeting for the express purpose of
objecting to the transaction of any business on the ground that the meeting is
not lawfully called or convened.
8.9 ACTION WITHOUT A MEETING.
(a) Except as otherwise provided in the certificate of
incorporation of the Corporation, any action required by the Delaware
Corporation Law to be taken at any annual or special meeting of the
stockholders, or any action which may be taken at any annual or special meeting
of the stockholders, may be taken without a meeting, without prior notice, and
without a vote, if a consent or consents in writing, setting forth the action so
taken, shall be signed by the holders (acting for themselves or through a proxy)
of outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which the holders
of all shares entitled to vote thereon were present and voted and shall be
delivered to the Corporation by delivery to its registered office in the State
of Delaware, its principal place of business, or an officer or agent of the
Corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Every written consent of stockholders shall bear the
date of signature of each stockholder who signs the consent and no written
consent shall be effective to take the corporate action referred to therein
unless, within sixty days of the earliest dated consent delivered in the manner
required by this Section 8.9(a) to the Corporation, written consents signed by a
sufficient number of holders to take action are delivered to the Corporation by
delivery to its registered office in the State of Delaware, its principal place
of business, or an officer or agent of the Corporation having custody of the
book in which proceedings of meetings of stockholders are recorded. Delivery
made to the Corporation's registered office, principal place of business, or
such officer or agent shall be by hand or by certified or register mail, return
receipt requested.
(b) Except as otherwise provided in the certificate of
incorporation of the Corporation or in these Bylaws, any action required or
permitted to be taken at a meeting of the board of directors, or of any
committee of the board of directors, may be taken without a meeting if a
consent or consents in writing, setting forth the action so taken, shall
be signed by all the directors or all the committee members, as the case
may be, entitled to vote with respect to the subject matter thereof, and
such consent shall have the same force and effect as a vote of such directors
or committee members, as the case may be, and may be stated as
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such in any certificate or document filed with the Secretary of State of
the State of Delaware or in any certificate delivered to any person.
Such consent or consents shall be filed with the minutes of proceedings
of the board or committee, as the case may be.
8.10 INVALID PROVISIONS. If any part of these Bylaws shall be held
invalid or inoperative for any reason, the remaining parts, so far as it is
possible and reasonable, shall remain valid and operative.
8.11 MORTGAGES, ETC. With respect to any deed, deed of trust,
mortgage, or other instrument executed by the Corporation through its duly
authorized officer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the board of
directors authorizing such execution expressly state that such attestation is
necessary.
8.12 HEADINGS. The headings used in these Bylaws have been inserted
for administrative convenience only and do not constitute matter to be construed
in interpretation.
8.13 REFERENCES. Whenever herein the singular number is used, the
same shall include the plural where appropriate, and words of any gender
should include each other gender where appropriate.
8.14 AMENDMENTSS. The board of directors may, upon the affirmative
vote of a majority of the directors in accordance with Section 3.11 hereof and
of at least two-thirds of the Classified Directors then serving, make, adopt,
alter, amend, and repeal from time to time these Bylaws and make from time to
time new bylaws of the Corporation (subject to the right of the stockholders
entitled to vote thereon to adopt, alter, amend, and repeal bylaws made by the
board of directors or to make new bylaws); PROVIDED, HOWEVER, that the
stockholders of the Corporation may adopt, alter, amend, or repeal bylaws
made by the board of directors or make new bylaws solely upon the affirmative
vote of the holders of at least two-thirds of the outstanding shares of each
class of capital stock then entitled to vote thereon.
The undersigned Secretary of the Corporation hereby certifies that the
foregoing Amended and Restated Bylaws were adopted by unanimous consent by the
directors of the Corporation as of March 24, 1993.
/S/ George E. Councill
----------------------------------------
George E. Councill, Secretary
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CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LIFE PARTNERS GROUP, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Life Partners Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The Certificate of Incorporation of the Corporation, as
amended (the "Certificate"), is hereby amended by deleting Article FOURTH and
replacing it to read in its entirety as set forth on EXHIBIT A attached hereto
and incorporated herein by this reference.
SECOND: The Certificate is hereby amended by deleting Article SIXTH
and replacing it to read in its entirety as set forth on EXHIBIT B attached
hereto and incorporated herein by this reference.
THIRD: The Certificate is hereby amended by deleting Article EIGHTH
and replacing it to read in its entirety as set forth on EXHIBIT C attached
hereto and incorporated herein by this reference.
FOURTH: The Certificate is hereby amended by deleting Article TWELFTH
and replacing it to read in its entirety as set forth on EXHIBIT D attached
hereto and incorporated herein by this reference.
FIFTH: The Certificate is hereby amended by adding thereto an Article
THIRTEENTH which shall read in its entirety as set forth on EXHIBIT E attached
hereto and incorporated herein by this reference.
SIXTH: The Certificate is hereby amended by adding thereto an Article
FOURTEENTH which shall read in its entirety as set forth on EXHIBIT F attached
hereto and incorporated herein by this reference.
SEVENTH: The Board of Directors of the Corporation duly adopted
resolutions setting forth the above-referenced amendments, declaring such
amendments to be advisable, and
<PAGE>
calling for the vote or consent of the stockholders of the Corporation entitled
to vote or consent on such amendments for consideration thereof.
EIGHTH: The holders of a majority of each class of capital stock of
the Corporation entitled to vote on the above-referenced amendments executed
written consents in accordance with the provisions of Section 228 of the General
Corporation Law of the State of Delaware adopting such amendments, and written
notice of the taking of such corporate action was given in accordance with such
Section 228 to those stockholders entitled to vote thereon who did not execute
such written consents.
NINTH: Upon effectiveness of the above-referenced amendments, each
issued and outstanding share of the Corporation's class B common stock, par
value $0.001 per share, shall automatically without any action on the part of
the holder thereof convert into and represent one share of the Corporation's
common stock, par value $0.001 per share ("Common Stock") and each issued and
outstanding share of the Corporation's class A common stock, par value $0.001
per share, shall automatically without any action on the part of the holder
thereof represent one share of Common Stock.
TENTH: The above-referenced amendments were duly adopted in
accordance with the provisions of Section 242 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed and attested as of the 24th day of March, 1993.
LIFE PARTNERS GROUP, INC.
By: /s/Patrick J. McLaughlin
---------------------------
Name: Patrick J. McLaughlin
---------------------------
Title: Executive Vice President
--------------------------
ATTEST:
/s/George E. Councill
- -------------------------------------------
Name: George E. Councill
--------------------------------------
Title: Senior Vice President and Secretary
-------------------------------------
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EXHIBIT A
FOURTH: The total number of shares of stock which the Corporation
shall have authority to issue is 60,000,000 shares, divided into two classes as
follows: (i) 10,000,000 shares of Preferred Stock, par value $.01 per share
("Preferred Stock"); and (ii) 50,000,000 shares of Common Stock, par value $.001
per share ("Common Stock").
The designations and the powers, preferences, rights, qualifications,
limitations, and restrictions of the Preferred Stock and Common Stock are as
follows:
1. Provisions Relating to the Preferred Stock.
(a) The Preferred Stock may be issued from time to time in one or
more classes or series, the shares of each class or series to have such
designations and powers, preferences, and rights, and qualifications,
limitations, and restrictions thereof, as are stated and expressed herein and in
the resolution or resolutions providing for the issue of such class or series
adopted, as hereinafter prescribed, by the entire Board of Directors of the
Corporation ("Board of Directors") or (to the extent permitted by law) by any
duly designated committee thereof ("Committee").
(b) Authority is hereby expressly granted to and vested in the board
of Directors or Committee to authorize the issuance of the Preferred Stock from
time to time in one or more classes or series, and with respect to each class or
series of the Preferred Stock, to fix and state by the resolution or resolutions
from time to time adopted providing for the issuance thereof the following:
(i) whether or not the class or series is to have voting
rights, full, special, or limited, or is to be without voting rights, and
whether or not such class or series is to be entitled to vote as a separate
class either alone or together with the holders of one or more other classes or
series of stock;
(ii) the number of shares to constitute the class or series
and the designations thereof;
(iii) the preferences, and relative, participating, optional,
or other special rights, if any, and the qualifications, limitations, or
restrictions thereof, if any, with respect to any class or series;
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(iv) whether or not the shares of any class or series shall
be redeemable at the option of the Corporation or the holders thereof or upon
the happening of any specified event, and, if redeemable, the redemption price
or prices (which may be payable in the form of cash, notes, securities, or other
property), and the time or times at which, and the terms and conditions upon
which, such shares shall be redeemable and the manner of redemption;
(v) whether or not the shares of a class or series shall be
subject to the operation of retirement or sinking funds to be applied to the
purchase or redemption of such shares for retirement, and, if such retirement or
sinking fund or funds are to be established, the annual amount thereof, and the
terms and provisions relative to the operation thereof;
(vi) the dividend rate, whether dividends are payable in cash,
stock of the Corporation, or other property, the conditions upon which and the
times when such dividends are payable, the preference to or the relation to the
payment of dividends payable on any other class or classes or series of stock,
whether or not such dividends shall be cumulative or noncumulative, and if
cumulative, the date or dates from which such dividends shall accumulate;
(vii) the preferences, if any, and the amounts thereof which
the holders of any class or series thereof shall be entitled to receive upon the
voluntary or involuntary dissolution of, or upon any distribution of the assets
of, the Corporation;
(viii) whether or not the shares of any class or series, at the
option of the Corporation or the holder thereof or upon the happening of any
specified event, shall be convertible into or exchangeable for, the shares of
any other class or classes or of any other series of the same or any other class
or classes of stock, securities, or other property of the Corporation and the
conversion price or prices or ratio or ratios or the rate or rates at which such
exchange may be made, with such adjustments, if any, as shall be stated and
expressed or provided for in such resolution or resolutions; and
(ix) such other special rights and protective provisions with
respect to any class or series as may to the Board of Directors or Committee
seem advisable.
(c) The shares of each class or series of the Preferred Stock may
vary from the shares of any other class or series thereof in any or all of the
foregoing respects. The
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Board of Directors or Committee may increase the number of shares of the
Preferred Stock designated for any existing class or series by a resolution
adding to such class or series authorized and unissued shares of the Preferred
Stock not designated for any other class or series. The Board of Directors or
Committee may decrease the number of shares of the Preferred Stock designated
for any existing class or series by a resolution subtracting from such class or
series authorized and unissued shares of the Preferred Stock designated for such
existing class or series, and the shares so subtracted shall become authorized,
unissued, and undesignated shares of the Preferred Stock.
2. Provisions Relating to the Common Stock.
(a) Each share of Common Stock of the Corporation shall have
identical rights and privileges in every respect. The holders of shares of
Common Stock shall be entitled to vote upon all matters submitted to a vote of
the stockholders of the Corporation and shall be entitled to one vote for each
share of Common Stock held.
(b) Subject to the prior rights and preferences, if any,
applicable to shares of the Preferred Stock or any series thereof, the holders
of shares of the Common Stock shall be entitled to receive such dividends
(payable in cash, stock, or otherwise) as may be declared thereon by the Board
of Directors or Committee at any time and from time to time out of any funds of
the Corporation legally available therefor.
(c) In the event of any voluntary or involuntary liquidation,
dissolution, or winding-up of the Corporation, after distribution in full of
the preferential amounts, if any, to be distributed to the holders of shares of
the Preferred Stock or any series thereof, the holders of shares of the Common
Stock shall be entitled to receive all of the remaining assets of the
Corporation available for distribution to its stockholders, ratably in
proportion to the number of shares of the Common Stock held by them. A
liquidation, dissolution, or winding-up of the Corporation, as such terms are
used in this paragraph (c), shall not be deemed to be occasioned by or to
include any consolidation or merger of the Corporation with or into any other
corporation or corporations or other entity or a sale, lease, exchange, or
conveyance of all or a part of the assets of the Corporation.
3. General.
(a) Subject to the foregoing provisions of this Certificate of
Incorporation, the Corporation may issue shares of
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<PAGE>
its Preferred Stock and Common Stock from time to time for such consideration
(not less than the par value thereof) as may be fixed by the Board of Directors
or Committee, which is expressly authorized to fix the same in its absolute and
uncontrolled discretion subject to the foregoing conditions. Shares so issued
for which the consideration shall have been paid or delivered to the Corporation
shall be deemed fully paid stock and shall not be liable to any further call or
assessment thereon, and the holders of such shares shall not be liable for any
further payments in respect of such shares.
(b) The Corporation shall have authority to create and issue
rights and options entitling their holders to purchase shares of the
Corporation's capital stock of any class or series or other securities of the
Corporation, and such rights and options shall be evidenced by instrument(s)
approved by the Board of Directors or Committee. The Board of Directors or
Committee shall be empowered to set the exercise price, duration, times for
exercise, and other terms of such options or rights; PROVIDED, HOWEVER, that the
consideration to be received for any shares of capital stock subject thereto
shall not be less than the par value thereof.
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EXHIBIT B
SIXTH: The number of directors constituting the Board of Directors
shall be fixed by, or in the manner provided in, the Bylaws of the Corporation,
provided that such number shall be no fewer than six and no more than nine (plus
such number of directors as may be elected from time to time pursuant to the
terms of any series of Preferred Stock that may be issued and outstanding from
time to time). The directors of the Corporation (exclusive of directors who are
elected pursuant to the terms of, and serve as representatives of the holders
of, any series of Preferred Stock) shall be referred to herein as "Classified
Directors" and shall be divided into three classes, with the first class
referred to herein as "Class 1," the second class as "Class 2," and the third
class as "Class 3." If the total number of Classified Directors equals six or
nine, then the number of directors in each of Class 1, Class 2, and Class 3
shall be two or three, respectively. If, however, the total number of Classified
Directors equals seven or eight, each such class of directors shall consist of
no more than three and no fewer than two directors as determined by the Board of
Directors in advance of each respective election of directors by holders of
shares of capital stock of the Corporation then entitled to vote in such
election. The term of office of the initial Class 1 directors shall expire at
the 1994 annual meeting of stockholders, the term of office of the initial Class
2 directors shall expire at the 1995 annual meeting of stockholders, and the
term of office of the initial Class 3 directors shall expire at the 1996 annual
meeting of stockholders, with each director to hold office until his successor
shall have been duly elected and qualified. At each annual meeting of
stockholders, commencing with the 1993 annual meeting, directors elected to
succeed those directors whose terms then expire shall be elected for a term of
office to expire at the third succeeding annual meeting of stockholders after
their election, with each director to hold office until his successor shall have
been duly elected and qualified.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by series or by class (excluding holders of Common
Stock), to elect directors, the election, term of office, filling of vacancies,
and other features of such directorships shall be governed by the terms of this
Certificate of Incorporation (including any amendment to this Certificate of
Incorporation that designates a series of Preferred Stock), and such directors
so elected by the holders of Preferred Stock shall not be divided into classes
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<PAGE>
pursuant to this Article SIXTH unless expressly provided by such terms.
Any or all Classified Directors may be removed, with cause, upon the
affirmative vote of the holders of a majority of the outstanding shares of each
class of capital stock of the Corporation then entitled to vote at an election
of such Classified Directors. Any or all Classified Directors may be removed,
without cause, upon the affirmative vote of the holders of a majority of the
outstanding shares of each class of capital stock of the Corporation then
entitled to vote at an election of such Classified Directors, provided that if
the Corporation's board of directors does not approve such removal or if the
board of directors has approved such removal and the Voting Agreement (as
hereinafter defined) is no longer in effect, the affirmative vote of the holders
of at least two-thirds (2/3) of the outstanding shares of each class of capital
stock of the Corporation then entitled to vote at an election of Classified
Directors shall be required in order to remove any or all Classified Directors
without cause. As used herein, the term Voting Agreement shall mean the Voting
Agreement dated as of April 23, 1992 by and among the Corporation, Hicks, Muse &
Co. (TX) Incorporated, and each of the persons and entities listed on the
signature pages thereto.
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EXHIBIT C
EIGHTH: All the powers of the Corporation, insofar as the same may be
lawfully vested by this Certificate of Incorporation in the Board of Directors,
are hereby conferred upon the Board of Directors. In furtherance and not in
limitation of that power, the Board of Directors shall have the power, upon the
affirmative vote of a majority of the directors at a meeting lawfully convened
and at least two-thirds (2/3) of the Classified Directors then serving to make,
adopt, alter, amend, and repeal from time to time the Bylaws of the Corporation
and to make from time to time new Bylaws of the Corporation (subject to the
right of the stockholders entitled to vote thereon to adopt, alter, amend, and
repeal Bylaws made by the Board of Directors or to make new Bylaws); PROVIDED,
HOWEVER, that the stockholders of the Corporation shall be entitled to adopt,
alter, amend, or repeal Bylaws made by the Board of Directors or to make new
Bylaws solely upon the affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of each class of capital stock of the
Corporation then entitled to vote thereon.
9
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EXHIBIT D
TWELFTH: The Corporation expressly elects to be governed by Section
203 of the General Corporation Law of Delaware.
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EXHIBIT E
THIRTEENTH: Any action required or permitted to be taken by the
stockholders of the Corporation (including without limitation the election of
Classified Directors) shall be effected at an annual or special meeting of
stockholders of the Corporation and may not be affected by any consent in
writing by such stockholders, provided that the foregoing prohibitions shall not
apply to any action to be taken exclusively by holders of any one or more
classes or series of Preferred Stock, voting separately by series or by class
(excluding holders of Common Stock). Special meetings of stockholders of the
Corporation may be called by the Board of Directors pursuant to a resolution
adopted by a majority of the Classified Directors then serving, by the Chairman
of the Board of Directors, or by any holder or holders of at least twenty-five
percent (25%) of the outstanding shares of capital stock of the Corporation then
entitled to vote on any matter for which the respective special meeting is being
called.
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EXHIBIT F
FOURTEENTH: Notwithstanding any other provisions of this Certificate
of Incorporation or any provision of law which might otherwise permit a lesser
vote or no vote, the affirmative vote of the holders of at least two-thirds
(2/3) of the outstanding shares of each class of capital stock of the
Corporation then entitled to vote thereon shall be required to amend, alter, or
repeal any one or more of Articles SIXTH, EIGHTH, TWELFTH, THIRTEENTH, and
FOURTEENTH of this Certificate of Incorporation.
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STATE OF DELAWARE
OFFICE OF THE SECRETARY OF STATE PAGE 1
I, WILLIAM T. QUILLEN, SECRETARY OF STATE OF THE STATE OF DELAWARE, DO
HEREBY CERTIFY THE ATTACHED IS A TRUE AND CORRECT COPY OF THE CERTIFICATE
OF AMENDMENT OF "LIFE PARTNERS GROUP, INC." FILED IN THIS OFFICE ON THE
TWENTY-NINTH DAY OF JUNE, A.D. 1992, AT 3 O'CLOCK P.M.
* * * * * * * * * *
/s/ William T. Quillen
[SEAL] --------------------------------------
WILLIAM T. QUILLEN, SECRETARY OF STATE
AUTHENTICATION: *3836117
DATE: 03/26/1993
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LIFE PARTNERS GROUP, INC.
(Pursuant to Section 242 of the General
Corporation Law of the State of Delaware)
Life Partners Group, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
FIRST: The Certificate of Incorporation of the Corporation, as amended
(the "Certificate of Incorporation"), is hereby amended by deleting Article
SIXTH and replacing it to read in its entirety as set forth on EXHIBIT A
attached hereto and incorporated herein by reference.
SECOND: The Board of Directors of the Corporation duly adopted
resolutions setting forth the above-referenced amendment, declaring such
amendments to be advisable, and calling for the vote or consent of the
stockholders of the Corporation entitled to vote or consent on such amendments
for consideration thereof.
THIRD: That, thereafter, at the annual meeting of the stockholders of
the Corporation duly called and held, upon notice in accordance with Section 222
of the General Corporation Law of the State of Delaware, the necessary number of
shares as required by statute were voted in favor of the above-referenced
amendment.
FOURTH: The above-referenced amendment was duly adopted in accordance
with the provisions of Section 242 of the General Corporation Law of the State
of Delaware.
<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Amendment to be signed by its Executive Vice President this 9th day of August,
1995.
LIFE PARTNERS GROUP, INC.
/s/Don Campbell
----------------------------------------
Don Campbell,
Executive Vice President
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EXHIBIT A
SIXTH: The number of directors constituting the Board of
Directors shall be fixed by, or in the manner provided in, the Bylaws of the
Corporation, provided that such number shall be no fewer than six and no more
than fourteen (plus such number of directors as may be elected from time to time
pursuant to the terms of any series of Preferred Stock that may be issued and
outstanding from time to time). The Directors of the Corporation (exclusive of
directors who are elected pursuant to the terms of, and serve as representatives
of the holders of, any series of Preferred Stock) shall be referred to herein as
"Classified Directors" and shall be divided into three classes, with the first
class referred to herein as "Class 1," the second class as "Class 2," and the
third class as "Class 3." Class 1, Class 2 and Class 3 directors shall be
elected in alternating years. The number of directors in each of Class 1,
Class 2 and Class 3 shall be as determined by the Board of Directors in
advance of each respective election of directors by holders of shares of
capital stock of the Corporation; however, the Board of Directors shall not
establish the number of directors in any one class so as to exceed the number
of directors in any other class by more than one director. At each annual
meeting of stockholders, directors elected to succeed those directors whose
terms then expire or directors elected to fill new positions on the Board of
Directors shall be elected for a term of office to expire at the third
succeeding annual meeting of stockholders after their election, with each
director to hold office until his successor shall have been duly elected and
qualified.
Notwithstanding the foregoing, whenever the holders of any one
or more classes or series of Preferred Stock issued by the Corporation shall
have the right, voting separately by series or by class (excluding holders of
Common Stock), to elect directors, the election, term of office, filling of
vacancies, and other features of such directorship shall be governed by the
terms of this Certificate of Incorporation (including any amendment to this
Certificate of Incorporation that designates a series of Preferred Stock), and
such directors so elected by the holders of Preferred Stock shall not be divided
into classes pursuant to this Article SIXTH unless expressly provided by such
terms.
Any or all Classified Directors may be removed, with cause, upon
the affirmative vote of the holders of a majority of the outstanding shares of
each class of capital stock of the Corporation then entitled to vote at an
election of such Classified Directors. Any or all Classified Directors may be
removed, without cause, upon the affirmative vote of a majority of the
outstanding shares of each class of
<PAGE>
capital stock of the Corporation then entitled to vote at an election of such
Classified Directors, provided that if the Corporation's board of directors does
not approve such removal or if the board of directors has approved such removal
and the Voting Agreement (as hereinafter defined) is no longer in effect, the
affirmative vote of the holders of at least two-thirds (2/3) of the outstanding
shares of each class of capital stock of the Corporation then entitled to
vote at an election of Classified Directors shall be required in order to
remove any or all Classified Directors without cause. As used herein, the
term Voting Agreement shall mean the Voting Agreement dated as of April 23,
1992 by and among the Corporation, Hicks, Muse & Co. (TX) Incorporated, and each
of the persons and entities listed on the signature pages thereto.
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STOCK OPTION AGREEMENT
This Stock Option Agreement (this "OPTION AGREEMENT") is made and
entered into as of June 12, 1995, by and between Life Partners Group, Inc., a
Delaware corporation ("LPG"), and Don Campbell (the "OPTIONEE") in accordance
with and pursuant to the terms of LPG's 1992 Incentive and Nonstatutory Stock
Option Plan, as amended (the "Plan").
W I T N E S S E T H:
WHEREAS, effective February 1, 1995, the Optionee and LPG entered into
an Employment Agreement (the "EMPLOYMENT AGREEMENT") pursuant to which, among
other things, the Optionee has been employed by LPG on the terms and
conditions set forth therein; and
WHEREAS, as an additional incentive to the Optionee to enter into and
remain in the employ of LPG and to devote his best efforts to the business
and affairs of LPG, LPG committed to grant the Optionee certain nonstatutory
stock options, subject to the approval of certain amendments to the Plan,
which amendments were adopted at the annual meeting of shareholders of the
Company; and
WHEREAS, in furtherance of its commitment to Optionee, the Company
desires to grant to the Optionee certain nonstatutory stock options to
purchase from LPG, at the times and on the conditions hereinafter set forth,
shares of LPG's Common Stock, par value $0.001 per share (the "COMMON STOCK").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS; COPY OF PLAN. To the extent not specifically provided
herein or otherwise required by context, all capitalized terms used in this
Option Agreement, but not defined herein, shall have the same meanings
ascribed to them in the Plan. By the execution of this Option Agreement, the
Optionee acknowledges that he has received and reviewed a copy of the Plan.
LPG represents that the copy of the Plan so delivered is accurate and correct
in all respects.
2. GRANT OF OPTIONS. LPG hereby grants to the Optionee the option (the
"OPTION") to purchase from LPG, at the times, at the Exercise Price (as
hereinafter defined), and on the conditions set forth in this Option
Agreement, up to 80,000 shares of Common Stock (subject to adjustment as
provided in Section 7 hereof). The Option is not intended to qualify, and
shall not be construed, as an "incentive stock option" under Section 422 of
the Code.
3. EXERCISE OF THE OPTIONS.
(a) TIME OF EXERCISE. The Option shall become exercisable as to 26,666
shares on January 30, 1996, (ii) as to an additional 26,667 shares on January
30, 1997, and (iii) as to an
<PAGE>
additional 26,667 shares on January 30, 1998. Subject to Sections 5 and 8
below, the Option must be exercised by the Optionee prior to 1:00 p.m.,
Denver, Colorado time, on January 30, 2005 (the "TERMINATION DATE"). If the
Optionee fails to exercise the Option in full prior to the Termination Date,
all rights of the Optionee to purchase the shares of Common Stock subject to
the unexercised portion or portions of the Option shall automatically cease
and any other rights of the Optionee provided in this Option Agreement with
respect to such unexercised portion or portions of the Option shall terminate
and be of no further force and effect.
(b) PURCHASE PRICE. The purchase price for each share of Common Stock
purchased upon exercise of the Option will be $18.50 per share, which price
per share is equal to the closing price per share for LPG's publicly traded
common stock as quoted on the New York Stock Exchange on the date hereof (the
"EXERCISE PRICE"), subject to adjustment as provided in Section 7 hereof. No
fractional shares of Common Stock shall be issued pursuant to the exercise of
the Option, and the number of shares of Common Stock to be purchased in
connection with the exercise of the Option (or any portion or portions
thereof) shall be rounded down to the nearest whole share of Common Stock. No
cash shall be payable in lieu of fractional shares.
4. METHOD OF EXERCISE AND PAYMENT. Subject to Sections 3, 5, and 8
hereof, the Option granted hereunder may be exercised by the Optionee in
whole or in part, from time to time, by giving written notice to LPG of his
intent to exercise the Option at least 15 calendar days prior to the proposed
exercise date, which proposed exercise date shall not be more than 30
calendar days after the date the notice is given. Such notice shall (a)
specify the portion or portions of the Option being exercised, (b) specify
the number of shares of Common Stock to be purchased upon exercise of such
Option (or portion or portions thereof), (c) specify the Exercise Price to be
paid therefor, (d) represent in form satisfactory to LPG that the shares of
Common Stock are being purchased for investment and not with a view to resale
or distribution, and (e) state the date and time of the proposed exercise
date. Exercise of the Option shall occur only upon payment to LPG of the
respective full Exercise Price for the shares of Common Stock then being
purchased, which purchase price shall be made against delivery of the
certificate or certificates for the shares of Common Stock purchased.
Payment may be made in cash, by certified or cashier's check, or in such
other manner as may be acceptable to LPG.
5. TERMINATION OF EMPLOYMENT PRIOR TO EXERCISE.
(a) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee without GOOD
REASON (as defined in the Employment Agreement) or by LPG for or with CAUSE
(as defined in the Employment Agreement) prior to the exercise in full of the
Option, then all rights of the Optionee to purchase the shares of Common
Stock subject to the unexercised portion or portions of the Option shall
cease immediately upon the effective date of such termination (regardless of
whether or not such unexercised portion or portions of the Option are
exercisable as of the effective date of such
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<PAGE>
termination), and any other rights of the Optionee provided in this Option
Agreement with respect to such unexercised portion or portions of the Option
shall terminate and be of no further force and effect as of the effective
date of such termination.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee for Good Reason
(including Good Reason resulting from a Change in Control (as defined in the
Employment Agreement)) or by LPG without Cause prior to the exercise in full
of the Option, the Option shall be immediately exercisable without regard to
the vesting schedule set forth in Section 3(a) hereof, and the Optionee may
exercise, in whole or in part, the unexercised portion or portions of the
Option by notifying LPG in writing not later than 90 calendar days after the
effective date of such termination. Such notice to LPG and the method of
payment for the shares of Common Stock to be purchased shall be in accordance
with Section 4 of this Option Agreement. All rights of the Optionee to
purchase the shares of Common Stock subject to the unexercised portion or
portions of the Option shall automatically cease, and any other rights of the
Optionee provided in this Option Agreement with respect to such unexercised
portion or portions of the Option shall terminate and be of no force and
effect, if the Optionee fails to give such notice within such 90-day time
period or if, after having given such notice, the Optionee fails to exercise
the Option as specified in the notice.
(c) DEATH OR DISABILITY OF OPTIONEE. In the event the Optionee's
employment with LPG is terminated as a result of the Optionee's death or
disability prior to the exercise in full of the Option, the Optionee (or the
estate of the Optionee) may exercise, in whole or in part, the unexercised
portion or portions of the Option that are exercisable as of the date the
Optionee's employment is so terminated by notifying LPG in writing not later
than one calendar year after such date. Such notice to LPG and the method of
payment for the shares of Common Stock to be purchased shall be in accordance
with Section 4 of this Option Agreement. All rights of the Optionee (or the
estate of the Optionee) to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall automatically cease, and
any other rights of the Optionee (or the estate of the Optionee) provided in
this Option Agreement with respect to such unexercised portion or portions of
the Option shall terminate and be of no force and effect if the Optionee (or
the estate of the Optionee) fails to give such notice within such one-year
time period or if, after having given such notice, the Optionee (or the
estate of the Optionee) fails to exercise the Option as specified in the
notice.
6. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in
Section 5(c) hereof, the Option is personal to the Optionee, may not be
transferred, assigned, pledged, or hypothecated in any way (whether by
operation of law or otherwise), may not be exercised by any other person or
entity, and shall not be subject to execution, attachment, or similar
process. Any purported transfer in violation of this Section 6 shall be
absolutely void ab initio and of no force or effect whatsoever.
3
<PAGE>
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event LPG at any
time (a) pays a dividend, or makes a distribution, in shares of Common Stock,
(b) subdivides the outstanding shares of Common Stock, (c) combines the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (d) issues any shares of its capital stock or other securities by
reclassification of shares of Common Stock, then the Exercise Price of the
Option granted hereunder and the number of shares of Common Stock then
issuable pursuant to any unexercised portion of the Option shall be
automatically adjusted to reflect accurately and equitably the effect thereon
of any such change as provided for in Section 6.1 of the Plan. Any
adjustments made pursuant to this Section 7 shall be determined in good faith
by the Board of Directors of LPG after consulting with the Optionee, which
determination shall, in the absence of manifest error, be conclusive and
binding upon LPG and the Optionee.
8. MERGER, CONSOLIDATION, SALE OF ASSETS, OR LIQUIDATION. In the event
of any (a) merger or consolidation of LPG with or into another corporation
(other than any merger or consolidation in which LPG is the surviving
corporation), (b) sale of all or substantially all of the assets of LPG, or
(c) voluntary or involuntary liquidation or dissolution of LPG (each
hereinafter referred to as a "REORGANIZATION"), the unexercised portion or
portions of the Option granted under this Option Agreement shall terminate as
of the closing date of such Reorganization unless exercised as provided in
this Section 8. Notwithstanding any provision to the contrary contained in
this Section 8, in the event that a Reorganization results in a Change in
Control, the Optionee will have, in addition to any rights or remedies
specified in this Section 8, any rights or remedies that are available to him
under Section 5 of this Option Agreement, and nothing contained in this
Section 8 shall be construed to restrict any rights or remedies of Optionee
specified in Section 5. Not later than 15 calendar days prior to the proposed
date of, and subject to the consummation of, such Reorganization, written
notice shall be given by LPG to the Optionee of such proposed Reorganization.
The Option shall be immediately exercisable without regard to the vesting
schedule set forth in Section 3(a) hereof, and the Optionee may exercise any
unexercised portion or portions of the Option, in whole or in part, by
notifying LPG in writing not later than five calendar days after LPG has
given the Optionee notice of the Reorganization. Such notice to LPG and the
method of payment for the shares of Common Stock to be purchased shall be in
accordance with Section 4 of this Option Agreement. The exercise of the
Option shall occur immediately preceding the closing of such Reorganization.
The unexercised portion or portions of the Option shall automatically
terminate if the Optionee fails to give such notice within such time period;
PROVIDED, HOWEVER, that in the event such notice of exercise is given in
contemplation of a Reorganization and the anticipated Reorganization is not
consummated, there shall be no acceleration of the unexercised portion or
portions of the Option, the unexercised portion or portions of the Option
shall again become exercisable as provided in Section 3(a) above, and the
notices given hereunder shall be withdrawn and considered a nullity.
Notwithstanding any provision of this Section 8 to the contrary, if provision
shall be made in connection with the Reorganization for the surviving or
acquiring corporation (if applicable) to assume the unexercised portion or
portions of the Options or to issue a substitute option or
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options in lieu thereof on an equitable basis, then the unexercised portion
or portions of the Option shall not be accelerated under the provisions of
this Section 8 and shall, as applicable, be assumed or substituted in
connection with the Reorganization.
9. NOTICES. Any notice, request, demand, or other communication
required by or permitted to be given in connection with this Option Agreement
shall be in writing, except as expressly otherwise permitted herein, and
shall be delivered in person, sent by first class mail, certified or
registered mail, return receipt requested, postage prepaid, sent by
telefacsimile or similar means of communication, or delivered by a courier
service, charges prepaid, to the respective parties as follows:
(i) If to LPG:
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Attn: Chairman of the Board
(ii) If to the Optionee:
Don Campbell
5550 Waneta Drive
Dallas, Texas 75209
Each of the parties hereto may change the address to which such party desires
notices to be sent if such party notifies the other party hereto of such
change in accordance with the provisions of this Section 9. Any such notice
shall be deemed to be given when received, if delivered personally or by
courier or mailed; and when electronically confirmed, if sent by
telefacsimile or similar device.
10. ADDITIONAL COVENANTS. LPG shall not be required to sell or make
delivery of any shares of Common Stock hereunder until it shall be furnished
with evidence satisfactory to it that such sale and delivery will not be in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
or any other applicable state or federal law or regulation. The Optionee, by
his acceptance of this Option Agreement, acknowledges and agrees that the
Option and any shares of Common Stock issuable upon exercise thereof are
being acquired by him for his own account for the purpose of investment and
not for "sale" or other "distribution" thereof, as those terms are defined
under the Securities Act. The Optionee agrees further that LPG may request,
and the Optionee will deliver to LPG upon such request, Optionee's
acknowledgment and agreement regarding investment intent in such detail and
containing such terms and provisions as LPG shall deem appropriate and that
any certificate evidencing such shares of Common Stock issued on exercise of
the Option (except in the case of a registration of the shares) will bear
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certain legended information, including, without limitation, the following:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF
HAS PROVIDED EVIDENCE SATISFACTORY TO THE COMPANY (WHICH, IN
THE DISCRETION OF THE COMPANY, MAY INCLUDE AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY) THAT SUCH OFFER, SALE, PLEDGE,
TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE
FEDERAL OR STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A VOTING AGREEMENT (THE "VOTING AGREEMENT") DATED AS
OF APRIL 23, 1992, AMONG THE ORIGINAL AND CURRENT HOLDERS
OF SUCH SECURITIES AND THE COMPANY. THE SECURITIES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN ACCORDANCE
WITH THE TERMS OF THE VOTING AGREEMENT. A COPY OF THE VOTING
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON THAT HOLDER'S WRITTEN REQUEST.
11. REGULATORY APPROVAL. The Option shall be subject to the
requirement that, if at any time the Board of Directors of LPG shall
determine, in good faith, that the consent or approval of any state or
federal governmental or regulatory body is required as a condition of, or in
connection with, the granting of the Option or the issuance or purchase of
shares of Common Stock thereunder, or the exercise of the Option would
violate any rule promulgated by any state or federal governmental or
regulatory body, the Option may not be exercised in whole or in part unless
and until such consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Board of Directors of LPG in its
discretion.
12. VOTING AGREEMENT. LPG and the Optionee hereby agree that, from and
after the exercise of the Option (or any portion or portions thereof) by the
Optionee, the provisions applicable to certain existing shareholders of LPG
(consisting of certain officers, directors and employees of LPG, and various
other persons and entities) pursuant to that certain Voting Agreement dated
as of April 23, 1992 by and among Hicks, Muse, Tate & Furst, Inc. (formerly,
Hicks, Muse & Co. (TX) Incorporated), LPG, and the other persons listed on
the signature pages thereof, shall inure to the benefit of, and be binding
upon, the Optionee.
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13. REFERENCES. All references to "Section" contained herein are,
unless specifically indicated otherwise, references to sections of this
Option Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate and words of any gender shall include
each other gender where appropriate.
14. CAPTIONS. The captions, headings, and arrangements used in this
Option Agreement are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.
15. GOVERNING LAW. THIS OPTION AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF COLORADO, AND
SHALL BE INTERPRETED AND ADMINISTERED, WITH RESPECT TO ISSUES OF CONTRACT
LAW, UNDER THE SUBSTANTIVE LAWS OF THE STATE OF COLORADO, AND WITH RESPECT TO
ISSUES OF CORPORATION LAW, UNDER THE SUBSTANTIVE LAWS OF THE STATE OF
DELAWARE.
16. INVALID PROVISIONS. If any provision of this Option Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Option Agreement, such provision shall be
fully severable and this Option Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a
part of this Option Agreement; and the remaining provisions of this Option
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from
this Option Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Option Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
17. AMENDMENTS. Subject to the receipt of any required approvals or
consents of third parties, this Option Agreement may be amended at any time
and from time to time in whole or in part, or may be terminated, by an
instrument in writing setting forth the particulars of such amendment or
termination, as the case may be, duly executed by LPG and the Optionee.
18. MULTIPLE COUNTERPARTS. This Option Agreement may be executed in a
number of identical counterparts, each of which for all purposes shall be
deemed an original, and all of which shall constitute, collectively, one
agreement; but in making proof of this Option Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
19. WAIVER. No waiver of a failure by a party to comply with any of
its obligations under this Option Agreement shall be binding unless executed
in writing by the party to whom such compliance is owed. No waiver of any
provision of this Option Agreement shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such a waiver
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constitute a continuing waiver unless otherwise expressly provided.
20. ADMINISTRATION. This Option Agreement is subject to the terms and
conditions of the Plan. the Plan will be administered by the Committee in
accordance with its terms. The Committee has sole and complete discretion
with respect to all matters reserved to it by the Plan, and decisions of the
Committee with respect to the Plan and to this Option Agreement shall be
final and binding upon the Optionee and LPG. In the event of any conflict
between the terms and conditions of this Option Agreement and the Plan, the
provisions of the Plan shall control.
21. ENTIRE AGREEMENT. This Option Agreement embodies the entire
agreement and understanding between the parties hereto relating to the
subject matter hereof and supersedes any prior agreements and understandings
relating to the subject matter hereof. There are no restrictions, promises,
warranties, or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein.
22. SUCCESSORS AND ASSIGNS. No party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other parties hereto. Subject to the foregoing and to Section 6 hereof, this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, beneficiaries, successors and permitted assigns of each of the
parties. All references herein to "LPG" or to the "Optionee" shall include
the respective heirs, beneficiaries, successors, and permitted assigns
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
LIFE PARTNERS GROUP, INC.
By: /s/ JOHN H. MASSEY
------------------------------------
John H. Massey
Chief Executive Officer
/s/ DON CAMPBELL
------------------------------------
Don Campbell
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of January
30, 1995, to become effective as of the 1st day of February, 1995, between
Life Partners Group, Inc., a Delaware corporation (the "COMPANY"), and Don
Campbell (the "EXECUTIVE").
WHEREAS, the Executive currently serves as a Senior Vice President and
General Counsel of the Company; and
WHEREAS, the Executive has gained certain knowledge of the business and
affairs of the Company and its policies, methods, personnel, and plans for
the future; and
WHEREAS, the Company's Board of Directors (the "BOARD") recognizes that
the Executive's contribution (as an executive officer of the Company) to the
growth and success of the Company has been and is expected to be substantial
and desires to assure the Company of the Executive's continued employment in
an executive capacity and as general counsel and to compensate him therefor;
and
WHEREAS, the Executive desires to commit himself to serve the Company on
the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein for the period commencing on February 1, 1995,
and (unless earlier terminated pursuant to Section 7 below) ending on January
31, 1998. The period from February 1, 1995 through January 31, 1998 or, if
earlier, the date of termination of the Executive's employment pursuant to
Section 7 below, is sometimes referred to herein as the "PERIOD OF
EMPLOYMENT."
2. POSITION AND DUTIES. The Executive, during the Period of
Employment, shall serve as an Executive Vice President of the Company and as
its General Counsel (reporting only to the Chief Executive Officer and the
President of the Company and to the Board), shall have supervision and
control over and responsibility for the legal affairs of the Company and its
subsidiaries, shall have such other powers and duties as may from time to
time be prescribed by the Chief Executive Officer, the President and the
Board, so long as such duties are consistent with the Executive's position,
and shall hold such other positions and titles as to which he may be promoted
by the Board. The Executive shall devote substantially all of his working
time and efforts to the business and affairs of the Company, shall perform
his duties hereunder diligently and in a prudent and businesslike manner, and
shall act in the best interests of the Company as he reasonably perceives
such interests.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company during the Period of Employment, the Executive shall be based
primarily in Denver, Colorado, but the Executive shall not be required to
relocate his current residence to Denver, Colorado,
<PAGE>
in order to perform his duties under this Agreement. Consistent with the
Executive's professional responsibilities and his obligations under this
Agreement, the Executive may perform such of his duties hereunder as may be
appropriate in Dallas, Texas, or at such other locations as may be approved
by the Company from time to time. If at the Board's request the Executive
agrees to relocate his primary residence to Denver or another city other than
Dallas, Texas, the Company shall promptly pay (or reimburse the Executive
for) all reasonable moving expenses incurred by the Executive relating to
such change of his residence.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive an annual base salary of
$200,000 ("Base Salary"). The Base Salary shall be payable in substantially
equal monthly installments and shall not be reduced during the Period of
Employment.
(b) INCENTIVE COMPENSATION. In addition to the Base Salary, Executive
shall be entitled to receive, not later than April 30 of each year during the
continuance of the Executive's employment under this Agreement and on or
before April 30 of the year following the year in which the Executive's
employment hereunder terminates, incentive compensation as follows:
(i) on or before April 30, 1995, a cash bonus equal to $66,000;
(ii) on or before April 30 in years subsequent to 1995, such amount
as may be determined by the Board under the Company's Management Cash Bonus
Plan then in effect (as such plan may be amended from time to time, the
"BONUS PLAN"). Presently, the Bonus Plan is based upon a ratio (the "BONUS
RATIO") of actual GAAP earnings (as defined in the Bonus Plan) to planned
GAAP earnings (as defined in the Bonus Plan) whereby three different levels
of cash bonuses may be earned. Under the current Bonus Plan,
notwithstanding the Executive's position or title at the time of
determination, if the Bonus Ratio is equal to or greater than 90%, but less
than 95%, the Executive's bonus compensation for the year will be equal to
30% of Base Salary; if the Bonus Ratio is equal to or greater than 95%, but
less than 100%, the Executive's bonus compensation for the year will be
equal to 40% of Base Salary; and if the Bonus Ratio is equal to or in
excess of 100%, the Executive's bonus compensation for the year will be 50%
of Base Salary. It is understood and agreed that, in accordance with the
terms of the Bonus Plan, the Board may amend and revise the Bonus Plan from
time to time in its discretion.
The amount of bonus compensation payable on or before the April 30
following the year during which the Executive's employment hereunder is
terminated shall be prorated based upon the actual number of days the
Executive was employed during the preceding year compared to the total number
of days in the calendar year during which the employment terminated.
(c) STOCK OPTIONS. Contemporaneously herewith, the Company has executed
and
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delivered to the Executive a Stock Option Agreement, dated and effective on
the date hereof, granting the Executive, subject to the terms and conditions
set forth in the Stock Option Agreement, an option to purchase up to 80,000
shares of the Company's Common Stock, at a cash price per share equal to the
closing price per share for the Company's common stock as quoted on the New
York Stock Exchange on the last full trading day prior to the date hereof.
(d) EXPENSES. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him (in accordance with
the policies and procedures presently established by the Company for its
senior executive officers) during the Period of Employment, in performing
services hereunder, provided that the Executive properly accounts therefor in
accordance with Company policy. Unless and until the Executive voluntarily
moves his primary residence to Denver, Colorado, (such period of time during
the Period of Employment being herein referred to as the "COMMUTING TERM"),
the Company will pay the cost of economy air travel (with nominal-cost
upgrades when available) and related travel expenses for weekly commuting by
the Executive between Dallas, Texas and Denver, Colorado and will allow the
Executive the use of Company maintained living quarters in Denver. During the
Commuting Term, the Company will provide to the Executive a suitable
automobile for his use in Denver. Also, during the Period of Employment, the
Company shall provide to the Executive an automobile allowance of $700 per
month.
(e) OTHER BENEFITS. The Executive shall be entitled to participate in
or receive benefits under all of the Company's Employee Benefit Plans or
Other Arrangements (as hereinafter defined) in effect on the date hereof or
under plans or arrangements that provide the Executive with at least
equivalent benefits to those provided under such Employee Benefit Plans or
Other Arrangements. As used herein, "EMPLOYEE BENEFIT PLANS OR OTHER
ARRANGEMENTS" include, without limitation, each pension and retirement plan,
supplemental pension, retirement, and deferred compensation plan, savings and
profit-sharing plan, medical insurance plan, disability plan, and health and
accident plan or arrangement established and maintained by the Company on the
date hereof for the benefit of and made generally available to executives and
key management employees of the Company or its subsidiaries, but does not
include (i) any other employment agreement between the Company (or any of its
subsidiaries) and any employee thereof, or (ii) any deferred compensation
arrangement between the Company (or any of its subsidiaries) and Gene H.
Bishop, John W. Gardiner or James R. Kerber. The Executive shall be entitled
to participate in or receive benefits under any employee benefit plan or
arrangement which may, in the future, be made generally available by the
Company to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions, and overall administration of
such plan or arrangement. Any payments or benefits payable to the Executive
under a plan or arrangement referred to in this Subsection 4(e) in respect of
any calendar year during which the Executive is employed by the Company for
less than the whole of such calendar year shall, unless otherwise provided in
the applicable plan or arrangement, be prorated in accordance with the actual
number of days in such calendar year during which he is so employed.
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(f) VACATIONS AND SICK LEAVE. During the Period of Employment, the
Executive shall be entitled to the number of paid vacation days in each
calendar year determined by the Company from time to time for its senior
executive officers, but not less than three weeks in any calendar year
(prorated in any calendar year during which the Executive is employed
hereunder for less than the entire such year in accordance with the actual
number of days in such calendar year). During the Period of Employment, the
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers. During the Period of Employment, the Executive
shall be entitled to 30 calendar days of paid sick leave during each calendar
year of employment (prorated in any calendar year during which the Executive
is employed hereunder for less than the entire such year in accordance with
the actual number of days in such calendar year). Vacation days and sick days
that are not used by the Executive in any calendar year will not be carried
forward, and all such days shall be forfeited without compensation.
5. ADDITIONAL POSITIONS. During the Period of Employment, the
Executive agrees that, in the event the Board requests him to serve in one or
more executive offices of any of the Company's subsidiaries as the Executive
may from time to time be elected, he will so serve without further
compensation, if and so long as the Executive is indemnified for serving in
any and all such capacities on a basis no less favorable than is currently
provided by the Company's By-laws.
6. CONFIDENTIALITY AND NONCOMPETITION.
(a) The Executive acknowledges that his services and responsibilities
are of particular significance to the Company and its subsidiaries
(collectively the "LPG COMPANIES" and individually an "LPG COMPANY"), and
that his positions with the Company or any other LPG Company have given and
will give him access to and an intimate knowledge of the policies, customers,
employees, trade secrets, and other confidential, proprietary, nonpublic,
privileged, or secret information of the LPG Companies (collectively
"CONFIDENTIAL INFORMATION"); PROVIDED, HOWEVER, that Confidential Information
shall not include any information which is obtainable from non-Company
sources that are not bound by any confidentiality or nondisclosure obligation
with respect to such information (whether such obligation is imposed by
agreement, fiduciary duty, law, order or otherwise) or that have not obtained
such information as a result of unauthorized disclosure by or at the
direction of the Executive. Because the LPG Companies are in creative,
technical, and competitive businesses, the Executive's continued and
exclusive service to the LPG Companies and his preservation of the
confidentiality of the Confidential Information is of critical importance to
the Company.
(b) Based on the matters described in Subsection 6(a) above, and in
further consideration of this Agreement, the Executive covenants and agrees
with the Company that:
(i) CONFIDENTIAL INFORMATION. The Executive shall not (for any
reason), directly or indirectly, for himself or on behalf of any other
person or entity, disclose to
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any person or entity (except to employees or other representatives of the
Company who need to know such Confidential Information to the extent
reasonably necessary for the Executive to perform his duties under this
Agreement and except as required by law; PROVIDED, HOWEVER, that this
exception for legal requirement shall not apply to any legal requirement
imposed upon the Executive as a result of the Executive's, directly or
indirectly, having purchased securities or otherwise seeking or deriving
personal benefit) any Confidential Information which the Executive may have
acquired in the course of or as an incident to his employment or prior
dealings with any LPG Company, including, without limitation, business or
trade secrets of, or insurance products or methods or techniques used by,
any LPG Company in or about their respective businesses, or any
Confidential Information whatsoever concerning the customers, clients,
policyholders, or annuitants of any LPG Company, or any reinsurance
agreements or similar arrangements involving any LPG Company; PROVIDED,
HOWEVER, that after the later of (A) the last day on which the Executive
receives compensation pursuant to any of Subsections 7(a) (ii), 7(b) or
7(d) (i) below or (B) the second anniversary of the termination (if any)
of the Executive's employment hereunder pursuant to Subsection 7(a)(i) or
Subsection 7(d) (ii) below, the Company's sole remedy for any breach of
this Subsection 6(b)(i) shall be a restraining order or injunction by any
court of competent jurisdiction.
(ii) NONCOMPETE. During the Period of Employment and through the
later of (A) the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a) (ii), 7(b) or 7(d)(i) below or (B) the
second anniversary of the termination (if any) of the Executive's
employment hereunder pursuant to Subsection 7(a)(i) or Subsection 7(d) (ii)
below, the Executive shall not (for any reason), for himself or on behalf
of any other person or entity, (1) call on or contact any customer, client,
policyholder, or annuitant of any LPG Company or any agent, reinsurer, or
insurance company with which any LPG Company has done business during the
Period of Employment for the purpose or with the effect of offering any
insurance products or services of any kind offered by any LPG Company
during the Period of Employment or (2) assist any other person or entity in
connection with any action described in the foregoing clause (1).
(iii) NONINTERFERENCE WITH EMPLOYEES. During the Period of Employment
and through the latest of (A) the last day on which the Executive receives
compensation pursuant to any of Subsections 7(a) (ii), 7(b) or 7(d)(i)
below or (B) the second anniversary of the termination (if any) of the
Executive's employment hereunder pursuant to Subsection 7(a)(i) or
Subsection 7(d) (ii) below, the Executive shall not (for any reason), for
himself or on behalf of any other person or entity, (1) induce or attempt
to induce any employee of any LPG Company to terminate employment with the
employing LPG Company, (2) interfere with or disrupt any LPG Company's
relationship with any of the employees of such LPG Company, (3) solicit,
entice, or take away, any person employed by any LPG Company during the
12-month period preceding the termination
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of the Period of Employment, or (4) assist any other person or entity in
connection with any action described in any of the foregoing clauses (1)
through (3).
(iv) NONINTERFERENCE WITH POLICYHOLDERS. ETC. The Executive shall
not (for any reason), directly or indirectly, for himself or on behalf of
any other person or entity, (1) utilize or attempt to utilize any
Confidential Information for the purpose or with the effect of causing or
attempting to cause (X) any policyholder or annuitant to replace or
terminate any insurance or annuity contract issued, reinsured, or
underwritten by any LPG Company, in whole or in part, with any insurance
or annuity product of any other person or entity, or (Y) any reinsurer to
terminate any reinsurance, coinsurance, or other similar contract, or to
sever a relationship, with any LPG Company or (2) assist any other person
or entity in connection with any action described in the foregoing clause
(1); PROVIDED, HOWEVER, that after the later of (A) the last day on which
the Executive receives compensation pursuant to any of Subsections 7(a)
(ii), 7(b) or 7(d) (i) below or (B) the second anniversary of the
termination (if any ) of the Executive's employment hereunder pursuant to
Subsection 7(a) (i) or Subsection 7(d) (ii) below, the Company's sole
remedy for any unintentional breach of this Subsection 6(b) (iv) shall be a
restraining order or injunction by any court of competent jurisdiction.
(v) EXCLUSIVE EMPLOYMENT. During the Period of Employment and through
the last day on which the Executive receives compensation pursuant to any
of Subsections 7(a) (ii), 7(b) or 7(d)(i) of this Agreement, the Executive
shall not (for any reason), directly or indirectly, for himself or on
behalf of any other person or entity, render any service of an advisory
nature or otherwise to, or become employed by, or own any interest in, or
be associated with, any insurance company or any agency or brokerage firm
selling life insurance or annuities, or any entity owning 50% or more of
any insurance company or agency or brokerage firm selling life insurance
or annuities, other than the LPG Companies; PROVIDED, HOWEVER, that the
Executive may make investments in entities of such kind which are publicly
owned and in which the Executive owns no more than 2% of the outstanding
stock thereof.
(c) INJUNCTIVE RELIEF. The Executive acknowledges and agrees that any
breach by him of any of the covenants or agreements contained in this Section
6 would give rise to irreparable injury to the Company and would not be
adequately compensable in damages. Accordingly, the Executive agrees that the
Company may seek and obtain injunctive relief against the breach or
threatened breach of any of the provisions of this Section 6, in addition to
any other legal remedies which may be available. The Executive further
acknowledges and agrees that the covenants and agreements contained herein
are necessary for the protection of the Company' s legitimate business
interests and are reasonable in scope and content.
(d) REFORMATION AND SURVIVAL. The Company and the Executive agree and
stipulate that the agreements and covenants contained in this Section 6 are
fair and reasonable in light of
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all of the facts and circumstances of the relationship between them. The
Company and the Executive acknowledge their awareness, however, that in
certain circumstances courts have refused to enforce certain agreements not
to compete. Therefore, in furtherance of, and not in derogation of, the
provisions of this Section 6, the Company and the Executive agree that, in
the event a court should decline to enforce one or more of the provisions of
this Section 6, then this Section 6 shall be deemed to be modified or
reformed to restrict the Executive's conduct to the maximum extent (in terms
of time, geography, and business scope) which the court shall determine to be
enforceable. The provisions of this Section 6 shall survive the termination
of this Agreement for the respective periods set forth in this Section 6.
7. TERMINATION. Except as expressly provided in this Section 7, from
and after the date of termination of the Executive's employment hereunder,
the Company shall have no obligation (whether financial or otherwise) under
this Agreement, and the Executive shall have no right to receive any Base
Salary or any other payment or benefit under this Agreement; PROVIDED,
HOWEVER, that nothing in this Section 7 shall affect the Executive's
obligations under Section 6 above or shall affect the Executive' s rights to
receive payments or benefits that are accrued before, but remain unpaid on,
the date of termination, or to receive payments or benefits that are required
to be made or provided to him pursuant to the terms of any of the Employee
Benefit Plans or Other Arrangements insofar as such rights relate to the
Executive's participation in the respective plan or arrangement before the
date of termination.
(a) TERMINATION BY COMPANY. As set forth below, the Company may
terminate the Executive's employment hereunder with or without Cause (as
hereinafter defined), for any reason or for no reason.
(i) FOR CAUSE. The Company may terminate the employment of the
Executive hereunder for or with Cause by written notice to the Executive to
that effect setting forth in reasonable detail the Cause or Causes for such
termination. Such notice shall be delivered at least ten calendar days
prior to the effectiveness of such termination and shall provide an
opportunity for the Executive, together with his counsel, to be heard by
the Board prior to the effectiveness of such termination. Such termination
shall be effective at the time (not less than ten calendar days after
delivery of the notice of termination) specified in such notice of
termination. In the event the Company terminates the Executive's
employment hereunder for or with Cause, no further payments or benefits
shall be made or provided to the Executive hereunder except as provided in
the next following sentence. If the Executive's employment is terminated
pursuant to this Subsection 7(a) (i), then the Company shall continue to
pay the Base Salary to the Executive specified in (and in accordance with
the applicable terms of) Subsection 4(a) above only until the date of such
termination and shall continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms of) Subsections
4(d) and 4(e) above (except as otherwise precluded by the terms of the
plans or arrangements respectively described in such subsections) only
until the date of such
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termination. As used in this Agreement, the term "CAUSE" shall mean the
occurrence of any of the following, as determined by the Board in its sole
discretion exercised in good faith: (A) the Executive willfully breaches
any of his obligations or duties hereunder which breach is materially
adverse to the Company or any of its affiliates; or (B) the Executive fails
to comply with any written or oral direction of the Chief Executive
Officer, the President or the Board which reasonably relates to the
performance of the Executive's duties as provided in Section 2 of this
Agreement and which would not require the Executive to perform an illegal
act; PROVIDED, HOWEVER, such failure shall not constitute "Cause" (1) if
the failure results from the Executive's being Incapacitated (as
hereinafter defined) or (2) unless such failure continues for ten calendar
days or more after written notice thereof is given to the Executive by the
Company; or (C) the Executive fails to comply with his obligations under
Section 6 of this Agreement and such failure, or any adverse consequene
thereof, continues for ten calendar days or more after written notice
thereof is given to the Executive by the Company; PROVIDED, HOWEVER, that
no such notice need be given if the failure and its adverse consequences
cannot reasonably be expected to be cured within ten calendar days; or (D)
the Executive engages in any act of intentional, willful or reckless
dishonesty which is injurious to the Company or its business or to any
affiliate of the Company or such affiliate's business; or (E) the Executive
is convicted of or enters a plea of guilty or nolo contendere to (1) any
misdemeanor involving moral turpitude which, in the good faith judgment of
the Board, may be injurious to the reputation of the Company or any of its
affiliates, (2) any misdemeanor involving financial misconduct, or (3) any
felony.
(ii) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause by written notice to the Executive to
that effect. Unless otherwise specified in the notice, such termination
shall be effective immediately upon delivery thereof to the Executive.
In the event the Company terminates the Executive's employment hereunder
without Cause during the Period of Employment, no further payments or
benefits shall be made or provided to the Executive hereunder except as
provided in the next following sentence. If the Executive's employment
hereunder is terminated pursuant to this Subsection 7(a) (ii), then the
Company shall continue to pay the Executive the compensation specified in
(and in accordance with the applicable terms of) Subsections 4(a) and 4(b)
above only during the Post-Employment Compensation Period, and the Company
shall continue to provide the Executive with the benefits specified in (and
in accordance with the applicable terms of) Subsections 4(d) and 4(e) above
(except as otherwise precluded by the terms of the plans or arrangements
respectively described in such subsections) only during the Post-Employment
Compensation Period. As used herein, the term "POST-EMPLOYMENT COMPENSATION
PERIOD" shall mean the period of time commencing on the date of the
termination of the Executive's employment with the Company pursuant to
Subsections 7(a)(ii), 7(b), 7(c), or 7(d)(i) hereof and ending on the
earlier of (A) January 31, 1998, or (B) the second anniversary of such
termination date.
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(b) DISABILITY. If during the Period of Employment the Executive shall
be or become incapacitated by reason of mental or physical disability or
otherwise so that he is or will be prevented from adequately performing any
of his material duties and obligations under this Agreement for more than 60
calendar days in the aggregate during any calendar year ("INCAPACITATED"),
the Executive's employment hereunder shall automatically and immediately
terminate upon written notice from the Company to the Executive to such
effect. Thereafter, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next following
sentence. If the Executive's employment hereunder is terminated pursuant to
this Subsection 7(b), then the Company shall continue to pay the Executive
the compensation specified in (and in accordance with the applicable terms
of) Subsections 4(a) and 4(b) above only during the Post-Employment
Compensation Period, and the Company shall continue to provide the Executive
with the benefits specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise precluded by the
terms of the plans or arrangements respectively described in such
subsections) only during the Post-Employment Compensation Period; PROVIDED,
HOWEVER, that the amount of any compensation and benefit payments required to
be made under this Subsection 7(b) shall be reduced by (A) the amount of any
compensation and benefit payments made in the calendar year of termination to
the Executive during any periods of time exceeding, in the aggregate, 60
calendar days (prorated based upon the actual number of days the Executive is
employed during such calendar year prior to termination compared to the total
number of days in such calendar year) when the Executive was unable to
perform his duties or obligations under this Agreement as a result of
sickness or other physical or mental disability and (B) the value of any
compensation and benefits earned by the Executive as a result of the
Executive's employment by any person or entity other than any LPG Company
during the period in which the Executive is entitled to receive compensation
and benefits pursuant to this Subsection 7(b). The determination by a
qualified, independent physician selected by the Board that the Executive is
Incapacitated shall be final and conclusive. By executing this Agreement, the
Executive agrees to submit to any and all medical examinations or procedures
and to execute and deliver any and all consents to the release of medical
information and records or otherwise as shall be reasonably required by such
physician in determining whether the Executive is Incapacitated.
(c) DEATH. If the Executive dies during the Period of Employment, the
Executive's employment hereunder shall automatically and immediately
terminate. Thereafter, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next following
sentence. If the Executive' s employment hereunder is terminated pursuant to
this Subsection 7(c), then the Company shall reimburse the estate of the
Executive for the expenses, costs, and automobile allowance specified in (and
in accordance with the applicable terms of) Subsection 4(d) above as the same
are incurred before, but remain unpaid at the time of, the Executive's death
and shall continue to pay the estate of the Executive the compensation
specified in (and in accordance with the applicable terms of) Subsections
4(a) and 4(b) above only during the Post-Employment Compensation Period.
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(d) TERMINATION BY EXECUTIVE. As set forth below, the Executive may
terminate his employment hereunder with or without Good Reason (as
hereinafter defined). If the Executive resigns as an Executive Vice
President of the Company, he shall be deemed to have terminated his
employment under this Agreement with the effect specified in Subsection
7(d)(i) or Subsection 7(d) (ii) below, as applicable. If the Executive
terminates his employment under this Agreement, he shall be deemed (unless
otherwise determined by the Board) to have resigned from all offices,
directorships, and committee memberships that he then holds with the Company
or any other LPG Company.
(i) FOR GOOD REASON. The Executive may terminate his employment for or
with Good Reason by written notice to the Company to that effect setting
forth in reasonable detail the Good Reasons for such termination. Such
notice shall be delivered at least ten calendar days prior to the
effectiveness of such termination and shall provide an opportunity for the
Board (or its representative), together with counsel to the Company, to
meet with the Executive to discuss the reasons for such termination prior
to the effectiveness of such termination. Such termination shall be
effective at the time (not less than ten calendar days after delivery of
the notice of termination) specified in such notice of termination. In the
event the Executive terminates his employment hereunder for or with Good
Reason, no further payments or benefits shall be made or provided to the
Executive hereunder except as provided in the following sentence. If the
Executive's employment is terminated pursuant to this Subsection 7(d)(i),
then the Company shall continue to pay the Executive the compensation
specified in (and in accordance with the applicable terms of) Subsections
4(a) and 4(b) above only during the Post-Employment Compensation Period,
and the Company shall continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms of) Subsections
4(d) and 4(e) above (except as otherwise precluded by the terms of the
plans or arrangements respectively described in such subsections) only
during the Post-Employment Compensation Period. As used in this Agreement,
the term "GOOD REASON" shall mean the occurrence of any of the following:
(A) the Company fails to make any payment required to be made to or for the
benefit of the Executive pursuant to Subsection 4(a), 4 (b), 4(d), or 4(e)
above within 30 days after such payment is due; or (B) the Company
willfully breaches any of its obligations or duties under this Agreement
(other than the obligation or duty to make payments specified in the
preceding clause (A) above), which breach is materially adverse to the
Executive and continues for ten calendar days or more after written notice
thereof is given to the Company by the Executive; or (C) the Company fails
to obtain the assumption of the obligation to perform this Agreement by any
successor as contemplated in Subsection 8(a) below; or (D) a Change of
Control occurs. The term "CHANGE OF CONTROL" shall mean (1) the purchase
by a single purchaser or group of affiliated purchasers acting in concert
in making such purchase in a single transaction (or in a series of related
transactions occurring within a period of six consecutive calendar months)
of shares of the Company's voting Common Stock, which purchased shares
represent a percentage of the Company's
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voting Common Stock greater than the percentage thereof (determined on a
fully-diluted basis) beneficially owned in the aggregate by the members of
the HMC Group immediately preceding such purchase or (2) any purchase of
shares of the voting common stock of Wabash Life Insurance Company
("WABASH"), which purchase results in a majority of Wabash's voting common
stock being held by persons other than the Company and/or one or more
members of the HMC Group; provided, however, that purchases by an
underwriter in connection with a public offering of shares shall not in any
event be deemed a "Change of Control" for purposes of this clause (D). For
purposes of this clause (D), (1) the term "HMC GROUP" shall mean Hicks,
Muse, Tate & Furst, Inc. (formerly, Hicks, Muse & Co. (TX) Incorporated),
HMC Partners, L. P., HMC/Life Partners, L. P., employees of any of the
foregoing and affiliates of any of the foregoing, and family members of
any individual included in this subclause (D)(1); and (2) Common Stock
beneficially owned by the HMC Group shall include the shares, currently
owned of record by present or former limited partners of HMC/Life Partners,
L.P., as to which any member of the HMC Group retains an economic interest
or the right to vote such shares in respect of the election of directors of
the Company.
(ii) WITHOUT GOOD REASON. The Executive may terminate his employment
without Good Reason by written notice to the Company to that effect. Unless
otherwise specified in the notice, such termination shall be effective
immediately upon delivery thereof to the Company. In the event the
Executive terminates his employment hereunder without Good Reason, no
further payments or benefits shall be made or provided to the Executive
hereunder except as provided in the next following sentence. If the
Executive's employment is terminated pursuant to this Subsection 7(d) (ii),
then the Company shall continue to pay the Executive his compensation
specified in (and in accordance with the applicable terms of) Subsections
4(a) and 4(b) above only until, and the Company shall continue to provide
the benefits specified in (and in accordance with the applicable terms of)
Subsections 4(d) and 4(e) above (except as otherwise precluded by the terms
of the plans or arrangements respectively described in such subsections)
only until, the date of such termination.
(iii) DISABILITY. If the Company terminates the Executive's employment
hereunder for Cause pursuant to Subsection 7(a)(i)(A) above at any time
when the Executive believes himself to be Incapacitated, the Executive may
furnish the Company with a written statement from a qualified, independent
physician to the effect that the Executive is Incapacitated. The Company
shall then promptly select a qualified, independent physician who shall, at
the Company's expense, examine the Executive. If the physician selected by
the Company concurs in the opinion that the Executive is Incapacitated, the
Executive's employment hereunder shall automatically and immediately
terminate to the same extent and effect for all purposes as if such
employment had been terminated pursuant to Subsection 7(b) above.
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(e) Notwithstanding any other provision of this Section 7, the Company
and the Executive expressly understand and agree that, if (before all
payments and benefits payable to the Executive following a termination
pursuant to any provision of this Section 7 have been fully made or provided
to the Executive) the Executive becomes disabled or dies, then the payments
and benefits required to be made to the Executive pursuant to this Section 7
shall not exceed the lesser of (i) the amount of any payments or benefits
that remain (following the date of the Executive's disability or death, as
applicable) to be made or provided by the Company pursuant to the respective
provision of this Section 7 under which the Executive's employment is
actually terminated or (ii) the amount of any payments or benefits that would
be required to be made or provided by the Company if the Executive's
employment had actually been terminated by the Executive' s disability or
death, as applicable. Furthermore, notwithstanding any other provision of
this Section 7, the Company and the Executive understand and agree that, if
there is a conflict or dispute as to which provision of this Section 7
controls the termination of the Executive's employment, a termination for
Cause pursuant to Subsection 7(a)(i) shall control, regardless of whether
such termination for Cause precedes or follows a termination pursuant to any
other provision of this Section 7; PROVIDED, HOWEVER, that, in order for a
termination for Cause to control, the Company must deliver to the Executive
written notice of such Cause before, or within thirty days following, the
Executive' s termination of employment pursuant to any other provision of
this Section 7.
8. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or assets of the Company, by agreement in form and
substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. As used in this Agreement, the term "Company" shall mean Life
Partners Group, Inc. and any successor to its business and/or all or part of
its assets as aforesaid which executes and delivers the agreement
contemplated by this Subsection 8(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) Neither this Agreement nor any of the rights or obligations of the
Executive under this Agreement may be assigned or delegated except as
provided in the last sentence of this Subsection 8(b). This Agreement and
all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by, and shall be binding upon, the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive should die while any amounts would
still be payable to him hereunder had he continued to live, then all such
amounts (unless otherwise provided herein) shall be paid in accordance with
the terms of this Agreement to the devisee, legatee, or other designee under
the Executive's testamentary will or, if there be no such will, to the
Executive's estate.
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9. NOTICE. For purposes of this Agreement, all notices and other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or when mailed by United
States registered or certified mail, return receipt requested, first-class
postage prepaid, addressed as follows:
If to the Executive: If to the Company:
Don Campbell Life Partners Group, Inc.
5550 Waneta 7887 E. Belleview Ave.
Dallas, TX 75209 Englewood, CO 80111
Attention: Chief Executive Officer
or to such other address as any party may have furnished to the other in
writing in accordance with this Section 9, except that notices of any change
of address shall be effective only upon actual receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is
agreed to in writing signed by the Executive and such officer of the Company
as may be specifically designated by the Board. No waiver by either party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of any similar
or dissimilar condition or provision at the same or any other time. No
agreements or representations (whether oral or otherwise, express or implied)
with respect to the subject matter of this Agreement have been made by either
party which are not set forth expressly in this Agreement or which are not
specifically referred to in this Agreement. The validity, interpretation,
construction, and performance of this Agreement shall be governed by the law
of the State of Colorado. Unless the context otherwise requires, words using
the singular or plural number shall respectively include the plural or
singular number, and pronouns of any gender shall include each other gender.
11. VALIDITY. If any provision of this Agreement is held to be
illegal, invalid, or unenforceable under any present or future law or court
decision, and if the rights or obligations of the Company and the Executive
will not be materially and adversely affected thereby, (a) such provision
shall be fully severable from this Agreement, (b) this Agreement shall be
construed and enforced as if such illegal, invalid, or unenforceable
provision had never comprised a part hereof, (c) the remaining provisions of
this Agreement shall remain in full force and effect and shall not be
affected by the illegal, invalid, or unenforceable provision or by its
severance herefrom, and (d) in lieu of such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar to the terms
and intent of such illegal, invalid, or unenforceable provision as may be
possible.
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12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado, in accordance with the rules of the American Arbitration
Association then in effect. Any judgment may be entered on the arbitrator's
award in any court having jurisdiction; PROVIDED, HOWEVER, that the Company
shall be entitled to seek a restraining order or injunction in any court of
competent jurisdiction with respect to any breach or threatened breach of any
provision of Section 6 above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of January 30, 1995, to be effective as of February 1, 1995.
EXECUTIVE:
By: /s/ DON CAMPBELL
-------------------------------
Don Campbell
COMPANY:
LIFE PARTNERS GROUP, INC.
By: /s/ JOHN H. MASSEY
-------------------------------
Name: John H. Massey
Title: Chief Executive Officer
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EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 12th day of
June, 1995, between Life Partners Group, Inc., a Delaware corporation (the
"COMPANY"), and Roger E. Dunker (the "EXECUTIVE").
WHEREAS, the Company's Board of Directors (the "BOARD") recognizes that
the Executive's contribution (as an executive officer of the Company) to the
growth and success of the Company is expected to be substantial and desires
to assure the Company of the Executive's continued employment in an executive
capacity and to compensate him therefor; and
WHEREAS, the Executive desires to commit himself to serve the Company on
the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and
the Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein for the period commencing on June 12, 1995, and
(unless earlier terminated pursuant to Section 7 below) ending on June 30,
1998. The period from June 12, 1995 through June 30, 1998 or, if earlier, the
date of termination of the Executive's employment pursuant to Section 7
below, is sometimes referred to herein as the "PERIOD OF EMPLOYMENT."
2. POSITION AND DUTIES. The Executive, during the Period of Employment,
shall serve as the President and Chief Marketing Officer of each of the
Company's life insurance subsidiaries, Massachusetts General Life Insurance
Company, Philadelphia Life Insurance Company, Wabash Life Insurance Company
and Lamar Life Insurance Company (collectively, the "LIFE COMPANIES")
(reporting only to the Chief Executive Officer and the President of the
Company and to the Board), shall have supervision and control over and
responsibility for the domestic marketing, sales and distribution operations
of the Life Companies, shall have such other powers and duties as may from
time to time be prescribed by the Chief Executive Officer, the President and
the Board, so long as such duties are consistent with the Executive's
position, and shall hold such other positions and titles as to which he may
be promoted by the Board. The Executive shall devote substantially all of his
working time and efforts to the business and affairs of the Company, shall
perform his duties hereunder diligently and in a prudent and businesslike
manner, and shall act in the best interests of the Company as he reasonably
perceives such interests.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company during the Period of Employment, the Executive shall be based in
Denver, Colorado. The Executive shall not be required to relocate his
residence from Denver, Colorado, in order to perform his duties under this
Agreement. If at the Board's request the Executive agrees to relocate his
residence to a city other than Denver, Colorado, the Company shall promptly
pay (or reimburse the Executive for) all reasonable moving expenses incurred
by the Executive relating to such change of his residence.
<PAGE>
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive an annual base salary of
$250,000 ("BASE SALARY"). The Base Salary shall be payable in twenty-four
substantially equal semi-monthly installments and may be increased from time
to time by action of the Board or the Compensation Committee of the Board but
shall not be reduced during the Period of Employment.
(b) INCENTIVE COMPENSATION. In addition to the Base Salary, Executive
shall be entitled to receive, not later than April 30 of each year during the
continuance of the Executive's employment under this Agreement and on or
before April 30 of the year following the year in which the Executive's
employment hereunder terminates, incentive compensation as follows:
(i) on or before April 30, 1996, a cash bonus as may be determined
by the Board under the Company's Management Cash Bonus Plan in effect on
the date hereof, but in no event to be less than $87,500 (which
guaranteed minimum amount approximates sixty percent (60%) of the
Executive's Base Salary prorated for the period of service by Executive
from June 12, 1995, through December 31, 1995);
(ii) on or before April 30 in years subsequent to 1996, such amount
as may be determined by the Board under the Company's Management Cash
Bonus Plan then in effect (as such plan may be amended from time to
time, the "BONUS PLAN"), but in no event shall the cash bonus for
calendar year 1996 (to be paid on or before April 30 of 1997) be less
than sixty percent (60%) of Executive's Base Salary for the period from
January 1, 1996 to June 30, 1996. To the extent that Executive becomes
entitled to additional amounts as bonus compensation for the year 1996
under the Bonus Plan, such additional amount shall be prorated so as to
cover only the period from July 1, 1996, through December 31, 1996.
Presently, the Bonus Plan is based upon a ratio (the "BONUS RATIO") of
actual GAAP earnings (as defined in the Bonus Plan) to planned GAAP
earnings (as defined in the Bonus Plan) whereby three different levels
of cash bonuses may be earned. Under the current Bonus Plan,
notwithstanding the Executive's position or title at the time of
determination, if the Bonus Ratio is equal to or greater than 90%, but
less than 95%, the Executive's bonus compensation for the year will be
equal to 40% of Base Salary; if the Bonus Ratio is equal to or greater
than 95%, but less than 100%, the Executive's bonus compensation for the
year will be equal to 60% of Base Salary; and if the Bonus Ratio is
equal to or in excess of 100%, the Executive's bonus compensation for
the year will be 80% of Base Salary. It is understood and agreed that,
in accordance with the terms of the Bonus Plan, the Board may amend and
revise the Bonus Plan from time to time in its discretion.
The amount of bonus compensation payable on or before the April 30
following the year during which the Executive's employment hereunder is
terminated shall be prorated based upon
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the actual number of days the Executive was employed during the preceding
year compared to the total number of days in the calendar year during which
the employment terminated.
(c) STOCK OPTIONS. Contemporaneously herewith, the Company has executed
and delivered to the Executive a Stock Option Agreement, dated and effective
on the date hereof, granting the Executive, subject to the terms and
conditions set forth in the Stock Option Agreement, an option to purchase up
to 100,000 shares of the Company's Common Stock, at a cash price per share
equal to the closing price per share for the Company's common stock as quoted
on the New York Stock Exchange on the date hereof, one-fifth of such options
to vest on the first anniversary of the date of this Agreement, another
one-fifth to vest on each subsequent anniversary hereof, with the final
one-fifth to vest on the fifth anniversary of the date of this Agreement.
(d) EXPENSES. The Executive shall be entitled to receive prompt
reimbursement for all reasonable expenses incurred by him (in accordance with
the policies and procedures presently established by the Company for its
senior executive officers) during the Period of Employment, in performing
services hereunder, provided that the Executive properly accounts therefor in
accordance with Company policy. During the Period of Employment, the Company
shall provide to the Executive an automobile allowance of $600 per month.
(e) OTHER BENEFITS. The Executive shall be entitled to participate in
or receive benefits under all of the Company's Employee Benefit Plans or
Other Arrangements (as hereinafter defined) in effect on the date hereof or
under plans or arrangements that provide the Executive with at least
equivalent benefits to those provided under such Employee Benefit Plans or
Other Arrangements. As used herein, "EMPLOYEE BENEFIT PLANS OR OTHER
ARRANGEMENTS" include, without limitation, each pension and retirement plan,
supplemental pension, retirement, and deferred compensation plan, savings and
profit-sharing plan, medical insurance plan, disability plan, and health and
accident plan or arrangement established and maintained by the Company on the
date hereof for the benefit of and made generally available to executives and
key management employees of the Company or its subsidiaries, but does not
include any other employment agreement between the Company (or any of its
subsidiaries) and any employee thereof. The Executive shall be entitled to
participate in or receive benefits under any employee benefit plan or
arrangement which may, in the future, be made generally available by the
Company to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions, and overall administration of
such plan or arrangement. Any payments or benefits payable to the Executive
under a plan or arrangement referred to in this Subsection 4(e) in respect of
any calendar year during which the Executive is employed by the Company for
less than the whole of such calendar year shall, unless otherwise provided in
the applicable plan or arrangement, be prorated in accordance with the actual
number of days in such calendar year during which he is so employed.
(f) VACATIONS AND SICK LEAVE. During the Period of Employment, the
Executive shall
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<PAGE>
be entitled to the number of paid vacation days in each calendar year
determined by the Company from time to time for its senior executive
officers, but not less than three weeks in any calendar year (prorated in any
calendar year during which the Executive is employed hereunder for less than
the entire such year in accordance with the actual number of days in such
calendar year). During the Period of Employment, the Executive shall also be
entitled to all paid holidays given by the Company to its senior executive
officers. During the Period of Employment, the Executive shall be entitled to
30 calendar days of paid sick leave during each calendar year of employment
(prorated in any calendar year during which the Executive is employed
hereunder for less than the entire such year in accordance with the actual
number of days in such calendar year). Vacation days and sick days that are
not used by the Executive in any calendar year will not be carried forward,
and all such days shall be forfeited without compensation.
5. ADDITIONAL POSITIONS. During the Period of Employment, the Executive
agrees that, in the event the Board requests him to serve in one or more
executive offices of the Company or of any of the Company's subsidiaries as
the Executive may from time to time be elected, he will so serve without
further compensation, if and so long as the Executive is indemnified for
serving in any and all such capacities on a basis no less favorable than is
currently provided by the Company's By-laws.
6. CONFIDENTIALITY AND NONCOMPETITION.
(a) The Executive acknowledges that his services and responsibilities
are of particular significance to the Company and its subsidiaries
(collectively the "LPG COMPANIES" and individually an "LPG COMPANY"), and
that his positions with the Company or any other LPG Company will give him
access to and an intimate knowledge of the policies, customers, employees,
trade secrets, and other confidential, proprietary, nonpublic, privileged, or
secret information of the LPG Companies (collectively "CONFIDENTIAL
INFORMATION"); PROVIDED, HOWEVER, that Confidential Information shall not
include any information which is obtainable from non-Company sources that are
not bound by any confidentiality or nondisclosure obligation with respect to
such information (whether such obligation is imposed by agreement, fiduciary
duty, law, order or otherwise) or that have not obtained such information as
a result of unauthorized disclosure by or at the direction of the Executive.
Because the LPG Companies are in creative, technical, and competitive
businesses, the Executive's continued and exclusive service to the LPG
Companies and his preservation of the confidentiality of the Confidential
Information is of critical importance to the Company.
(b) Based on the matters described in Subsection 6(a) above, and in
further consideration of this Agreement, the Executive covenants and agrees
with the Company that:
(i) CONFIDENTIAL INFORMATION. The Executive shall not (for any
reason), directly or indirectly, for himself or on behalf of any other
person or entity, disclose to any person or entity (except to employees
or other representatives of the Company who
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need to know such Confidential Information to the extent reasonably
necessary for the Executive to perform his duties under this Agreement
and except as required by law; PROVIDED, HOWEVER, that this exception
for legal requirement shall not apply to any legal requirement imposed
upon the Executive as a result of the Executive's, directly or
indirectly, having purchased securities or otherwise seeking or deriving
personal benefit) any Confidential Information which the Executive may
have acquired in the course of or as an incident to his employment or
prior dealings with any LPG Company, including, without limitation,
business or trade secrets of, or insurance products or methods or
techniques used by, any LPG Company in or about their respective
businesses, or any Confidential Information whatsoever concerning the
customers, clients, policyholders, or annuitants of any LPG Company, or
any reinsurance agreements or similar arrangements involving any LPG
Company; PROVIDED, HOWEVER, that after the later of (A) the last day on
which the Executive receives compensation pursuant to any of Subsections
7(a) (ii), 7(b) or 7(d) (i) below or (B) the second anniversary of the
termination (if any) of the Executive's employment hereunder pursuant to
Subsection 7(a)(i) or Subsection 7(d) (ii) below, the Company's sole
remedy for any breach of this Subsection 6(b)(i) shall be a restraining
order or injunction by any court of competent jurisdiction.
(ii) NONCOMPETE. During the Period of Employment and through the
later of (A) the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a) (ii), 7(b) or 7(d)(i) below or (B)
the second anniversary of the termination (if any) of the Executive's
employment hereunder pursuant to Subsection 7(a)(i) or Subsection 7(d)
(ii) below, the Executive shall not (for any reason), for himself or on
behalf of any other person or entity, (1) call on or contact any
customer, client, policyholder, or annuitant of any LPG Company or any
agent, reinsurer, or insurance company with which any LPG Company has
done business during the Period of Employment for the purpose or with
the effect of offering any insurance products or services of any kind
offered by any LPG Company during the Period of Employment or (2) assist
any other person or entity in connection with any action described in
the foregoing clause (1).
(iii) NONINTERFERENCE WITH EMPLOYEES. During the Period of
Employment and through the latest of (A) the last day on which the
Executive receives compensation pursuant to any of Subsections 7(a)
(ii), 7(b) or 7(d)(i) below or (B) the second anniversary of the
termination (if any) of the Executive's employment hereunder pursuant to
Subsection 7(a)(i) or Subsection 7(d) (ii) below, the Executive shall
not (for any reason), for himself or on behalf of any other person or
entity, (1) induce or attempt to induce any employee of any LPG Company
to terminate employment with the employing LPG Company, (2) interfere
with or disrupt any LPG Company's relationship with any of the employees
of such LPG Company, (3) solicit, entice, or take away, any person
employed by any LPG Company during the 12-month period preceding the
termination of the Period of Employment, or (4) assist any other person
or entity in connection with
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any action described in any of the foregoing clauses (1) through (3).
(iv) NONINTERFERENCE WITH POLICYHOLDERS. ETC. The Executive shall
not (for any reason), directly or indirectly, for himself or on behalf
of any other person or entity, (1) utilize or attempt to utilize any
Confidential Information for the purpose or with the effect of causing
or attempting to cause (X) any policyholder or annuitant to replace or
terminate any insurance or annuity contract issued, reinsured, or
underwritten by any LPG Company, in whole or in part, with any insurance
or annuity product of any other person or entity, or (Y) any reinsurer
to terminate any reinsurance, coinsurance, or other similar contract, or
to sever a relationship, with any LPG Company or (2) assist any other
person or entity in connection with any action described in the
foregoing clause (1); PROVIDED, HOWEVER, that after the later of (A) the
last day on which the Executive receives compensation pursuant to any of
Subsections 7(a) (ii), 7(b) or 7(d) (i) below or (B) the second
anniversary of the termination (if any ) of the Executive's employment
hereunder pursuant to Subsection 7(a) (i) or Subsection 7(d) (ii) below,
the Company's sole remedy for any unintentional breach of this
Subsection 6(b) (iv) shall be a restraining order or injunction by any
court of competent jurisdiction.
(v) EXCLUSIVE EMPLOYMENT. During the Period of Employment and
through the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a) (ii), 7(b) or 7(d)(i) of this
Agreement, the Executive shall not (for any reason), directly or
indirectly, for himself or on behalf of any other person or entity,
render any service of an advisory nature or otherwise to, or become
employed by, or own any interest in, or be associated with, any
insurance company or any agency or brokerage firm selling life insurance
or annuities, or any entity owning 50% or more of any insurance company
or agency or brokerage firm selling life insurance or annuities, other
than the LPG Companies; PROVIDED, HOWEVER, that the Executive may make
investments in entities of such kind which are publicly owned and in
which the Executive owns no more than 2% of the outstanding stock
thereof.
(c) INJUNCTIVE RELIEF. The Executive acknowledges and agrees that any
breach by him of any of the covenants or agreements contained in this Section
6 would give rise to irreparable injury to the Company and would not be
adequately compensable in damages. Accordingly, the Executive agrees that the
Company may seek and obtain injunctive relief against the breach or
threatened breach of any of the provisions of this Section 6, in addition to
any other legal remedies which may be available. The Executive further
acknowledges and agrees that the covenants and agreements contained herein
are necessary for the protection of the Company' s legitimate business
interests and are reasonable in scope and content.
(d) REFORMATION AND SURVIVAL. The Company and the Executive agree and
stipulate that the agreements and covenants contained in this Section 6 are
fair and reasonable in light of all of the facts and circumstances of the
relationship between them. The Company and the
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Executive acknowledge their awareness, however, that in certain circumstances
courts have refused to enforce certain agreements not to compete. Therefore,
in furtherance of, and not in derogation of, the provisions of this Section
6, the Company and the Executive agree that, in the event a court should
decline to enforce one or more of the provisions of this Section 6, then this
Section 6 shall be deemed to be modified or reformed to restrict the
Executive's conduct to the maximum extent (in terms of time, geography, and
business scope) which the court shall determine to be enforceable. The
provisions of this Section 6 shall survive the termination of this Agreement
for the respective periods set forth in this Section 6.
7. TERMINATION. Except as expressly provided in this Section 7, from
and after the date of termination of the Executive's employment hereunder,
the Company shall have no obligation (whether financial or otherwise) under
this Agreement, and the Executive shall have no right to receive any Base
Salary or any other payment or benefit under this Agreement; PROVIDED,
HOWEVER, that nothing in this Section 7 shall affect the Executive's
obligations under Section 6 above or shall affect the Executive' s rights to
receive payments or benefits that are accrued before, but remain unpaid on,
the date of termination, or to receive payments or benefits that are required
to be made or provided to him pursuant to the terms of any of the Employee
Benefit Plans or Other Arrangements insofar as such rights relate to the
Executive's participation in the respective plan or arrangement before the
date of termination.
(a) TERMINATION BY COMPANY. As set forth below, the Company may
terminate the Executive's employment hereunder with or without Cause (as
hereinafter defined), for any reason or for no reason.
(i) FOR CAUSE. The Company may terminate the employment of the
Executive hereunder for or with Cause by written notice to the Executive
to that effect setting forth in reasonable detail the Cause or Causes
for such termination. Such notice shall be delivered at least ten
calendar days prior to the effectiveness of such termination and shall
provide an opportunity for the Executive, together with his counsel, to
be heard by the Board prior to the effectiveness of such termination.
Such termination shall be effective at the time (not less than ten
calendar days after delivery of the notice of termination) specified in
such notice of termination. In the event the Company terminates the
Executive's employment hereunder for or with Cause, no further payments
or benefits shall be made or provided to the Executive hereunder except
as provided in the next following sentence. If the Executive's
employment is terminated pursuant to this Subsection 7(a) (i), then the
Company shall continue to pay the Base Salary to the Executive specified
in (and in accordance with the applicable terms of) Subsection 4(a)
above only until the date of such termination and shall continue to
provide the Executive with the benefits specified in (and in accordance
with the applicable terms of) Subsections 4(d) and 4(e) above (except as
otherwise precluded by the terms of the plans or arrangements
respectively described in such subsections) only until the date of such
termination. As used in this Agreement, the term "CAUSE" shall mean the
occurrence of
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any of the following, as determined by the Board in its sole discretion
exercised in good faith: (A) the Executive willfully breaches any of his
obligations or duties hereunder which breach is materially adverse to
the Company or any of its affiliates; or (B) the Executive fails to
comply with any written or oral direction of the Chief Executive
Officer, the President or the Board which reasonably relates to the
performance of the Executive's duties as provided in Section 2 of this
Agreement and which would not require the Executive to perform an
illegal act; PROVIDED, HOWEVER, such failure shall not constitute
"Cause" (1) if the failure results from the Executive's being
Incapacitated (as hereinafter defined) or (2) unless such failure
continues for ten calendar days or more after written notice thereof is
given to the Executive by the Company; or (C) the Executive fails to
comply with his obligations under Section 6 of this Agreement and such
failure, or any adverse consequence thereof, continues for ten calendar
days or more after written notice thereof is given to the Executive by
the Company; PROVIDED, HOWEVER, that no such notice need be given if the
failure and its adverse consequences cannot reasonably be expected to be
cured within ten calendar days; or (D) the Executive engages in any act
of intentional, willful or reckless dishonesty which is injurious to the
Company or its business or to any affiliate of the Company or such
affiliate's business; or (E) the Executive is convicted of or enters a
plea of guilty or nolo contendere to (1) any misdemeanor involving moral
turpitude which, in the good faith judgment of the Board, may be
injurious to the reputation of the Company or any of its affiliates, (2)
any misdemeanor involving financial misconduct, or (3) any felony.
(ii) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause by written notice to the Executive to
that effect. Unless otherwise specified in the notice, such termination
shall be effective immediately upon delivery thereof to the Executive.
In the event the Company terminates the Executive's employment hereunder
without Cause during the Period of Employment, no further payments or
benefits shall be made or provided to the Executive hereunder except as
provided in the next following sentence. If the Executive's employment
hereunder is terminated pursuant to this Subsection 7(a) (ii), then the
Company shall continue to pay the Executive the compensation specified
in (and in accordance with the applicable terms of) Subsections 4(a) and
4(b) above only during the Post-Employment Compensation Period, and the
Company shall continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms of)
Subsections 4(d) and 4(e) above (except as otherwise precluded by the
terms of the plans or arrangements respectively described in such
subsections) only during the Post-Employment Compensation Period. As
used herein, the term "POST-EMPLOYMENT COMPENSATION PERIOD" shall mean
the period of time commencing on the date of the termination of the
Executive's employment with the Company pursuant to Subsections
7(a)(ii), 7(b), 7(c), or 7(d)(i) hereof and ending on the later of (A)
June 30, 1998, or (B) the second anniversary of such termination date.
Following the date on which the Executive shall accept employment with
any person or entity other than any LPG Company, the
8
<PAGE>
compensation and benefits specified in Subsections 4(a), 4(b), 4(d) and
4(e) above which are applicable during the Post-Employment Compensation
Period shall be reduced by the value of any compensation and benefits
earned by the Executive as a result of such other employment during such
Post-Employment Compensation Period.
(b) DISABILITY. If during the Period of Employment the Executive shall
be or become incapacitated by reason of mental or physical disability or
otherwise so that he is or will be prevented from adequately performing any
of his material duties and obligations under this Agreement for more than 60
calendar days in the aggregate during any calendar year ("INCAPACITATED"),
the Executive's employment hereunder shall automatically and immediately
terminate upon written notice from the Company to the Executive to such
effect. Thereafter, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next following
sentence. If the Executive's employment hereunder is terminated pursuant to
this Subsection 7(b), then the Company shall continue to pay the Executive
the compensation specified in (and in accordance with the applicable terms
of) Subsections 4(a) and 4(b) above only during the Post-Employment
Compensation Period, and the Company shall continue to provide the Executive
with the benefits specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise precluded by the
terms of the plans or arrangements respectively described in such
subsections) only during the Post-Employment Compensation Period; PROVIDED,
HOWEVER, that the amount of any compensation and benefit payments required to
be made under this Subsection 7(b) shall be reduced by (A) the amount of any
compensation and benefit payments made in the calendar year of termination to
the Executive during any periods of time exceeding, in the aggregate, 60
calendar days (prorated based upon the actual number of days the Executive is
employed during such calendar year prior to termination compared to the total
number of days in such calendar year) when the Executive was unable to
perform his duties or obligations under this Agreement as a result of
sickness or other physical or mental disability and (B) the value of any
compensation and benefits earned by the Executive as a result of the
Executive's employment by any person or entity other than any LPG Company
during the period in which the Executive is entitled to receive compensation
and benefits pursuant to this Subsection 7(b). The determination by a
qualified, independent physician selected by the Board that the Executive is
Incapacitated shall be final and conclusive. By executing this Agreement, the
Executive agrees to submit to any and all medical examinations or procedures
and to execute and deliver any and all consents to the release of medical
information and records or otherwise as shall be reasonably required by such
physician in determining whether the Executive is Incapacitated.
(c) DEATH. If the Executive dies during the Period of Employment, the
Executive's employment hereunder shall automatically and immediately
terminate. Thereafter, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next following
sentence. If the Executive' s employment hereunder is terminated pursuant to
this Subsection 7(c), then the Company shall reimburse the estate of the
Executive for the expenses, costs, and automobile allowance specified in (and
in accordance with the applicable
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terms of) Subsection 4(d) above as the same are incurred before, but remain
unpaid at the time of, the Executive's death and shall continue to pay the
estate of the Executive the compensation specified in (and in accordance with
the applicable terms of) Subsections 4(a) and 4(b) above only during the
Post-Employment Compensation Period.
(d) TERMINATION BY EXECUTIVE. As set forth below, the Executive may
terminate his employment hereunder with or without Good Reason (as
hereinafter defined). If the Executive resigns as an Executive Vice
President of the Company or as Chief Financial Officer, he shall be deemed to
have terminated his employment under this Agreement with the effect specified
in Subsection 7(d)(i) or Subsection 7(d) (ii) below, as applicable. If the
Executive terminates his employment under this Agreement, he shall be deemed
(unless otherwise determined by the Board) to have resigned from all offices,
directorships, and committee memberships that he then holds with the Company
or any other LPG Company.
(i) FOR GOOD REASON. The Executive may terminate his employment
for or with Good Reason by written notice to the Company to that effect
setting forth in reasonable detail the Good Reasons for such
termination. Such notice shall be delivered at least ten calendar days
prior to the effectiveness of such termination and shall provide an
opportunity for the Board (or its representative), together with counsel
to the Company, to meet with the Executive to discuss the reasons for
such termination prior to the effectiveness of such termination. Such
termination shall be effective at the time (not less than ten calendar
days after delivery of the notice of termination) specified in such
notice of termination. In the event the Executive terminates his
employment hereunder for or with Good Reason, no further payments or
benefits shall be made or provided to the Executive hereunder except as
provided in the following sentence. If the Executive's employment is
terminated pursuant to this Subsection 7(d)(i), then the Company shall
continue to pay the Executive the compensation specified in (and in
accordance with the applicable terms of) Subsections 4(a) and 4(b) above
only during the Post-Employment Compensation Period, and the Company
shall continue to provide the Executive with the benefits specified in
(and in accordance with the applicable terms of) Subsections 4(d) and
4(e) above (except as otherwise precluded by the terms of the plans or
arrangements respectively described in such subsections) only during the
Post-Employment Compensation Period. Following the date on which the
Executive shall accept employment with any person or entity other than
any LPG Company, the compensation and benefits specified in Subsections
4(a), 4(b), 4(d) and 4(e) above shall be reduced by the value of any
compensation and benefits earned by the Executive as a result of such
other employment. As used in this Agreement, the term "GOOD REASON"
shall mean the occurrence of any of the following: (A) the Company
fails to make any payment required to be made to or for the benefit of
the Executive pursuant to Subsection 4(a), 4 (b), 4(d), or 4(e) above
within 30 days after such payment is due; or (B) the Company willfully
breaches any of its obligations or duties under this Agreement (other
than the obligation or duty to make payments specified in the preceding
clause (A)
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above), which breach is materially adverse to the Executive and
continues for ten calendar days or more after written notice thereof is
given to the Company by the Executive; or (C) the Company fails to
obtain the assumption of the obligation to perform this Agreement by any
successor as contemplated in Subsection 8(a) below.
(ii) WITHOUT GOOD REASON. The Executive may terminate his
employment without Good Reason by written notice to the Company to that
effect. Unless otherwise specified in the notice, such termination
shall be effective immediately upon delivery thereof to the Company. In
the event the Executive terminates his employment hereunder without Good
Reason, no further payments or benefits shall be made or provided to the
Executive hereunder except as provided in the next following sentence.
If the Executive's employment is terminated pursuant to this Subsection
7(d) (ii), then the Company shall continue to pay the Executive his
compensation specified in (and in accordance with the applicable terms
of) Subsections 4(a) and 4(b) above only until, and the Company shall
continue to provide the benefits specified in (and in accordance with
the applicable terms of) Subsections 4(d) and 4(e) above (except as
otherwise precluded by the terms of the plans or arrangements
respectively described in such subsections) only until, the date of such
termination.
(iii) DISABILITY. If the Company terminates the Executive's
employment hereunder for Cause pursuant to Subsection 7(a)(i)(A) above
at any time when the Executive believes himself to be Incapacitated, the
Executive may furnish the Company with a written statement from a
qualified, independent physician to the effect that the Executive is
Incapacitated. The Company shall then promptly select a qualified,
independent physician who shall, at the Company's expense, examine the
Executive. If the physician selected by the Company concurs in the
opinion that the Executive is Incapacitated, the Executive's employment
hereunder shall automatically and immediately terminate to the same
extent and effect for all purposes as if such employment had been
terminated pursuant to Subsection 7(b) above.
(e) Notwithstanding any other provision of this Section 7, the Company
and the Executive expressly understand and agree that, if (before all
payments and benefits payable to the Executive following a termination
pursuant to any provision of this Section 7 have been fully made or provided
to the Executive) the Executive becomes disabled or dies, then the payments
and benefits required to be made to the Executive pursuant to this Section 7
shall not exceed the lesser of (i) the amount of any payments or benefits
that remain (following the date of the Executive's disability or death, as
applicable) to be made or provided by the Company pursuant to the respective
provision of this Section 7 under which the Executive's employment is
actually terminated or (ii) the amount of any payments or benefits that would
be required to be made or provided by the Company if the Executive's
employment had actually been terminated by the Executive' s disability or
death, as applicable. Furthermore, notwithstanding any other provision of
this Section 7, the Company and the Executive understand and agree that, if
there is a conflict
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or dispute as to which provision of this Section 7 controls the termination
of the Executive's employment, a termination for Cause pursuant to Subsection
7(a)(i) shall control, regardless of whether such termination for Cause
precedes or follows a termination pursuant to any other provision of this
Section 7; provided, however, that, in order for a termination for Cause to
control, the Company must deliver to the Executive written notice of such
Cause before, or within thirty days following, the Executive' s termination
of employment pursuant to any other provision of this Section 7.
8. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or assets of the Company, by agreement in form and
substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. As used in this Agreement, the term "Company" shall mean Life
Partners Group, Inc. and any successor to its business and/or all or part of
its assets as aforesaid which executes and delivers the agreement
contemplated by this Subsection 8(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) Neither this Agreement nor any of the rights or obligations of the
Executive under this Agreement may be assigned or delegated except as
provided in the last sentence of this Subsection 8(b). This Agreement and
all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by, and shall be binding upon, the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive should die while any amounts would
still be payable to him hereunder had he continued to live, then all such
amounts (unless otherwise provided herein) shall be paid in accordance with
the terms of this Agreement to the devisee, legatee, or other designee under
the Executive's testamentary will or, if there be no such will, to the
Executive's estate.
9. NOTICE. For purposes of this Agreement, all notices and other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or when mailed by United
States registered or certified mail, return receipt requested, first-class
postage prepaid, addressed as follows:
If to the Executive: If to the Company:
Roger E. Dunker Life Partners Group, Inc.
143 Capulin Place 7887 E. Belleview Ave.
Castle Rock, CO 80401 Englewood, CO 80111
Attention: General Counsel
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or to such other address as any party may have furnished to the other in
writing in accordance with this Section 9, except that notices of any change
of address shall be effective only upon actual receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is
agreed to in writing signed by the Executive and such officer of the Company
as may be specifically designated by the Board. No waiver by either party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of any similar
or dissimilar condition or provision at the same or any other time. This
Agreement embodies the entire agreement among the parties hereto relating to
the subject matter hereof and supersedes and replaces any and all prior
agreements, understandings or representations (whether oral or otherwise,
express or implied) with respect to the subject matter of this Agreement,
PROVIDED HOWEVER, the terms and provisions of that certain letter agreement
by and between the Company and the Executive, dated May 22, 1995 and executed
by Executive on May 25, 1995 (as revised and supplemented by the addenda
thereto, the "LETTER AGREEMENT"), only insofar as same relates to relocation
costs and expenses associated with the Executive's relocation to Denver,
Colorado, shall remain in full force and effect, whereas all other terms and
provisions of the Letter Agreement are hereby superseded and replaced in
their entirety . The validity, interpretation, construction, and performance
of this Agreement shall be governed by the laws of the State of Colorado.
Unless the context otherwise requires, words using the singular or plural
number shall respectively include the plural or singular number, and pronouns
of any gender shall include each other gender.
11. VALIDITY. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law or court decision,
and if the rights or obligations of the Company and the Executive will not be
materially and adversely affected thereby, (a) such provision shall be fully
severable from this Agreement, (b) this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom, and (d) in
lieu of such illegal, invalid, or unenforceable provision, there shall be
added automatically as a part of this Agreement a legal, valid, and
enforceable provision as similar to the terms and intent of such illegal,
invalid, or unenforceable provision as may be possible.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this Agreement shall be settled exclusively by arbitration in
Denver, Colorado, in accordance with
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the rules of the American Arbitration Association then in effect. Any
judgment may be entered on the arbitrator's award in any court having
jurisdiction; provided, however, that the Company shall be entitled to seek a
restraining order or injunction in any court of competent jurisdiction with
respect to any breach or threatened breach of any provision of Section 6
above.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective June 12, 1995.
EXECUTIVE:
By: /s/ ROGER E. DUNKER
-------------------------------
Roger E. Dunker
COMPANY:
LIFE PARTNERS GROUP, INC.
By: /s/ DAVID GUBBAY
------------------------------
Name: David Gubbay
Title: President
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STOCK OPTION AGREEMENT
This Nonstatutory Stock Option Agreement (this "OPTION AGREEMENT") is made
and entered into effective as of the 12th day of June, 1995 by and between Life
Partners Group, Inc., a Delaware corporation ("LPG"), and Roger E. Dunker (the
"OPTIONEE") In accordance with and pursuant to the terms of LPG's 1992 Incentive
and Nonstatutory Stock Option Plan (the "PLAN").
W I T N E S S E T H:
WHEREAS, concurrently with the execution of this Option Agreement, the
Optionee and LPG have entered into an Employment Agreement (the "EMPLOYMENT
AGREEMENT") pursuant to which, among other things, the Optionee has been
employed by LPG on the terms and conditions set forth therein; and
WHEREAS, as an additional incentive to the Optionee to enter into and
remain in the employ of LPG and/or one or more of its subsidiaries and to devote
his best efforts to the business and affairs of LPG, LPG desires to grant to the
Optionee certain nonstatutory stock options to purchase from LPG, at the times
and on the conditions hereinafter set forth, shares of LPG's Common Stock, par
value $0.001 per share (the "COMMON STOCK").
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
herein contained, the parties hereby agree as follows:
1. DEFINITIONS; COPY OF PLAN. To the extent not specifically provided
herein or otherwise required by context, all capitalized terms used in this
Option Agreement, but not defined herein, shall have the same meanings ascribed
to them in the Plan. By the execution of this Option Agreement, the Optionee
acknowledges that he has received and reviewed a copy of the Plan.
2. GRANT OF OPTIONS. LPG hereby grants to the Optionee the option (the
"OPTION") to purchase from LPG, at the times, at the Exercise Price (as
hereinafter defined), and on the conditions set forth in this Option Agreement,
up to 100,000 shares of Common Stock (subject to adjustment as provided in
Section 7 hereof). The Option is not intended to qualify, and shall not be
construed, as an "incentive stock option" under Section 422 of the Code.
3. EXERCISE OF THE OPTIONS.
(a) TIME OF EXERCISE. The Option shall become exercisable as to 20,000
shares on June 12, 1996, (ii) as to an additional 20,000 shares on June 12,
1997, (iii) as to an additional 20,000 shares on June 12, 1998, (iv) as to an
additional 20,000 shares on June 12, 1999, and (v) as to an additional 20,000
shares on June 12, 2000. Subject to Sections 5 and 8 below, the Option must be
exercised by the Optionee prior to 1:00 p.m., Denver, Colorado time, on
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June 12, 2005 (the "TERMINATION DATE"). If the Optionee fails to exercise the
Option in full prior to the Termination Date, all rights of the Optionee to
purchase the shares of Common Stock subject to the unexercised portion or
portions of the Option shall automatically cease and any other rights of the
Optionee provided in this Option Agreement with respect to such unexercised
portion or portions of the Option shall terminate and be of no further force
and effect.
(b) PURCHASE PRICE. The purchase price for each share of Common Stock
purchased upon exercise of the Option will be $18.50 per share, which price per
share is equal to the closing price per share for LPG's publicly traded common
stock as quoted on the New York Stock Exchange on June 12, 1995 (the "EXERCISE
PRICE"), subject to adjustment as provided in Section 7 hereof. No fractional
shares of Common Stock shall be issued pursuant to the exercise of the Option,
and the number of shares of Common Stock to be purchased in connection with
the exercise of the Option (or any portion or portions thereof) shall be rounded
down to the nearest whole share of Common Stock. No cash shall be payable in
lieu of fractional shares.
4. METHOD OF EXERCISE AND PAYMENT. Subject to Sections 3, 5, and 8
hereof, the Option granted hereunder may be exercised by the Optionee in whole
or in part, from time to time, by giving written notice to LPG of his intent to
exercise the Option at least 15 calendar days prior to the proposed exercise
date, which proposed exercise date shall not be more than 30 calendar
days after the date the notice is given. Such notice shall (a) specify the
portion or portions of the Option being exercised, (b) specify the number of
shares of Common Stock to be purchased upon exercise of such Option (or portion
or portions thereof), (c) specify the Exercise Price to be paid therefor, (d)
represent in form satisfactory to LPG that the shares of Common Stock are
being purchased for investment and not with a view to resale or distribution,
and (e) state the date and time of the proposed exercise date. Exercise of the
Option shall occur only upon payment to LPG of the respective full Exercise
Price for the shares of Common Stock then being purchased, which purchase price
shall be made against delivery of the certificate or certificates for the shares
of Common Stock purchased. Payment may be made in cash, by certified or
cashier's check, or in such other manner as may be acceptable to LPG.
5. TERMINATION OF EMPLOYMENT PRIOR TO EXERCISE.
(a) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee without GOOD REASON
(as defined in the Employment Agreement) or by LPG for or with CAUSE (as defined
in the Employment Agreement) prior to the exercise in full of the Option, then
all rights of the Optionee to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall cease immediately upon the
effective date of such termination (regardless of whether or not such
unexercised portion or portions of the Option are exercisable as of the
effective date of such termination), and any other rights of the Optionee
provided in this Option Agreement with respect to such unexercised portion or
portions of the Option shall terminate and be of no further force and
effect as of the effective
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date of such termination.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee for Good Reason or
by LPG without Cause prior to the exercise in full of the Option, the Option
shall be immediately exercisable without regard to the vesting schedule set
forth in Section 3(a) hereof and the Optionee may exercise, in whole or in part,
the unexercised portion or portions of the Option by notifying LPG in writing
not later than 90 calendar days after the effective date of such termination.
Such notice to LPG and the method of payment for the shares of Common Stock to
be purchased shall be in accordance with Sections 3 and 4 of this Option
Agreement. All rights of the Optionee to purchase the shares of Common Stock
subject to the unexercised portion or portions of the Option shall automatically
cease, and any other rights of the Optionee provided in this Option Agreement
with respect to such unexercised portion or portions of the Option shall
terminate and be of no force and effect, if the Optionee fails to give such
notice within such 90-day time period or if, after having given such notice, the
Optionee fails to exercise the Option as specified in the notice.
(c) DEATH OR DISABILITY OF OPTIONEE. In the event the Optionee's
employment with LPG is terminated as a result of the Optionee's death or
disability prior to the exercise in full of the Option, the Optionee (or the
estate of the Optionee) may exercise, in whole or in part, the unexercised
portion or portions of the Option that are exercisable as of the date the
Optionee's employment is so terminated by notifying LPG in writing not later
than one calendar year after such date. Such notice to LPG and the method of
payment for the shares of Common Stock to be purchased shall be in accordance
with Sections 3 and 4 of this Option Agreement. All rights of the Optionee (or
the estate of the Optionee) to purchase the shares of Common Stock subject to
the unexercised portion or portions of the Option shall automatically cease, and
any other rights of the Optionee (or the estate of the Optionee) provided in
this Option Agreement with respect to such unexercised portion or portions of
the Option shall terminate and be of no force and effect if the Optionee (or the
estate of the Optionee) fails to give such notice within such one-year time
period or if, after having given such notice, the Optionee (or the estate of the
Optionee) fails to exercise the Option as specified in the notice.
6. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in
Section 5(c) hereof, the Option is personal to the Optionee, may not be
transferred, assigned, pledged, or hypothecated in any way (whether by operation
of law or otherwise), may not be exercised by any other person or entity, and
shall not be subject to execution, attachment, or similar process. Any purported
transfer in violation of this Section 6 shall be absolutely void ab initio and
of no force or effect whatsoever.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event LPG at any
time after June 12, 1995, (a) pays a dividend, or makes a distribution, in
shares of Common Stock, (b)
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subdivides the outstanding shares of Common Stock, (c) combines the outstanding
shares of Common Stock into a smaller number of shares of Common Stock, or (d)
issues any shares of its capital stock or other securities by reclassification
of shares of Common Stock, then the Exercise Price of the Option granted
hereunder and the number of shares of Common Stock then issuable pursuant to any
unexercised portion of the Option shall be automatically adjusted to reflect
accurately and equitably the effect thereon of any such change as provided in
Section 6.1 of the Plan. Any adjustments made pursuant to this Section 7 shall
be determined in good faith by the Board of Directors of LPG after consulting
with the Optionee, which determination shall, in the absence of manifest error,
be conclusive and binding upon LPG and the Optionee.
8. MERGER, CONSOLIDATION, SALE OF ASSETS, OR LIQUIDATION. In the event of
any (a) merger or consolidation of LPG with or into another corporation (other
than any merger or consolidation in which LPG is the surviving corporation), (b)
sale of all or substantially all of the assets of LPG, or (c) voluntary or
involuntary liquidation or dissolution of LPG (each hereinafter referred to as a
"REORGANIZATION"), the unexercised portion or portions of the Option granted
under this Option Agreement shall terminate as of the closing date of such
Reorganization unless exercised as provided in this Section 8. Not later than 15
calendar days prior to the proposed date of, and subject to the consummation of,
such Reorganization, written notice shall be given by LPG to the Optionee of
such proposed Reorganization. The Option shall be immediately exercisable
without regard to the vesting schedule set forth in Section 3(a) hereof, and the
Optionee may exercise any unexercised portion or portions of the Option, in
whole or in part, by notifying LPG in writing not later than five calendar days
after LPG has given the Optionee notice of the Reorganization. Such notice to
LPG and the method of payment for the shares of Common Stock to be purchased
shall be in accordance with Sections 3 and 4 of this Option Agreement, except
that exercise of the Option shall occur immediately preceding the closing of
such Reorganization. The unexercised portion or portions of the Option shall
automatically terminate if the Optionee fails to give such notice within such
time period; PROVIDED, HOWEVER, that in the event such notice of exercise is
given in contemplation of a Reorganization and the anticipated Reorganization is
not consummated, there shall be no acceleration of the unexercised portion or
portions of the Option, the unexercised portion or portions of the Option shall
again become exercisable as provided in Section 3(a) above, and the notices
given hereunder shall be withdrawn and considered a nullity. Notwithstanding any
provision of this Section 8 to the contrary, if provision shall be made in
connection with the Reorganization for the surviving or acquiring corporation
(if applicable) to assume the unexercised portion or portions of the Options or
to issue a substitute option or options in lieu thereof on an equitable basis,
then the unexercised portion or portions of the Option shall not be accelerated
under the provisions of this Section 8 and shall, as applicable, be assumed or
substituted in connection with the Reorganization.
9. NOTICES. Any notice, request, demand, or other communication required
by or permitted to be given in connection with this Option Agreement shall be in
writing, except as
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expressly otherwise permitted herein, and shall be delivered in person, sent by
first class mail, certified or registered mail, return receipt requested,
postage prepaid, sent by telefacsimile or similar means of communication, or
delivered by a courier service, charges prepaid, to the respective parties as
follows:
(i) If to LPG:
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Attn: General Counsel
(ii) If to the Optionee:
Roger E. Dunker
143 Capulin Place
Castle Rock, Colorado 80401
Each of the parties hereto may change the address to which such party desires
notices to be sent if such party notifies the other party hereto of such change
in accordance with the provisions of this Section 9. Any such notice shall be
deemed to be given when received, if delivered personally or by courier or
mailed; and when electronically confirmed, if sent by telefacsimile or similar
device.
10. ADDITIONAL COVENANTS. LPG shall not be required to sell or make
delivery of any shares of Common Stock hereunder until it shall be furnished
with evidence satisfactory to it that such sale and delivery will not be in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
any other applicable state or federal law or regulation. The Optionee, by his
acceptance of this Option Agreement, acknowledges and agrees that the Option and
any shares of Common Stock issuable upon exercise thereof are being acquired by
him for his own account for the purpose of investment and not for sale or other
distribution thereof, as those terms are defined under the Securities Act. The
Optionee agrees further that LPG may request, and the Optionee will deliver to
LPG upon such request, Optionee's acknowledgment and agreement regarding
investment intent in such detail and containing such terms and provisions as LPG
shall deem appropriate and that any certificate evidencing such shares of Common
Stock issued on exercise of the Option will bear certain legended information,
including, without limitation, the following:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE
OFFERED FOR SALE, SOLD, PLEDGED,
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TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF HAS PROVIDED
EVIDENCE SATISFACTORY TO THE COMPANY (WHICH, IN THE DISCRETION OF THE
COMPANY, MAY INCLUDE AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY)
THAT SUCH OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT
VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT (THE "VOTING AGREEMENT") DATED AS OF APRIL 23, 1992, AMONG THE
ORIGINAL AND CURRENT HOLDERS OF SUCH SECURITIES AND THE COMPANY. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT IN
ACCORDANCE WITH THE TERMS OF THE VOTING AGREEMENT. A COPY OF THE VOTING
AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON THAT HOLDER'S WRITTEN REQUEST.
11. REGULATORY APPROVAL. The Option shall be subject to the requirement
that, if at any time the Board of Directors of LPG shall determine, in good
faith, that the consent or approval of any state or federal governmental or
regulatory body is required as a condition of, or in connection with, the
granting of the Option or the issuance or purchase of shares of Common Stock
thereunder, or the exercise of the Option would violate any rule promulgated
by any state or federal governmental or regulatory body, the Option may not be
exercised in whole or in part unless and until such consent or approval shall
have been effected or obtained free of any conditions not acceptable to the
Board of Directors of LPG in its discretion.
12. VOTING AGREEMENT. LPG and the Optionee hereby agree that, from and
after the exercise of the Option (or any portion or portions thereof) by the
Optionee, the provisions applicable to certain existing shareholders of LPG
(consisting of certain officers, directors and employees of LPG, and various
other persons and entities) pursuant to that certain Voting Agreement dated as
of April 23, 1992 by and among Hicks, Muse & Co. (TX) Incorporated, LPG, and the
other persons listed on the signature pages thereof, shall inure to the benefit
of, and be binding upon, the Optionee.
13. REFERENCES. All references to "Section" contained herein are, unless
specifically indicated otherwise, references to sections of this Option
Agreement. Whenever herein the singular number is used, the same shall include
the plural where appropriate and words of any gender shall include each other
gender where appropriate.
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14. CAPTIONS. The captions, headings, and arrangements used in this
Option Agreement are for convenience only and do not in any way affect, limit,
amplify, or modify the terms and provisions hereof.
15. GOVERNING LAW. THIS OPTION AGREEMENT IS BEING EXECUTED AND DELIVERED,
AND IS INTENDED TO BE PERFORMED IN THE STATE OF COLORADO, AND THE SUBSTANTIVE
LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE VALIDITY, CONSTRUCTION,
ENFORCEMENT, AND INTERPRETATION OF THIS OPTION AGREEMENT.
16. INVALID PROVISIONS. If any provision of this Option Agreement is held
to be illegal, invalid, or unenforceable under present or future laws effective
during the term of this Option Agreement, such provision shall be fully
severable and this Option Agreement shall be construed and enforced as if such
illegal, invalid, or unenforceable provision had never comprised a part of this
Option Agreement; and the remaining provisions of this Option Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance from this Option
Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this Option Agreement
a provision as similar in terms to such illegal, invalid, or unenforceable
provision as may be possible and be legal, valid, and enforceable.
17. AMENDMENTS. Subject to the receipt of any required approvals or
consents of third parties, this Option Agreement may be amended at any time and
from time to time in whole or in part, or may be terminated, by an instrument in
writing setting forth the particulars of such amendment or termination, as the
case may be, duly executed by LPG and the Optionee.
18. MULTIPLE COUNTERPARTS. This Option Agreement may be executed in a
number of identical counterparts, each of which for all purposes shall be deemed
an original, and all of which shall constitute, collectively, one agreement; but
in making proof of this Option Agreement, it shall not be necessary to produce
or account for more than one such counterpart.
19. WAIVER. No waiver of a failure by a party to comply with any of its
obligations under this Option Agreement shall be binding unless executed in
writing by the party to whom such compliance is owed. No waiver of any provision
of this Option Agreement shall constitute a waiver of any other provision hereof
(whether or not similar), nor shall such a waiver constitute a continuing waiver
unless otherwise expressly provided.
20. ADMINISTRATION. This Option Agreement is subject to the terms and
conditions of the Plan. The Plan will be administered by the Committee in
accordance with its terms. The Committee has sole and complete discretion with
respect to all matters reserved to it by the Plan,
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and decisions of the Committee with respect to the Plan and to this Option
Agreement shall be final and binding upon the Optionee and LPG. In the event of
any conflict between the terms and conditions of this Option Agreement and the
Plan, the provisions of the Plan shall control.
21. ENTIRE AGREEMENT. This Option Agreement embodies the entire agreement
and understanding between the parties hereto relating to the subject matter
hereof and supersedes any prior agreements and understandings relating to the
subject matter hereof. There are no restrictions, promises, warranties, or
undertakings in respect of the subject matter contained herein, other than those
set forth or referred to herein.
22. SUCCESSORS AND ASSIGNS. No party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the other
parties hereto. Subject to the foregoing and to Section 5 hereof, this Agreement
shall inure to the benefit of and be binding upon the respective heirs,
beneficiaries, successors and permitted assigns of each of the parties.
All references herein to "LPG" or to the "Optionee" shall include the respective
heirs, beneficiaries, successors, and permitted assigns thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option Agreement
as of the day and year first written above.
LIFE PARTNERS GROUP, INC.
By:
-----------------------------------------
David Gubbay
President
-----------------------------------------
Roger E. Dunker
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NONSTATUTORY STOCK OPTION AWARD AGREEMENT
This Nonstatutory Stock Option Agreement (this "Option Agreement") is
made and entered into effective as of the 12th day of June, 1995, by and
between Life Partners Group, Inc., a Delaware corporation ("LPG"), and David
Gubbay (the "Optionee") in accordance with and pursuant to the terms of LPG's
1992 Incentive and Nonstatutory Stock Option Plan (the "Plan").
W I T N E S S E T H:
WHEREAS, the Optionee and LPG have entered into that certain Employment
Agreement dated May 22, 1995 (the "Employment Agreement"), pursuant to which,
among other things, the Optionee has been employed by LPG on the terms and
conditions set forth therein; and
WHEREAS, as an additional incentive to the Optionee to enter into and
remain in the employ of LPG and to devote his best efforts to the business
and affairs of LPG, LPG desires to grant to the Optionee certain nonstatutory
stock options to purchase from LPG, at the times and on the conditions
hereinafter set forth, shares of LPG's Common Stock, par value $0.001 per
share (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS; COPY OF PLAN. To the extent not specifically provided
herein or otherwise required by context, all capitalized terms used in this
Option Agreement, but not defined herein, shall have the same meanings
ascribed to them in the Plan. By the execution of this Option Agreement, the
Optionee acknowledges that he has received and reviewed a copy of the Plan.
LPG represents that the copy of the Plan so delivered is accurate and correct
in all respects.
2. GRANT OF OPTIONS. LPG hereby grants to the Optionee the option (the
"Option") to purchase from LPG, at the times, at the Exercise Price (as
hereinafter defined), and on the conditions set forth in this Option
Agreement, up to 150,000 shares of Common Stock (subject to adjustment as
provided in Section 7 hereof). The Option is not intended to qualify, and
shall not be construed, as an "incentive stock option" under Section 422 of
the Code.
<PAGE>
3. EXERCISE OF OPTION.
(a) TIME OF EXERCISE. The Option shall become exercisable (i) as to
30,000 shares on June 12, 1996, (ii) as to an additional 30,000 shares on
June 12, 1997, (iii) as to an additional 30,000 shares on June 12, 1998, (iv)
as to an additional 30,000 shares on June 12, 1999, and (v) as to the
remaining 30,000 shares on June 12, 2000. Subject to Sections 5 and 8 below,
the Option must be exercised by the Optionee prior to 1:00 p.m., Denver,
Colorado time, on June 12, 2005 (the "Termination Date"). If the Optionee
fails to exercise the Option in full prior to the Termination Date, all
rights of the Optionee to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall automatically cease and
any other rights of the Optionee provided in this Option Agreement with
respect to such unexercised portion or portions of the Option shall terminate
and be of no further force and effect.
(b) PURCHASE PRICE. The purchase price for each share of Common Stock
purchased upon exercise of the Option will be $18.50 per share, which price
per share is equal to the closing price per share for LPG's publicly traded
Common Stock as quoted on the New York Stock Exchange on June 12, 1995 (the
"Exercise Price"), subject to adjustment as provided in Section 7 hereof. No
fractional shares of Common Stock shall be issued pursuant to the exercise of
the Option, and the number of shares of Common Stock to be purchased in
connection with the exercise of the Option (or any portion or portions
thereof) shall be rounded down to the nearest whole share of Common Stock.
In lieu of the issuance of any fractional share of Common Stock, LPG shall
pay to the Optionee an amount in cash equal to the same fraction (as the
fractional share of Common Stock) of the Exercise Price.
4. METHOD OF EXERCISE AND PAYMENT. Subject to Sections 3, 5, and 8
hereof, the Option may be exercised by the Optionee in whole or in part, from
time to time, by giving written notice to LPG of his intent to exercise the
Option (an "Exercise Notice") at least 15 calendar days prior to the proposed
exercise date, which proposed exercise date shall not be more than 30
calendar days after the date the notice is given. Such notice shall (a)
specify the portion or portions of the Option being exercised, (b) be signed
by the Optionee or, if the Optionee is deceased or Disabled, by the person
authorized to exercise the Option pursuant to Section 5(c) hereof, (c)
specify the number of shares of Common Stock to be purchased upon exercise of
such Option (or portion or portions thereof), (d) specify the Exercise Price
to be paid therefor, (e) represent in form satisfactory to LPG that the
shares of Common Stock are being purchased for investment and not with a view
to resale or distribution, and (f) state the date and time of the proposed
exercise date. A form of Exercise Notice has been attached hereto as EXHIBIT
A. Exercise of the Option shall occur only upon payment to LPG of the
respective full Exercise Price for the shares of Common Stock then being
purchased, which
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purchase price shall be made against delivery of the certificate or
certificates for the shares of Common Stock purchased. Payment may be made
in cash, by certified or cashier's check, or in such other manner permitted
under the Plan as may be acceptable to LPG.
5. TERMINATION OF EMPLOYMENT PRIOR TO EXERCISE.
(a) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If the
Optionee's employment with LPG is terminated prior to the exercise in full of
the Option, other than by (i) the Optionee for Good Reason (as defined in the
Employment Agreement), (ii) LPG without Cause (as defined in the Employment
Agreement), or (iii) the death or Disability of the Optionee, then all rights
of the Optionee to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall cease immediately upon
the effective date of such termination (regardless of whether or not such
unexercised portion or portions of the Option are exercisable as of the
effective date of such termination), and any other rights of the Optionee
provided in this Option Agreement with respect to such unexercised portion or
portions of the Option shall terminate and be of no further force and effect
as of the effective date of such termination.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee for Good Reason
(including Good Reason resulting from a Change in Control (as defined in the
Plan)) or by LPG without Cause prior to the exercise in full of the Option,
the Option shall be immediately exercisable without regard to the vesting
schedule set forth in Section 3(a) hereof, and the Optionee may exercise, in
whole or in part, the unexercised portion or portions of the Option by
notifying LPG in writing not later than 90 calendar days after the effective
date of such termination. Such notice to LPG and the method of payment for
the shares of Common Stock to be purchased shall be in accordance with
Section 4 of this Option Agreement. All rights of the Optionee to purchase
the shares of Common Stock subject to the unexercised portion or portions of
the Option shall automatically cease, and any other rights of the Optionee
provided in this Option Agreement with respect to such unexercised portion or
portions of the Option shall terminate and be of no force and effect, if the
Optionee fails to give such notice within such 90-day time period or if,
after having given such notice, the Optionee fails to exercise the Option as
specified in the notice.
(c) DEATH OR DISABILITY OF OPTIONEE. In the event the Optionee's
employment with LPG is terminated as a result of the Optionee's death or
Disability prior to the exercise in full of the Option, the Optionee (or the
estate or guardian, as applicable, of the Optionee) may exercise, in whole or
in part, the unexercised portion or portions of the Option that are
exercisable as of the date the Optionee's employment is so terminated by
notifying LPG in
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writing not later than one calendar year after such date. Such notice to LPG
and the method of payment for the shares of Common Stock to be purchased
shall be in accordance with Section 4 of this Option Agreement. All rights
of the Optionee (or the estate or guardian, as applicable, of the Optionee)
to purchase the shares of Common Stock subject to the unexercised portion or
portions of the Option shall automatically cease, and any other rights of the
Optionee (or the estate or guardian, as applicable, of the Optionee) provided
in this Option Agreement with respect to such unexercised portion or portions
of the Option shall terminate and be of no force and effect, if the Optionee
(or the estate or guardian, as applicable, of the Optionee) fails to give
such notice within such one-year time period or if, after having given such
notice, the Optionee (or the estate or guardian, as applicable, of the
Optionee) fails to exercise the Option as specified in the notice.
6. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in
Section 5(c) hereof, the Option is personal to the Optionee, may not be
transferred, assigned, pledged, or hypothecated in any way (whether by
operation of law or otherwise), may not be exercised by any other person or
entity, and shall not be subject to execution, attachment, or similar
process. Any purported transfer in violation of this Section 6 shall be
absolutely void AB INITIO and of no force or effect whatsoever.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event LPG at any
time after June 12, 1995, (a) pays a dividend, or makes a distribution, in
shares of Common Stock, (b) subdivides the outstanding shares of Common
Stock, (c) combines the outstanding shares of Common Stock into a smaller
number of shares of Common Stock, or (d) issues any shares of its capital
stock or other securities by reclassification of shares of Common Stock, then
the Exercise Price of the Option granted hereunder and the number of shares
of Common Stock then issuable pursuant to any unexercised portion of the
Option shall be automatically adjusted to reflect accurately and equitably
the effect thereon of any such change as provided for in Section 6.1 of the
Plan. Any adjustments made pursuant to this Section 7 shall be determined in
good faith by the Board of Directors of LPG after consulting with the
Optionee, which determination shall, in the absence of manifest error, be
conclusive and binding upon LPG and the Optionee.
8. MERGER, CONSOLIDATION, SALE OF ASSETS, OR LIQUIDATION. In the event
of any (a) merger or consolidation of LPG with or into another corporation or
other entity (other than any merger or consolidation in which LPG is the
surviving corporation), (b) sale of all or substantially all of the assets of
LPG, or (c) voluntary or involuntary liquidation or dissolution of LPG (each
hereinafter referred to as a "Reorganization"), the unexercised portion or
portions of the Option shall terminate as of the closing date of such
Reorganization unless exercised as provided in this Section 8.
Notwithstanding any provision to the contrary
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contained in this Section 8, in the event that a Reorganization results in a
Change in Control, the Optionee will have, in addition to any rights or
remedies specified in this Section 8, any rights or remedies that are
available to him under Section 5 of this Option Agreement, and nothing
contained in this Section 8 shall be construed to restrict any rights or
remedies of Optionee specified in Section 5. Not later than 15 calendar days
prior to the proposed date of, and subject to the consummation of, such
Reorganization, written notice shall be given by LPG to the Optionee of such
proposed Reorganization. The Option shall be immediately exercisable without
regard to the vesting schedule set forth in Section 3(a) hereof, and the
Optionee may exercise any unexercised portion or portions of the Option, in
whole or in part, by giving an Exercise Notice to LPG not later than 5
calendar days after LPG has given the Optionee notice of the Reorganization.
The method of payment for the shares of Common Stock to be purchased shall be
in accordance with Section 4 of this Option Agreement. The exercise of the
Option shall occur immediately preceding the closing of such Reorganization.
The unexercised portion or portions of the Option shall automatically
terminate if the Optionee fails to give such notice within such time period;
PROVIDED, HOWEVER, that in the event such Exercise Notice is given in
contemplation of a Reorganization and the anticipated Reorganization is not
consummated, there shall be no acceleration pursuant to this Section 8 of the
unexercised portion or portions of the Option, the unexercised portion or
portions of the Option shall again become exercisable as provided in Section
3(a) above, and the notices given hereunder shall be withdrawn and considered
a nullity. Notwithstanding any provision of this Section 8 to the contrary,
if provision shall be made in connection with the Reorganization for the
surviving or acquiring entity (if applicable) to assume and agree to perform
this Agreement with respect to the unexercised portion or portions of the
Option or to issue a substitute option or options in lieu thereof with terms
and provisions substantially similar to this Agreement, then the unexercised
portion or portions of the Option shall not be accelerated under the
provisions of this Section 8 and shall, as applicable, be assumed or
substituted in connection with the Reorganization.
9. NOTICES. For purposes of this Agreement, all notices and other
communications provided for in this Option Agreement shall be in writing and
shall be (a) delivered personally, (b) sent by telefacsimile or other similar
facsimile transmission, (c) delivered by overnight express, or (d) mailed by
United States registered or certified mail, return receipt requested,
first-class postage prepaid, addressed as follows:
(i) If to LPG:
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Attn: General Counsel
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(ii) If to the Optionee:
David Gubbay
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Each of the parties hereto may change the address to which such party desires
notices to be sent if such party notifies the other party hereto of such
change in accordance with the provisions of this Section 9. Any such notice
shall be deemed to be given when received, if delivered personally or by
courier or mailed; and when electronically confirmed, if sent by
telefacsimile or similar device.
10. ADDITIONAL COVENANTS. LPG shall not be required to sell or make
delivery of any shares of Common Stock hereunder until it, in good faith,
determines that such sale and delivery will not be in violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any other
applicable state or federal law or regulation. The Optionee, by his
acceptance of this Option Agreement, acknowledges and agrees that the Option
and any shares of Common Stock issuable upon exercise thereof are being
acquired by him for his own account for the purpose of investment and not for
"sale" or other "distribution" thereof, as those terms are defined under the
Securities Act. The Optionee agrees further that LPG may request, and the
Optionee will deliver to LPG upon such request, Optionee's acknowledgment and
agreement regarding investment intent in such detail and containing such
terms and provisions as LPG shall deem appropriate and that any certificate
evidencing such shares of Common Stock issued on exercise of the Option will
bear certain legended information, including, without limitation, the
following:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE
MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR OTHERWISE
DISPOSED OF UNTIL THE HOLDER THEREOF HAS PROVIDED EVIDENCE SATISFACTORY
TO THE COMPANY (WHICH, IN THE DISCRETION OF THE COMPANY, MAY INCLUDE AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY) THAT SUCH OFFER, SALE,
PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE APPLICABLE
FEDERAL OR STATE SECURITIES LAWS.
6
<PAGE>
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT (THE "VOTING AGREEMENT") DATED AS OF APRIL 23, 1992, AMONG THE
ORIGINAL AND CURRENT HOLDERS OF SUCH SECURITIES AND THE COMPANY. THE
SECURITIES REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED EXCEPT
IN ACCORDANCE WITH THE TERMS OF THE VOTING AGREEMENT. A COPY OF THE
VOTING AGREEMENT WILL BE FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE
HOLDER HEREOF UPON THAT HOLDER'S WRITTEN REQUEST.
11. REGULATORY APPROVAL. The Option shall be subject to the
requirement that, if at any time the Board of Directors of LPG shall
determine, in good faith, that the consent or approval of any state or
federal governmental or regulatory body is required as a condition of, or in
connection with, the granting of the Option or the issuance or purchase of
shares of Common Stock thereunder, or the exercise of the Option would
violate any rule promulgated by any state or federal governmental or
regulatory body, the Option may not be exercised in whole or in part unless
and until such consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Board of Directors of LPG in its
discretion exercised in good faith.
12. VOTING AGREEMENT. LPG and the Optionee hereby agree that, from and
after the exercise of the Option (or any portion or portions thereof) by the
Optionee, the provisions applicable to certain existing stockholders of LPG
(consisting of certain officers, directors and employees of LPG, and various
other persons and entities) pursuant to that certain Voting Agreement dated
as of April 23, 1992 by and among Hicks, Muse & Co. (TX) Incorporated, LPG,
and the other persons listed on the signature pages thereof, shall inure to
the benefit of, and be binding upon, the Optionee.
13. REFERENCES. All references to "Sections" contained herein are,
unless specifically indicated otherwise, references to sections of this
Option Agreement. Whenever herein the singular number is used, the same shall
include the plural where appropriate (and vice versa) and words of any gender
shall include the other gender where appropriate.
14. CAPTIONS. The captions, headings, and arrangements used in this
Option Agreement are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.
15. GOVERNING LAW. THIS OPTION AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF
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COLORADO, AND SHALL BE INTERPRETED AND ADMINISTERED, WITH RESPECT TO ISSUES
OF CONTRACT LAW, UNDER THE SUBSTANTIVE LAWS OF THE STATE OF COLORADO, AND
WITH RESPECT TO ISSUES OF CORPORATION LAW, UNDER THE SUBSTANTIVE LAWS OF THE
STATE OF DELAWARE.
16. INVALID PROVISIONS. If any provision of this Option Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Option Agreement, such provision shall be
fully severable and this Option Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a
part of this Option Agreement; and the remaining provisions of this Option
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from
this Option Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Option Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
17. AMENDMENTS. Subject to the receipt of any required approvals or
consents of third parties, this Option Agreement may be amended at any time
and from time to time in whole or in part, or may be terminated, by an
instrument in writing setting forth the particulars of such amendment or
termination, as the case may be, duly executed by LPG and the Optionee.
18. MULTIPLE COUNTERPARTS. This Option Agreement may be executed in a
number of identical counterparts, each of which for all purposes shall be
deemed an original, and all of which shall constitute, collectively, one
agreement.
19. WAIVER. No waiver of a failure by a party to comply with any of
its obligations under this Option Agreement shall be binding unless executed
in writing by the party to whom such compliance is owed. No waiver of any
provision of this Option Agreement shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such a waiver constitute
a continuing waiver unless otherwise expressly provided.
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<PAGE>
20. ADMINISTRATION. This Option Agreement is subject to the terms and
conditions of the Plan. The Plan will be administered by the Committee in
accordance with its terms. The Committee has sole and complete discretion
with respect to all matters reserved to it by the Plan, and decisions of the
Committee with respect to the Plan and to this Option Agreement shall be
final and binding upon the Optionee and LPG. In the event of any conflict
between the terms and conditions of this Option Agreement and the Plan, the
provisions of the Plan shall control.
21. ENTIRE AGREEMENT. This Option Agreement embodies the entire
agreement and understanding between the parties hereto relating to the
subject matter hereof and supersedes any prior agreements and understandings
relating to the subject matter hereof. There are no restrictions, promises,
warranties, or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein.
22. SUCCESSORS AND ASSIGNS. No party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other parties hereto. Subject to the foregoing and to Section 6 hereof, this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, beneficiaries, successors and permitted assigns of each of the
parties. All references herein to "LPG" or to the "Optionee" shall include
the respective heirs, beneficiaries, successors, and permitted assigns
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
LIFE PARTNERS GROUP, INC.
By: /s/ JOHN H. MASSEY
---------------------------------
John H. Massey
Chief Executive Officer
/s/ DAVID GUBBAY
----------------------------------
David Gubbay
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<PAGE>
NONSTATUTORY STOCK OPTION AWARD AGREEMENT
This Nonstatutory Stock Option Agreement (this "Option
Agreement") is made and entered into effective as of the 12th day of
June, 1995, by and between Life Partners Group, Inc., a Delaware
corporation ("LPG"), and Keith Gubbay (the "Optionee") in accordance
with and pursuant to the terms of LPG's 1992 Incentive and
Nonstatutory Stock Option Plan (the "Plan").
W I T N E S S E T H:
WHEREAS, the Optionee and LPG have entered into that certain
Employment Agreement dated May 22, 1995 (the "Employment Agreement"),
pursuant to which, among other things, the Optionee has been employed
by LPG on the terms and conditions set forth therein; and
WHEREAS, as an additional incentive to the Optionee to enter
into and remain in the employ of LPG and to devote his best efforts
to the business and affairs of LPG, LPG desires to grant to the
Optionee certain nonstatutory stock options to purchase from LPG, at
the times and on the conditions hereinafter set forth, shares of
LPG's Common Stock, par value $0.001 per share (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereby agree as follows:
1. DEFINITIONS; COPY OF PLAN. To the extent not specifically
provided herein or otherwise required by context, all capitalized
terms used in this Option Agreement, but not defined herein, shall
have the same meanings ascribed to them in the Plan. By the
execution of this Option Agreement, the Optionee acknowledges that he
or she has received and reviewed a copy of the Plan. LPG represents
that the copy of the Plan so delivered is accurate and correct in all
respects.
2. GRANT OF OPTION. LPG hereby grants to the Optionee the
option (the "Option") to purchase from LPG, at the times, at the
Exercise Price (as hereinafter defined), and on the conditions set
forth in this Option Agreement, up to 100,000 shares of Common Stock
(subject to adjustment as provided in Section 7 hereof). The Option
is not intended to qualify, and shall not be construed, as an
"incentive stock option" under Section 422 of the Code.
<PAGE>
3. EXERCISE OF OPTION.
(a) TIME OF EXERCISE. The Option shall become exercisable (i)
as to 20,000 shares on June 12, 1996, (ii) as to an additional 20,000
shares on June 12, 1997, (iii) as to an additional 20,000 shares on
June 12, 1998, (iv) as to an additional 20,000 shares on June 12,
1999, and (v) as to the remaining 20,000 shares on June 12, 2000.
Subject to Sections 5 and 8 below, the Option must be exercised by
the Optionee prior to 1:00 p.m., Denver, Colorado time, on June 12,
2005 (the "Termination Date"). If the Optionee fails to exercise the
Option in full prior to the Termination Date, all rights of the
Optionee to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall automatically
cease and any other rights of the Optionee provided in this Option
Agreement with respect to such unexercised portion or portions of the
Option shall terminate and be of no further force and effect.
(b) PURCHASE PRICE. The purchase price for each share of
Common Stock purchased upon exercise of the Option will be $18.50 per
share, which price per share is equal to the closing price per share
for LPG's publicly traded Common Stock as quoted on the New York
Stock Exchange on June 12, 1995 (the "Exercise Price"), subject to
adjustment as provided in Section 7 hereof. No fractional shares of
Common Stock shall be issued pursuant to the exercise of the Option,
and the number of shares of Common Stock to be purchased in
connection with the exercise of the Option (or any portion or
portions thereof) shall be rounded down to the nearest whole share of
Common Stock. In lieu of the issuance of any fractional share of
Common Stock, LPG shall pay to the Optionee an amount in cash equal
to the same fraction (as the fractional share of Common Stock) of the
Exercise Price.
4. METHOD OF EXERCISE AND PAYMENT. Subject to Sections 3, 5,
and 8 hereof, the Option may be exercised by the Optionee in whole or
in part, from time to time, by giving written notice to LPG of his
intent to exercise the Option (an "Exercise Notice") at least 15
calendar days prior to the proposed exercise date, which proposed
exercise date shall not be more than 30 calendar days after the date
the notice is given. Such notice shall (a) specify the portion or
portions of the Option being exercised, (b) be signed by the Optionee
or, if the Optionee is deceased or Disabled, by the person authorized
to exercise the Option pursuant to Section 5(c) hereof, (c) specify
the number of shares of Common Stock to be purchased upon exercise of
such Option (or portion or portions thereof), (d) specify the
Exercise Price to be paid therefor, (e) represent in form
satisfactory to LPG that the shares of Common Stock are being
purchased for investment and not with a view to resale or
distribution, and (f) state the date and time of the proposed
exercise date. A form of Exercise Notice has been attached hereto as
Exhibit A. Exercise of the Option shall occur only upon payment to
LPG of the respective full Exercise Price for the shares of Common
Stock then being purchased, which purchase price shall be made
against delivery of the certificate or certificates for the shares of
Common Stock purchased. Payment may be made in cash, by certified or
cashier's check, or in such other manner permitted under the Plan as
may be acceptable to LPG.
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<PAGE>
5. TERMINATION OF EMPLOYMENT PRIOR TO EXERCISE.
(a) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If
the Optionee's employment with LPG is terminated prior to the
exercise in full of the Option, other than by (i) the Optionee for
Good Reason (as defined in the Employment Agreement), (ii) LPG
without Cause (as defined in the Employment Agreement), or (iii) the
death or Disability of the Optionee, then all rights of the Optionee
to purchase the shares of Common Stock subject to the unexercised
portion or portions of the Option shall cease immediately upon the
effective date of such termination (regardless of whether or not such
unexercised portion or portions of the Option are exercisable as of
the effective date of such termination), and any other rights of the
Optionee provided in this Option Agreement with respect to such
unexercised portion or portions of the Option shall terminate and be
of no further force and effect as of the effective date of such
termination.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If
the Optionee's employment with LPG is terminated by the Optionee for
Good Reason (including Good Reason resulting from a Change in Control
(as defined in the Plan)) or by LPG without Cause prior to the
exercise in full of the Option, the Option shall be immediately
exercisable without regard to the vesting schedule set forth in
Section 3(a) hereof, and the Optionee may exercise, in whole or in
part, the unexercised portion or portions of the Option by notifying
LPG in writing not later than 90 calendar days after the effective
date of such termination. Such notice to LPG and the method of
payment for the shares of Common Stock to be purchased shall be in
accordance with Section 4 of this Option Agreement. All rights of the
Optionee to purchase the shares of Common Stock subject to the
unexercised portion or portions of the Option shall automatically
cease, and any other rights of the Optionee provided in this Option
Agreement with respect to such unexercised portion or portions of the
Option shall terminate and be of no force and effect, if the Optionee
fails to give such notice within such 90-day time period or if, after
having given such notice, the Optionee fails to exercise the Option
as specified in the notice.
(c) DEATH OR DISABILITY OF OPTIONEE. In the event the
Optionee's employment with LPG is terminated as a result of the
Optionee's death or Disability prior to the exercise in full of the
Option, the Optionee (or the estate or guardian, as applicable, the
Optionee) may exercise, in whole or in part, the unexercised portion
or portions of the Option that are exercisable as of the date the
Optionee's employment is so terminated by notifying LPG in writing
not later than one calendar year after such date. Such notice to LPG
and the method of payment for the shares of Common Stock to be
purchased shall be in accordance with Section
3
<PAGE>
4 of this Option Agreement. All rights of the Optionee (or the estate
or guardian, as applicable, of the Optionee) to purchase the shares
of Common Stock subject to the unexercised portion or portions of the
Option shall automatically cease, and any other rights of the
Optionee (or the estate or guardian, as applicable, of the Optionee)
provided in this Option Agreement with respect to such unexercised
portion or portions of the Option shall terminate and be of no force
and effect, if the Optionee (or the estate or guardian, as
applicable, of the Optionee) fails to give such notice within such
one-year time period or if, after having given such notice, the
Optionee (or the estate or guardian, as applicable, of the Optionee)
fails to exercise the Option as specified in the notice.
6. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided
in Section 5(c) hereof, the Option is personal to the Optionee, may
not be transferred, assigned, pledged, or hypothecated in any way
(whether by operation of law or otherwise), may not be exercised by
any other person or entity, and shall not be subject to execution,
attachment, or similar process. Any purported transfer in violation
of this Section 6 shall be absolutely void ab initio and of no force
or effect whatsoever.
7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event LPG
at any time after June 12, 1995, (a) pays a dividend, or makes a
distribution, in shares of Common Stock, (b) subdivides the
outstanding shares of Common Stock, (c) combines the outstanding
shares of Common Stock into a smaller number of shares of Common
Stock, or (d) issues any shares of its capital stock or other
securities by reclassification of shares of Common Stock, then the
Exercise Price of the Option granted hereunder and the number of
shares of Common Stock then issuable pursuant to any unexercised
portion of the Option shall be automatically adjusted to reflect
accurately and equitably the effect thereon of any such change as
provided for in Section 6.1 of the Plan. Any adjustments made
pursuant to this Section 7 shall be determined in good faith by the
Board of Directors of LPG after consulting with the Optionee, which
determination shall, in the absence of manifest error, be conclusive
and binding upon LPG and the Optionee.
8. MERGER, CONSOLIDATION, SALE OF ASSETS, OR LIQUIDATION. In
the event of any (a) merger or consolidation of LPG with or into
another corporation or other entity (other than any merger or
consolidation in which LPG is the surviving corporation), (b) sale of
all or substantially all of the assets of LPG, or (c) voluntary or
involuntary liquidation or dissolution of LPG (each hereinafter
referred to as a "Reorganization"), the unexercised portion or
portions of the Option shall terminate as of the closing date of such
Reorganization unless exercised as provided in this Section 8.
Notwithstanding any provision to the contrary contained in this
Section 8, in the event that a Reorganization results in a Change in
Control, the Optionee will have, in addition to any rights or
remedies specified in this Section 8, any rights or remedies that are
available to him under Section 5 of this Option Agreement, and
4
<PAGE>
nothing contained in this Section 8 shall be construed to restrict
any rights or remedies of Optionee specified in Section 5. Not later
than 15 calendar days prior to the proposed date of, and subject to
the consummation of, such Reorganization, written notice shall be
given by LPG to the Optionee of such proposed Reorganization. The
Option shall be immediately exercisable without regard to the vesting
schedule set forth in Section 3(a) hereof, and the Optionee may
exercise any unexercised portion or portions of the Option, in whole
or in part, by giving an Exercise Notice to LPG not later than 5
calendar days after LPG has given the Optionee notice of the
Reorganization. The method of payment for the shares of Common Stock
to be purchased shall be in accordance with Section 4 of this Option
Agreement. The exercise of the Option shall occur immediately
preceding the closing of such Reorganization. The unexercised
portion or portions of the Option shall automatically terminate if
the Optionee fails to give such notice within such time period;
provided, however, that in the event such Exercise Notice is given in
contemplation of a Reorganization and the anticipated Reorganization
is not consummated, there shall be no acceleration pursuant to this
Section 8 of the unexercised portion or portions of the Option, the
unexercised portion or portions of the Option shall again become
exercisable as provided in Section 3(a) above, and the notices given
hereunder shall be withdrawn and considered a nullity.
Notwithstanding any provision of this Section 8 to the contrary, if
provision shall be made in connection with the Reorganization for the
surviving or acquiring entity (if applicable) to assume and agree to
perform this Agreement with respect to the unexercised portion or
portions of the Option or to issue a substitute option or options in
lieu thereof with terms and provisions substantially similar to this
Agreement, then the unexercised portion or portions of the Option
shall not be accelerated under the provisions of this Section 8 and
shall, as applicable, be assumed or substituted in connection with
the Reorganization.
9. NOTICES. For purposes of this Agreement, all notices and
other communications provided for in this Option Agreement shall be
in writing and shall be (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c) delivered
by overnight express, or (d) mailed by United States registered or
certified mail, return receipt requested, first-class postage
prepaid, addressed as follows:
(i) If to LPG:
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Attn: General Counsel
(ii) If to the Optionee:
Keith Gubbay
7887 East Belleview Avenue
5
<PAGE>
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Each of the parties hereto may change the address to which such party
desires notices to be sent if such party notifies the other party
hereto of such change in accordance with the provisions of this
Section 9. Any such notice shall be deemed to be given when
received, if delivered personally or by courier or mailed; and when
electronically confirmed, if sent by telefacsimile or similar device.
10. ADDITIONAL COVENANTS. LPG shall not be required to sell or
make delivery of any shares of Common Stock hereunder until it, in
good faith, determines that such sale and delivery will not be in
violation of the Securities Act of 1933, as amended (the "Securities
Act"), or any other applicable state or federal law or regulation.
The Optionee, by his acceptance of this Option Agreement,
acknowledges and agrees that the Option and any shares of Common
Stock issuable upon exercise thereof are being acquired by him for
his own account for the purpose of investment and not for "sale" or
other "distribution" thereof, as those terms are defined under the
Securities Act. The Optionee agrees further that LPG may request, and
the Optionee will deliver to LPG upon such request, Optionee's
acknowledgment and agreement regarding investment intent in such
detail and containing such terms and provisions as LPG shall deem
appropriate and that any certificate evidencing such shares of Common
Stock issued on exercise of the Option will bear certain legended
information, including, without limitation, the following:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES
LAWS. THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT
BE OFFERED FOR SALE, SOLD, PLEDGED, TRANSFERRED, OR
OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF HAS
PROVIDED EVIDENCE SATISFACTORY TO THE COMPANY (WHICH,
IN THE DISCRETION OF THE COMPANY, MAY INCLUDE AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY) THAT SUCH
OFFER, SALE, PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL
NOT VIOLATE APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A VOTING AGREEMENT (THE "VOTING AGREEMENT") DATED AS
OF APRIL 23, 1992, AMONG THE ORIGINAL AND CURRENT HOLDERS
OF SUCH SECURITIES AND THE COMPANY. THE SECURITIES
6
<PAGE>
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE VOTING
AGREEMENT. A COPY OF THE VOTING AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON THAT HOLDER'S WRITTEN REQUEST.
11. REGULATORY APPROVAL. The Option shall be subject to the
requirement that, if at any time the Board of Directors of LPG shall
determine, in good faith, that the consent or approval of any state
or federal governmental or regulatory body is required as a condition
of, or in connection with, the granting of the Option or the issuance
or purchase of shares of Common Stock thereunder, or the exercise of
the Option would violate any rule promulgated by any state or federal
governmental or regulatory body, the Option may not be exercised in
whole or in part unless and until such consent or approval shall have
been effected or obtained free of any conditions not acceptable to
the Board of Directors of LPG in its discretion exercised in good
faith.
12. VOTING AGREEMENT. LPG and the Optionee hereby agree that,
from and after the exercise of the Option (or any portion or portions
thereof) by the Optionee, the provisions applicable to certain
existing stockholders of LPG (consisting of certain officers,
directors and employees of LPG, and various other persons and
entities) pursuant to that certain Voting Agreement dated as of April
23, 1992 by and among Hicks, Muse & Co. (TX) Incorporated, LPG, and
the other persons listed on the signature pages thereof, shall inure
to the benefit of, and be binding upon, the Optionee.
13. REFERENCES. All references to "Sections" contained herein
are, unless specifically indicated otherwise, references to sections
of this Option Agreement. Whenever herein the singular number is
used, the same shall include the plural where appropriate (and vice
versa) and words of any gender shall include the other gender where
appropriate.
14. CAPTIONS. The captions, headings, and arrangements used in
this Option Agreement are for convenience only and do not in any way
affect, limit, amplify, or modify the terms and provisions hereof.
15. GOVERNING LAW. THIS OPTION AGREEMENT IS BEING EXECUTED
AND DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF
COLORADO, AND SHALL BE INTERPRETED AND ADMINISTERED, WITH RESPECT
TO ISSUES OF CONTRACT LAW, UNDER THE SUBSTANTIVE LAWS OF THE STATE
OF COLORADO, AND WITH RESPECT TO ISSUES OF CORPORATION LAW, UNDER
THE SUBSTANTIVE LAWS OF THE STATE OF DELAWARE.
7
<PAGE>
16. INVALID PROVISIONS. If any provision of this Option Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Option Agreement, such provision shall be
fully severable and this Option Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a
part of this Option Agreement; and the remaining provisions of this Option
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from
this Option Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Option Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
17. AMENDMENTS. Subject to the receipt of any required approvals or
consents of third parties, this Option Agreement may be amended at any time
and from time to time in whole or in part, or may be terminated, by an
instrument in writing setting forth the particulars of such amendment or
termination, as the case may be, duly executed by LPG and the Optionee.
18. MULTIPLE COUNTERPARTS. This Option Agreement may be executed in a
number of identical counterparts, each of which for all purposes shall be
deemed an original, and all of which shall constitute, collectively, one
agreement.
19. WAIVER. No waiver of a failure by a party to comply with any of its
obligations under this Option Agreement shall be binding unless executed in
writing by the party to whom such compliance is owed. No waiver of any
provision of this Option Agreement shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such a waiver constitute
a continuing waiver unless otherwise expressly provided.
20. ADMINISTRATION. This Option Agreement is subject to the terms and
conditions of the Plan. The Plan will be administered by the Committee in
accordance with its terms. The Committee has sole and complete discretion
with respect to all matters reserved to it by the Plan, and decisions of the
Committee with respect to the Plan and to this Option Agreement shall be
final and binding upon the Optionee and LPG. In the event of any conflict
between the terms and conditions of this Option Agreement and the Plan, the
provisions of the Plan shall control.
21. ENTIRE AGREEMENT. This Option Agreement embodies the entire
agreement and understanding between the parties hereto relating to the
subject matter hereof and supersedes any prior agreements and understandings
relating to the subject matter hereof. There are no restrictions, promises,
warranties, or undertakings in respect of the subject matter contained
herein, other than those set forth or referred to herein.
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22. SUCCESSORS AND ASSIGNS. No party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other parties hereto. Subject to the foregoing and to Section 6 hereof, this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, beneficiaries, successors and permitted assigns of each of the
parties. All references herein to "LPG" or to the "Optionee" shall include
the respective heirs, beneficiaries, successors, and permitted assigns
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
LIFE PARTNERS GROUP, INC.
By:
----------------------------------
Name: JOHN H. MASSEY
--------------------------------
Title:
-------------------------------
/s/ KEITH GUBBAY
--------------------------------------
Keith Gubbay
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made as of the 1st day of
October, 1994, between Life Partners Group, Inc., a Delaware corporation (the
"Company"), and John H. Massey (the "Executive").
WHEREAS, the Executive currently serves as a director on the Board of
Directors of the Company (the "Board"), as the Chairman of the Audit
Committee of the Board and as a member of the Investment Committee thereof;
and
WHEREAS, the Executive has gained certain knowledge of the business and
affairs of the Company and its policies, methods, personnel, and plans for
the future; and
WHEREAS, the Board recognizes that the Executive's contribution (as an
executive officer of the Company) to the growth and success of the Company is
expected to be substantial and desires to assure the Company of the
Executive's continued employment in an executive capacity and to compensate
him therefor; and
WHEREAS, the Executive desires to commit himself to serve the Company on
the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the respective
covenants and agreements of the parties herein contained, the parties hereto
agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the Executive, and the
Executive hereby agrees to be employed by the Company, on the terms and
conditions set forth herein for the period commencing on October 1, 1994, and
(unless earlier terminated pursuant to Section 7 below) ending on September
30, 1999. The period from October 1, 1994 through September 30, 1999 or, if
earlier, the date of termination of the Executive's employment
<PAGE>
pursuant to Section 7 below, is sometimes referred to herein as the "Period
of Employment."
2. POSITION AND DUTIES. The Executive, during the Period of Employment,
shall serve as the Chairman of the Board and Chief Executive Officer of the
Company (reporting only to the Board) and, during the period commencing April
3, 1995 and continuing throughout the remainder of the Period of Employment,
shall serve as the Chief Executive Officer of the Company's life insurance
subsidiaries. The Executive shall have supervision and control over and
responsibility for the executive management of the Company, and shall have
such other powers and duties as may from time to time be prescribed by the
Board so long as such duties are consistent with the Executive's positions.
The Executive shall devote substantially all of his working time and efforts
to the business and affairs of the Company (subject to the provisions of
Section 6(b)(v) of this Agreement), shall perform his duties hereunder
diligently and in a prudent and businesslike manner, and shall act in the
best interests of the Company as he reasonably perceives such interests.
3. PLACE OF PERFORMANCE. In connection with his employment by the
Company during the Period of Employment, the Executive shall be based in a
location designated by the Board of Directors in its sole and absolute
discretion. The Company will pay or reimburse the Executive for all
reasonable costs and expenses incurred by the Executive in relocating his
primary residence. In addition, the Company will pay or reimburse the
Executive for all reasonable costs and expenses incurred by the Executive in
maintaining suitable living quarters in Denver, Colorado from the date of
this Agreement until March 31, 1995.
4. COMPENSATION AND RELATED MATTERS.
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(a) BASE SALARY. The Executive shall receive an annual base salary of
$450,000 ("Base Salary"). The Base Salary shall be payable in substantially
equal monthly installments and shall not be reduced during the Period of
Employment.
(b) INCENTIVE COMPENSATION. In addition to the Base Salary, the
Executive shall receive, not later than April 30 of each year during the
continuance of the Executive's employment under this Agreement and on or
before April 30 of the year following the year in which the Executive's
employment hereunder terminates, incentive compensation as follows:
(i) $112,500, payable on or before April 30, 1995, which cash bonus
shall be in lieu of any other incentive compensation to which the
Executive would otherwise be entitled in 1995 under the Company's
Management Cash Bonus Plan or other incentive bonus plan of the Company;
(ii) for years subsequent to 1995, such amount as may be determined
by the Board under the Company's Management Cash Bonus Plan then in
effect (as such plan may be amended from time to time, the "Bonus
Plan"). Presently, the Bonus Plan is based upon a ratio (the "Bonus
Ratio) of actual GAAP earnings (as defined in the Bonus Plan) to
planned GAAP earnings (as defined in the Bonus Plan) whereby three
different levels of cash bonuses may be earned. Under the current Bonus
Plan, if the Bonus Ratio is equal to or greater than 90%, but less than
95%, the Executive's bonus compensation for the year will be equal to
50% of Base Salary; if the Bonus Ratio is equal to or greater than 95%,
but less than 100%, the Executive's bonus compensation for the year
will be equal to 75% of Base Salary; and if the Bonus Ratio is equal to
or in excess of
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100%, the Executive's bonus compensation for the year will be 100% of
Base Salary. It is understood and agreed that, in accordance with the
terms of the Bonus Plan, the Board may amend and revise the Bonus Plan
from time to time in its discretion, but the percentage used to
calculate the Executive's bonus compensation for any year shall equal
or exceed the highest percentage used to calculate the bonus
compensation of any other executive officer of the Company for such
year under the Bonus Plan.
The amount of bonus compensation payable on or before the April 30
following the year during which the Executive's employment hereunder is
terminated shall be prorated based upon the actual number of days the
Executive was employed during the preceding year compared to the total number
of days in the calendar year during which the employment terminated.
(c) STOCK OPTIONS. Subject to the Executive's continued employment with
the Company, the Company will execute and deliver to the Executive a Stock
Option Agreement, dated and effective December 1, 1994, granting the
Executive, subject to the terms and conditions set forth in the Stock Option
Agreement, (i) a ten-year option to purchase up to 250,000 shares of the
Company's Class A Common Stock, at a cash price per share equal to the
closing price per share for the Company's common stock as quoted on the New
York Stock Exchange on November 30, 1994, which options shall vest at the
rate of 20% per year over a five year period, and (ii) a fully vested
three-month option to purchase up to an additional 60,000 shares of the
Company's Class A Common Stock at a per share cash price to be determined.
(d) EXPENSES AND MEMBERSHIPS. The Executive shall be entitled to
receive prompt
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<PAGE>
reimbursement for all reasonable expenses incurred by him (in accordance with
the policies and procedures presently established by the Company for its
senior executive officers) during the Period of Employment, in performing
services hereunder, provided that the Executive properly accounts therefor in
accordance with Company policy. During the Period of Employment, the Company
shall pay to the Executive (i) the costs (consisting of monthly dues incurred
after the date hereof) of one club membership by the Executive at a country
club of his choice in Denver, Colorado, and one club membership by the
Executive at a city club of his choice in Denver, Colorado, or such
replacement clubs therefor as the Executive may designate during the Period
of Employment, and (ii) an automobile allowance of $700 per month.
(e) OTHER BENEFITS. The Executive shall be entitled to participate in
or receive benefits under all of the Company's Employee Benefit Plans or
Other Arrangements (as hereinafter defined) in effect on the date hereof or
under plans or arrangements that provide the Executive with at least
equivalent benefits to those provided under such Employee Benefit Plans or
Other Arrangements. The Company shall not, during the Period of Employment,
make any changes which would materially and adversely affect the Executive's
rights or benefits under any such Employee Benefit Plans or Other
Arrangements without the Executive's consent unless such changes are required
by applicable law or unless such changes are made pursuant to the terms and
conditions of the respective Employee Benefit Plan or Other Arrangement. As
used herein, "Employee Benefit Plans or Other Arrangements" include, without
limitation, each pension and retirement plan, supplemental pension,
retirement, and deferred compensation plan, savings and profit-sharing plan,
medical insurance plan, disability plan, and health and accident
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<PAGE>
plan or arrangement established and maintained by the Company on the date
hereof for the benefit of and made generally available to executives and key
management employees of the Company or its subsidiaries, but does not include
either the Company's qualified and non-qualified incentive stock option plan,
any other employment agreement between the Company (or any of its
subsidiaries) and any employee thereof, or any deferred compensation
arrangement between the Company (or any of its subsidiaries) and Gene H.
Bishop, John W. Gardiner or James R. Kerber. The Executive shall be entitled
to participate in or receive benefits under any employee benefit plan or
arrangement which may, in the future, be made generally available by the
Company to its executives and key management employees, subject to and on a
basis consistent with the terms, conditions, and overall administration of
such plan or arrangement. Nothing paid to the Executive under any Employee
Benefit Plan or Other Arrangement presently in effect or any employee benefit
plan or arrangement which may be made generally available in the future shall
be deemed to be in lieu of compensation payable to the Executive pursuant to
Subsections 4(a) and 4(b) above. Any payments or benefits payable to the
Executive under a plan or arrangement referred to in this Subsection 4(e) in
respect of any calendar year during which the Executive is employed by the
Company for less than the whole of such calendar year shall, unless otherwise
provided in the applicable plan or arrangement, be prorated in accordance
with the actual number of days in such calendar year during which he is so
employed. Should any such payments or benefits accrue on a fiscal (rather
than calendar) year basis, then the proration in the preceding sentence shall
be on the basis of a fiscal year rather than calendar year.
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<PAGE>
(f) VACATIONS AND SICK LEAVE. During the Period of Employment, the
Executive shall be entitled to the number of paid vacation days in each
calendar year determined by the Company from time to time for its senior
executive officers, but not less than four weeks in any calendar year
(prorated in any calendar year during which the Executive is employed
hereunder for less than the entire such year in accordance with the actual
number of days in such calendar year). During the Period of Employment, the
Executive shall also be entitled to all paid holidays given by the Company to
its senior executive officers. During the Period of Employment, the
Executive shall be entitled to 30 calendar days of paid sick leave during
each calendar year of employment (prorated in any calendar year during which
the Executive is employed hereunder for less than the entire such year in
accordance with the actual number of days in such calendar year). Vacation
days and sick days that are not used by the Executive in any calendar year
will not be carried forward, and all such days shall be forfeited without
compensation.
5. ADDITIONAL POSITIONS. During the Period of Employment, the Executive
agrees, and the Board (subject to required stockholder vote) requests the
Executive, to serve without additional compensation as a director of the
Company and any of its subsidiaries, as a member of one or more committees of
the respective board of directors of the Company and any of its subsidiaries,
and in one or more executive offices of any of the Company's subsidiaries as
the Executive may from time to time be elected, if and so long as the
Executive is indemnified for serving in any and all such capacities on a
basis no less favorable than is currently provided by the Company's By-laws
or by any written agreement between the Executive and the Company
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<PAGE>
regarding indemnification.
6. CONFIDENTIALITY AND NONCOMPETITION.
(a) The Executive acknowledges that his services and responsibilities
are of particular significance to the Company and its subsidiaries
(collectively the "LPG Companies" and individually an "LPG Company"), and
that his positions with the Company or any other LPG Company have given and
will give him access to and an intimate knowledge of the policies, customers,
employees, trade secrets, and other confidential, proprietary, nonpublic,
privileged, or secret information of the LPG Companies (collectively
"Confidential Information"); PROVIDED, HOWEVER, that Confidential Information
shall not include any information which is obtainable from non-Company
sources that are not bound by any confidentiality or nondisclosure obligation
with respect to such information (whether such obligation is imposed by
agreement, fiduciary duty, law, order or otherwise) or that have not obtained
such information as a result of unauthorized disclosure by or at the
direction of the Executive. Because the LPG Companies are in creative,
technical, and competitive businesses, the Executive's continued and
exclusive service to the LPG Companies and his preservation of the
confidentiality of the Confidential Information is of critical importance to
the Company.
(b) Based on the matters described in Subsection 6(a) above, and in
further consideration of this Agreement, the Executive covenants and agrees
with the Company that:
(i) CONFIDENTIAL INFORMATION. The Executive shall not (for any
reason), directly or indirectly, for himself or on behalf of any other
person or entity, disclose to any person or entity (except to employees
or other representatives of the Company who
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<PAGE>
need to know such Confidential Information to the extent reasonably
necessary for the Executive to perform his duties under this Agreement
and except as required by law; PROVIDED, HOWEVER, that this exception
for legal requirement shall not apply to any legal requirement imposed
upon the Executive as a result of the Executive's, directly or
indirectly, having purchased securities or otherwise seeking or
deriving personal benefit) any Confidential Information which the
Executive may have acquired in the course of or as an incident to his
employment or prior dealings with any LPG Company, including, without
limitation, business or trade secrets of, or insurance products or
methods or techniques used by, any LPG Company in or about their
respective businesses, or any Confidential Information whatsoever
concerning the customers, clients, policyholders, or annuitants of any
LPG Company, or any reinsurance agreements or similar arrangements
involving any LPG Company; PROVIDED, HOWEVER, that after the later of
(A) the last day on which the Executive receives compensation pursuant
to any of Subsections 7(a)(ii), 7(b) or 7(d)(i) below or (B) the
second anniversary of the termination (if any) of the Executive's
employment hereunder pursuant to Subsection 7(a)(i) or Subsection
7(d)(ii) below, the Company's sole remedy for any breach of this
Subsection 6(b)(i) shall be a restraining order or injunction by any
court of competent jurisdiction.
(ii) NONCOMPETE. During the Period of Employment and through the
later of (A) the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a)(ii), 7(b) or 7(d)(i) below or (B)
the second anniversary of the termination (if any) of the Executive's
employment hereunder pursuant to Subsection
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<PAGE>
7(a)(i) or Subsection 7(d)(ii) below, the Executive shall not (for any
reason), for himself or on behalf of any other person or entity, (1)
call on or contact any customer, client, policyholder, or annuitant of
any LPG Company or any agent, reinsurer, or insurance company with
which any LPG Company has done business during the Period of Employment
for the purpose or with the effect of offering any insurance products
or services of any kind offered by any LPG Company during the Period of
Employment or (2) assist any other person or entity in connection with
any action described in the foregoing clause (1). Performance of the
duties of an officer, director, employee or advisor of a person who
competes with any LPG Company will not be deemed assistance by the
Executive in connection with the prohibited action unless the Executive
personally performs the prohibited action.
(iii) NONINTERFERENCE WITH EMPLOYEES. During the Period of
Employment and through the latest of (A) the last day on which the
Executive receives compensation pursuant to any of Subsections
7(a)(ii), 7(b) or 7(d)(i) below or (B) the second anniversary of the
termination (if any) of the Executive's employment hereunder pursuant
to Subsection 7(a)(i) or Subsection 7(d)(ii) below, the Executive
shall not (for any reason), for himself or on behalf of any other
person or entity, (1) induce or attempt to induce any employee of any
LPG Company to terminate employment with the employing LPG Company, (2)
interfere with or disrupt any LPG Company's relationship with any of
the employees of such LPG Company, (3) solicit, entice, or take away,
any person employed by any LPG Company during the 12-month period
preceding the termination
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<PAGE>
of the Period of Employment, or (4) assist any other person or entity
in connection with any action described in any of the foregoing clauses
(1) through (3). Performance of the duties of an officer, director,
employee or advisor of a person who performs any action prohibited by
this Subsection 7(d)(iii) will not be deemed assistance by the
Executive in connection with the prohibited action unless the Executive
personally performs the prohibited action.
(iv) NONINTERFERENCE WITH POLICYHOLDERS, ETC. The Executive shall
not (for any reason), directly or indirectly, for himself or on behalf
of any other person or entity, (1) utilize or attempt to utilize any
Confidential Information for the purpose or with the effect of causing
or attempting to cause (X) any policyholder or annuitant to replace or
terminate any insurance or annuity contract issued, reinsured, or
underwritten by any LPG Company, in whole or in part, with any
insurance or annuity product of any other person or entity, or (Y) any
reinsurer to terminate any reinsurance, coinsurance, or other similar
contract, or to sever a relationship, with any LPG Company or (2)
assist any other person or entity in connection with any action
described in the foregoing clause (1); PROVIDED, HOWEVER, that after
the later of (A) the last day on which the Executive receives
compensation pursuant to any of Subsections 7(a)(ii), 7(b) or 7(d)(i)
below or (B) the second anniversary of the termination (if any ) of the
Executive's employment hereunder pursuant to Subsection 7(a)(i) or
Subsection 7(d)(ii) below, the Company's sole remedy for any
unintentional breach of this Subsection 6(b)(iv) shall be a restraining
order or injunction by any court of competent jurisdiction.
Performance of the duties
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<PAGE>
of an officer, director, employee or advisor of a person who performs
any action prohibited by this Subsection 6(b)(iv) will not be deemed
assistance by the Executive in connection with the prohibited action
unless the Executive personally performs the prohibited action.
(v) EXCLUSIVE EMPLOYMENT. During the Period of Employment and
through the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a)(ii), 7(b) or 7(d)(i) of this
Agreement, the Executive shall not (for any reason), directly or
indirectly, for himself or on behalf of any other person or entity,
render any service of an advisory nature or otherwise to, or become
employed by, or own any interest in, or be associated with, any
insurance company or any agency or brokerage firm selling life
insurance or annuities, or any entity owning 50% or more of any
insurance company or agency or brokerage firm selling life insurance or
annuities, other than the LPG Companies; PROVIDED, HOWEVER, that the
Executive may (1) make investments in entities of such kind which are
publicly owned and in which the Executive owns no more than 2% of the
outstanding stock thereof, (2) make and maintain investments in Hill
Bancshares Holdings, Inc. and Central Texas Bankshare Holdings, Inc. at
any level or percentage, (3) continue to serve as a director of The
Paragon Group, Inc., First Southwest Co., Chancellor Communications,
Inc., Central Texas Bankshare Holdings, Inc., Hill Bancshares Holdings,
Inc., Hill Bank and Trust Co., Columbus State Bank and Gulf-California
Broadcast Company, (4) make investments in such other entities and in
such amounts, and serve on the board of directors of any other entity,
as may be approved in advance by the Executive Committee of the Board
of Directors of
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the Company, (5) devote reasonable time and energies to charitable
activities, including without limitation the SMU Cox School of
Business, and (6) maintain his current personal real estate
investments, provided that such activities do not interfere with the
substantial performance of the Executive's duties hereunder.
(c) INJUNCTIVE RELIEF. The Executive acknowledges and agrees that any
breach by him of any of the covenants or agreements contained in this Section
6 would give rise to irreparable injury to the Company and would not be
adequately compensable in damages. Accordingly, the Executive agrees that the
Company may seek and obtain injunctive relief against the breach or
threatened breach of any of the provisions of this Section 6, in addition to
any other legal remedies which may be available. The Executive further
acknowledges and agrees that the covenants and agreements contained herein
are necessary for the protection of the Company's legitimate business
interests and are reasonable in scope and content.
(d) REFORMATION AND SURVIVAL. The Company and the Executive agree and
stipulate that the agreements and covenants contained in this Section 6 are
fair and reasonable in light of all of the facts and circumstances of the
relationship between them. The Company and the Executive acknowledge their
awareness, however, that in certain circumstances courts have refused to
enforce certain agreements not to compete. Therefore, in furtherance of, and
not in derogation of, the provisions of this Section 6, the Company and the
Executive agree that, in the event a court should decline to enforce one or
more of the provisions of this Section 6, then this Section 6 shall be deemed
to be modified or reformed to restrict the Executive's conduct to the maximum
extent (in terms of time, geography, and business scope) which the court
shall
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determine to be enforceable. The provisions of this Section 6 shall survive
the termination of this Agreement for the respective periods set forth in
this Section 6.
7. TERMINATION. Except as expressly provided in this Section 7, from
and after the date of termination of the Executive's employment hereunder,
the Company shall have no obligation (whether financial or otherwise) under
this Agreement, and the Executive shall have no right to receive any Base
Salary or any other payment or benefit under this Agreement; PROVIDED,
HOWEVER, that nothing in this Section 7 shall affect the Executive's
obligations under Section 6 above or shall affect the Executive's rights to
receive payments or benefits that are accrued before, but remain unpaid on,
the date of termination, or to receive payments or benefits that are required
to be made or provided to him pursuant to the terms of any of the Employee
Benefit Plans or Other Arrangements insofar as such rights relate to the
Executive's participation in the respective plan or arrangement before the
date of termination.
(a) TERMINATION BY COMPANY. As set forth below, the Company may
terminate the Executive's employment hereunder with or without Cause (as
hereinafter defined), for any reason or for no reason.
(i) FOR CAUSE. The Company may terminate the employment of the
Executive hereunder for or with Cause by written notice to the
Executive to that effect setting forth in reasonable detail the Causes
for such termination. Such notice shall be delivered at least ten
calendar days prior to the effectiveness of such termination and shall
provide an opportunity for the Executive, together with his counsel, to
be heard by the Board prior to the effectiveness of such termination.
Such termination shall be effective at the
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time (not less than ten calendar days after delivery of the notice of
termination) specified in such notice of termination. In the event
the Company terminates the Executive's employment hereunder for
or with Cause, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next
following sentence. If the Executive's employment is terminated
pursuant to this Subsection 7(a)(i), then the Company shall continue
to pay the Base Salary to the Executive specified in (and in accordance
with the applicable terms of) Subsection 4(a) above only until the date
of such termination and shall continue to provide the Executive with
the benefits specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise precluded by
the terms of the plans or arrangements respectively described in such
subsections) only until the date of such termination; as set forth in
Section 4(a) of the Stock Option Agreement, all rights of the Executive
to purchase the shares of common stock subject to the unexercised
portion or portions of the options granted therein shall cease
immediately upon the effective date of such termination. As used in
this Agreement, the term "Cause" shall mean the occurrence of any of
the following, as determined by the Board in its sole discretion
exercised in good faith: (A) the Executive willfully breaches any of
his obligations or duties hereunder which breach is materially adverse
to the Company or any of its affiliates; or (B) the Executive fails to
comply with any written or oral direction of the Board which reasonably
relates to the performance of the Executive's duties as provided in
Section 2 of this Agreement and which would not require the Executive
to perform an illegal act; PROVIDED, HOWEVER, such failure shall
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not constitute "Cause" (1) if the failure results from the Executive's
being Incapacitated (as hereinafter defined) or (2) unless such failure
continues for ten calendar days or more after written notice thereof is
given to the Executive by the Company; or (C) the Executive fails to
comply with his obligations under Section 6 of this Agreement and such
failure, or any adverse consequence thereof, continues for ten calendar
days or more after written notice thereof is given to the Executive by
the Company; PROVIDED, HOWEVER, that no such notice need be given if
the failure and its adverse consequences cannot reasonably be expected
to be cured within ten calendar days; or (D) the Executive engages in
any act of intentional, willful or reckless dishonesty which is
materially injurious to the Company or its business or to any affiliate
of the Company or such affiliate's business; or (E) the Executive is
convicted of or enters a plea of guilty or nolo contendere to (1) any
misdemeanor involving moral turpitude which, in the good faith judgment
of the Board, may be injurious to the reputation of the Company or any
of its affiliates, (2) any misdemeanor involving financial misconduct,
or (3) any felony.
(ii) WITHOUT CAUSE. The Company may terminate the Executive's
employment hereunder without Cause by written notice to the Executive
to that effect. Unless otherwise specified in the notice, such
termination shall be effective immediately upon delivery thereof to the
Executive. In the event the Company terminates the Executive's
employment hereunder without Cause during the Period of Employment, no
further payments or benefits shall be made or provided to the Executive
hereunder except as provided in the next following sentence. If the
Executive's employment hereunder is
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terminated pursuant to this Subsection 7(a)(ii), then the Company
shall continue to pay the Executive the compensation specified in (and
in accordance with the applicable terms of) Subsections 4(a) and 4(b)
above only until, and shall continue to provide the Executive with the
benefits specified in (and in accordance with the applicable terms of)
Subsections 4(d) and 4(e) above (except as otherwise precluded by the
terms of the plans or arrangements respectively described in such
subsections) only until, the earlier of (A) September 30, 1999, or (B)
the second anniversary of the termination of the Executive's employment
pursuant to this Subsection 7(a)(ii). Following the date on which the
Executive shall accept employment with any person or entity other than
any LPG Company, the compensation and benefits specified in Subsections
4(a), 4(b), 4(d) and 4(e) above shall be reduced by the value of any
compensation and benefits earned by the Executive as a result of such
other employment. Nothing contained in this Subsection 7(a)(ii) shall
affect the Executive's rights pursuant to the Stock Option Agreement
described in Section 4(c) of this Agreement, which rights shall be
governed solely by such Stock Option Agreement.
(b) DISABILITY. If during the Period of Employment the Executive shall
be or become incapacitated by reason of mental or physical disability or
otherwise so that he is or will be prevented from adequately performing any
of his material duties and obligations under this Agreement for more than 180
consecutive calendar days during any calendar year ("Incapacitated"), the
Executive's employment hereunder shall automatically and immediately
terminate upon written notice from the Company to the Executive to such
effect. Thereafter,
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no further payments or benefits shall be made or provided to the Executive
hereunder except as provided in the next following sentence. If the
Executive's employment hereunder is terminated pursuant to this Subsection
7(b), then the Company shall continue to pay the Executive the compensation
specified in (and in accordance with the applicable terms of) Subsections
4(a) and 4(b) above only until, and shall continue to provide the Executive
with the benefits specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise precluded by the
terms of the plans or arrangements respectively described in such
subsections) only until, the earlier of (i) September 30, 1999 or (ii) the
second anniversary of the termination of the Executive's employment pursuant
to this Subsection 7(b), at which time the Executive shall be eligible for
payments and benefits pursuant to the Company's disability plan; PROVIDED,
HOWEVER, that the amount of any compensation and benefit payments required to
be made under this Subsection 7(b) shall be reduced by the amount of any
compensation and benefit payments made in the calendar year of termination to
the Executive during any periods of time exceeding 180 consecutive calendar
days (prorated based upon the actual number of days the Executive is employed
during such calendar year prior to termination compared to the total number
of days in such calendar year) when the Executive was unable to perform his
duties or obligations under this Agreement as a result of sickness or other
physical or mental disability. The determination by a qualified, independent
physician selected by the Board that the Executive is Incapacitated shall be
final and conclusive. By executing this Agreement, the Executive agrees to
submit to any and all medical examinations or procedures and to execute and
deliver any and all consents to the release of medical information and
records or otherwise as shall be
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reasonably required by such physician in determining whether the Executive is
Incapacitated. Nothing contained in this Subsection 7(b) shall affect the
Executive's rights pursuant to the Stock Option Agreement described in
Section 4(c) of this Agreement, which rights shall be governed solely by such
Stock Option Agreement.
(c) DEATH. If the Executive dies during the Period of Employment, the
Executive's employment hereunder shall automatically and immediately
terminate. Thereafter, no further payments or benefits shall be made or
provided to the Executive hereunder except as provided in the next following
sentence. If the Executive's employment hereunder is terminated pursuant to
this Subsection 7(c), then the Company shall reimburse the estate of the
Executive for the expenses, club membership costs, and automobile allowance
specified in (and in accordance with the applicable terms of) Subsection 4(d)
above as the same are incurred before, but remain unpaid at the time of, the
Executive's death and shall continue to pay the estate of the Executive the
compensation specified in (and in accordance with the applicable terms of)
Subsections 4(a) and 4(b) above only until the earlier of (A) September 30,
1999, if such date is at least six months from the date of death, or, if not,
the last day of the calendar month which is six months from the end of the
calendar month during which the death occurred, or (B) the second anniversary
of the termination of the Executive's employment pursuant to this Subsection
7(c). Nothing contained in this Subsection 7(c) shall affect the Executive's
rights pursuant to the Stock Option Agreement described in Section 4(c) of
this Agreement, which rights shall be governed solely by such Stock Option
Agreement.
(d) TERMINATION BY EXECUTIVE. As set forth below, the Executive may
terminate his
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employment hereunder with or without Good Reason (as hereinafter defined).
If the Executive resigns as the Chief Executive Officer or the Chairman of
the Board of the Company, he shall be deemed to have terminated his
employment under this Agreement with the effect specified in Subsection
7(d)(i) or Subsection 7(d)(ii) below, as applicable. If the Executive
terminates his employment under this Agreement, he shall be deemed (unless
otherwise determined by the Board) to have resigned from all offices,
directorships, and committee memberships that he then holds with the Company
or any other LPG Company.
(i) FOR GOOD REASON. The Executive may terminate his employment
for or with Good Reason by written notice to the Company to that effect
setting forth in reasonable detail the Good Reasons for such
termination. Such notice shall be delivered at least ten calendar days
prior to the effectiveness of such termination and shall provide an
opportunity for the Board (or its representative), together with
counsel to the Company, to meet with the Executive to discuss the
reasons for such termination prior to the effectiveness of such
termination. Such termination shall be effective at the time (not less
than ten calendar days after delivery of the notice of termination)
specified in such notice of termination. In the event the Executive
terminates his employment hereunder for or with Good Reason, no further
payments or benefits shall be made or provided to the Executive
hereunder except as provided in the following sentence. If the
Executive's employment is terminated pursuant to this Subsection
7(d)(i), then the Company shall continue to pay the Executive the
compensation specified in (and in accordance with the applicable terms
of) Subsections 4(a) and 4(b) above only until, and
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shall continue to provide the Executive with the benefits specified in
(and in accordance with the applicable terms of) Subsections 4(d) and
4(e) above (except as otherwise precluded by the terms of the plans or
arrangements respectively described in such subsections) only until,
the earlier of (A) September 30, 1999 or (B) the second anniversary of
the termination of the Executive's employment pursuant to this
Subsection 7(d)(i). Nothing contained in this Subsection 7(d)(i) shall
affect the Executive's rights pursuant to the Stock Option Agreement
described in Section 4(c) of this Agreement, which rights shall be
governed solely by such Stock Option Agreement. As used in this
Agreement, the term "Good Reason" shall mean the occurrence of any of
the following: (A) the Company fails to make any payment required to be
made to or for the benefit of the Executive pursuant to Subsection
4(a), 4(b), 4(d), or 4(e) above within 30 days after such payment is
due; or (B) the Company willfully breaches any of its obligations or
duties under this Agreement, including without limitation the
assignment of any significant duties or responsibilities to the
Executive that are not consistent with the duties and responsibilities
of the chief executive officer of a publicly held life insurance
holding company (other than the obligation or duty to make payments
specified in the preceding clause (A) above), which breach is
materially adverse to the Executive and continues for ten calendar days
or more after written notice thereof is given to the Company by the
Executive; or (C) the Executive is (for any reason other than his
death, disability, or termination for Cause) not nominated to serve
(or, if nominated, not elected to serve) as a member of the Board; or
(D) the Company fails to obtain the assumption
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of the obligation to perform this Agreement by any successor as
contemplated in Subsection 8(a) below; or (E) a Change of Control
occurs. The term "Change of Control" shall mean (1) the purchase by a
single purchaser or group of affiliated purchasers acting in concert in
making such purchase in a single transaction (or in a series of related
transactions occurring within a period of six consecutive calendar
months) of shares of the Company's voting Common Stock, which purchased
shares represent a percentage of the Company's voting Common Stock
greater than the percentage thereof (determined on a fully-diluted
basis) beneficially owned in the aggregate by the members of the HMC
Group immediately preceding such purchase or (2) any purchase of shares
of the voting common stock of Wabash Life Insurance Company ("Wabash"),
which purchase results in a majority of Wabash's voting common stock
being held by persons other than the Company and/or one or more members
of the HMC Group; PROVIDED, HOWEVER, that purchases by an underwriter
in connection with a public offering of shares shall not in any event
be deemed a "Change of Control" for purposes of this clause (E). For
purposes of this clause (E), (1) the term "HMC Group" shall mean Hicks,
Muse, Tate & Furst, Inc. (formerly, Hicks, Muse & Co. (TX)
Incorporated, HMC Partners, L. P., HMC/Life Partners, L. P., employees
of any of the foregoing and affiliates of any of the foregoing, and
family members of any individual included in this subclause (E)(1), and
(2) Common Stock beneficially owned by the HMC Group shall include the
shares, currently owned of record by present or former limited partners
of HMC/Life Partners, L.P., as to which any member of the HMC Group
22
<PAGE>
retains an economic interest or the right to vote such shares in
respect of the election of directors of the Company.
(ii) WITHOUT GOOD REASON. The Executive may terminate his
employment without Good Reason by written notice to the Company to that
effect. Unless otherwise specified in the notice, such termination
shall be effective immediately upon delivery thereof to the Company.
In the event the Executive terminates his employment hereunder without
Good Reason, no further payments or benefits shall be made or provided
to the Executive hereunder except as provided in the next following
sentence. If the Executive's employment is terminated pursuant to this
Subsection 7(d)(ii), then the Company shall continue to pay the
Executive his compensation specified in (and in accordance with the
applicable terms of) Subsections 4(a) and 4(b) above only until, and
shall continue to provide the benefits specified in (and in accordance
with the applicable terms of) Subsections 4(d) and 4(e) above (except
as otherwise precluded by the terms of the plans or arrangements
respectively described in such subsections) only until, the date of
such termination; as set forth in Section 4(a) of the Stock Option
Agreement, all rights of the Executive to purchase the shares of common
stock subject to the unexercised portion or portions of the options
granted therein shall cease immediately upon the effective date of such
termination.
(iii) DISABILITY. If the Company terminates the Executive's
employment hereunder for Cause pursuant to Subsection 7(a)(i)(A) above
at any time when the Executive believes himself to be Incapacitated,
the Executive may furnish the Company
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<PAGE>
with a written statement from a qualified, independent physician to the
effect that the Executive is Incapacitated. The Company shall then
promptly select a qualified, independent physician who shall, at the
Company's expense, examine the Executive. If the physician selected by
the Company concurs in the opinion that the Executive is Incapacitated,
the Executive's employment hereunder shall automatically and
immediately terminate to the same extent and effect for all purposes as
if such employment had been terminated pursuant to Subsection 7(b)
above.
(e) Notwithstanding any other provision of this Section 7, the Company
and the Executive expressly understand and agree that, if (before all
payments and benefits payable to the Executive following a termination
pursuant to any provision of this Section 7 have been fully made or provided
to the Executive) the Executive becomes disabled or dies, then the payments
and benefits required to be made to the Executive pursuant to this Section 7
shall not exceed the lesser of (i) the amount of any payments or benefits
that remain (following the date of the Executive's disability or death, as
applicable) to be made or provided by the Company pursuant to the respective
provision of this Section 7 under which the Executive's employment is
actually terminated or (ii) the amount of any payments or benefits that would
be required to be made or provided by the Company if the Executive's
employment had actually been terminated by the Executive's disability or
death, as applicable. Furthermore, notwithstanding any other provision of
this Section 7, the Company and the Executive understand and agree that, if
there is a conflict or dispute as to which provision of this Section 7
controls the termination of the Executive's employment, a termination for
Cause pursuant to Subsection 7(a)(i) shall control, regardless of
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<PAGE>
whether such termination for Cause precedes or follows a termination pursuant
to any other provision of this Section 7; PROVIDED, HOWEVER, that, in order
for a termination for Cause to control, the Company must deliver to the
Executive written notice of such Cause before, or within thirty days
following, the Executive's termination of employment pursuant to any other
provision of this Section 7.
8. SUCCESSORS: BINDING AGREEMENT.
(a) The Company will require any successor (whether direct or indirect,
by purchase, merger, consolidation, or otherwise) to all or substantially all
of the business and/or assets of the Company, by agreement in form and
substance reasonably satisfactory to the Executive, expressly to assume and
agree to perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such succession had
taken place. As used in this Agreement, the term "Company" shall mean Life
Partners Group, Inc. and any successor to its business and/or all or part of
its assets as aforesaid which executes and delivers the agreement
contemplated by this Subsection 8(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) Neither this Agreement nor any of the rights or obligations of the
Executive under this Agreement may be assigned or delegated except as
provided in the last sentence of this Subsection 8(b). This Agreement and
all rights of the Executive hereunder shall inure to the benefit of and be
enforceable by, and shall be binding upon, the Executive's personal or legal
representatives, executors, administrators, successors, heirs, distributees,
devisees, and legatees. If the Executive should die while any amounts would
still be payable to him hereunder had he
25
<PAGE>
continued to live, then all such amounts (unless otherwise provided herein)
shall be paid in accordance with the terms of this Agreement to the devisee,
legatee, or other designee under the Executive's testamentary will or, if
there be no such will, to the Executive's estate.
9. NOTICE. For purposes of this Agreement, all notices and other
communications provided for in this Agreement shall be in writing and shall
be deemed to have been duly given when delivered or when mailed by United
States registered or certified mail, return receipt requested, first-class
postage prepaid, addressed as follows:
If to the Executive: If to the Company:
John H. Massey Life Partners Group, Inc.
4004 Windsor Avenue 7887 East Belleview Avenue
Dallas, Texas 75205 Englewood, Colorado 80111
Attention: President
or to such other address as any party may have furnished to the other in
writing in accordance with this Section 9, except that notices of any change
of address shall be effective only upon actual receipt.
10. MISCELLANEOUS. No provision of this Agreement may be modified,
waived, or discharged unless such waiver, modification, or discharge is
agreed to in writing signed by the Executive and such officer of the Company
as may be specifically designated by the Board. No waiver by either party
hereto of, or compliance with, any condition or provision of this Agreement
to be performed by such other party shall be deemed a waiver of any similar
or dissimilar condition or provision at the same or any other time. No
agreements or representations (whether oral or otherwise, express or implied)
with respect to the subject matter
26
<PAGE>
of this Agreement have been made by either party which are not set forth
expressly in this Agreement or which are not specifically referred to in this
Agreement. The validity, interpretation, construction, and performance of
this Agreement shall be governed by the laws of the State of Colorado.
Unless the context otherwise requires, words using the singular or plural
number shall respectively include the plural or singular number, and pronouns
of any gender shall include each other gender.
11. VALIDITY. If any provision of this Agreement is held to be illegal,
invalid, or unenforceable under any present or future law or court decision,
and if the rights or obligations of the Company and the Executive will not be
materially and adversely affected thereby, (a) such provision shall be fully
severable from this Agreement, (b) this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision had never
comprised a part hereof, (c) the remaining provisions of this Agreement shall
remain in full force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom, and (d) in
lieu of such illegal, invalid, or unenforceable provision, there shall be
added automatically as a part of this Agreement a legal, valid, and
enforceable provision as similar to the terms and intent of such illegal,
invalid, or unenforceable provision as may be possible.
12. COUNTERPARTS. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
13. ARBITRATION. Any dispute or controversy arising under or in
connection with this
27
<PAGE>
Agreement shall be settled exclusively by arbitration in Denver, Colorado, in
accordance with the rules of the American Arbitration Association then in
effect. Any judgment may be entered on the arbitrator's award in any court
having jurisdiction; PROVIDED, HOWEVER, that the Company shall be entitled to
seek a restraining order or injunction in any court of competent jurisdiction
with respect to any breach or threatened breach of any provision of Section 6
above.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement on
__________, 1994, effective as of October 1, 1994.
EXECUTIVE:
By:
-----------------------------------
John H. Massey
COMPANY:
LIFE PARTNERS GROUP, INC.
By: [illegible]
----------------------------------
Name:
--------------------------------
Title: JOHN H. MASSEY
--------------------------------
29
<PAGE>
STOCK OPTION AGREEMENT
This Stock Option Agreement (this "Option Agreement") is made and
entered into effective as of the 1st day of December, 1994 by and between
Life Partners Group, Inc., a Delaware corporation ("LPG"), and John H. Massey
(the "Optionee").
W I T N E S S E T H:
WHEREAS, concurrently with the execution of this Option Agreement, the
Optionee and LPG have entered into an Employment Agreement (the "Employment
Agreement") pursuant to which, among other things, the Optionee has been
employed by LPG on the terms and conditions set forth therein; and
WHEREAS, as an additional incentive to the Optionee to enter into and
remain in the employ of LPG and to devote his best efforts to the business
and affairs of LPG, LPG desires to grant to the Optionee certain nonstatutory
stock options to purchase from LPG, at the times and on the conditions
hereinafter set forth, shares of LPG's Common Stock, par value $0.001 per
share (the "Common Stock").
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, the parties hereby agree as follows:
1. GRANT OF OPTIONS.
(a) TEN YEAR OPTION. LPG hereby grants to the Optionee the option (the
"Ten Year Option") to purchase from LPG, at the times, at the Ten Year
Exercise Price (as hereinafter defined), and on the conditions set forth in
this Option Agreement, up to 250,000 shares of Common Stock (subject to
adjustment as provided in Section 6 hereof).
(b) THREE MONTH OPTION. LPG hereby grants to the Optionee the option
(the "Three Month Option" and, collectively with the Ten Year Option, the
"Options") to purchase from LPG, at the times, at the Three Month Exercise
Price (as hereinafter defined), and on the conditions set forth in this
Option Agreement, up to 60,000 shares of Common Stock (subject to adjustment
as provided in Section 6 hereof).
2. EXERCISE OF THE OPTIONS.
(a) TIME OF EXERCISE. The Ten Year Option shall become exercisable as
to 50,000 shares on October 1, 1995, (ii) as to an additional 50,000 shares
on October 1, 1996, (iii) as to an additional 50,000 shares on October 1,
1997, (iv) as to an additional 50,000 shares on October 1, 1998, and (v) as
to an additional 50,0000 shares on October 1, 1999, provided, however, that
any portion of the Ten Year Option which has not become exercisable shall
become exercisable in full upon the occurrence of a Change of Control (as
defined in the Employment Agreement). The Three Month Option is exercisable
in full as of the date of this
<PAGE>
Option Agreement. Subject to Sections 4 and 7 below, (i) the Ten Year Option
must be exercised by the Optionee prior to 1:00 p.m., Dallas, Texas time, on
October 1, 2004 (the "Ten Year Termination Date") and (ii) the Three Month
Option must be exercised by the Optionee prior to 1:00 p.m. Dallas, Texas
time, on February 28, 1995 (the "Three Month Termination Date"). If the
Optionee fails to exercise the Ten Year Option or the Three Month Option in
full prior to the Ten Year Termination Date or the Three Month Termination
Date, respectively, all rights of the Optionee to purchase the shares of
Common Stock subject to the unexercised portion or portions of the applicable
Option shall automatically cease and any other rights of the Optionee
provided in this Option Agreement with respect to such unexercised portion or
portions of the applicable Option shall terminate and be of no further force
and effect.
(b) PURCHASE PRICE. The purchase price for each share of Common Stock
purchased upon exercise of the Ten Year Option will be $_____ per share,
which price per share is equal to the closing price per share for LPG's
publicly traded common stock as quoted on the New York Stock Exchange on
November 30, 1994 (the "Ten Year Exercise Price"), and upon exercise of the
Three Month Option will be $_____ per share (the "Three Month Exercise
Price"), in each case, subject to adjustment as provided in Section 6 hereof
(each such purchase price, as applicable, being referred to herein as the
"Exercise Price"). No fractional shares of Common Stock shall be issued
pursuant to the exercise of the Options, and the number of shares of Common
Stock to be purchased in connection with the exercise of the Options (or any
portion or portions thereof) shall be rounded down to the nearest whole share
of Common Stock. No cash shall be payable in lieu of fractional shares.
3. METHOD OF EXERCISE AND PAYMENT. Subject to Sections 2, 4, and 7
hereof, the Options granted hereunder may be exercised by the Optionee in
whole or in part, from time to time, by giving written notice to LPG of his
intent to exercise the Options at least 15 calendar days prior to the
proposed exercise date. Such notice shall (a) specify the Options (or
portion or portions thereof) being exercised, (b) specify the number of
shares of Common Stock to be purchased upon exercise of such Options (or
portion or portions thereof), (c) specify the Exercise Price to be paid
therefor, (d) represent in form satisfactory to LPG that the shares of Common
Stock are being purchased for investment and not with a view to resale or
distribution, and (e) state the date and time of the proposed exercise date.
Exercise of the Options shall occur only upon payment to LPG of the
respective full Exercise Price for the shares of Common Stock then being
purchased, which purchase price shall be made against delivery of the
certificate or certificates for the shares of Common Stock purchased.
Payment may be made in cash, by check, or in such other manner as may be
acceptable to LPG, including without limitation tendering shares of Common
Stock of the Company with a fair market value at least equal to the aggregate
exercise price for the shares to be acquired. Where the Optionee exercises
his Options by tendering Common Stock of the Company, the fair market value
of such shares as of the date proper written notice is received by the
Company (the "Date of Exercise") shall be established in good faith by the
Board of Directors. In setting the fair market value as of the Date of
Exercise, due regard shall be given all facts and circumstances. However, if
an active market
2
<PAGE>
exists for the Common Stock, the average of the closing bid and asked prices
on the Date of Exercise shall be set by the Board of Directors as the fair
market value. If an active market does not exist at the Date of Exercise,
the Optionee may condition his exercise on the Board of Directors
establishing a fair market value above an amount specified in the Optionee's
written notice. Any shares tendered that are not used to satisfy an exercise
price shall be returned to the Optionee. Finally, the Optionee may choose to
satisfy the exercise price through some combination of the two methods
described in this paragraph.
At the time of delivery, the Company shall, without stock transfer tax to the
Optionee (or other person entitled to exercise the Option), deliver to the
Optionee (or to such other person) at the principal office of the Company, or
such other place as shall be mutually agreed upon, a certificate or
certificates for such shares, provided, however, that the time of delivery
may be postponed by the Company for such period as may be required for it
with reasonable diligence to comply with any requirements of law.
4. TERMINATION OF EMPLOYMENT PRIOR TO EXERCISE.
(a) TERMINATION FOR CAUSE OR RESIGNATION WITHOUT GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee without Good
Reason (as defined in the Employment Agreement) or by LPG for or with Cause
(as defined in the Employment Agreement) prior to the exercise in full of the
Options, then all rights of the Optionee to purchase the shares of Common
Stock subject to the unexercised portion or portions of the Options shall
cease immediately upon the effective date of such termination (regardless of
whether or not such unexercised portion or portions of the Options are
exercisable as of the effective date of such termination), and any other
rights of the Optionee provided in this Option Agreement with respect to such
unexercised portion or portions of the Options shall terminate and be of no
further force and effect as of the effective date of such termination.
(b) TERMINATION WITHOUT CAUSE OR RESIGNATION FOR GOOD REASON. If the
Optionee's employment with LPG is terminated by the Optionee for Good Reason
or by LPG without Cause prior to the exercise in full of the Options, all
Options issued pursuant to this Option Agreement shall be immediately
exercisable without regard to the vesting schedule set forth in Section 2(a)
hereof, and the Optionee may exercise, in whole or in part, the unexercised
portion or portions of the Options by notifying LPG in writing not later than
one calendar year after the effective date of such termination. Such notice
to LPG and the method of payment for the shares of Common Stock to be
purchased shall be in accordance with Sections 2 and 3 of this Option
Agreement. All rights of the Optionee to purchase the shares of Common Stock
subject to the unexercised portion or portions of the Options shall
automatically cease, and any other rights of the Optionee provided in this
Option Agreement with respect to such unexercised portion or portions of the
Options shall terminate and be of no force and effect, if the Optionee fails
to give such notice within such one-year time period.
3
<PAGE>
(c) DEATH OR DISABILITY OF OPTIONEE. In the event the Optionee's
employment with LPG is terminated as a result of the Optionee's death or
disability prior to the exercise in full of the Options, all Options issued
pursuant to this Option Agreement shall be immediately exercisable without
regard to the vesting schedule set forth in Section 2(a) hereof, and the
Optionee (or the estate of the Optionee) may exercise, in whole or in part,
the unexercised portion or portions of the Options by notifying LPG in
writing not later than one calendar year after such date. Such notice to LPG
and the method of payment for the shares of Common Stock to be purchased
shall be in accordance with Sections 2 and 3 of this Option Agreement. All
rights of the Optionee (or the estate of the Optionee) to purchase the shares
of Common Stock subject to the unexercised portion or portions of the Options
shall automatically cease, and any other rights of the Optionee (or the
estate of the Optionee) provided in this Option Agreement with respect to
such unexercised portion or portions of the Options shall terminate and be of
no force and effect if the Optionee (or the estate of the Optionee) fails to
give such notice within such one-year time period.
5. NONTRANSFERABILITY OF OPTIONS. Except as otherwise provided in
Section 4(c) hereof, the Options are personal to the Optionee, may not be
transferred, assigned, pledged, or hypothecated in any way (whether by
operation of law or otherwise), may not be exercised by any other person or
entity, and shall not be subject to execution, attachment, or similar
process. Any purported transfer in violation of this Section 5 shall be
absolutely void ab initio and of no force or effect whatsoever.
6. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. In the event LPG at any
time (a) pays a dividend, or makes a distribution, in shares of Common Stock,
(b) subdivides the outstanding shares of Common Stock, (c) combines the
outstanding shares of Common Stock into a smaller number of shares of Common
Stock, or (of) issues any shares of its capital stock or other securities by
reclassification of shares of Common Stock, then the Exercise Price of the
Options granted hereunder and the number of shares of Common Stock then
issuable pursuant to any unexercised portion of the Options shall be
automatically adjusted to reflect accurately and equitably the effect thereon
of any such change. Any adjustments made pursuant to this Section 6 shall be
determined in good faith by the Board of Directors of LPG after consulting
with the Optionee, which determination shall, in the absence of manifest
error, be conclusive and binding upon LPG and the Optionee.
7. MERGER, CONSOLIDATION, SALE OF ASSETS, OR LIQUIDATION. In the event
of any (a) merger or consolidation of LPG with or into another corporation
(other than any merger or consolidation in which LPG is the surviving
corporation), (b) sale of all or substantially all of the assets of LPG, or
(c) voluntary or involuntary liquidation or dissolution of LPG (each
hereinafter referred to as a "Reorganization"), the unexercised portion or
portions of the Options granted under this Option Agreement shall terminate
as of the closing date of such Reorganization unless exercised as provided in
this Section 7. Not later than 15 calendar days prior to the proposed date
of, and subject to the consummation of, such Reorganization, written notice
shall be given by LPG to
4
<PAGE>
the Optionee of such proposed Reorganization. All Options issued pursuant to
this Option Agreement shall be immediately exercisable without regard to the
vesting schedule set forth in Section 2(a) hereof, and the Optionee may
exercise any unexercised portion or portions of the Options, in whole or in
part, by notifying LPG in writing not later than five calendar days after LPG
has given the Optionee notice of the Reorganization. Such notice to LPG and
the method of payment for the shares of Common Stock to be purchased shall be
in accordance with Sections 2 and 3 of this Option Agreement, except that
exercise of the Options shall occur immediately preceding the closing of such
Reorganization. The unexercised portion or portions of the Options shall
automatically terminate if the Optionee fails to give such notice within such
time period; PROVIDED, HOWEVER, that in the event such notice of exercise is
given in contemplation of a Reorganization and the anticipated Reorganization
is not consummated, there shall be no acceleration of the unexercised portion
or portions of the Options, the unexercised portion or portions of the
Options shall again become exercisable as provided in Section 2(a) above, and
the notices given hereunder shall be withdrawn and considered a nullity.
8. AMENDMENT OF COMPANY STOCK OPTION PLAN. If the Company at any time
proposes to amend (a "Plan Amendment") its currently existing 1992 Incentive
and Nonstatutory Stock Option Plan (the "Option Plan") so as to increase the
aggregate number of shares of Stock (as defined in the Option Plan) that may
be issued, transferred or exercised pursuant to Awards (as defined in the
Option Plan) and to file a registration statement under the Securities Act of
1933, as amended, on Form S-8 (or an amendment of the existing Form S-8, in
either case a "Plan Registration") for the registration of such additional
Stock, it will give written notice to the Optionee, at least 30 days prior to
the initial submission of such proposed amendment to shareholders of the
Company, which notice shall set forth the intended terms of the amendment and
registration statement. In the event the Optionee desires to convert the Ten
Year Option, or any portion thereof, into an Incentive Option under the
Option Plan, he shall so advise the Company in writing within 10 Business
Days after the date of receipt of the notice from the Company, setting forth
the number of shares under the Ten Year Option for which conversion is
requested by the Optionee (the "Convertible Option Shares"). The Company
shall thereupon use commercially reasonable efforts to make provision in the
proposed Plan Amendment and proposed Plan Registration with respect thereto
for the inclusion of the Convertible Option Shares such that, following the
Plan Amendment and the Plan Registration, the Convertible Option Shares will
become an Incentive Option (as defined in the Option Plan) for a like number
of shares of the Company's common stock. In the event that independent
outside legal counsel shall advise the Company in writing that, in its
opinion, the provision for converting the Convertible Option Shares in the
Plan Amendment or the Plan Registration would materially and adversely effect
the rights of other option holders under the Option Plan, the qualification
of the Option Plan under Rule 16b-3 of the Securities Exchange Act of 1934,
as amended, or the obligations of the Company under the Option Plan or
otherwise, then the Optionee shall have no rights to have the Convertible
Option Shares converted into an Incentive Option.
9. NOTICES. Any notice, request, demand, or other communication
required by or
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<PAGE>
permitted to be given in connection with this Option Agreement shall be in
writing, except as expressly otherwise permitted herein, and shall be
delivered in person, sent by first class mail, certified or registered mail,
return receipt requested, postage prepaid, sent by telefacsimile or similar
means of communication, or delivered by a courier service, charges prepaid,
to the respective parties as follows:
(i) If to LPG:
7887 East Belleview Avenue
Englewood, Colorado 80111
Telecopy No.: 303/796-7576
Attn: President
(ii) If to the Optionee:
John H. Massey
4004 Windsor Avenue
Dallas, Texas 75205
Each of the parties hereto may change the address to which such party desires
notices to be sent if such party notifies the other party hereto of such
change in accordance with the provisions of this Section 9. Any such notice
shall be deemed to be given when received, if delivered personally or by
courier or mailed; and when electronically confirmed, if sent by
telefacsimile or similar device.
10. ADDITIONAL COVENANTS. LPG shall not be required to sell or make
delivery of any shares of Common Stock hereunder until it shall be furnished
with evidence satisfactory to it that such sale and delivery will not be in
violation of the Securities Act of 1933, as amended (the "Securities Act"),
or any other applicable state or federal law or regulation. The Optionee, by
his acceptance of this Option Agreement, acknowledges and agrees that the
Options and any shares of Common Stock issuable upon exercise thereof are
being acquired by him for his own account for the purpose of investment and
not for sale or other distribution thereof, as those terms are defined under
the Securities Act. The Optionee agrees further that LPG may request, and the
Optionee will deliver to LPG upon such request, Optionee's acknowledgment and
agreement regarding investment intent in such detail and containing such
terms and provisions as LPG shall deem appropriate and that any certificate
evidencing such shares of Common Stock issued on exercise of the Options will
bear certain legended information, including, without limitation, the
following:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THE SHARES REPRESENTED
BY THIS CERTIFICATE MAY NOT BE OFFERED FOR SALE, SOLD, PLEDGED,
6
<PAGE>
TRANSFERRED, OR OTHERWISE DISPOSED OF UNTIL THE HOLDER THEREOF
HAS PROVIDED EVIDENCE SATISFACTORY TO THE COMPANY (WHICH, IN
THE DISCRETION OF THE COMPANY, MAY INCLUDE AN OPINION OF
COUNSEL SATISFACTORY TO THE COMPANY) THAT SUCH OFFER, SALE,
PLEDGE, TRANSFER, OR OTHER DISPOSITION WILL NOT VIOLATE
APPLICABLE FEDERAL OR STATE SECURITIES LAWS.
and any certificate evidencing such shares of Common Stock issued on exercise
of all or any portion of the Three Month Option will bear the following
additional legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A VOTING AGREEMENT (THE "VOTING AGREEMENT") DATED AS
OF APRIL 23, 1992, AMONG THE ORIGINAL AND CURRENT HOLDERS
OF SUCH SECURITIES AND THE COMPANY. THE SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE TRANSFERRED
EXCEPT IN ACCORDANCE WITH THE TERMS OF THE VOTING
AGREEMENT. A COPY OF THE VOTING AGREEMENT WILL BE
FURNISHED WITHOUT CHARGE BY THE COMPANY TO THE HOLDER
HEREOF UPON THAT HOLDER'S WRITTEN REQUEST.
11. REGULATORY APPROVAL. The Options shall be subject to the
requirement that, if at any time the Board of Directors of LPG shall
determine, in good faith, that the consent or approval of any state or
federal governmental or regulatory body is required as a condition of, or in
connection with, the granting of the Options or the issuance or purchase of
shares of Common Stock thereunder, or the exercise of the Options would
violate any rule promulgated by any state or federal governmental or
regulatory body, the Options may not be exercised in whole or in part unless
and until such consent or approval shall have been effected or obtained free
of any conditions not acceptable to the Board of Directors of LPG in its
discretion.
12. VOTING AGREEMENT. LPG and the Optionee hereby agree that, from and
after the exercise of the Three Month Option (or any portion or portions
thereof) by the Optionee, the provisions applicable to certain existing
shareholders of LPG (consisting of certain officers, directors and employees
of LPG, and various other persons and entities) pursuant to that certain
Voting Agreement (herein so called) dated as of April 23, 1992 by and among
Hicks, Muse, Tate & Furst, Inc. (formerly, Hicks, Muse & Co. (TX)
Incorporated), LPG, and the other persons listed on the signature pages
thereof, shall inure to the benefit of, and be binding upon, the Optionee
with respect to the shares acquired upon such exercise of the Three Month
Option. Shares acquired by the Optionee upon exercise of all or any portion
of the Ten Year Option shall not be subject to the Voting Agreement.
13. REFERENCES. All references to "Section" contained herein are,
unless specifically
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indicated otherwise, references to sections of this Option Agreement.
Whenever herein the singular number is used, the same shall include the
plural where appropriate and words of any gender shall include each other
gender where appropriate.
14. CAPTIONS. The captions, headings, and arrangements used in this
Option Agreement are for convenience only and do not in any way affect,
limit, amplify, or modify the terms and provisions hereof.
15. GOVERNING LAW. THIS OPTION AGREEMENT IS BEING EXECUTED AND
DELIVERED, AND IS INTENDED TO BE PERFORMED IN THE STATE OF COLORADO, AND THE
SUBSTANTIVE LAWS OF THE STATE OF DELAWARE SHALL GOVERN THE VALIDITY,
CONSTRUCTION, ENFORCEMENT, AND INTERPRETATION OF THIS OPTION AGREEMENT.
16. INVALID PROVISIONS. If any provision of this Option Agreement is
held to be illegal, invalid, or unenforceable under present or future laws
effective during the term of this Option Agreement, such provision shall be
fully severable and this Option Agreement shall be construed and enforced as
if such illegal, invalid, or unenforceable provision had never comprised a
part of this Option Agreement; and the remaining provisions of this Option
Agreement shall remain in full force and effect and shall not be affected by
the illegal, invalid, or unenforceable provision or by its severance from
this Option Agreement. Furthermore, in lieu of each such illegal, invalid, or
unenforceable provision, there shall be added automatically as a part of this
Option Agreement a provision as similar in terms to such illegal, invalid, or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
17. AMENDMENTS. Subject to the receipt of any required approvals or
consents of third parties, this Option Agreement may be amended at any time
and from time to time in whole or in part, or may be terminated, by an
instrument in writing setting forth the particulars of such amendment or
termination, as the case may be, duly executed by LPG and the Optionee.
18. MULTIPLE COUNTERPARTS. This Option Agreement may be executed in a
number of identical counterparts, each of which for all purposes shall be
deemed an original, and all of which shall constitute, collectively, one
agreement; but in making proof of this Option Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
19. WAIVER. No waiver of a failure by a party to comply with any of its
obligations under this Option Agreement shall be binding unless executed in
writing by the party to whom such compliance is owed. No waiver of any
provision of this Option Agreement shall constitute a waiver of any other
provision hereof (whether or not similar), nor shall such a waiver constitute
a continuing waiver unless otherwise expressly provided.
20. ENTIRE AGREEMENT. This Option Agreement embodies the entire
agreement and
8
<PAGE>
understanding between the parties hereto relating to the subject matter
hereof and supersedes any prior agreements and understandings relating to the
subject matter hereof. There are no restrictions, promises, warranties, or
undertakings in respect of the subject matter contained herein, other than
those set forth or referred to herein.
21. SUCCESSORS AND ASSIGNS. No party may assign this Agreement or any
rights or obligations hereunder without the prior written consent of the
other parties hereto. Subject to the foregoing and to Section 5 hereof, this
Agreement shall inure to the benefit of and be binding upon the respective
heirs, beneficiaries, successors and permitted assigns of each of the
parties. All references herein to "LPG" or to the "Optionee" shall include
the respective heirs, beneficiaries, successors, and permitted assigns
thereof.
IN WITNESS WHEREOF, the parties hereto have executed this Option
Agreement as of the day and year first written above.
LIFE PARTNERS GROUP, INC.
By: /s/ GENA H. BISHOP
-------------------------------
Name:
------------------------------
Title:
-----------------------------
/s/ JOHN H. MASSEY
-----------------------------------
John H. Massey
9
<PAGE>
AMENDMENT NO. 1 TO
LIFE PARTNERS GROUP, INC.
1992 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
This Amendment No. 1 to the Life Partners Group, Inc. 1992 Incentive and
Nonstatutory Stock Option Plan (the "Amendment"), dated as February 14, 1995
(the "Effective Date"), amends the Life Partners Group, Inc. 1992 Incentive
and Nonstatutory Stock Option Plan, dated as of February 26, 1992 (the
"Plan") and reconfirms certain provisions of the Plan. Unless otherwise
defined herein, capitalized terms used herein shall have the meanings given
them in the Plan.
RECITALS
WHEREAS, Life Partners Group, Inc., a Delaware corporation (the
"Company"), created and adopted the Plan effective as of February 26, 1992;
WHEREAS, the Company, through its Board of Directors (the "Board") and
the Stock Option Committee of the Board, deems it desirable to amend the Plan
pursuant to Section 8.2 thereof as set forth herein; and
WHEREAS, the holders of a majority of the shares of Stock outstanding as
of March 24, 1995, have consented to the Amendment effective as of February
14, 1995, as required by Section 8.2 of the Plan.
NOW, THEREFORE, as of the Effective Date, the Plan is amended and
reconfirmed as follows:
1. AMENDMENT OF PARAGRAPH 2.1. Paragraph 2.1 of the Plan shall be
amended to read in its entirety as follows:
2.1 MAXIMUM NUMBER OF SHARES. Subject to the provisions of
Paragraph 2.6 and Section 6 of the Plan, the aggregate number of
shares of Stock that may be issued, transferred or exercised pursuant
to Awards under the Plan shall be 1,800,000, and the aggregate number
of shares of stock that may be issued, transferred or exercised
pursuant to Awards under the Plan to or by any individual shall not
exceed 400,000.
2. RECONFIRMATION OF PARAGRAPHS 1.14 AND 4.1. Paragraphs 1.14 and 4.1
of the Plan relating to the individuals eligible to receive Awards under the
Plan shall be reconfirmed.
3. RECONFIRMATION OF PARAGRAPH 5.4. Paragraph 5.4 of the Plan relating
to the exercise price of options granted under the Plan shall be reconfirmed.
4. RECONFIRMATION OF CERTAIN PROVISIONS OF PARAGRAPH 4.5. Paragraph 4.5
as it relates to the exercise price of incentive stock options granted to
employees meeting certain stock ownership levels of the Company or any
subsidiary corporation of the Company shall be reconfirmed.
<PAGE>
5. EFFECT ON THE PLAN. All references in the Plan to "this Plan," the
"Plan," and all phrases of like import shall refer to the Plan as amended by
this Amendment. The terms "hereof," "herein," "hereby," and all phrases of
like import, as used in the Plan, shall refer to the Plan as amended by this
Amendment. Except as amended hereby, the Plan shall remain in full force and
effect.
6. NO FURTHER AMENDMENT. Except as expressly provided herein, no other
term or provision of the Plan is amended hereby.
IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first above written.
LIFE PARTNERS GROUP, INC.
By:
-----------------------------------
John H. Massey
Chairman of the Board
By:
-----------------------------------
Thomas O. Hicks
Chairman, Stock Option Committee
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 22nd day of May, 1995, between Life Partners
Group, Inc., a Delaware corporation (the "Company"), and David
Gubbay (the "Executive").
WHEREAS, the Company's Board of Directors (the "Board")
recognizes that the Executive's contribution (as an executive
officer of the Company) to the growth and success of the Company
is expected to be substantial and desires to assure the Company
of the Executive's employment in an executive capacity and to
compensate him therefor; and
WHEREAS, the Executive desires to commit himself to serve
the Company on the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to be employed by the
Company, on the terms and conditions set forth herein for the
period commencing on May 22, 1995, and (unless earlier terminated
pursuant to Section 7 below) ending on May 22, 1998. The period
from May 22, 1995 through May 22, 1998 or, if earlier, the date
of termination of the Executive's employment pursuant to Section
7 below, is sometimes referred to herein as the "Period of
Employment."
2. POSITION AND DUTIES. The Executive, during the
Period of Employment, shall serve as the President of the
Company, reporting only to the Board and the Chief Executive
Officer of the Company (the "Authorized Persons"). The
Executive shall have supervision and control over and
responsibility for the general management of the Company, and
shall have such other powers and duties as may from time to
time be prescribed by the Board so long as such duties are
consistent with the Executive's position. The Executive shall
devote substantially all of his working time and efforts to
the business and affairs of the Company (subject to the
provisions of Section 6(b)(v) below), shall perform his duties
hereunder diligently and in a prudent and businesslike manner,
and shall act in the best interests of the Company as he
reasonably perceives such interests.
3. PLACE OF PERFORMANCE. In connection with his
employment by the Company during the Period of Employment, the
Executive shall be based in Denver, Colorado. The Executive will
be entitled to receive all applicable benefits of the Company's
relocation policy as currently in effect and summarized on
EXHIBIT 1 hereto in connection with the relocation by the
Executive of his primary residence to the Denver, Colorado area. In
<PAGE>
addition, the Company will reimburse the Executive for all
reasonable costs and expenses incurred by the Executive (a)
for unlimited trips to the Denver, Colorado area for the
purpose of locating a home; and (b) in leasing temporary
housing accommodations in the Denver, Colorado area until
October 31, 1995.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive an annual
base salary of $300,000 ("Base Salary"). The Base Salary shall
be payable in substantially equal monthly installments and shall
not be reduced during the Period of Employment.
(b) INCENTIVE COMPENSATION. In addition to the Base
Salary, Executive shall receive, on or before April 30 of each
year subsequent to 1995 during the continuance of the Executive's
employment under this Agreement and on or before April 30 of the
year following the year in which the Executive's employment
hereunder terminates, such amount as may be determined by the
Board under the Company's Management Cash Bonus Plan then in
effect (as such plan may be amended from time to time, the "Bonus
Plan"). Presently, the Bonus Plan is based upon a ratio (the
"Bonus Ratio") of actual GAAP earnings (as defined in the Bonus
Plan) to planned GAAP earnings (as defined in the Bonus Plan)
whereby three different levels of cash bonuses may be earned.
Under the current Bonus Plan, if the Bonus Ratio is equal to or
greater than 90%, but less than 95%, the Executive's bonus
compensation for the year will be equal to 33.33% of Base Salary; if
the Bonus Ratio is equal to or greater than 95%, but less than
100%, the Executive's bonus compensation for the year will be
equal to 50% of Base Salary; and if the Bonus Ratio is equal to
or in excess of 100%, the Executive's bonus compensation for the
year will be 66.66% of Base Salary. It is understood and agreed
that, in accordance with the terms of the Bonus Plan, the Board
may amend and revise the Bonus Plan from time to time in its
discretion. If Executive is employed by the Company for less
than a whole calendar year for any calendar year during the
Period of Employment, the amount of bonus compensation payable to
Executive for such calendar year shall be prorated based upon the
actual number of days the Executive was employed during such year
(including, for the calendar year ending December 31, 1995, days
the Executive was employed by the Company prior to the execution
of this Agreement).
(c) STOCK OPTIONS. The Company and the Executive have
agreed to execute a Nonstatutory Stock Option Award Agreement
(the "Stock Option Agreement"), granting the Executive, subject
to the terms and conditions set forth in the Stock Option
Agreement, an option to purchase up to 150,000 shares of the
Company's common stock, par value $.001 per share (the "Common
Stock").
(d) EXPENSES. The Executive shall be entitled to receive
prompt reimbursement for all reasonable expenses incurred by him
(in accordance with the policies and procedures
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<PAGE>
presently established by the Company for its senior
executive officers) during the Period of Employment, in
performing services hereunder, provided that the Executive
properly accounts for such expenses in accordance with the
Company's expense reimbursement policy. During the Period
of Employment, the Company shall provide to the Executive an
automobile allowance of $700 per month.
(e) OTHER BENEFITS. The Executive shall be entitled to
participate in or receive benefits under all of the Company's
Employee Benefit Plans or Other Arrangements (as hereinafter
defined) in effect on the date hereof or under plans or
arrangements that provide the Executive with at least equivalent
benefits to those provided under such Employee Benefit Plans or
Other Arrangements. As used herein, "Employee Benefit Plans or
Other Arrangements" include, without limitation, each pension and
retirement plan, supplemental pension, retirement, and deferred
compensation plan, savings and profit-sharing plan, medical
insurance plan, disability plan, and health and accident plan or
arrangement established and maintained by the Company on the date
hereof for the benefit of and made generally available to
executives and key management employees of the Company or its
subsidiaries, but does not include any other employment agreement
between the Company (or any of its subsidiaries) and any employee
thereof. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement
which may, in the future, be made generally available by the
Company to its executives and key management employees, subject
to and on a basis consistent with the terms, conditions, and
overall administration of such plan or arrangement. Any payments
or benefits payable to the Executive under a plan or arrangement
referred to in this Subsection 4(e) in respect of any calendar
year during which the Executive is employed by the Company for
less than the whole of such calendar year shall, unless otherwise
provided in the applicable plan or arrangement, be prorated in
accordance with the actual number of days in such calendar year
during which he is so employed (including, for the calendar year
ending December 31, 1995, days the Executive was employed by the
Company prior to the execution of this Agreement).
(f) VACATIONS AND SICK LEAVE. During the Period of
Employment, the Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company
from time to time for its senior executive officers, but not less
than three weeks in any calendar year (prorated in any calendar
year during which the Executive is employed hereunder (including,
for the calendar year ending December 31, 1995, days the
Executive was employed by the Company prior to the execution of
this Agreement) for less than the entire such year in accordance
with the actual number of days in such calendar year). During
the Period of Employment, the Executive shall also be entitled to
all paid holidays given by the Company to its senior executive
officers. During the Period of Employment, the Executive shall
be entitled to 30 calendar days of paid sick leave during each
calendar year of employment (prorated in any calendar year during
which the Executive is employed hereunder (including, for the
calendar year ending December 31, 1995, days the Executive
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<PAGE>
was employed by the Company prior to the execution of this
Agreement) for less than the entire such year in accordance
with the actual number of days in such calendar year).
Vacation days and sick days that are not used by the
Executive in any calendar year will not be carried forward,
and all such days shall be forfeited without compensation or
credit.
5. ADDITIONAL POSITIONS. During the Period of Employment,
the Executive agrees that, in the event the Board (subject, as
required, to stockholder vote) requests the Executive to serve as
a director of the Company and/or any of its subsidiaries, as a
member of one or more committees of the respective boards of
directors of the Company and any of its subsidiaries, and in one
or more executive offices of any of the Company's subsidiaries as
the Executive may from time to time be elected, he will so serve
without further compensation, if and so long as the Executive is
indemnified for serving in any and all such capacities on a basis
no less favorable than is currently provided by the Company's By-
laws or Certificate of Incorporation.
6. CONFIDENTIALITY AND NONCOMPETITION.
(a) The Executive acknowledges that his services and
responsibilities are of particular significance to the Company
and its subsidiaries (collectively the "LPG Companies" and
individually an "LPG Company"), and that his positions with the
Company or any other LPG Company have given and will give him
access to and an intimate knowledge of the policies, customers,
employees, trade secrets, and other confidential, proprietary,
nonpublic, privileged, or secret information of the LPG Companies
(collectively "Confidential Information"); PROVIDED, HOWEVER,
that Confidential Information shall not include any information
which is obtainable from sources other than the LPG Companies
that are not bound by any confidentiality or nondisclosure
obligation with respect to such information (whether such
obligation is imposed by agreement, fiduciary duty, law, order,
or otherwise) or that have not obtained such information as a
result of unauthorized disclosure by or at the direction of the
Executive. Because the LPG Companies are in creative, technical,
and competitive businesses, the Executive's continued and
exclusive service to the LPG Companies and his preservation of
the confidentiality of the Confidential Information is of
critical importance to the Company.
(b) Based on the matters described in Subsection 6(a)
above, and in further consideration of this Agreement, the
Executive covenants and agrees with the Company that:
(i) CONFIDENTIAL INFORMATION. The Executive shall not
(for any reason), directly or indirectly, for himself or on
behalf of any other person or entity, disclose to any person
or entity (except to employees or other representatives of
the Company who need to know such Confidential Information
to the extent reasonably necessary for the Executive to
perform his duties under this Agreement and except as required
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<PAGE>
by law; PROVIDED, HOWEVER, that this exception for
legal requirement shall not apply to any legal requirement
imposed upon the Executive as a result of the Executive's,
directly or indirectly, having purchased securities or
otherwise seeking or deriving personal benefit) any
Confidential Information which the Executive may have
acquired in the course of or as an incident to his
employment or prior dealings with any LPG Company,
including, without limitation, business or trade secrets of,
or insurance products or methods or techniques used by, any
LPG Company in or about their respective businesses, or any
Confidential Information whatsoever concerning the
customers, clients, policyholders, or annuitants of any LPG
Company, or any reinsurance agreements or similar
arrangements involving any LPG Company.
(ii) NONCOMPETE. During the Period of Employment and
through, as the case may be, (A) the last day on which the
Executive receives compensation pursuant to any of
Subsections 7(a)(ii), 7(b), or 7(d)(i) below or (B) the
second anniversary of the termination of the Executive's
employment hereunder pursuant to Subsection 7(a)(i) or
Subsection 7(d)(ii) below, the Executive shall not (for any
reason), for himself or on behalf of any other person or
entity, (1) call on or contact, directly or indirectly, any
customer, client, policyholder, or annuitant, domiciled in
the United States or its possessions, of any LPG Company or
any agent, reinsurer, or insurance company, domiciled in the
United States or its possessions, with which any LPG Company
has done business during the Period of Employment for the
purpose or with the effect of offering any insurance
products or services of any kind similar to those offered by
any LPG Company during the Period of Employment or (2)
assist any other person or entity in connection with any
action described in the foregoing clause (1).
(iii) NONINTERFERENCE WITH EMPLOYEES. During the
Period of Employment and through, as the case may be, (A)
the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a)(ii), 7(b), or 7(d)(i)
below or (B) the second anniversary of the termination of
the Executive's employment hereunder pursuant to Subsection
7(a)(i) or Subsection 7(d)(ii) below, the Executive shall
not (for any reason), for himself or on behalf of any other
person or entity, (1) induce or attempt to induce any
employee of any LPG Company to terminate employment with the
employing LPG Company, (2) interfere with or disrupt any LPG
Company's relationship with any of the employees of such LPG
Company, (3) solicit, entice, or take away, any person
employed by any LPG Company during the 12-month period
preceding the termination of the Period of Employment, or
(4) assist any other person or entity in connection with any
action described in any of the foregoing clauses (1) through
(3).
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<PAGE>
(iv) NONINTERFERENCE WITH POLICYHOLDERS, ETC. The
Executive shall not (for any reason), directly or
indirectly, for himself or on behalf of any other person or
entity, (A) utilize or attempt to utilize any Confidential
Information for the purpose or with the effect of causing or
attempting to cause (1) any policyholder or annuitant to
replace or terminate any insurance or annuity contract
issued, reinsured, or underwritten by any LPG Company, in
whole or in part, with any insurance or annuity product of
any other person or entity, or (2) any reinsurer to
terminate any reinsurance, coinsurance, or other similar
contract, or to sever a relationship, with any LPG Company
or (B) assist any other person or entity in connection with
any action described in the foregoing clause (A).
(v) EXCLUSIVE EMPLOYMENT. During the Period of
Employment and through the last day on which the Executive
receives compensation pursuant to any of Subsections
7(a)(ii), 7(b), or 7(d)(i) of this Agreement, the Executive
shall not (for any reason), directly or indirectly, for
himself or on behalf of any other person or entity, render
any service of an advisory nature or otherwise to, or become
employed by, or own any interest in, or be associated with,
any insurance company underwriting life insurance or
annuities or any agency or brokerage firm selling life
insurance or annuities, or any entity owning 50% or more of
any insurance company underwriting life insurance or
annuities or agency or brokerage firm selling life insurance
or annuities, other than the LPG Companies; PROVIDED,
HOWEVER, that the Executive may (A) make investments in
entities of such kind which are publicly owned and in which
the Executive owns no more than 2% of the outstanding equity
securities thereof, (B) make investments in such other
entities and in such amounts, and serve on the board of
directors of any other entity not affiliated with the
Company, as may be approved in advance by the Executive
Committee of the Board, (C) devote reasonable time and
energies to charitable activities, and (D) serve as a
trustee (or similar capacity) of any trust established for
the exclusive benefit of any spouse or lineal descendant of
Manfred D. Moross or any charitable trust created by Mr.
Moross, any spouse of Mr. Moross, or any lineal descendant
of Mr. Moross, so long as such activities described in the
foregoing clauses (A), (B), (C) or (D) do not interfere with
or impair the performance of the Executive's duties under
this Agreement.
(c) INJUNCTIVE RELIEF. The Executive acknowledges and
agrees that any breach by him of any of the covenants or
agreements contained in this Section 6 would give rise to
irreparable injury to the Company and would not be
adequately compensable in damages. Accordingly, the
Executive agrees that the Company may seek and obtain
injunctive relief against the breach or threatened breach of
any of the provisions of this Section 6, in addition to any
other legal remedies which may be available. The Executive
further acknowledges and agrees that the covenants and
agreements contained herein are necessary for the
6
<PAGE>
protection of the Company's legitimate business interests and
are reasonable in scope and content.
(d) REFORMATION AND SURVIVAL. The Company and the
Executive agree and stipulate that the agreements and covenants
contained in this Section 6 are fair and reasonable in light of
all of the facts and circumstances of the relationship between
them. The Company and the Executive acknowledge their awareness,
however, that in certain circumstances courts have refused to
enforce certain agreements not to compete. Therefore, in
furtherance of, and not in derogation of, the provisions of this
Section 6, the Company and the Executive agree that, in the event
a court should decline to enforce one or more of the provisions
of this Section 6, then this Section 6 shall be deemed to be
modified or reformed to restrict the Executive's conduct to the
maximum extent (in terms of time, geography, and business scope)
which the court shall determine to be enforceable. The
provisions of this Section 6 shall survive the termination of
this Agreement for the respective periods set forth in this
Section 6.
7. TERMINATION. Except as expressly provided for in this
Section 7, from and after the date of termination of the
Executive's employment hereunder, the Company shall have no
obligation (whether financial or otherwise) under this Agreement,
and the Executive shall have no right to receive any Base Salary
or any other payment or benefit under this Agreement; PROVIDED,
HOWEVER, that nothing in this Section 7 shall affect the
Executive's obligations under Section 6 above or shall affect the
Executive's rights to receive payments or benefits that are
accrued before, but remain unpaid on, the date of termination, or
to receive payments or benefits that are required to be made or
provided to him pursuant to the terms of any of the Employee
Benefit Plans or Other Arrangements insofar as such rights relate
to the Executive's participation in the respective plan or
arrangement before the date of termination.
(a) TERMINATION BY COMPANY. As set forth below, the
Company may terminate the Executive's employment hereunder with
or without Cause (as hereinafter defined), for any reason or for
no reason.
(i) FOR CAUSE. The Company may terminate the
employment of the Executive hereunder for or with Cause by
written notice to the Executive to that effect setting forth
in reasonable detail the Cause or Causes for such
termination. Such notice shall be delivered at least 10
calendar days prior to the effectiveness of such termination
and shall provide an opportunity for the Executive, together
with his counsel, to be heard by the Board prior to the
effectiveness of such termination. Such termination shall
be effective at the time (not less than 10 calendar days
after delivery of the notice of termination) specified in
such notice of termination. In the event the Company terminates
the Executive's employment hereunder for or with Cause, no
7
<PAGE>
further payments or benefits shall be made or
provided to the Executive hereunder except as provided in
the next following sentence. If the Executive's employment
is terminated pursuant to this Subsection 7(a)(i), then (a)
the Company shall continue to pay the Base Salary to the
Executive specified in (and in accordance with the
applicable terms of) Subsection 4(a) above, and shall
continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise
precluded by the terms of the plans or arrangements
respectively described in such subsections) only until the
date of such termination; and (b) as set forth in Section
5(a) of the Stock Option Agreement, all rights of the
Executive to purchase the shares of Common Stock subject to
the unexercised portion or portions of the options granted
therein shall cease immediately upon the date of such
termination. As used in this Agreement, the term "Cause"
shall mean the occurrence of any of the following, as
determined by the Board in its sole discretion exercised in
good faith: (A) the Executive willfully breaches any of his
obligations or duties hereunder which breach is materially
adverse to the LPG Companies, taken as a whole; (B) the
Executive fails to comply with any written or oral direction
of an Authorized Person which reasonably relates to the
performance of the Executive's duties as provided in Section
2 of this Agreement and which would not require the
Executive to perform an illegal act; PROVIDED, HOWEVER, such
failure shall not constitute "Cause" (1) if the failure
results from the Executive's being Disabled (as hereinafter
defined) or (2) unless such failure continues for 10
calendar days or more after written notice thereof is given
to the Executive by the Company; (C) the Executive fails to
comply with his obligations under Section 6 of this
Agreement and such failure, or any materially adverse
consequence thereof, continues for 10 calendar days or more
after written notice thereof is given to the Executive by
the Company; PROVIDED, HOWEVER, that no such notice need be
given if the failure and its material adverse consequences
cannot reasonably be expected to be cured within 10 calendar
days; (D) the Executive engages in any act of intentional,
willful, or reckless dishonesty which is more than nominally
injurious to the Company or its business or to any affiliate
of the Company or such affiliate's business; or (E) the
Executive is convicted of or enters a plea of guilty or NOLO
CONTENDERE to (1) any misdemeanor involving financial
misconduct, or (2) any felony.
(ii) WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause by written
notice to the Executive to that effect. Unless otherwise
specified in the notice, such termination shall be effective
immediately upon delivery thereof to the Executive. In the
event the Company terminates the Executive's employment
hereunder without Cause during the Period of Employment, no
further payments or benefits shall be made or provided to
the Executive hereunder except as provided in the next
following sentence. If the Executive's employment hereunder
is terminated pursuant to this Subsection 7(a)(ii),
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<PAGE>
then the Company shall continue to pay the Executive the
compensation specified in (and in accordance with the applicable
terms of) Subsection 4(a) and the Company shall continue to
provide the Executive with the benefits specified in (and in
accordance with the applicable terms of) Subsections 4(d)
and 4(e) above (except as otherwise precluded by the terms
of the plans or arrangements respectively described in such
subsections) only during the Post-Employment Compensation
Period. As used herein, the term "Post-Employment
Compensation Period" shall mean the period of time
commencing on the date of the termination of the Executive's
employment with the Company pursuant to Subsections
7(a)(ii), 7(b), or 7(d)(i) hereof and ending on the second
anniversary of such termination date. Following the date on
which the Executive shall accept employment with any person
or entity other than any LPG Company, the compensation and
benefits specified in Subsections 4(a), 4(d), and 4(e) above
which are applicable during the Post-Employment Compensation
Period shall be reduced by the value of any compensation and
benefits earned by the Executive as a result of such other
employment during such Post-Employment Compensation Period.
Nothing contained in this Subsection 7(a)(ii) shall affect
the Executive's rights pursuant to the Stock Option
Agreement, which rights shall be governed solely by the
Stock Option Agreement.
(b) DISABILITY. If during the Period of Employment
the Executive shall be or become incapacitated by reason of
mental or physical disability or otherwise so that he is or
will be prevented from adequately performing any of his
material duties and obligations under this Agreement for
more than 180 consecutive calendar days ("Disabled"), the
Executive's employment hereunder shall automatically and
immediately terminate upon written notice from the Company
to the Executive to such effect. Thereafter, no further
payments or benefits shall be made or provided to the
Executive hereunder except as provided in the next following
sentence. If the Executive's employment hereunder is
terminated pursuant to this Subsection 7(b), then the
Company shall continue to pay the Executive the compensation
specified in (and in accordance with the applicable terms
of) Subsections 4(a) and 4(b) above, and shall continue to
provide the Executive with the benefits specified in (and in
accordance with the applicable terms of) Subsections 4(d)
and 4(e) above (except as otherwise precluded by the terms
of the plans or arrangements respectively described in such
subsections), only until the earlier of (i) May 22, 1998, or
(ii) the second anniversary of the termination of the
Executive's employment pursuant to this Section 7(b), after
which time the Executive shall be eligible for payments and
benefits pursuant to the Company's disability plan;
PROVIDED, HOWEVER, that the amount of any compensation and
benefit payments required to be made under this Subsection
7(b) shall be reduced by the value of any compensation and
benefits earned by the Executive as a result of the
Executive's employment by any person or entity other than
any LPG Company during the period in which the Executive is
entitled to receive compensation and benefits pursuant to
this Subsection 7(b). The determination by a qualified,
independent physician selected by the
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<PAGE>
Board that the Executive is Disabled shall be
final and conclusive. By executing this Agreement, the Executive
agrees to submit to any and all medical examinations or
procedures and to execute and deliver any and all consents to the
release of medical information and records or otherwise as shall
be reasonably required by such physician in determining whether
the Executive is Disabled. Nothing contained in this Subsection
7(b) shall affect the Executive's rights pursuant to the Stock
Option Agreement, which rights shall be governed solely by the
Stock Option Agreement.
(c) DEATH. If the Executive dies during the Period of
Employment, the Executive's employment hereunder shall
automatically and immediately terminate. Thereafter, no further
payments or benefits shall be made or provided to the Executive
hereunder except as provided in the next following sentence. If
the Executive's employment hereunder is terminated pursuant to
this Subsection 7(c), then the Company shall reimburse the estate
of the Executive for the expenses, costs, and automobile
allowance specified in (and in accordance with the applicable
terms of) Subsection 4(d) above as the same are incurred before,
but remain unpaid at the time of, the Executive's death and shall
continue to pay the estate of the Executive the compensation
specified in (and in accordance with the applicable terms of)
Subsections 4(a) and 4(b) above only until the last day of the
calendar month which is 6 months from the end of the calendar
month during which the death occurred. Nothing contained in this
Subsection 7(c) shall affect the Executive's rights pursuant to
the Stock Option Agreement, which rights shall be governed solely
by the Stock Option Agreement.
(d) TERMINATION BY EXECUTIVE. As set forth below, the
Executive may terminate his employment hereunder with or
without Good Reason (as hereinafter defined). If the
Executive resigns as President of the Company, he shall be
deemed to have terminated his employment under this Agreement
with the effect specified in Subsection 7(d)(i) or Subsection
7(d)(ii) below, as the case may be. If the Executive
terminates his employment under this Agreement, he shall be
deemed (unless otherwise determined by the Board) to have
resigned from all offices, directorships, and committee
memberships that he then holds with the Company or any other
LPG Company.
(i) FOR GOOD REASON. The Executive may terminate his
employment for or with Good Reason by written notice to the
Company to that effect setting forth in reasonable detail
the Good Reason or Good Reasons for such termination. Such
notice shall be delivered at least 10 calendar days prior to
the effectiveness of such termination and shall provide an
opportunity for the Board (or its representative), together
with counsel to the Company, to meet with the Executive to
discuss the reasons for such termination prior to the
effectiveness of such termination. Such termination shall
be effective at the time (not less than 10 calendar days
after delivery of the notice of termination) specified in
such notice of termination. In the event the
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<PAGE>
Executive terminates his employment hereunder for or
with Good Reason, no further payments or benefits
shall be made or provided to the Executive hereunder
except as provided in the next following sentence.
If the Executive's employment is terminated pursuant
to this Subsection 7(d)(i), then the Company shall
continue to pay the Executive the compensation
specified in (and in accordance with the applicable
terms of) Subsection 4(a) above and the Company
shall continue to provide the Executive with the
benefits specified in (and in accordance with the
applicable terms of) Subsections 4(d) and 4(e) above
(except as otherwise precluded by the terms of the
plans or arrangements respectively described in such
subsections) only during the Post-Employment
Compensation Period. Following the date on which
the Executive shall accept employment with any
person or entity other than any LPG Company, the
compensation and benefits specified in Subsections
4(a), 4(d), and 4(e) above shall be reduced by the
value of any compensation and benefits earned by the
Executive as a result of such other employment. As
used in this Agreement, the term "Good Reason" shall
mean the occurrence of any of the following: (A)
the Company fails to make any payment required to be
made to or for the benefit of the Executive pursuant
to Subsection 4(a), 4(b), 4(d), or 4(e) above within
30 days after such payment is due; (B) the Company
materially breaches any of its obligations or duties
under this Agreement (other than the obligation or
duty to make payments specified in the preceding
clause (A) above) which breach is materially
adverse to the Executive, including, without
limitation, a material reduction in duties or a
reduction in title or position, and continues for 10
calendar days or more after written notice thereof
is given to the Company by the Executive; (C) the
Company fails to obtain the assumption of the
obligation to perform this Agreement by any
successor as contemplated in Subsection 8(a) below;
or (D) a Change in Control occurs; PROVIDED,
HOWEVER, that a Change in Control will be deemed to
be Good Reason only if the Executive elects to
terminate his employment within 90 days of the
consummation of the Change in Control. The term
"Change in Control" shall have the meaning given
such phrase in the Stock Option Agreement.
(ii) WITHOUT GOOD REASON. The Executive may terminate
his employment without Good Reason by written notice to the
Company to that effect. Unless otherwise specified in the
notice, such termination shall be effective immediately upon
delivery thereof to the Company. In the event the Executive
terminates his employment hereunder without Good Reason, no
further payments or benefits shall be made or provided to
the Executive hereunder except as provided in the next
following sentence. If the Executive's employment is
terminated pursuant to this Subsection 7(d)(ii), then (A)
the Company shall continue to pay the Executive his
compensation specified in (and in accordance with the
applicable terms of) Subsections 4(a) above and the Company
shall continue to provide the benefits specified in (and in
accordance with the applicable terms of) Subsections 4(d)
and 4(e) above (except as
11
<PAGE>
otherwise precluded by the terms of the plans or
arrangements respectively described in such
subsections) only until the date of such
termination; and (B) as set forth in Section 5(a) of
the Stock Option Agreement, all rights of the
Executive to purchase the shares of Common Stock
subject to the unexercised portion or portions of
the options granted therein shall cease immediately
upon the date of such termination.
(e) If the Company terminates the Executive's employment
hereunder for Cause pursuant to Subsection 7(a)(i)(A) above at
any time when the Executive believes himself to be Disabled, the
Executive may furnish the Company with a written statement from a
qualified, independent physician to the effect that the Executive
is Disabled. The Company shall then promptly select a qualified,
independent physician who shall, at the Company's expense,
examine the Executive. If the physician selected by the Company
concurs in the opinion that the Executive is Disabled, the
Executive's employment hereunder shall automatically and
immediately terminate to the same extent and effect for all
purposes as if such employment had been terminated pursuant to
Subsection 7(b) above (so long as the Cause was the result of the
Disability).
(f) Notwithstanding any other provision of this Section 7,
the Company and the Executive expressly understand and agree
that, if (before all payments and benefits payable to the
Executive following a termination pursuant to any provision of
this Section 7 have been fully made or provided to the Executive)
the Executive becomes Disabled or dies, then the payments and
benefits required to be made to the Executive pursuant to this
Section 7 shall not exceed the lesser of (i) the amount of any
payments or benefits that remain (following the date the
Executive becomes Disabled or dies, as the case may be) to be
made or provided by the Company pursuant to the respective
provision of this Section 7 under which the Executive's
employment is actually terminated or (ii) the amount of any
payments or benefits that would be required to be made or
provided by the Company if the Executive's employment had
actually been terminated by the Executive's Disability or death,
as the case may be. Furthermore, notwithstanding any other
provision of this Section 7, the Company and the Executive
understand and agree that, if there is a legitimate conflict as
to which provision of this Section 7 controls the termination of
the Executive's employment, a termination for Cause pursuant to
Subsection 7(a)(i) shall control, regardless of whether such
termination for Cause precedes or follows a termination pursuant
to any other provision of this Section 7 (except as provided for
in Section 7(e) of this Agreement); PROVIDED, HOWEVER, that, in
order for a termination for Cause to control, the Company must
deliver to the Executive written notice of such Cause before, or
within 30 days following, the Executive's termination of
employment pursuant to any other provision of this Section 7.
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<PAGE>
8. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the term
"Company" shall mean Life Partners Group, Inc. and any successor
to its business and/or all or substantially all of its assets as
aforesaid which executes and delivers the agreement contemplated
by this Subsection 8(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
(b) Neither this Agreement nor any of the rights or
obligations of the Executive under this Agreement may be assigned
or delegated except as provided in this Subsection 8(b). This
Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by, and shall be binding
upon, the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees, and legatees.
9. NOTICE. For purposes of this Agreement, all notices
and other communications provided for in this Agreement shall be
in writing and shall be (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c)
delivered by overnight express, or (d) mailed by United States
registered or certified mail, return receipt requested, first-
class postage prepaid, addressed as follows:
If to the Executive: If to the Company:
David Gubbay Life Partners Group, Inc.
7887 E. Belleview Ave. 7887 E. Belleview Ave.
Englewood, CO 80111 Englewood, CO 80111
Attention: General Counsel
or to such other address as any party may have furnished to the
other in writing in accordance with this Section 9. Any such
notice shall be deemed to be given when received, if delivered
personally or by courier or mailed; and when electronically
confirmed, if sent by telefacsimile or similar device.
10. MISCELLANEOUS. No provision of this Agreement may
be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing signed by
the Executive and such officer of the Company as may be
specifically designated by the
13
<PAGE>
Board. No waiver by either party hereto of, or compliance
with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of any
similar or dissimilar condition or provision at the same or any
other time. No agreements or representations (whether oral or
otherwise, express or implied) with respect to the subject matter
of this Agreement have been made by either party which are not
set forth expressly in this Agreement or which are not
specifically referred to in this Agreement. The validity,
interpretation, construction, and performance of this Agreement
shall be governed by the substantive laws of the State of
Colorado. Unless the context otherwise requires, words using the
singular or plural number shall respectively include the plural
or singular number, and pronouns of any gender shall include each
other gender.
11. VALIDITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under any present or
future law or court decision, and if the rights or obligations of
the Company and the Executive will not be materially and
adversely affected thereby, (a) such provision shall be fully
severable from this Agreement, (b) this Agreement shall be
construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part hereof, (c)
the remaining provisions of this Agreement shall remain in full
force and effect and shall not be affected by the illegal,
invalid, or unenforceable provision or by its severance herefrom,
and (d) in lieu of such illegal, invalid, or unenforceable
provision, there shall be added automatically as a part of this
Agreement a legal, valid, and enforceable provision as similar to
the terms and intent of such illegal, invalid, or unenforceable
provision as may be possible.
12. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
13. ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in Denver, Colorado, in accordance with the rules
of the American Arbitration Association then in effect. Any
judgment may be entered on the arbitrator's award in any court
having jurisdiction; PROVIDED, HOWEVER, that the Company shall be
entitled to seek a restraining order or injunction in any court
of competent jurisdiction with respect to any breach or
threatened breach of any provision of Section 6 above.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
EXECUTIVE:
/s/ David Gubbay
----------------------------
David Gubbay
COMPANY:
LIFE PARTNERS GROUP, INC.
By: /s/ John H. Massey
----------------------------
John H. Massey
Chief Executive Officer
15
<PAGE>
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is made and entered
into as of the 22nd day of May, 1995, between Life Partners
Group, Inc., a Delaware corporation (the "Company"), and Keith
Gubbay (the "Executive").
WHEREAS, the Company's Board of Directors (the "Board")
recognizes that the Executive's contribution (as an executive
officer of the Company) to the growth and success of the Company
is expected to be substantial and desires to assure the Company
of the Executive's employment in an executive capacity and to
compensate him therefor; and
WHEREAS, the Executive desires to commit himself to serve
the Company on the terms and conditions herein provided;
NOW, THEREFORE, in consideration of the foregoing and of the
respective covenants and agreements of the parties herein
contained, the parties hereto agree as follows:
1. EMPLOYMENT. The Company hereby agrees to employ the
Executive, and the Executive hereby agrees to be employed by the
Company, on the terms and conditions set forth herein for the
period commencing on May 22, 1995, and (unless earlier terminated
pursuant to Section 7 below) ending on May 22, 1998. The period
from May 22, 1995 through May 22, 1998 or, if earlier, the date
of termination of the Executive's employment pursuant to Section
7 below, is sometimes referred to herein as the "Period of
Employment."
2. POSITION AND DUTIES. The Executive, during the Period
of Employment, shall serve as the Executive Vice President -
Corporate Development of the Company, reporting only to the
Board, the Chief Executive Officer, the President, and such other
officers of the Company as is required by the By-laws of the
Company or resolutions of the Board (the "Authorized Persons").
The Executive shall have such powers and duties as may from time
to time be prescribed by the Board and/or the Chief Executive
Officer of the Company so long as such duties are consistent with
the Executive's position on the date hereof. The Executive shall
devote substantially all of his working time and efforts to the
business and affairs of the Company (subject to the provisions of
Section 6(b)(v) below), shall perform his duties hereunder
diligently and in a prudent and businesslike manner, and shall
act in the best interests of the Company as he reasonably
perceives such interests.
3. PLACE OF PERFORMANCE. In connection with his
employment by the Company during the Period of Employment, the
Executive shall be based in Denver, Colorado. The Executive will
be entitled to receive all applicable benefits of the Company's
relocation policy as currently in effect and summarized on
EXHIBIT 1 hereto in connection with the relocation by the
Executive of his primary residence to the Denver, Colorado area. In
<PAGE>
addition, the Company will reimburse the Executive for all
reasonable costs and expenses incurred by the Executive (a) for
up to four trips by the Executive and his spouse to the Denver,
Colorado area for the purpose of locating a home; and (b) in
leasing temporary housing accommodations in the Denver, Colorado
area until July 31, 1995.
4. COMPENSATION AND RELATED MATTERS.
(a) BASE SALARY. The Executive shall receive an annual
base salary of $200,000 ("Base Salary"). The Base Salary shall
be payable in substantially equal monthly installments and shall
not be reduced during the Period of Employment.
(b) INCENTIVE COMPENSATION. In addition to the Base
Salary, Executive shall receive, on or before April 30 of each
year subsequent to 1995 during the continuance of the Executive's
employment under this Agreement and on or before April 30 of the
year following the year in which the Executive's employment
hereunder terminates, such amount as may be determined by the
Board under the Company's Management Cash Bonus Plan then in
effect (as such plan may be amended from time to time, the "Bonus
Plan"). Presently, the Bonus Plan is based upon a ratio (the
"Bonus Ratio") of actual GAAP earnings (as defined in the Bonus
Plan) to planned GAAP earnings (as defined in the Bonus Plan)
whereby three different levels of cash bonuses may be earned.
Under the current Bonus Plan, if the Bonus Ratio is equal to or
greater than 90%, but less than 95%, the Executive's bonus
compensation for the year will be equal to 30% of Base Salary; if
the Bonus Ratio is equal to or greater than 95%, but less than
100%, the Executive's bonus compensation for the year will be
equal to 40% of Base Salary; and if the Bonus Ratio is equal to
or in excess of 100%, the Executive's bonus compensation for the
year will be 50% of Base Salary. It is understood and agreed
that, in accordance with the terms of the Bonus Plan, the Board
may amend and revise the Bonus Plan from time to time in its
discretion. If Executive is employed by the Company for less
than a whole calendar year for any calendar year during the
Period of Employment, the amount of bonus compensation payable to
Executive for such calendar year shall be prorated based upon the
actual number of days the Executive was employed during such year
(including, for the calendar year ending December 31, 1995, days
the Executive was employed by the Company prior to the execution
of this Agreement).
(c) STOCK OPTIONS. The Company and the Executive have
agreed to execute a Nonstatutory Stock Option Award Agreement
(the "Stock Option Agreement"), granting the Executive, subject
to the terms and conditions set forth in the Stock Option
Agreement, an option to purchase up to 100,000 shares of the
Company's common stock, par value $.001 per share (the "Common
Stock").
(d) EXPENSES. The Executive shall be entitled to
receive prompt reimbursement for all reasonable expenses
incurred by him (in accordance with the policies and
procedures presently established by the Company for its
senior executive officers) during the Period of
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<PAGE>
Employment, in performing services hereunder, provided that
the Executive properly accounts for such expenses in
accordance with the Company's expense reimbursement policy.
During the Period of Employment, the Company shall provide
to the Executive an automobile allowance of $700 per month.
(e) OTHER BENEFITS. The Executive shall be entitled to
participate in or receive benefits under all of the Company's
Employee Benefit Plans or Other Arrangements (as hereinafter
defined) in effect on the date hereof or under plans or
arrangements that provide the Executive with at least equivalent
benefits to those provided under such Employee Benefit Plans or
Other Arrangements. As used herein, "Employee Benefit Plans or
Other Arrangements" include, without limitation, each pension and
retirement plan, supplemental pension, retirement, and deferred
compensation plan, savings and profit-sharing plan, medical
insurance plan, disability plan, and health and accident plan or
arrangement established and maintained by the Company on the date
hereof for the benefit of and made generally available to
executives and key management employees of the Company or its
subsidiaries, but does not include any other employment agreement
between the Company (or any of its subsidiaries) and any employee
thereof. The Executive shall be entitled to participate in or
receive benefits under any employee benefit plan or arrangement
which may, in the future, be made generally available by the
Company to its executives and key management employees, subject
to and on a basis consistent with the terms, conditions, and
overall administration of such plan or arrangement. Any payments
or benefits payable to the Executive under a plan or arrangement
referred to in this Subsection 4(e) in respect of any calendar
year during which the Executive is employed by the Company for
less than the whole of such calendar year shall, unless otherwise
provided in the applicable plan or arrangement, be prorated in
accordance with the actual number of days in such calendar year
during which he is so employed (including, for the calendar year
ending December 31, 1995, days the Executive was employed by the
Company prior to the execution of this Agreement).
(f) VACATIONS AND SICK LEAVE. During the Period of
Employment, the Executive shall be entitled to the number of paid
vacation days in each calendar year determined by the Company
from time to time for its senior executive officers, but not less
than three weeks in any calendar year (prorated in any calendar
year during which the Executive is employed hereunder (including,
for the calendar year ending December 31, 1995, days the
Executive was employed by the Company prior to the execution of
this Agreement) for less than the entire such year in accordance
with the actual number of days in such calendar year). During
the Period of Employment, the Executive shall also be entitled to
all paid holidays given by the Company to its senior executive
officers. During the Period of Employment, the Executive shall
be entitled to 30 calendar days of paid sick leave during each
calendar year of employment (prorated in any calendar year during
which the Executive is employed hereunder (including, for the
calendar year ending December 31, 1995, days the Executive
was employed by the Company prior to the execution of this
Agreement) for less than the entire such year in accordance
with the actual number of days in such calendar year).
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<PAGE>
Vacation days and sick days that are not used by the
Executive in any calendar year will not be carried forward,
and all such days shall be forfeited without compensation or
credit.
5. ADDITIONAL POSITIONS. During the Period of Employment,
the Executive agrees that, in the event the Board (subject, as
required, to stockholder vote) requests the Executive to serve as
a director of the Company and/or any of its subsidiaries, as a
member of one or more committees of the respective boards of
directors of the Company and any of its subsidiaries, and in one
or more executive offices of any of the Company's subsidiaries as
the Executive may from time to time be elected, he will so serve
without further compensation, if and so long as the Executive is
indemnified for serving in any and all such capacities on a basis
no less favorable than is currently provided by the Company's By-
laws or Certificate of Incorporation.
6. CONFIDENTIALITY AND NONCOMPETITION.
(a) The Executive acknowledges that his services and
responsibilities are of particular significance to the Company
and its subsidiaries (collectively the "LPG Companies" and
individually an "LPG Company"), and that his positions with the
Company or any other LPG Company have given and will give him
access to and an intimate knowledge of the policies, customers,
employees, trade secrets, and other confidential, proprietary,
nonpublic, privileged, or secret information of the LPG Companies
(collectively "Confidential Information"); PROVIDED, HOWEVER,
that Confidential Information shall not include any information
which is obtainable from sources other than the LPG Companies
that are not bound by any confidentiality or nondisclosure
obligation with respect to such information (whether such
obligation is imposed by agreement, fiduciary duty, law, order,
or otherwise) or that have not obtained such information as a
result of unauthorized disclosure by or at the direction of the
Executive. Because the LPG Companies are in creative, technical,
and competitive businesses, the Executive's continued and
exclusive service to the LPG Companies and his preservation of
the confidentiality of the Confidential Information is of
critical importance to the Company.
(b) Based on the matters described in Subsection 6(a)
above, and in further consideration of this Agreement, the
Executive covenants and agrees with the Company that:
(i) CONFIDENTIAL INFORMATION. The Executive
shall not (for any reason), directly or indirectly, for
himself or on behalf of any other person or entity,
disclose to any person or entity (except to employees
or other representatives of the Company who need to
know such Confidential Information to the extent
reasonably necessary for the Executive to perform his
duties under this Agreement and except as required by
law; PROVIDED, HOWEVER, that this exception for legal
requirement shall not apply to any legal requirement
imposed upon the Executive as a result of the
Executive's, directly or indirectly, having purchased
securities or otherwise seeking or deriving
4
<PAGE>
personal benefit) any Confidential Information which
the Executive may have acquired in the course of or as
an incident to his employment or prior dealings with
any LPG Company, including, without limitation,
business or trade secrets of, or insurance products or
methods or techniques used by, any LPG Company in or
about their respective businesses, or any Confidential
Information whatsoever concerning the customers,
clients, policyholders, or annuitants of any LPG
Company, or any reinsurance agreements or similar
arrangements involving any LPG Company.
(ii) NONCOMPETE. During the Period of Employment and
through, as the case may be, (A) the last day on which the
Executive receives compensation pursuant to any of
Subsections 7(a)(ii), 7(b), or 7(d)(i) below or (B) the
second anniversary of the termination of the Executive's
employment hereunder pursuant to Subsection 7(a)(i) or
Subsection 7(d)(ii) below, the Executive shall not (for any
reason), for himself or on behalf of any other person or
entity, (1) call on or contact, directly or indirectly, any
customer, client, policyholder, or annuitant, domiciled in
the United States or its possessions, of any LPG Company or
any agent, reinsurer, or insurance company, domiciled in the
United States or its possessions, with which any LPG Company
has done business during the Period of Employment for the
purpose or with the effect of offering any insurance
products or services of any kind similar to those offered by
any LPG Company during the Period of Employment or (2)
assist any other person or entity in connection with any
action described in the foregoing clause (1).
(iii) NONINTERFERENCE WITH EMPLOYEES. During the
Period of Employment and through, as the case may be, (A)
the last day on which the Executive receives compensation
pursuant to any of Subsections 7(a)(ii), 7(b), or 7(d)(i)
below or (B) the second anniversary of the termination of
the Executive's employment hereunder pursuant to Subsection
7(a)(i) or Subsection 7(d)(ii) below, the Executive shall
not (for any reason), for himself or on behalf of any other
person or entity, (1) induce or attempt to induce any
employee of any LPG Company to terminate employment with the
employing LPG Company, (2) interfere with or disrupt any LPG
Company's relationship with any of the employees of such LPG
Company, (3) solicit, entice, or take away, any person
employed by any LPG Company during the 12-month period
preceding the termination of the Period of Employment, or
(4) assist any other person or entity in connection with
any action described in any of the foregoing clauses (1)
through (3).
(iv) NONINTERFERENCE WITH POLICYHOLDERS, ETC. The
Executive shall not (for any reason), directly or
indirectly, for himself or on behalf of any other person or
entity, (A) utilize or attempt to utilize any Confidential
Information for the purpose or with the effect of causing or
attempting to cause (1) any policyholder or annuitant to
replace or terminate any insurance or annuity contract
issued, reinsured, or
5
<PAGE>
underwritten by any LPG Company, in whole or in part,
with any insurance or annuity product of any other
person or entity, or (2) any reinsurer to terminate any
reinsurance, coinsurance, or other similar contract, or
to sever a relationship, with any LPG Company or (B)
assist any other person or entity in connection with
any action described in the foregoing clause (A).
(v) EXCLUSIVE EMPLOYMENT. During the Period of
Employment and through the last day on which the Executive
receives compensation pursuant to any of Subsections
7(a)(ii), 7(b), or 7(d)(i) of this Agreement, the Executive
shall not (for any reason), directly or indirectly, for
himself or on behalf of any other person or entity, render
any service of an advisory nature or otherwise to, or become
employed by, or own any interest in, or be associated with,
any insurance company underwriting life insurance or
annuities or any agency or brokerage firm selling life
insurance or annuities, or any entity owning 50% or more of
any insurance company underwriting life insurance or
annuities or agency or brokerage firm selling life insurance
or annuities, other than the LPG Companies; PROVIDED,
HOWEVER, that the Executive may (A) make investments in
entities of such kind which are publicly owned and in which
the Executive owns no more than 2% of the outstanding equity
securities thereof, (B) make investments in such other
entities and in such amounts, and serve on the board of
directors of any other entity not affiliated with the
Company, as may be approved in advance by the Executive
Committee of the Board, (C) devote reasonable time and
energies to charitable activities, and (D) serve as a
trustee (or similar capacity) of any trust established for
the exclusive benefit of any spouse or lineal descendant of
Manfred D. Moross or any charitable trust created by Mr.
Moross, any spouse of Mr. Moross, or any lineal descendant
of Mr. Moross, so long as such activities described in the
foregoing clauses (A), (B), (C) or (D) do not interfere with
or impair the performance of the Executive's duties under
this Agreement.
(c) INJUNCTIVE RELIEF. The Executive acknowledges and
agrees that any breach by him of any of the covenants or
agreements contained in this Section 6 would give rise to
irreparable injury to the Company and would not be
adequately compensable in damages. Accordingly, the
Executive agrees that the Company may seek and obtain
injunctive relief against the breach or threatened breach of
any of the provisions of this Section 6, in addition to any
other legal remedies which may be available. The Executive
further acknowledges and agrees that the covenants and
agreements contained herein are necessary for the
protection of the Company's legitimate business interests and
are reasonable in scope and content.
(d) REFORMATION AND SURVIVAL. The Company and the
Executive agree and stipulate that the agreements and
covenants contained in this Section 6 are fair and reasonable
in light of all of the facts and circumstances of the
relationship between them. The Company
6
<PAGE>
and the Executive acknowledge their awareness, however, that
in certain circumstances courts have refused to enforce
certain agreements not to compete. Therefore, in furtherance
of, and not in derogation of, the provisions of this Section
6, the Company and the Executive agree that, in the event a
court should decline to enforce one or more of the provisions
of this Section 6, then this Section 6 shall be deemed to be
modified or reformed to restrict the Executive's conduct to
the maximum extent (in terms of time, geography, and business
scope) which the court shall determine to be enforceable. The
provisions of this Section 6 shall survive the termination of
this Agreement for the respective periods set forth in this
Section 6.
7. TERMINATION. Except as expressly provided for in this
Section 7, from and after the date of termination of the
Executive's employment hereunder, the Company shall have no
obligation (whether financial or otherwise) under this Agreement,
and the Executive shall have no right to receive any Base Salary
or any other payment or benefit under this Agreement; PROVIDED,
HOWEVER, that nothing in this Section 7 shall affect the
Executive's obligations under Section 6 above or shall affect the
Executive's rights to receive payments or benefits that are
accrued before, but remain unpaid on, the date of termination, or
to receive payments or benefits that are required to be made or
provided to him pursuant to the terms of any of the Employee
Benefit Plans or Other Arrangements insofar as such rights relate
to the Executive's participation in the respective plan or
arrangement before the date of termination.
(a) TERMINATION BY COMPANY. As set forth below, the
Company may terminate the Executive's employment hereunder with
or without Cause (as hereinafter defined), for any reason or for
no reason.
(i) FOR CAUSE. The Company may terminate the
employment of the Executive hereunder for or with Cause by
written notice to the Executive to that effect setting forth
in reasonable detail the Cause or Causes for such
termination. Such notice shall be delivered at least 10
calendar days prior to the effectiveness of such termination
and shall provide an opportunity for the Executive, together
with his counsel, to be heard by the Board prior to the
effectiveness of such termination. Such termination shall
be effective at the time (not less than 10 calendar days
after delivery of the notice of termination) specified in
such notice of termination. In the event the Company terminates
the Executive's employment hereunder for or with Cause, no
further payments or benefits shall be made or
provided to the Executive hereunder except as provided in
the next following sentence. If the Executive's employment
is terminated pursuant to this Subsection 7(a)(i), then (a)
the Company shall continue to pay the Base Salary to the
Executive specified in (and in accordance with the
applicable terms of) Subsection 4(a) above, and shall
continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms
of) Subsections 4(d) and 4(e) above (except as otherwise
precluded by the terms of the
7
<PAGE>
plans or arrangements respectively described in such
subsections) only until the date of such
termination; and (b) as set forth in Section 5(a) of
the Stock Option Agreement, all rights of the
Executive to purchase the shares of Common Stock
subject to the unexercised portion or portions of
the options granted therein shall cease immediately
upon the date of such termination. As used in this
Agreement, the term "Cause" shall mean the
occurrence of any of the following, as determined by
the Board in its sole discretion exercised in good
faith: (A) the Executive willfully breaches any of
his obligations or duties hereunder which breach is
materially adverse to the LPG Companies, taken as a
whole; (B) the Executive fails to comply with any
written or oral direction of an Authorized Person
which reasonably relates to the performance of the
Executive's duties as provided in Section 2 of this
Agreement and which would not require the Executive
to perform an illegal act; PROVIDED, HOWEVER, such
failure shall not constitute "Cause" (1) if the
failure results from the Executive's being Disabled
(as hereinafter defined) or (2) unless such failure
continues for 10 calendar days or more after written
notice thereof is given to the Executive by the
Company; (C) the Executive fails to comply with his
obligations under Section 6 of this Agreement and
such failure, or any materially adverse consequence
thereof, continues for 10 calendar days or more
after written notice thereof is given to the
Executive by the Company; PROVIDED, HOWEVER, that no
such notice need be given if the failure and its
material adverse consequences cannot reasonably be
expected to be cured within 10 calendar days; (D)
the Executive engages in any act of intentional,
willful, or reckless dishonesty which is more than
nominally injurious to the Company or its business
or to any affiliate of the Company or such
affiliate's business; or (E) the Executive is
convicted of or enters a plea of guilty or NOLO
CONTENDERE to (1) any misdemeanor involving
financial misconduct, or (2) any felony.
(ii) WITHOUT CAUSE. The Company may terminate the
Executive's employment hereunder without Cause by written
notice to the Executive to that effect. Unless otherwise
specified in the notice, such termination shall be effective
immediately upon delivery thereof to the Executive. In the
event the Company terminates the Executive's employment
hereunder without Cause during the Period of Employment, no
further payments or benefits shall be made or provided to
the Executive hereunder except as provided in the next
following sentence. If the Executive's employment hereunder
is terminated pursuant to this Subsection 7(a)(ii),
then the Company shall continue to pay the Executive the
compensation specified in (and in accordance with the applicable
terms of) Subsection 4(a) and the Company shall continue to
provide the Executive with the benefits specified in (and in
accordance with the applicable terms of) Subsections 4(d)
and 4(e) above (except as otherwise precluded by the terms
of the plans or arrangements respectively described in such
subsections) only during the Post-Employment Compensation
Period. As used herein, the term "Post-Employment
Compensation Period" shall mean the period of time
commencing on the date of the termination of the Executive's
employment with
8
<PAGE>
the Company pursuant to Subsections 7(a)(ii), 7(b),
or 7(d)(i) hereof and ending on the second
anniversary of such termination date. Following the
date on which the Executive shall accept employment
with any person or entity other than any LPG
Company, the compensation and benefits specified in
Subsections 4(a), 4(d), and 4(e) above which are
applicable during the Post-Employment Compensation
Period shall be reduced by the value of any
compensation and benefits earned by the Executive as
a result of such other employment during such
Post-Employment Compensation Period. Nothing
contained in this Subsection 7(a)(ii) shall affect
the Executive's rights pursuant to the Stock Option
Agreement, which rights shall be governed solely by
the Stock Option Agreement.
(b) DISABILITY. If during the Period of Employment the
Executive shall be or become incapacitated by reason of mental
or physical disability or otherwise so that he is or will be
prevented from adequately performing any of his material
duties and obligations under this Agreement for more than 180
consecutive calendar days ("Disabled"), the Executive's
employment hereunder shall automatically and immediately
terminate upon written notice from the Company to the
Executive to such effect. Thereafter, no further payments or
benefits shall be made or provided to the Executive hereunder
except as provided in the next following sentence. If the
Executive's employment hereunder is terminated pursuant to
this Subsection 7(b), then the Company shall continue to pay
the Executive the compensation specified in (and in accordance
with the applicable terms of) Subsections 4(a) and 4(b) above,
and shall continue to provide the Executive with the benefits
specified in (and in accordance with the applicable terms of)
Subsections 4(d) and 4(e) above (except as otherwise precluded
by the terms of the plans or arrangements respectively
described in such subsections), only until the earlier of (i)
May 22, 1998, or (ii) the second anniversary of the
termination of the Executive's employment pursuant to this
Section 7(b), after which time the Executive shall be eligible
for payments and benefits pursuant to the Company's disability
plan; PROVIDED, HOWEVER, that the amount of any compensation
and benefit payments required to be made under this Subsection
7(b) shall be reduced by the value of any compensation and
benefits earned by the Executive as a result of the
Executive's employment by any person or entity other than any
LPG Company during the period in which the Executive is
entitled to receive compensation and benefits pursuant to this
Subsection 7(b). The determination by a qualified,
independent physician selected by the Board that the Executive
is Disabled shall be final and conclusive. By executing this
Agreement, the Executive agrees to submit to any and all
medical examinations or procedures and to execute and deliver
any and all consents to the release of medical information and
records or otherwise as shall be reasonably required by such
physician in determining whether the Executive is Disabled.
Nothing contained in this Subsection 7(b) shall affect the
Executive's rights pursuant to the Stock Option Agreement,
which rights shall be governed solely by the Stock Option
Agreement.
9
<PAGE>
(c) DEATH. If the Executive dies during the Period of
Employment, the Executive's employment hereunder shall
automatically and immediately terminate. Thereafter, no further
payments or benefits shall be made or provided to the Executive
hereunder except as provided in the next following sentence. If
the Executive's employment hereunder is terminated pursuant to
this Subsection 7(c), then the Company shall reimburse the estate
of the Executive for the expenses, costs, and automobile
allowance specified in (and in accordance with the applicable
terms of) Subsection 4(d) above as the same are incurred before,
but remain unpaid at the time of, the Executive's death and shall
continue to pay the estate of the Executive the compensation
specified in (and in accordance with the applicable terms of)
Subsections 4(a) and 4(b) above only until the last day of the
calendar month which is 6 months from the end of the calendar
month during which the death occurred. Nothing contained in this
Subsection 7(c) shall affect the Executive's rights pursuant to
the Stock Option Agreement, which rights shall be governed solely
by the Stock Option Agreement.
(d) TERMINATION BY EXECUTIVE. As set forth below, the
Executive may terminate his employment hereunder with or without
Good Reason (as hereinafter defined). If the Executive resigns
as Executive Vice President - Corporate Development of the
Company, he shall be deemed to have terminated his employment
under this Agreement with the effect specified in Subsection
7(d)(i) or Subsection 7(d)(ii) below, as the case may be. If the
Executive terminates his employment under this Agreement, he
shall be deemed (unless otherwise determined by the Board) to
have resigned from all offices, directorships, and committee
memberships that he then holds with the Company or any other LPG
Company.
(i) FOR GOOD REASON. The Executive may
terminate his employment for or with Good Reason by
written notice to the Company to that effect setting
forth in reasonable detail the Good Reason or Good
Reasons for such termination. Such notice shall be
delivered at least 10 calendar days prior to the
effectiveness of such termination and shall provide
an opportunity for the Board (or its
representative), together with counsel to the
Company, to meet with the Executive to discuss the
reasons for such termination prior to the
effectiveness of such termination. Such termination
shall be effective at the time (not less than 10
calendar days after delivery of the notice of
termination) specified in such notice of
termination. In the event the Executive terminates
his employment hereunder for or with Good Reason, no
further payments or benefits shall be made or
provided to the Executive hereunder except as
provided in the next following sentence. If the
Executive's employment is terminated pursuant to
this Subsection 7(d)(i), then the Company shall
continue to pay the Executive the compensation
specified in (and in accordance with the applicable
terms of) Subsection 4(a) above and the Company
shall continue to provide the Executive with the
benefits specified in (and in accordance with the
applicable terms of) Subsections 4(d) and 4(e) above
(except as otherwise precluded by the terms of the
plans or arrangements respectively described in such
subsections) only during the
10
<PAGE>
Post-Employment Compensation Period. Following the
date on which the Executive shall accept employment
with any person or entity other than any LPG
Company, the compensation and benefits specified in
Subsections 4(a), 4(d), and 4(e) above shall be
reduced by the value of any compensation and
benefits earned by the Executive as a result of such
other employment. As used in this Agreement, the
term "Good Reason" shall mean the occurrence of any
of the following: (A) the Company fails to make any
payment required to be made to or for the benefit of
the Executive pursuant to Subsection 4(a), 4(b),
4(d), or 4(e) above within 30 days after such
payment is due; (B) the Company materially breaches
any of its obligations or duties under this
Agreement (other than the obligation or duty to make
payments specified in the preceding clause (A)
above), which breach is materially adverse to the
Executive, including, without limitation, a material
reduction in title or position, and continues for 10
calendar days or more after written notice thereof
is given to the Company by the Executive; (C) the
Company fails to obtain the assumption of the
obligation to perform this Agreement by any
successor as contemplated in Subsection 8(a) below;
or (D) a Change in Control occurs; PROVIDED,
HOWEVER, that a Change in Control will be deemed to
be Good Reason only if the Executive elects to
terminate his employment within 90 days of the
consummation of the Change in Control. The term
"Change in Control" shall have the meaning given
such phrase in the Stock Option Agreement.
(ii) WITHOUT GOOD REASON. The Executive may
terminate his employment without Good Reason by
written notice to the Company to that effect.
Unless otherwise specified in the notice, such
termination shall be effective immediately upon
delivery thereof to the Company. In the event the
Executive terminates his employment hereunder
without Good Reason, no further payments or benefits
shall be made or provided to the Executive hereunder
except as provided in the next following sentence.
If the Executive's employment is terminated pursuant
to this Subsection 7(d)(ii), then (A) the Company
shall continue to pay the Executive his compensation
specified in (and in accordance with the applicable
terms of) Subsections 4(a) above and the Company
shall continue to provide the benefits specified in
(and in accordance with the applicable terms of)
Subsections 4(d) and 4(e) above (except as
otherwise precluded by the terms of the plans or
arrangements respectively described in such
subsections) only until the date of such
termination; and (B) as set forth in Section 5(a) of
the Stock Option Agreement, all rights of the
Executive to purchase the shares of Common Stock
subject to the unexercised portion or portions of
the options granted therein shall cease immediately
upon the date of such termination.
(e) If the Company terminates the Executive's employment
hereunder for Cause pursuant to Subsection 7(a)(i)(A) above at
any time when the Executive believes himself to be Disabled, the
Executive may furnish the Company with a written statement from a
qualified, independent physician to the effect that the Executive
is Disabled. The Company
11
<PAGE>
shall then promptly select a qualified, independent physician
who shall, at the Company's expense, examine the Executive.
If the physician selected by the Company concurs in the
opinion that the Executive is Disabled, the Executive's
employment hereunder shall automatically and immediately
terminate to the same extent and effect for all purposes as if
such employment had been terminated pursuant to Subsection
7(b) above (so long as the Cause was the result of the
Disability).
(f) Notwithstanding any other provision of this Section 7,
the Company and the Executive expressly understand and agree
that, if (before all payments and benefits payable to the
Executive following a termination pursuant to any provision of
this Section 7 have been fully made or provided to the Executive)
the Executive becomes Disabled or dies, then the payments and
benefits required to be made to the Executive pursuant to this
Section 7 shall not exceed the lesser of (i) the amount of any
payments or benefits that remain (following the date the
Executive becomes Disabled or dies, as the case may be) to be
made or provided by the Company pursuant to the respective
provision of this Section 7 under which the Executive's
employment is actually terminated or (ii) the amount of any
payments or benefits that would be required to be made or
provided by the Company if the Executive's employment had
actually been terminated by the Executive's Disability or death,
as the case may be. Furthermore, notwithstanding any other
provision of this Section 7, the Company and the Executive
understand and agree that, if there is a legitimate conflict as
to which provision of this Section 7 controls the termination of
the Executive's employment, a termination for Cause pursuant to
Subsection 7(a)(i) shall control, regardless of whether such
termination for Cause precedes or follows a termination pursuant
to any other provision of this Section 7 (except as provided for
in Section 7(e) of this Agreement); PROVIDED, HOWEVER, that, in
order for a termination for Cause to control, the Company must
deliver to the Executive written notice of such Cause before, or
within 30 days following, the Executive's termination of
employment pursuant to any other provision of this Section 7.
8. SUCCESSORS; BINDING AGREEMENT.
(a) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation, or otherwise) to
all or substantially all of the business and/or assets of the
Company, by agreement in form and substance reasonably
satisfactory to the Executive, expressly to assume and agree to
perform this Agreement in the same manner and to the same extent
that the Company would be required to perform it if no such
succession had taken place. As used in this Agreement, the term
"Company" shall mean Life Partners Group, Inc. and any successor
to its business and/or all or substantially all of its assets as
aforesaid which executes and delivers the agreement contemplated
by this Subsection 8(a) or which otherwise becomes bound by all
the terms and provisions of this Agreement by operation of law.
12
<PAGE>
(b) Neither this Agreement nor any of the rights or
obligations of the Executive under this Agreement may be assigned
or delegated except as provided in this Subsection 8(b). This
Agreement and all rights of the Executive hereunder shall inure
to the benefit of and be enforceable by, and shall be binding
upon, the Executive's personal or legal representatives,
executors, administrators, successors, heirs, distributees,
devisees, and legatees.
9. NOTICE. For purposes of this Agreement, all notices
and other communications provided for in this Agreement shall be
in writing and shall be (a) delivered personally, (b) sent by
telefacsimile or other similar facsimile transmission, (c)
delivered by overnight express, or (d) mailed by United States
registered or certified mail, return receipt requested, first-
class postage prepaid, addressed as follows:
If to the Executive: If to the Company:
Keith Gubbay Life Partners Group, Inc.
7887 E. Belleview Ave. 7887 E. Belleview Ave.
Englewood, CO 80111 Englewood, CO 80111
Attention: General Counsel
or to such other address as any party may have furnished to the
other in writing in accordance with this Section 9. Any such
notice shall be deemed to be given when received, if delivered
personally or by courier or mailed; and when electronically
confirmed, if sent by telefacsimile or similar device.
10. MISCELLANEOUS. No provision of this Agreement may
be modified, waived, or discharged unless such waiver,
modification, or discharge is agreed to in writing signed by
the Executive and such officer of the Company as may be
specifically designated by the Board. No waiver by either
party hereto of, or compliance with, any condition or
provision of this Agreement to be performed by such other
party shall be deemed a waiver of any similar or dissimilar
condition or provision at the same or any other time. No
agreements or representations (whether oral or otherwise,
express or implied) with respect to the subject matter of this
Agreement have been made by either party which are not set
forth expressly in this Agreement or which are not
specifically referred to in this Agreement. The validity,
interpretation, construction, and performance of this
Agreement shall be governed by the substantive laws of the
State of Colorado. Unless the context otherwise requires,
words using the singular or plural number shall respectively
include the plural or singular number, and pronouns of any
gender shall include each other gender.
11. VALIDITY. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under any present or
future law or court decision, and if the rights or obligations of
the Company and the Executive will not be materially and
adversely affected
13
<PAGE>
thereby, (a) such provision shall be fully severable from this
Agreement, (b) this Agreement shall be construed and enforced
as if such illegal, invalid, or unenforceable provision had
never comprised a part hereof, (c) the remaining provisions of
this Agreement shall remain in full force and effect and shall
not be affected by the illegal, invalid, or unenforceable
provision or by its severance herefrom, and (d) in lieu of
such illegal, invalid, or unenforceable provision, there shall
be added automatically as a part of this Agreement a legal,
valid, and enforceable provision as similar to the terms and
intent of such illegal, invalid, or unenforceable provision as
may be possible.
12. COUNTERPARTS. This Agreement may be executed in
several counterparts, each of which shall be deemed to be an
original but all of which together shall constitute one and the
same instrument.
13. ARBITRATION. Any dispute or controversy arising under
or in connection with this Agreement shall be settled exclusively
by arbitration in Denver, Colorado, in accordance with the rules
of the American Arbitration Association then in effect. Any
judgment may be entered on the arbitrator's award in any court
having jurisdiction; PROVIDED, HOWEVER, that the Company shall be
entitled to seek a restraining order or injunction in any court
of competent jurisdiction with respect to any breach or
threatened breach of any provision of Section 6 above.
14
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first written above.
EXECUTIVE:
/s/ Keith Gubbay
----------------------------
Keith Gubbay
COMPANY:
LIFE PARTNERS GROUP, INC.
By: /s/ John H. Massey
----------------------------
John H. Massey
Chief Executive Officer
15
<PAGE>
EXHIBIT 11.1
LIFE PARTNERS GROUP
COMPUTATION OF EARNINGS (LOSS) PER COMMON SHARE AND
COMMON EQUIVALENT SHARE
(Dollars in thousands, except per share amounts)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------
<S> <C> <C> <C>
EXHIBIT 11.1 1995 1994 1993
------------- ------------- -------------
Earnings (loss) before extraordinary item............................ $ (13,384) $ 37,206 $ 51,992
Less dividends in kind on preferred stock............................ (3,978)
------------- ------------- -------------
Earnings (loss) applicable to common stock........................... (13,384) 37,206 48,014
Extraordinary loss, net of tax effect................................ (2,558) (4,776)
------------- ------------- -------------
Net earnings (loss) applicable to common stock....................... $ (13,384) $ 34,648 $ 43,238
------------- ------------- -------------
------------- ------------- -------------
Earnings (loss) per common share and common equivalent share:
Primary:
Earnings (loss).................................................. $ (0.49) $ 1.43 $ 2.05
Extraordinary loss............................................... (0.10) (0.20)
------------- ------------- -------------
Net earnings (loss)............................................ $ (0.49) $ 1.33 $ 1.85
------------- ------------- -------------
------------- ------------- -------------
Fully diluted:
Earnings (loss).................................................. $ (0.49) $ 1.43 $ 2.05
Extraordinary loss............................................... (0.10) (0.20)
------------- ------------- -------------
Net earnings (loss)............................................ $ (0.49) $ 1.33 $ 1.85
------------- ------------- -------------
------------- ------------- -------------
Reconciliation of number of shares outstanding to amounts used in
earnings (loss) per share computations (A):
Weighted average common shares outstanding......................... 27,127,171 25,473,377 22,684,929
Additional dilutive effect of outstanding options and warrants and
common shares issued within one year of the initial public
offering, based on the common stock daily average market price
during the period................................................. 575,032 722,263
------------- ------------- -------------
Weighted average common shares, as adjusted.......................... 27,127,171 26,048,409 23,407,192
------------- ------------- -------------
------------- ------------- -------------
Weighted average common shares outstanding......................... 27,127,171 25,473,377 22,684,929
Additional dilutive effect of outstanding options and warrants and
common shares issued within one year of the initial public
offering, based on the more dilutive of the common stock ending or
daily average market price during the period...................... 637,655 722,263
------------- ------------- -------------
Weighted average common shares, assuming full dilution............... 27,127,171 26,111,032 23,407,192
------------- ------------- -------------
------------- ------------- -------------
</TABLE>
(A) These calculations are submitted in accordance with Securities Exchange Act
of 1934 Release No. 9083, although not required by footnote 2 to paragraph
14 of Accounting Principles Board Opinion No. 15 because they result in
dilution of less than 3%.
89
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED STATEMENTS OF OPERATIONS FOUND ON
PAGES 34 AND 35 OF THE COMPANY'S FORM 10-K FOR THE YEAR, AND IS QUALIFED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 2,672,365
<DEBT-CARRYING-VALUE> 678,826
<DEBT-MARKET-VALUE> 721,377
<EQUITIES> 23,721
<MORTGAGE> 110,214
<REAL-ESTATE> 4,921
<TOTAL-INVEST> 3,977,909
<CASH> 197,684
<RECOVER-REINSURE> 244,828
<DEFERRED-ACQUISITION> 238,738
<TOTAL-ASSETS> 4,980,865
<POLICY-LOSSES> 706,226
<UNEARNED-PREMIUMS> 80,590
<POLICY-OTHER> 86,162
<POLICY-HOLDER-FUNDS> 3,271,906
<NOTES-PAYABLE> 246,083
0
0
<COMMON> 28
<OTHER-SE> 400,481
<TOTAL-LIABILITY-AND-EQUITY> 4,980,865
280,080
<INVESTMENT-INCOME> 277,058
<INVESTMENT-GAINS> 15,785
<OTHER-INCOME> 3,183
<BENEFITS> 318,722
<UNDERWRITING-AMORTIZATION> 148,659
<UNDERWRITING-OTHER> 94,784
<INCOME-PRETAX> (16,655)
<INCOME-TAX> (3,271)
<INCOME-CONTINUING> (13,384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,384)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
