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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997 or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from _______________ to _______________
Commission file number: 33-64820
AMERICO LIFE, INC.
(Exact Name of Registrant as Specified in its Charter)
Missouri No. 43-1627599
(State of Incorporation) (I.R.S. Employer Identification No.)
1055 Broadway
Kansas City, Missouri 64105
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number including area code: (816) 391-2700
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act: None
Indicated by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
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.
Shares of common stock outstanding as of March 25, 1998: 10,000, none of
which is held by non-affiliates.
Documents Incorporated by Reference: None
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<PAGE>
<TABLE>
TABLE OF CONTENTS
<S> <C> <C>
Item Page
PART I
1. Business 2
2. Properties 12
3. Legal Proceedings 12
4. Submission of Matters to a Vote of Security Holders 12
PART II
5. Market for Registrant's Common Equity and Related Stockholder Matters 13
6. Selected Consolidated Financial Data 13
7. Management's Discussion and Analysis of Financial Condition and Results of Operations 14
7A. Quantitative and Qualitative Disclosure about Market Risk 22
8. Financial Statements and Supplementary Data 22
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 22
PART III
10. Directors and Executive Officers of the Registrant 23
11. Executive Compensation 24
12. Security Ownership of Certain Beneficial Owners and Management 25
13. Certain Relationships and Related Transactions 25
PART IV
14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 27
</TABLE>
1
<PAGE>
PART I
ITEM 1. BUSINESS
General
Americo Life, Inc. ("Americo" or the "Company") is a financial services
holding company whose subsidiaries are engaged in the life insurance
business. Americo is wholly-owned by Financial Holding Corporation ("FHC"), a
privately-owned corporation.
The Company's wholly-owned insurance subsidiaries are: Great Southern Life
Insurance Company ("Great Southern"), located in Dallas, Texas, United Fidelity
Life Insurance Company ("United Fidelity"), The College Life Insurance Company
of America ("College Life"), The Victory Life Insurance Company ("Victory Life")
and National Farmers Union Life Insurance Company ("National Farmers Union"),
all located in Kansas City, Missouri, and The Ohio State Life Insurance Company
("Ohio State") and Investors Guaranty Life Insurance Company ("Investors
Guaranty"), located in Columbus, Ohio. Through a joint venture, the Company also
has a 50% interest in Financial Assurance Life Insurance Company (formerly
Financial Assurance, Incorporated) ("FAL") and Annuity Service Corporation
("ASC"), located in Kansas City, Missouri and Austin, Texas, respectively.
The Company develops, markets and administers life insurance and annuity
products in four target markets: (i) individual life insurance sold through
Personal Producing General Agents ("PPGAs") and Independent Marketing
Organizations ("IMOs") (ii) payroll deduction life insurance sold through
specialized agents, (iii) tax-qualified life and annuities sold through a joint
venture and (iv) life and annuity products sold through IMOs to the "senior
market". In addition, the Company administers policies acquired through
acquisition with which there are no meaningful marketing operations associated.
Prior to the Great Southern acquisition, the Company had no meaningful
marketing operations and its strategy was to increase the number of policies
administered and assets managed primarily through acquisition. Following the
acquisition of Great Southern in 1989, the Company expanded its strategy to
include the development of and marketing of life and annuity products into the
markets described above.
In addition to the life insurance operations described above, the Company
occasionally makes financial and strategic investments in other businesses. The
Company has an investment, in the form of a 50% interest, in Argus Health
Systems, Inc. ("Argus"), which is engaged in prescription drug claim processing.
The Company also wholly-owns several real estate partnerships formerly-owned by
GSSW, Limited Partnerships ("GSSW").
Acquisitions and Reinsurance Transactions
Along with the development of new business, acquisitions and reinsurance
transactions have been a significant part of the Company's growth strategy since
1989. Since 1989, the Company has acquired six companies or blocks of insurance
policies and continues to investigate acquisition opportunities in the insurance
industry. The principal additions were Great Southern in 1989, Loyalty Life
Insurance Company ("Loyalty Life") and National Farmers Union in 1991, Victory
Life in 1995 and Ohio State and Investors Guaranty in 1997, and two significant
reinsurance transactions in 1996 and 1995.
In 1993, the Company entered into a joint venture whose purpose was the
sale of tax-qualified life and annuity products by the Company's life insurance
subsidiaries. At December 31, 1997, the Company had direct insurance liabilities
generated as a result of this joint venture of approximately $320.5 million.
The Company has utilized a transaction structure involving an unaffiliated
reinsurer ("the Reinsurer") in order to acquire insurance companies or blocks of
insurance business. The transaction steps result in the policy liabilities and
related assets being transferred to the Reinsurer in exchange for a ceding
commission and subsequently reinsured to the Company on a modified coinsurance
basis. The assets supporting the insurance liabilities are held in trust for the
benefit of the Company.
In 1995, the Company entered into agreements with The Ohio Casualty
Insurance Company ("Ohio Casualty") and the Reinsurer under which the direct
liabilities of The Ohio Life Insurance Company ("Ohio Life") were reinsured to
the Reinsurer on a coinsurance basis. These agreements also provide for the
Company to service the approximately 75,000 life insurance and annuity policies
of Ohio Life. At December 31, 1997, the policy liabilities associated with these
policies totaled $278.1 million.
In 1996, the Company entered into similar agreements with Fremont General
Corporation and the Reinsurer covering approximately 20,000 policies of Fremont
Life Insurance Company ("Fremont Life"). At December 31, 1997, the policy
liabilities associated with these policies totaled $444.7 million.
On April 15, 1997, the Company acquired all of the outstanding stock
of Ohio State and Investors Guaranty from Farmers Group, Inc. for a purchase
price of $345.4 million. On April 16, 1997 Ohio State and Investors Guaranty
entered into coinsurance agreements to reinsure all of their insurance
liabilities to the Reinsurer. The Company also entered into agreements to
service the approximately 229,000 policies of Ohio State and Investors Guaranty.
At December 31, 1997, the policy liabilities associated with these policies
totaled $667.0 million.
The Company and the Reinsurer entered into modified coinsurance agreements
to reinsure certain risks on the Ohio Life, Fremont Life, Ohio State and
Investors Guaranty insurance policies to the Company. The risks associated with
the Ohio State and Investors Guaranty policies are reinsured on a 70% quota
share basis. The modified coinsurance agreements provide that the assets related
to the reinsured policies are to be retained by the Reinsurer. The Company began
directly assuming the policies of Fremont Life and Ohio Life in 1996 and 1997,
respectively, and intends to begin directly assuming the Investors Guaranty
policies in 1998.
Including the above transactions, at December 31, 1997, the Company has
approximately $3.5 billion of invested assets under management. In addition to
expanding its product offerings, the Company's future operating strategy
includes pursuing selected acquisitions of in-force blocks of life insurance or
insurance companies. The Company will also focus on opportunities to enter other
arrangements, including acquisitions, which can complement the Company's current
marketing and distribution channels and increase its asset and policy base.
In August 1997, Great Southern sold the stock of Loyalty Life for $12.2
million resulting in a $4.8 million gain before income taxes. Prior to this
sale, several of the Company's insurance subsidiaries entered into agreements
with Loyalty Life for the assumption of Loyalty Life insurance liabilities.
In March 1998, the Company entered an agreement with an unrelated party to
sell Investors Guaranty. The Company will continue to assume the risks
associated with Investors Guaranty policies on a 70% quota share basis. The
Company intends to reinsure these risks on an assumption basis in the future.
Life Insurance Business
The Company's in-force life insurance business consists of traditional and
interest-sensitive life insurance and annuities. At December 31, 1997, the
insurance in force on interest-sensitive life insurance contracts was $31.7
billion, the insurance in force on traditional life insurance contracts was
$15.7 billion and annuity liabilities totaled $1.1 billion.
The Company's life insurance subsidiaries offer a portfolio of individual
interest-sensitive life insurance products, including interest-sensitive whole
life and universal life insurance and customary riders. The Company's life
insurance subsidiaries also offer single premium and flexible premium annuity
products, including tax-qualified annuities, as well as a portfolio of
traditional life insurance products, including individual term and whole life
insurance. Interest-sensitive life insurance products accounted for
substantially all new life policies written in 1997. The principal differences
among the types of these products offered by the Company relate to policy
provisions affecting the amount and timing of premium payments.
<PAGE>
The following table shows collected premiums of the Company during 1997,
1996 and 1995 by product category.
<TABLE>
Premiums Collected
for periods indicated
-------------------------------------------------------------------------
First Year Renewal Total
-------------------- ---------------------- ----------------------
<S> <C> <C> <C> <C>
Product Category $ % $ % $ %
- - ---------------- - - - - - -
(in thousands)
Year ended
December 31, 1997
Traditional 11,184 8.5 87,607 28.7 98,791 22.6
Interest-sensitive 44,524 33.7 173,384 56.7 217,908 49.7
--------- ------ -------- -------- --------- ------
Total life 55,708 42.2 260,991 85.4 316,699 72.3
Annuities 76,500 57.8 44,693 14.6 121,193 27.7
--------- ------ --------- -------- --------- ------
Direct and assumed premiums 132,208 100.0 305,684 100.0 437,892 100.0
========= ===== ========= ======= (137,159) =====
Less ceded premiums --------
Total 300,733
=========
Year ended
December 31, 1996
Traditional 4,048 4.5 61,475 23.4 65,523 18.6
Interest-sensitive 34,888 38.6 132,266 50.4 167,154 47.4
------- ---- ---------- ------- -------- -------
Total life 38,936 43.1 193,741 73.8 232,677 66.0
Annuities 51,419 56.9 68,734 26.2 120,153 34.0
------- ----- --------- ------- -------- -------
Direct and assumed premiums 90,355 100.0 262,475 100.0 352,830 100.0
======= ====== ========= ====== ======
Less ceded premiums (91,711)
--------
Total 261,119
========
Year ended
December 31, 1995
Traditional 3,206 3.9 58,895 29.8 62,101 22.2
Interest-sensitive 28,731 34.8 118,515 60.0 147,246 52.6
------- ----- --------- ------ --------- ------
Total life 31,937 38.7 177,410 89.8 209,347 74.8
Annuities 50,592 61.3 20,064 10.2 70,656 25.2
------- ----- --------- ------ --------- ------
Direct and assumed premiums 82,529 100.0 197,474 100.0 280,003 100.0
======= ===== ========= ====== ======
Less ceded premiums (80,638)
--------
Total 199,365
========
</TABLE>
Marketing and Distribution
The Company's new business efforts have been divided into four segments as
defined more fully below: Individual Markets, Special Markets, Tax-qualified
Markets and the Seniors Market.
Individual Markets. The Company delivers its products to the individual
markets using two methods of distribution, PPGA and independent marketing
organizations. The Company's PPGA marketing system utilizes approximately 600
independent agents who market the Company's products. None of the agents is
employed by the Company, but each is a party to a general agency agreement which
governs the terms of his or her arrangement with the Company. PPGAs who
represent the Company may also represent other insurers. Of the $41.9 million
total annualized first-year life insurance premiums generated by the Company
during 1997, approximately $17.0 million (or 41%) was derived from sales through
the Company's PPGA system.
Approximately $9.3 million, or 22%, of the Company's annualized first-year
life insurance premiums in 1997 was derived from sales through eight large
marketing organizations comprised of non-exclusive independent agents with an
aggregate membership of approximately 2,000 at December 31, 1997.
Since 1995, the Company has employed its Career Partners Program(TM) to
increase the production from individual agents and reduce the Company's reliance
on large marketing organizations and brokers. The Career Partners Program(TM)
attempts to build a longer term relationship between the Company and the
individual agents by providing benefits in addition to commissions to reward
production and longevity in the program. As a result of this program, the
Company has experienced improved retention, consistency of production and
stronger relationships with participating agents.
The individual markets experienced significant growth in 1997 from two
sources. The addition of Ohio State's individual production contributed $12.3
million, or 29%, of first year annualized life insurance premiums. Growth from
the same sources, excluding Ohio State, increased $7.0 million, or 33%, over
1996. In total, this segment increased new premiums by $19.3 million,
nearly doubling 1996 production.
Special Markets/Payroll Deduction. The Company's special marketing efforts
consist of offering voluntary payroll deduction, interest-sensitive universal
life insurance to employees of large and medium-sized companies and accounted
for $6.0 million, or 14%, of the Company's annualized first-year life insurance
premiums in 1997. This effort is conducted through Great Southern's special
marketing agency force. The agency force, which consists of approximately 100
general agents, primarily contacts companies that have a minimum of 100 eligible
employees. The Company's special marketing efforts benefited from the
introduction of an expanded product portfolio and increased special marketing
agency force. First year new production increased $4.0 million in 1997.
Tax-Qualified Life Insurance and Annuity Markets. Great Southern and
College Life expanded their marketing capabilities in the tax-qualified life
insurance and annuity markets, specifically products qualified under Internal
Revenue Code Sections 401(k) and 403(b), through a joint venture founded in July
1993 ("Joint Venture"), effected through College Insurance Group, Inc. ("CIG").
These products are marketed to public school teachers through a specialty field
force of managed agents. CIG is owned equally by United Fidelity and an
unrelated individual. CIG, in turn, owns 100% of the stock of FAL and 100% of
the stock of ASC. Pursuant to the Joint Venture, both parties generally share
the profits from 401(k) and 403(b) business written by marketing companies on
behalf of Great Southern and College Life. Sales generated through the Joint
Venture, expressed in terms of collected premiums, increased from $14.6 million
in 1993 to $107.9 million in 1997.
Seniors Market. In 1996, Great Southern expanded its marketing
capabilities into the seniors life insurance and annuity markets. Following the
Fremont Life transaction, the Company was introduced to a select group of IMOs
that specialize in the marketing of fixed annuities to seniors. The Company
introduced products to this distribution source in the fourth quarter of 1996.
The senior market, generally considered to include individuals over age 55, is
expected to experience double digit annual growth resulting from a number of
factors, including growth in consumer concerns over social security and pension
plans and the aging of the consumer population. The Company competes in this
market by offering fixed annuity products with riders and benefits tailored to
the needs of maturing individuals. Sales generated through the IMOs, expressed
in terms of collected premiums, were $17.5 million in 1997.
Competition and Ratings
The Company competes with a large number of other insurers as well as
non-insurance financial services companies, such as banks, investment advisors,
mutual fund companies and other financial institutions, some of which
have greater financial resources, offer alternative products and, with
respect to other insurers, have higher ratings than the Company. National banks,
with their preexisting customer bases for financial services products, may pose
increasing competition in the future to insurers who sell annuities, including
the Company, as a result of the U.S. Supreme Court's 1994 decision in
NationsBank of North Carolina v. Variable Annuity Life Insurance Company,
which permits national banks to sell annuity products of life insurance
companies in certain circumstances.
<PAGE>
The Company believes that the principal competitive factors in the sale of
life insurance are product features, product flexibility, product pricing and
crediting rates, commission structure, high credit standing and perceived
stability of insurer, and service provided to the policyholder. 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. 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. The Company also competes with other
entities in acquiring life insurance companies and blocks of insurance business.
The acquisition of insurance companies or blocks of business is extremely
competitive. Many of the companies with which the Company competes have a
stronger capital position as well as better access to the capital markets.
A primary factor in a company's ability to compete in the sales of life
insurance business and the acquisition of life insurance companies is the
ratings it receives from various rating agencies. Two of the Company's primary
marketing subsidiaries, Great Southern and College Life, are rated "A
(Excellent)" by A.M. Best and have a claims paying ability rating of "A (Good)"
from Standard and Poor's Corporation ("S&P"). Ohio State is rated
"A-(Excellent)" by A.M. Best and has a claims paying ability rating of "Aq
(Good)" from S&P. National Farmers Union is rated "B+ (Very Good)" by A.M. Best.
A.M. Best's ratings for insurance companies currently range from "A++
(Superior)" to "F (In Liquidation)", and some insurance companies are not rated.
Publications of A.M. Best indicate that the "A" and "A-" ratings are assigned to
those companies that, in A.M. Best's opinion, have achieved excellent overall
performance when compared to the standards established by A.M. Best and that
generally have demonstrated a strong ability to meet their obligations to
policyholders over a long period of time. The "B+" rating is assigned to
companies that, in A.M. Best's opinion, have achieved very good overall
performance when compared to the standards established by A.M. Best and that
generally have a strong ability to meet their obligations to policyholders, but
whose financial strength may be susceptible to unfavorable changes in
underwriting or economic conditions. The "A" rating is assigned by S&P to
companies which, in S&P's opinion, offer good financial security, but the
capacity to meet policyholder obligations is somewhat susceptible to adverse
economic and underwriting conditions. Ohio State's rating of Aq indicates that
the rating is based solely on quantitative analysis of publicly available
financial data. While ratings do not constitute recommendations to buy or sell a
company's insurance products, and are subject to change or withdrawal at any
time, they are considered an important measurement in some markets.
Operations
The Company has made strategic decisions over the last several years in
order to achieve its goal of operating at the lowest achievable cost level.
These decisions include (i) investments in technology, (ii) centralization of
certain functions and (iii) outsourcing its data processing requirements.
The Company has made significant investments in technology over the past
several years in order to lower its operating costs. Its use of digital imaging
technology has substantially eliminated the typical paper intensive life
insurance processing procedures, resulting in lower operating costs, improved
customer service and an improved working environment. As part of the imaging
technology, the Company uses a system called Automated Work Distributor to
control workflow and perform other functions designed to increase efficiency. As
the investment in this technology is relatively fixed, the Company has been able
to leverage this investment through the increase in the policies being
administered.
In order to more effectively manage the various insurance operations of the
Company, it has consolidated certain common functions into its Kansas City,
Missouri location. These centralized functions include product development,
marketing, finance, investment management, data processing, personnel and
regulatory compliance. The Company believes that this approach allows it to more
effectively manage the business and, by eliminating duplicative functions,
reduce operating costs and improve returns on acquired business.
<PAGE>
The Company has outsourced its data processing requirements through
contracts entered into by FHC. The principal contract entered into by FHC is
with Computer Sciences Corporation ("CSC") which provides all of the Company's
data processing needs for its operations with the exception of local area
networks. By outsourcing these functions, the Company believes that it has
reduced operating costs by eliminating the fixed costs associated with a data
processing function, and improved its ability to increase its policyholder base
without significant investment on its part. In addition, the use of a vendor
such as CSC provides the Company access to current technology and a higher
caliber staff than it may be able to achieve on its own.
Investments
A significant factor contributing to the Company's profitability is its
ability to earn investment income sufficient to provide for its insurance
liabilities and generate a profit. The Company's insurance liabilities are
backed by a portfolio composed principally of fixed rate investments that
generate predictable rates of return. The rates of return on the Company's
investments vary over time depending on the current interest rate environment,
the spread at which fixed rate investments are priced over the yield curve and
other factors. The Company manages its invested assets internally. Its
investment philosophy is conservative with an emphasis on balancing credit and
interest rate risk and is influenced by regulatory and asset-liability matching
requirements.
The insurance subsidiaries of Americo are restricted by insurance statutes
and regulations as to the type of investments they are permitted to make and the
amount of funds that may be used for any one type of investment. In compliance
with these regulations and consistent with the Company's investment philosophy,
the Company invests principally in investment grade securities (as rated by
nationally recognized rating organizations). At December 31, 1997, 0.8% of the
Company's fixed rate investments were non-investment grade. There were no
securities which were in default as to principal or interest.
A goal of the Company's investment strategy is to provide liquidity for its
insurance liabilities. Through computer-generated models, the Company conducts
studies of the cash flow characteristics of its liabilities using common
interest rate scenarios. The Company uses this information to assist it in
choosing the duration of its asset portfolio so that it closely matches the
duration of its liabilities.
The Company's general investment philosophy is to hold fixed-rate
securities for long term investment. Thus, the Company does not have a trading
portfolio. However, the fixed-rate portfolio is divided into held to maturity
and available for sale portfolios. Securities have been categorized as available
for sale except for those securities that the Company has the intent and the
ability to hold until maturity. The primary factor which influences the
Company's decision to characterize its investments as held to maturity is the
cash flow requirements of the Company's liabilities. Securities designated as
available for sale include securities that may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity needs, management of
taxable income and similar economic factors.
<PAGE>
The carrying amounts of the Company's investments at December 31, 1997 were
as follows:
<TABLE>
Total
Held to Available Carrying
Investment Category Maturity (1) for Sale (2) Amount Percentage
------------------- ------------ --------- ------ ----------
(in thousands)
<S> <C> <C> <C> <C>
Fixed maturities:
U.S. Treasury and government securities $ 2,427 $ 64,986 $ 67,413 3.1%
Mortgage-backed securities:
Collateralized mortgage obligations 276,505 96,767 373,272 17.3
Pass-through certificates:
GNMA 18,063 109,165 127,228 5.9
FHLMC 2,434 554 2,988 0.1
FNMA 1,560 5,070 6,630 0.3
Other pass-through securities 6,410 25,533 31,943 1.5
Other asset-backed securities 30,152 57,603 87,755 4.1
Corporate bonds 514,272 401,406 915,678 42.3
---------- --------- ----------- ------
Total fixed maturities $ 851,823 $761,084 $1,612,907 74.6%
========= ======== ==========
Equity securities 78,949 3.7
Investment in equity subsidiaries 21,670 1.0
Mortgage loans on real estate 165,630 7.8
Investment real estate 27,630 1.3
Policy loans 200,137 9.2
Cash and cash equivalents 36,859 1.6
Other invested assets 18,890 0.8
---------- ------
Total cash and invested assets $2,162,672 100.0%
========== =====
- - ------------------------------------------------------------
(1) Carrying amount is amortized cost. The market value of held to maturity securities at December 31, 1997
was $873.9 million.
(2) Carrying amount is market value. The amortized cost of available for sale securities at December 31, 1997
was $736.0 million.
</TABLE>
See Note 4 of the Notes to Consolidated Financial Statements, and the
discussion under the heading "Investment Portfolio" in Item 7 appearing
elsewhere in this Form 10-K for information about the composition and
performance of the Company's investment portfolio and the risks inherent in such
investments.
Non-Insurance Operations
The Company selectively makes investments in businesses outside of the life
insurance industry. The primary investments of this nature at December 31, 1997
were the investments in Argus, which was accounted for using the equity method,
and in wholly-owned real estate partnerships.
<PAGE>
Argus: The Company and an unrelated third party each own a 50% equity
interest in Argus. Argus is principally engaged in the business of
electronically processing prescription drug claims including providing services
in connection with the point-of-sale adjudication, processing and payment of
these claims. Argus' principal customers include health maintenance
organizations, preferred provider organizations, health insurance companies and
managed health companies. For 1997, Argus generated revenues of $39.7 million
and processed over 145 million claims compared to 129 million claims processed
in 1996, an increase of 12%. At December 31, 1997, Argus had approximately 251
full-time employees and maintains its corporate headquarters in Kansas City,
Missouri. Currently, there are less than 10 prescription drug claim processors
in the managed care business. Argus faces increasing competition from other drug
claim processors and customers choosing to perform their own drug claim
processing. In 1997, a major client decided to perform its claims processing
internally, which will have an effect on Argus' 1998 revenues and earnings.
Real Estate Partnerships: In 1992, the Company and an unrelated third party
formed a limited partnership, GSSW, for the purpose of purchasing real estate
and mortgage loans from the Resolution Trust Corporation. In December 1996, the
Company liquidated its 50% interest in GSSW in exchange for cash of $22.6
million and 100% interests in several real estate partnerships then owned by
GSSW. In July 1997, the Company disposed of several of these properties for a
gain of $5.1 million. The proceeds from these sales have been reinvested in
similar properties. Currently the Company manages ten properties including
office space, retail space and apartments.
Reinsurance
In keeping with industry practices, the Company reinsures portions of its
life insurance exposure with unaffiliated reinsurance companies under
traditional indemnity reinsurance agreements. 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 $50,000 to $350,000 per life. Indemnity
reinsurance does not fully discharge the Company's obligation to pay policy
claims on the reinsured business. The Company remains responsible for policy
claims to the extent the reinsurer fails to pay such claims. At December 31,
1997, the Company had ceded to reinsurers approximately $6.1 billion (17%) of
life insurance in force, of which 80% was reinsured with insurance companies
rated "A (Excellent)" or better by A.M. Best. Approximately $1.4 billion of the
insurance in force was ceded to a single reinsurer, which was rated "A" by A.M.
Best. Additionally, in connection with the Joint Venture, the Company ceded
$141.6 million of insurance liabilities to FAL at December 31, 1997. The Company
evaluates the financial strength of its reinsurers upon inception of a
reinsurance treaty and on an annual basis thereafter.
The Company has entered into several coinsurance and modified
coinsurance agreements with a single unaffiliated reinsurer with related
insurance liabilities totaling $1.4 billion at December 31, 1997. See
"Business: Acquisitions and Reinsurance Transactions".
Certain of the insurance subsidiaries of the Company have ceded blocks of
insurance under financial reinsurance treaties which have the effect of
increasing the statutory surplus of the Company. As a result of such reinsurance
transactions, the Company has increased its statutory surplus after the effect
of income taxes by approximately $20.0 million; however, the effect of these
reinsurance treaties is not included in stockholder's equity of the Company
presented in accordance with generally accepted accounting principles ("GAAP").
Financial reinsurance increases the ceding insurer's statutory surplus with the
expectation that such increased surplus will be returned to the reinsurer out of
future earnings, if any, and guarantees the reinsured against any future
statutory losses, if any, on the policies reinsured. The ability of an insurance
subsidiary to pay dividends to Americo may be affected by the reduction in
statutory earnings caused by reductions in the outstanding levels of financial
reinsurance. The risk fees paid to the reinsurers under these treaties totaled
$0.8 million and $0.9 million for the years ended December 31, 1997 and 1996,
respectively. See Note 6 of the Notes to the Consolidated Financial Statements
of the Company included in Item 8 in this Form 10-K.
<PAGE>
Regulation
Each of Great Southern, United Fidelity, College Life and National Farmers
Union are domiciled in Texas. Victory Life is domiciled in Kansas. Ohio State is
domiciled in Ohio and Investors Guaranty is domiciled in California. One or more
of the life insurance subsidiaries is licensed to sell insurance in the District
of Columbia and all states, except New York.
General 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 regulatory authority to,
among other matters, grant and revoke licenses for transacting business,
regulate trade practices, establish reserve requirements, regulate the form and
content of policies, and prescribe the type and amount of investments permitted.
These supervisory agencies periodically examine the business and accounts of the
Company's insurance subsidiaries and require them to file detailed annual
statements prepared in accordance with statutory accounting practices.
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 addition, legislation
has been introduced periodically in Congress which could result in the federal
government assuming some role in the regulation of the insurance industry. In
recent years, the NAIC has taken initiatives to reduce insurance company
insolvencies and market conduct violations. These initiatives include investment
reserve requirements, risk-based capital standards, codification of insurance
accounting principles, new investment standards and restrictions on an insurance
company's ability to pay dividends to its stockholders. The NAIC has also
approved and recommended to states for adoption model laws related to product
design and illustrations. The Company has evaluated its current product
portfolio in response to these initiatives. It is not possible to predict the
future impact of changing state and federal regulation on the operations of the
Company and its insurance subsidiaries.
Under applicable state insurance laws, all of the Company's insurance
subsidiaries are required to maintain minimum levels of capital stock and
statutory surplus. The capital and surplus of each of the Company's insurance
subsidiaries exceeds the minimum requirements. In addition, each of the
Company's insurance subsidiaries is subject to the supervision of the regulators
of each state in which it is licensed. Such regulators have the discretionary
authority, in connection with the continual licensing of any such subsidiary, to
limit or prohibit new issuances of business to policyholders within their
jurisdiction when, in their judgement, such regulators determine that such
subsidiary is not maintaining adequate statutory surplus or capital. The Company
does not believe the current or anticipated levels of statutory surplus of its
insurance subsidiaries present a material risk that any such regulator would
limit the amount of new insurance business that an insurance subsidiary intends
to issue.
Holding Company Regulations. Substantially all states also regulate members
of insurance holding company systems. FHC is registered as a holding company
system pursuant to such legislation in Texas, Kansas, Ohio and California. The
insurance holding company statutes regulate certain transactions among
affiliates, including the payment of dividends by an insurance company to its
parent. Generally, without the consent of the domiciliary state's insurance
commissioner, an insurance company may not pay dividends to its parent in excess
of the greater of (i) the insurer's prior year statutory net gain from
operations, or (ii) 10% of its prior year ending statutory capital and surplus,
subject in either case to sufficient earned statutory surplus from which
dividends may be paid. Generally, state laws require an insurance company to
file a dividend notification prior to payment of ordinary dividends.
Under Texas regulations, interest and principal on any newly-issued surplus
debentures may be paid only with prior approval of the Texas Department of
Insurance. Surplus debentures issued by United Fidelity contain payment
schedules which have been approved by the Texas Department of Insurance.
Therefore, United Fidelity does not require approval from the Texas Department
of Insurance for each payment of principal and interest unless such payments
differ from the approved schedule.
<PAGE>
Risk-Based Capital Requirements. The NAIC's risk-based capital ("RBC")
rules are used to evaluate the adequacy of statutory capital and surplus in
relation to a company's investment and insurance risks. The RBC formula is used
by the states as an early warning tool to identify under-capitalized companies
for the purpose of initiating regulatory action. The NAIC's RBC model act
provides for four levels of potential involvement by state regulators for
inadequately capitalized insurance companies as follows: (1) Company Action
Level, (2) Regulatory Action Level, (3) Authorized Control Level and (4)
Mandatory Control Level. Generally, action will be triggered when the ratio of a
company's total adjusted capital (defined as the total of its statutory capital,
surplus and asset valuation reserve ("AVR")) to its Authorized Control Level RBC
(the "RBC Ratio") falls below 200%. Based upon the Company's calculations, all
of its insurance subsidiaries had RBC ratios exceeding 200% at December 31,
1997.
Texas has its own RBC requirements, the stated purpose of which is to
require a minimum level of capital and surplus to absorb the financial,
underwriting and investment risks assumed by an insurer. The Commissioner of the
Texas Department of Insurance has the power to take corrective actions similar
to those in the NAIC's model act if a company does not maintain the required
minimum level of capital and surplus. Under the Texas Regulations, an insurer
has met RBC requirements if its admitted assets exceed its liabilities by at
least 6%. At December 31, 1997, the Company's Texas insurance subsidiaries'
admitted assets exceeded their liabilities by more than the required 6% level.
There can be no assurance that 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 or on the ability of the Company's
subsidiaries to make payments on the surplus debentures or to pay dividends and
thus on the Company's ability to service its debt.
Employees
At March 1, 1998, Americo and its wholly-owned subsidiaries employed
approximately 623 persons.
<PAGE>
ITEM 2. PROPERTIES
The principal executive offices of the Company are located at 1055 Broadway,
Kansas City, Missouri 64105 and the Company's telephone number is (816)
391-2700.
The principal operations of the insurance subsidiaries are conducted from
Kansas City, Missouri; Dallas, Texas; and Columbus, Ohio. United Fidelity,
College Life, National Farmers Union and Victory Life operate from approximately
45,000 square feet of leased office space located at 1055 Broadway, Kansas City,
Missouri 64105. The property is leased from Broadway Square Partners, a Missouri
limited partnership of which a corporation controlled by the Merriman family is
a 50% partner. The lease expired on February 28, 1998 and current negotiations
are in progress to renew this lease.
Great Southern's operations are conducted from approximately 57,000 square
feet of leased office space located at 500 N. Akard, Dallas, Texas 75221. The
lease expires in June 2007.
Ohio State and Investors Guaranty operations are conducted from
approximately 83,800 square feet of leased office space located at 2500 Farmers
Drive, Columbus, Ohio 43235. The lease expires in April 2000.
ITEM 3. LEGAL PROCEEDINGS
From time to time the Company is party to litigation and arbitration
proceedings in the ordinary course of business, none of which is expected to
have a material adverse effect on the Company.
Great Southern is a defendant in four purported class action lawsuits
alleging deceptive sales practices in the marketing of its whole life and
universal life insurance policies and seeking unspecified compensatory, punitive
and/or treble damages. These cases are: Harriett D. Mann and Dan C. Wynn v.
Great Southern Life Insurance Company (U.S. District Court for the Middle
District of Florida, filed on September 22, 1997); Irwin Ginsberg v. Great
Southern Life Insurance Company (U.S. District Court for the Southern District
of Florida, filed on February 24, 1997); James Morgan McGraw, Frances Norman,
Robert Harry Bishop and Charlene McGraw v. Great Southern Life Insurance Company
and Ervin Jackson (U.S. District Court for the Eastern District of Texas,
amended petition alleging class action filed July 1, 1997); and Yvonne H. Massey
v. Great Southern Life Insurance Company, Ralph Williams & Associates, Inc. and
Ralph Williams (U.S. District Court for the Northern District of Alabama, filed
September 19, 1997). Great Southern has filed a motion before the U.S. Judicial
Panel on Multidistrict Litigation requesting that these lawsuits be transferred
to a single district and consolidated for pretrial proceedings. A fifth
purported class action lawsuit making similar allegations, Ernest Marqoquin v.
Great Southern Life Insurance Company and Dale Darnell, was filed against Great
Southern on February 11, 1998 in Cameron County District Court, Texas. On March
19, 1998, Great Southern removed this case to the United States District Court
for the Southern District of Texas. Great Southern intends to seek to have this
case added to the consolidated multidistrict litigation proceedings. Great
Southern intends to defend all these cases vigorously. There can be no assurance
that the foregoing or any future litigation relating to pricing and sales
practices will not have a material adverse effect on the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
All of the outstanding shares of capital stock of the Company are owned by
FHC. There is no established public trading market for the Company's capital
stock.
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The historical financial information for the five years ended December 31,
1997 and at December 31, 1997, 1996, 1995, 1994 and 1993 has been derived from
the audited Consolidated Financial Statements of the Company. The selected
consolidated financial data set forth below is qualified in its entirety by
reference to and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations," and the Company's
Consolidated Financial Statements and the Notes thereto included elsewhere in
this Form 10-K. <TABLE>
Year Ended December 31,
----------------------------------------------------------------------
1997 (3) 1996 1995 (2) 1994(1) 1993
-------- ---- -------- ------- ----
(in thousands, except per share information)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Premiums and policy revenues $ 203,729 $ 165,602 $ 140,130 $ 134,225 $ 134,856
Net investment income 219,267 186,725 152,047 130,149 132,327
Net realized investment gains (losses) 2,950 (120) (282) (3,529) 7,584
Gain on disposition of partnership interest -- 15,825 -- -- --
Other income 12,331 3,567 2,168 117 6,736
----- ----- --- ----- -------
Total income 438,277 371,599 294,063 260,962 281,503
Policyholder benefits 262,940 218,659 169,162 151,835 151,907
Commissions 11,230 13,473 9,662 8,711 9,355
Amortization expense 43,694 29,714 26,666 23,534 22,972
Interest expense 12,089 12,263 10,593 9,254 7,540
Other operating expenses 77,038 56,703 47,124 45,110 44,538
------------ ------------ ------------ ------------ -------------
Income before provision for income taxes 31,286 40,787 30,856 22,518 45,191
Provision for income taxes 9,230 13,513 11,126 9,159 16,190
------------ ------------ ------------ ------------ -------------
Income before extraordinary loss 22,056 27,274 19,730 13,359 29,001
Extraordinary loss -- -- -- -- (798)
----------- ------------ ------------ ------------ -------------
Net income $ 22,056 $ 27,274 $ 19,730 $ 13,359 $ 28,203
=========== ============ ============ ============ ============
Net income applicable to common stock per common share:
Income before extraordinary loss $ 2,205.60 $ 2,727.40 $ 1,973.00 $ 1,335.90 $ 2,900.10
Extraordinary loss -- -- -- -- (79.80)
----------- ----------- ----------- ----------- ------------
Net income $ 2,205.60 $ 2,727.40 $ 1,973.00 $ 1,335.90 $ 2,820.30
=========== =========== =========== =========== ===========
Average common shares outstanding 10 10 10 10 10
== == == == ==
Balance Sheet Data:
Total investments $2,125,813 $2,018,852 $2,014,634 $1,582,592 $1,710,165
Total assets 4,038,018 2,769,583 2,459,805 1,994,628 2,056,167
Total debt 132,884 133,312 133,451 100,702 100,736
Total liabilities 3,791,156 2,562,561 2,269,042 1,844,632 1,897,332
Stockholder's equity 246,862 207,022 190,763 149,996 158,835
- - ---------------------------
(1) On February 28, 1994, the Company sold its investment in 100% of the
common stock of PFS Holding Company ("PFSH") and its wholly-owned
subsidiary, Premium Financing Specialists, Inc. to FHC.
(2) On July 10, 1995, the Company acquired all of the outstanding common stock of Victory Life.
(3) On April 15, 1997, the Company acquired all of the outstanding common stock of Ohio State and Investors
Guaranty.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following discussion analyzes significant items affecting the results
of operations and the financial condition of the Company. In connection with the
"safe harbor" provisions of the Private Securities Litigation Reform Act of
1995, the Company cautions readers regarding certain forward-looking statements
contained in this report and in any other statements made by, or on behalf of,
the Company, whether or not in future filings with the Securities and Exchange
Commission (the "SEC"). Forward-looking statements are statements not based on
historical information and which relate to future operations, strategies,
financial results, or other developments. Statements using verbs such as "plan",
"anticipate", "believe" or words of similar import generally involve
forward-looking statements. Without limiting the foregoing, forward-looking
statements include statements which represent the Company's beliefs concerning
future levels of sales and surrenders of the Company's products, investment
spreads and yields, or the earnings and profitability of the Company's
activities.
Forward-looking statements are necessarily based on estimates and
assumptions that are inherently subject to significant business, economic and
competitive uncertainties and contingencies, many of which are beyond the
Company's control and many of which are subject to change. These uncertainties
and contingencies could cause actual results to differ materially from those
expressed in any forward-looking statements made by, or on behalf of, the
Company. Whether or not actual results differ materially from forward-looking
statements may depend on numerous foreseeable and unforeseeable developments.
Some may be national in scope, such as general economic conditions, changes in
tax law and changes in interest rates. Some may be related to the insurance
industry generally, such as pricing competition, regulatory developments and
industry consolidation. Others may relate to the Company specifically, such as
credit, volatility and other risks associated with the Company's investment
portfolio. Investors are also directed to consider other risks and uncertainties
discussed in documents filed by the Company with the SEC. The Company disclaims
any obligation to update forward-looking information. This discussion should be
read in conjunction with the accompanying consolidated financial statements and
the notes thereto.
General
The volume of the Company's insurance in force has increased 156% from
$18.5 billion in 1989 to $47.4 billion in 1997. This growth has been the result
of a combination of acquisitions, reinsurance assumed and new business written.
The growth in the Company's volume of life insurance inforce for the last three
years is summarized in the following table. <TABLE>
1997 1996 1995
---- ---- ----
(in
billions)
<S> <C> <C> <C>
Beginning of year balance $ 27.6 $ 26.9 $ 23.0
Insurance business acquired or assumed 21.3 2.0 4.7
New business written 2.6 2.1 2.0
Terminations (4.1) (3.4) (2.8)
--------- --------- ---------
End of year balance $ 47.4 $ 27.6 $ 26.9
======== ======== ========
</TABLE>
The Company's generation of new business increased in each of the three
years ended December 31, 1997. Annualized annuity premiums increased
significantly as a result of an increase in tax-qualified business written in
connection with the Joint Venture arrangement entered into by the Company in
1993. The following table summarizes the Company's sales in terms of annualized
premiums: <TABLE>
1997 1996 1995
---- ---- ----
(in millions)
<S> <C> <C> <C>
Life insurance premiums $ 40.2 $ 23.1 $ 20.1
Annuity premiums 75.8 52.6 49.2
---------- --------- --------
$ 116.0 $ 75.7 $ 69.3
======== ====== ======
</TABLE>
The Company intends to continue its focus on the sale of interest-sensitive
life insurance and annuity products through its marketing and distribution
systems. In addition, the Company may also pursue selected acquisitions of
blocks of life insurance policies and life insurance companies.
Year to Year Comparisons
The Company entered into four transactions during the period 1995 through
1997 which affect the comparability of its results of operations between
periods. In July 1995, the Company acquired all of the outstanding common stock
of Victory Life for $42.8 million. The Victory Life transaction (the "Victory
Life Acquisition") added approximately $270 million of insurance liabilities
and $32.9 million of notes payable to the Company's consolidated balance
sheet.
In October 1995, in connection with administrative agreements entered into
with Ohio Casualty and Ohio Life, an unaffiliated company (the "Reinsurer")
reinsured 100% of the insurance business of Ohio Life on a coinsurance basis.
The Reinsurer then reinsured certain risks on these same liabilities to Great
Southern on a modified coinsurance basis. The associated policy liabilities were
approximately $278 million at December 31, 1997.
In July 1996, the Company entered into similar agreements with the
Reinsurer and Fremont Life. The associated policy liabilities involved in the
transaction were approximately $371 million at December 31, 1997.
On April 15, 1997, Great Southern acquired all of the outstanding common
stock of Ohio State and Investors Guaranty ("Ohio State Acquisition") from
Farmers Group, Inc. On the acquisition date, Ohio State and Investors Guaranty
had combined assets of $1,039 million and liabilities of $694 million. The
acquisition was accounted for as a purchase. On April 16, 1997, Ohio State and
Investors Guaranty entered into separate coinsurance agreements to reinsure 100%
of their insurance liabilities to the Reinsurer in exchange for a ceding
commission of $145.7 million. Concurrently, the Reinsurer and Great Southern
entered into a modified coinsurance agreement under which the Reinsurer ceded
certain risks on a 70% quota share basis on the same insurance liabilities to
Great Southern. The results of operations of these acquired policies from the
date of acquisition, less the net 30% coinsurance, are included in the Company's
results of operations. The Reinsurer will receive 100% of the statutory profits
from the reinsured policies until the Reinsurer has recovered the initial ceding
commission.
In each of the transactions with the Reinsurer, the invested assets related
to the reinsured businesses are owned by the Reinsurer. At December 31, 1997,
the insurance liabilities associated with these reinsurance transactions totaled
$1.4 billion. Results from these reinsurance transactions and the Victory Life
Acquisition and Ohio State Acquisition are included in the Company's results of
operations from the respective dates of the transactions.
The effects of the above transactions, collectively referred to as the
Acquisitions, on the individual income statement components, excluding the costs
of financing, are set forth in the table below (in millions).
<TABLE>
1997 and 1996 1996 and 1995
Acquisitions Effects on Acquisitions Effects on
1997 and 1996 Results 1996 and 1995 Results
(1) (2)
------------------------- -------------------------
1997 1996 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Premiums and policy revenues $ 56.8 $ 6.9 $ 40.3 $ 11.0
Net investment income 43.7 14.3 55.2 14.3
Other income 3.4 -- 0.1 0.5
Policyholder benefits 66.8 17.5 67.6 18.3
Commissions 1.5 2.4 3.9 0.5
Amortization expense 18.4 -- 3.6 1.3
Other operating expenses 14.9 0.7 7.8 1.1
(1) Includes the results from the Ohio State Acquisition in 1997 and the Fremont Life agreements in 1997
and 1996.
(2) Includes the results from the Fremont Life agreements in 1996 and the Victory Life Acquisition and the
Ohio Life agreements in 1996 and 1995.
</TABLE>
The other operating expenses in the above table include only the direct
expenses related to providing administration for the policies and assets of the
Acquisitions. The operating expenses shown do not include any allocation of
indirect or overhead expenses.
<PAGE>
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Income before provision for income taxes decreased $9.5 million to $31.3
million in 1997 from $40.8 million in 1996. The primary reasons for the net
decrease were (i) the gain from the disposition of the Company's interest in
GSSW in 1996, (ii) an increase in death benefits and (iii) an increase in other
operating expenses, partially offset by (iv) a gain from the disposition of
Loyalty Life in 1997 and (v) income resulting from the Acquisitions. The items
and significant changes in individual income statement components are discussed
in more detail below.
Premiums and policy revenues. Premiums and policy revenues totaled $203.7
million in 1997 compared to $165.6 million in 1996. Excluding the Acquisitions,
premiums and policy revenues decreased $11.8 million from 1996 to 1997. The
decrease is primarily due to the Company currently writing small amounts of new
traditional life insurance products and, therefore, traditional life insurance
premiums are decreasing as the amount of in-force business decreases. Also, the
1996 results included $2.5 million of traditional premiums on supplementary
contracts and $3.4 million of accident and health premiums which did not recur
in 1997.
Collected premiums on interest sensitive and annuity products including the
Acquisitions increased by $51.8 million from $287.3 million 1996 to $339.1
million in 1997. This increase in collected premiums is not reflected in
premiums and policy revenues because generally accepted accounting principles
require that premiums collected on these types of products be treated as deposit
liabilities rather than revenues.
Net investment income. Net investment income increased $32.6 million to
$219.3 million in 1997 from $186.7 million in 1996. Excluding the net investment
income from invested assets associated with the Acquisitions, net investment
income increased $3.1 million, primarily attributable to (i) changes in expected
prepayments on mortgage-backed securities and (ii) an increase in income of the
Company's equity subsidiaries.
Management continually evaluates the expected prepayments of the
mortgage-backed securities portfolio to more accurately reflect expected
paydowns on the securities as market interest rates change. In 1997, interest
rates decreased, accelerating expected prepayment rates. In 1996, interest rates
increased, reducing the expected prepayment rate. As a result of the changes in
expected prepayments, amortization of premiums and accretion of discounts were
accelerated in 1997, causing an increase in net investment income of $1.4
million in 1997. The decrease in net investment income in 1996 of $1.8 million
resulting from the reduced expected prepayment rate was partially offset by
discounts of $0.5 million recognized upon the early repayment of certain of the
Company's mortgage loans.
The Company's share of earnings from its equity subsidiaries decreased from
$5.5 million in 1996 to $3.6 million in 1997. Equity earnings in GSSW of $4.5
million in 1996 did not recur in 1997 as the Company disposed of GSSW in 1996 in
exchange for 100% interests in several real estate limited partnerships formerly
owned by GSSW. These limited partnerships added $1.9 million to net investment
income in 1997. This decrease in earnings from GSSW was offset by an increase in
the income from the Company's other equity subsidiaries.
Net realized investment gains. The Company recorded net realized investment
gains of $2.9 million in 1997. During 1997, the Company recorded gains of $5.1
million from the sale of three real estate investment properties, which were
offset by various other investment losses.
Other Income. Other income increased $8.7 million from $3.6 million in 1996
to $12.3 in 1997. Excluding other income related to the Acquisitions, other
income increased $5.4 million from 1996 to 1997. The Company realized a gain of
$4.8 million in 1997 from the sale of Loyalty Life Insurance Company
("Loyalty"), a former wholly-owned subsidiary of the Company. Prior to this
sale, several of the Company's insurance subsidiaries entered into agreements
with Loyalty for the assumption of Loyalty's insurance liabilities. Other income
in 1997 includes a servicing fee paid to the Company associated with the
reinsurance of 30% of the Ohio State and Investors Guaranty policies.
Policyholder benefits. Policyholder benefits increased $44.2 million from
$218.7 million in 1996 to $262.9 million in 1997. Excluding the effects of the
Acquisitions, policyholder benefits decreased $5.1 million from 1996 to 1997.
The decrease in policyholder benefits primarily resulted from lower benefit
reserve increases in 1997 resulting from the decreasing traditional premiums,
partially offset by a $5.1 million increase in death benefits.
Amortization expense. Amortization expense increased $14.0 million from
$29.7 million in 1996 to $43.7 million in 1997. Excluding the effects of the
Acquisitions, amortization expense decreased $4.4 million from 1996 to 1997.
Included in amortization expense are adjustments to decrease deferred policy
acquisition costs and the cost of business acquired assets of $2.5 million in
1997 and $3.2 million in 1996. These adjustments result from revisions made to
the Company's estimate of future gross profits from its interest sensitive life
and annuity policies. Under GAAP, deferred policy acquisitions costs and the
cost of business acquired assets on interest-sensitive life products are
amortized based on the estimated future gross profits of the related policies.
Interest expense. Interest expense decreased $0.2 million to $12.1 million
in 1997 from $12.3 million in 1996. Average outstanding indebtedness was $133.1
million with an average cost of 9.06% in 1997 compared with average outstanding
indebtedness of $133.5 million with an average cost of 9.19% in 1996.
Other operating expenses. Other operating expenses increased $20.3 million
to $77.0 million in 1997 from $56.7 million in 1996. Excluding the effects of
the Acquisitions, other operating expenses increased $6.1 million from 1996 to
1997. The primary reasons for the increase in operating expenses from 1996 to
1997 are expenses associated with a marketing office opening in California in
September 1996, increased depreciation expense in 1997 resulting from purchases
of computer equipment in 1996 and 1997, and increased legal and professional
fees in 1997.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Income before provision for income taxes increased $9.9 million to $40.8
million in 1996 from $30.9 million in 1995. The primary reasons for the net
increase were (i) income resulting from the Acquisitions and (ii) gain from the
disposition of the Company's interest in GSSW, partially offset by (iii) a
decrease in net investment income, (iv) an increase in death benefits and (v) an
increase in other operating expenses. These items and significant changes in
individual income statement components are discussed in more detail below.
Premiums and policy revenues. Premiums and policy revenues totaled $165.6
million in 1996 compared to $140.1 million in 1995. Excluding the effects of the
Acquisitions, premiums and policy revenue decreased by $3.8 million from 1995 to
1996. Premiums and policy revenues from historical business decreased $2.8
million and $1.0 million, respectively, between 1996 and 1995. The decrease is
primarily due to the company currently writing small amounts of new traditional
life insurance products and, therefore, traditional life insurance premiums are
decreasing as this amount of in-force business decreases. A portion of the
decreasing policy revenues between 1996 and 1995 resulted from $0.4 million of
non-recurring surrender charges realized in 1995 related to certain group life
annuities.
Collected premiums on interest sensitive and annuity products increased by
$69.4 million from 1995 to 1996. This increase in collected premiums is not
reflected in premiums and policy revenues because generally accepted accounting
principles require that premiums collected on these types of products be treated
as deposit liabilities rather than revenues.
Net investment income. Net investment income increased $34.7 million to
$186.7 million in 1996 from $152.0 million in 1995. Excluding the investment
income resulting from the Acquisitions, investment income decreased $6.2
million, primarily attributable to (i) a decrease in income from the Company's
equity subsidiaries and (ii) changes in expected prepayments on mortgage-backed
securities.
The Company's share of earnings from its equity subsidiaries decreased from
$9.4 million in 1995 to $5.5 million in 1996 as a result of a reduction in gains
on the sale of real estate by GSSW in 1996 compared to 1995 and increased
expenses at the Company's other equity subsidiaries. Gains from the sale of real
estate by GSSW added $1.2 million to investment income in 1996 compared to $3.3
million in 1995. Income from the Company's investment in Argus decreased in 1996
due to increased systems development costs incurred by Argus.
Management continually evaluates the expected prepayments of the
mortgage-backed securities portfolio to more accurately reflect expected
paydowns on the securities as market interest rates change. In 1996, interest
rates increased, reducing the expected prepayment rate. In 1995, expected
prepayments of the portfolio were accelerated as interest rates had declined. As
a result of the changes in expected prepayments, amortization of premiums and
accretion of discounts were accelerated in 1995, causing an increase in net
investment income of $1.3 million in 1995. The decrease in investment income in
1996 resulting from the reduced expected prepayment rate was offset by discounts
recognized upon the early repayment of certain of the Company's mortgage loans.
Gain on disposition of partnership interest. In December 1996, the Company
liquidated its 50% interest in GSSW in exchange for cash of $22.6 million
and 100% interests in several real estate limited partnerships then owned by
GSSW resulting in a gain of $15.8 million.
Other income. Other income in 1996 and 1995 included $2.5 million and $1.2
million, respectively, of gains from the sales of blocks of accident and health
business owned by the Company.
Policyholder benefits. Policyholder benefits were $49.5 million higher in
1996 than in 1995 as a result of the Acquisitions. Excluding the effects of such
Acquisitions, policyholder benefits increased $0.2 million from 1995 to 1996.
The Company experienced an unusually high level of death benefits during the
first half of 1996, including a small number of policies with very large face
amounts which had offsetting benefit reserve releases. These releases, together
with lower benefit reserve increases in 1996 resulting from the decreasing
traditional premiums, partially offset the increasing policyholder benefits
resulting from the increased death benefits.
Amortization expense. Amortization expense increased $3.0 million in 1996
to $29.7 million, including an increase of $2.3 million related to the
Acquisitions. Included in amortization expense is an adjustment to decrease
deferred policy acquisition costs and the cost of business acquired assets of
$3.2 million in 1996 and $4.0 million in 1995. These adjustments result from
revisions made to the Company's estimate of future gross profits of its interest
sensitive life and annuity policies. Under GAAP, deferred policy acquisitions
costs and the cost of business acquired assets on interest-sensitive life
products are amortized based on the estimated future gross profits of the
related policies.
Interest expense. Interest expense increased $1.7 million to $12.3 million
in 1996 from $10.6 million in 1995. Average outstanding indebtness was $133.5
million with an average cost of 9.19% in 1996 compared to average outstanding
indebtness of $116.5 million with an average cost of 9.10% in 1995. Average
outstanding indebtedness was higher in 1996 than 1995 due to the issuance of
$32.9 million of notes in connection with the Victory Life Acquisition in July
1995.
Other operating expenses. Other operating expenses increased to $56.7
million in 1996 from $47.1 million in 1995. The increase in other operating
expenses primarily resulted from increased expenses associated with servicing
the policies related to the Acquisitions. Other operating expenses also
increased in 1996 as a result of increased product development and marketing
expenses, partly in connection with marketing alliances with Ohio Life and
Fremont Life.
Financial Condition and Liquidity
Liquidity. The liquidity needs of Americo, whose principal assets are
investments in its insurance subsidiaries, are dependent upon receipt of
sufficient funds from its subsidiaries. The cash requirements of Americo consist
of debt service requirements on notes payable, amounts due FHC under Advisory
and Data Processing Agreements with FHC and its own operating expenses. These
cash requirements are met by payments of principal and interest on surplus
debentures issued by United Fidelity and dividends from United Fidelity. Americo
also receives payments under investment advisory and data processing agreements
with the insurance subsidiaries which permit Americo to recover a portion of the
amounts paid by it under similar agreements with FHC. On a stand-alone basis, at
December 31, 1997, Americo had $12.5 million of cash and cash equivalents and
marketable equity securities available for debt service and other corporate
requirements.
Americo has outstanding $100.0 million senior subordinated notes that it
issued in 1993. These senior subordinated notes bear interest at 9.25% and
mature in May 2005. The notes are redeemable at the option of Americo beginning
in 1998. The redemption prices are in excess of par in 1998 and 1999.
In connection with the acquisition of Victory Life in July 1995, Americo
issued notes payable to the seller with face amounts aggregating $17 million and
borrowed $21 million under a $70 million credit agreement with a syndicate of
banks. Of the $17 million face amount of notes payable issued to the seller, $5
million mature in 2015 and the remaining $12 million mature in 24 equal
semi-annual installments which began in 1995. The notes are carried at their
discounted value, which assumes an average effective rate of 11.6%.
Americo's credit agreement, which was last amended in February 1997, is a
revolving credit facility until December 1999, at which time amounts then
outstanding convert into a term loan repayable in six, equal semi-annual
installments commencing July 1, 2000. Amounts outstanding under the credit
facility bear interest at either a bank prime rate or 7/8% over LIBOR.
At December 31, 1997, United Fidelity had four surplus debentures payable
to Americo with an aggregate outstanding unpaid balance of $137.3 million. The
terms of the surplus debentures have been established to provide for the payment
of principal and interest to Americo in amounts sufficient to make payments on
the Company's external debt obligations in accordance with their payment
schedules. The surplus debentures and their payment schedules have been approved
by the Texas Department of Insurance; therefore, each scheduled payment will not
require the approval of the Texas Department of Insurance.
The surplus debentures contain restrictions which prevent United Fidelity
from making principal and interest payments if such payments reduce United
Fidelity's statutory capital and surplus below an amount specified in the
surplus debenture agreements. The most restrictive minimum surplus requirement
contained in the surplus debentures is $37.5 million; United Fidelity's capital
and surplus at December 31, 1997 was $97.7 million. Any future payment of
principal or interest on such surplus debentures will be limited by the ability
of the subsidiaries of United Fidelity to pay dividends to United Fidelity and
may be further limited by United Fidelity's RBC requirements. See "Business:
Regulation". The Company does not believe that United Fidelity will have any
difficulty in meeting its obligations under these surplus debentures in the
foreseeable future.
In order to meet its obligations under the surplus debentures, United
Fidelity uses funds generated by its direct and assumed insurance operations and
dividends from its insurance subsidiaries. The ability of the insurance
subsidiaries to pay dividends is subject to regulatory restrictions. The
insurance holding company statutes in each of the states in which the Company's
insurance subsidiaries are domiciled regulate payment of dividends by an
insurance company to its parent. Generally, without the consent of the state's
insurance commissioner, an insurance company may not pay dividends to its parent
in excess of the greater of (i) the insurer's prior year statutory net gain from
operations, or (ii) 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. Additionally, an insurance company is required to notify
the respective insurance department prior to the payment of ordinary dividends.
The ability of life insurance subsidiaries to pay dividends also may be
affected by reinsurance treaties. Under reinsurance treaties with an unrelated
reinsurer, National Farmers Union is restricted from declaring dividends if
adjusted surplus is less than $27.5 million. Adjusted surplus is defined in the
treaties as statutory capital and surplus, plus AVR, less the admitted asset
value of all affiliated investments. At December 31, 1997, National Farmers
Union had adjusted surplus of $39.1 million.
The principal sources of liquidity for the Company's insurance subsidiaries
are premium receipts, net investment income received and net proceeds from
investments that have been sold or matured or from mortgage loans that have been
repaid. Cash flows from premiums received and investment income are generally
sufficient to meet the subsidiaries' obligations, which consist of the payment
of claims and benefits on insurance policies, purchases of investments and the
payment of operating expenses. Although there is no intent to dispose of
investments at this time, the Company's investments are substantially in readily
marketable securities.
The Company has structured its interest-sensitive life insurance and
annuity products to include substantial surrender charges so as to reduce the
probability of unexpected increases in policy or contract surrenders, which
would create a need for increased liquidity. At December 31, 1997, approximately
72% of the reserves for interest-sensitive life insurance products were for
policies with surrender charges or otherwise not subject to discretionary
withdrawal by the policyholder.
The Company believes that its investment portfolio will allow it to satisfy
all existing contractual obligations to policyholders. At December 31, 1997, the
Company's investment portfolio included cash and short-term investments totaling
$36.9 million, marketable equity securities totaling $78.9 million as well as
$359.7 million in U.S. Treasury and government securities, mortgage-backed
securities and asset-backed securities and $401.4 million of corporate bonds
classified as available for sale that management believes could be readily
converted to cash.
Financial condition. Stockholder's equity increased to $246.9 million at
December 31, 1997 from $207.0 million at December 31, 1996. The increase was the
result of net income of $22.1 million and an increase in net unrealized
investment gains of $19.8 million, less a $2.0 million dividend to FHC. Net
unrealized investment gains in 1997 were recorded due to an increase in the
market value of both the Company's available for sale fixed maturity securities
and its marketable equity securities. See Note 4 to the Company's Consolidated
Financial Statements included elsewhere in this Form 10-K for further discussion
of the components of the change in net unrealized investment gains.
<PAGE>
The changes occurring in the Company's consolidated balance sheet from
December 31, 1996 to December 31, 1997 primarily reflect the normal operations
of the Company's life insurance subsidiaries, the acquisition of Ohio State and
Investors Guaranty, and the related reinsurance transactions discussed in
Results of Operations. See Note 3 to the Company's Consolidated Financial
Statements included elsewhere in this Form 10-K for further discussion of these
transactions.
Statutory capital and surplus of the Company's insurance subsidiaries at
December 31, 1997 includes $20.0 million relating to financial reinsurance
agreements which is not included in stockholder's equity on a GAAP basis.
Financial reinsurance treaties between National Farmers Union and unrelated
parties contain statutory minimum surplus requirements and require National
Farmers Union to place securities in an escrow account ($80.3 million at
December 31, 1997) to secure National Farmers Union's obligations to the third
party reinsurer.
Investment Portfolio. The Company has what it considers to be a
conservative investment philosophy. The Company's investment portfolio is
designed to match investment maturities as closely as possible to the projected
cash flow requirements of the Company's outstanding liabilities. The Company's
policy is to have a substantial portion of its investment portfolio in fixed
income securities with call protection.
In November 1995, the Financial Accounting Standards Board ("FASB") issued
"A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities" (the Guide) which, among other
things, provided entities with a one time opportunity to transfer some or all
securities from held to maturity to available for sale. In December 1995, the
Company transferred fixed maturity securities with an amortized book value of
$195,207 and a market value of $198,329 out of the held to maturity category
into the available for sale category. Additionally, the Company transferred
fixed maturity securities with an amortized book value of $169,439 and a market
value of $178,883 out of the available for sale category into the held to
maturity category.
The NAIC assigns securities quality ratings 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 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 S&P and Moody's ratings at December 31, 1997:
<TABLE>
Equivalent Available Total
S&P Moody's NAIC Held to for Carrying
Rating (1) Rating (1) Rating(1) Maturity(2) Sale (3) Amount Percentage
- - -- ----------- -- ---------- --------- ----------- ---------- -------- ----------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Investment grade:
AAA Aaa 1 $ 346,546 $ 354,862 $ 701,408 43.5%
AA Aa1,Aa2, Aa3 1 76,946 65,115 142,061 8.8
A A1, A2, A3 1 318,255 192,239 510,494 31.7
BBB Baa1, Baa2, Baa3 2 107,227 139,011 246,238 15.2
--------- --------- --------- -------
Subtotal 848,974 751,227 1,600,201 99.2
Non-investment grade:
BB or below Ba1 or below 3, 4 2,849 9,857 12,706 0.8
------------ ----------- ---------- -------
Total fixed maturity
investments $ 851,823 $ 761,084 $1,612,907 100.0%
========= ========= ========== =====
</TABLE>
(1) The ratings set forth above are based on the ratings assigned by S&P and
Moody's Investors Service, Inc. ("Moody's"). If S&P's ratings were
unavailable, ratings assigned by Moody's were used. If ratings assigned S&P
and Moody's were not equivalent, securities were categorized in this table
based upon the rating assigned by S&P. Bonds not rated by S&P or Moody's
are classified for the purpose of the table according to the rating
assigned to them by the NAIC as follows: NAIC class 1 is included in the
"A" rating; class 2 in "BBB" and class 3, "BB or below".
(2) Carrying amount is amortized cost. The market value of held to maturity
securities as December 31, 1997 was $873.9 million.
(3) Carrying amounts market value. The amortized cost of available for sale
securities at December 31, 1997 was $736.0 million.
<PAGE>
The Company continually reviews its non-investment grade debt securities
(NAIC designations 3 through 6) for evidence of declines in value which are
other than temporary. The Company does not anticipate any material increase in
its investments in non-investment grade debt securities. At December 31, 1997,
the Company's investment portfolio contained no securities which were in default
as to principal or interest.
The Company maintains a mortgage-backed securities ("MBS") portfolio, which
consists of "pass-through" obligations and collateralized mortgage obligations
("CMOs"). Approximately 90% of the MBS portfolio consists of securities or pools
of securities guaranteed by the U.S. government, including those issued by
Government National Mortgage Association, or those issued by Federal National
Mortgage Association and Federal Home Loan Mortgage Corporation.
The primary risk associated with MBSs is that a changing interest rate
environment might cause prepayment of the underlying mortgages at speeds slower
or faster than anticipated at the time of their purchase. The degree to which a
security is at risk to either increases or reductions in yield is influenced by
the difference between its carrying value and par value, the relative
sensitivity of the underlying mortgages to prepayment in a changing interest
rate environment and the repayment priority of the securities in the overall
securitization structure.
The Company manages the yield and cash flow variability of its MBS
portfolio by (i) purchasing securities backed by collateral with lower
prepayment sensitivity (such as mortgages priced at a discount to par value),
(ii) avoiding securities whose values are heavily influenced by changes in
prepayments (such as interest-only and principal-only securities) and (iii)
concentrating on securities with prepayment protected structures (such as
planned amortization class CMO's). See Note 4 to the Company's Consolidated
Financial Statements included elsewhere in this Form 10-K for a summary of the
Company's investments in CMO's.
At December 31, 1997, approximately $165.6 million in carrying value of the
Company's investment portfolio consisted of mortgage loans, which were
collateralized primarily by multi-family apartments, office buildings and retail
properties located in 33 states. Approximately 41% of the portfolio was
multi-family apartments, 20% was office buildings, 24% was retail space and 15%
was other types of properties. At December 31, 1997, approximately 21% of the
mortgage loan portfolio was secured by properties in Texas, and 22% in Missouri
and 12% in Kansas. No more than 10% of the remaining portfolio was secured by
properties in any one state.
At December 31, 1997, 8.15% of the mortgage loan portfolio consisted of
loans with balloon payments that mature before January 1, 1999. At December 31,
1997, mortgage loans delinquent by more than 90 days, as determined on a
contract delinquency basis, totaled approximately $0.5 million, which
constituted 0.3% of mortgage loans and was 0.02% of cash and invested assets.
Loans foreclosed upon and transferred to real estate owned in the Company's
consolidated balance sheet totaled $1.6 million, or less than 1% of total
mortgage loans at December 31, 1997. The favorable default experience is
principally attributed to the Company having been selective in the purchase of
mortgages in connection with acquisitions of its life insurance subsidiaries. In
light of the current market interest rate environment, the Company may
experience prepayments on its mortgage loan portfolio, thus reducing its yield
on such portfolio. The Company plans to continue applying its historical
underwriting standards to future investments in mortgage loans.
Real estate investments were only 1.3% of the carrying value of the
Company's cash and invested assets at December 31, 1997.
Non-Insurance Subsidiaries. During 1996, Americo received a dividend from
Argus consisting of $8.0 million of cash and a $1.5 million note receivable from
Broadway Square Partners, a related party. Americo used $4.5 million of the cash
received to purchase a 50% interest in Hereford LLP, which owns and manages the
building leased by Argus. Hereford LLP was formed in 1996 to purchase the
building which was previously owned by Argus.
Subsequent Event. The Company has entered an agreement with an unrelated
party to sell Investors Guaranty. The Company will continue to assume the risks
associated with Investors Guaranty policies on a 70% quota share basis. The
Company intends to reinsure these risks on an assumption basis in the future.
Effects of Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128 "Earnings per Share" and
SFAS No. 129, "Disclosure of Information about Capital Structure". SFAS No. 128
specifies the computation, presentation and disclosure requirements for earnings
per share. SFAS No. 129 does not establish new disclosure requirements, rather
it codifies certain disclosure requirements contained in other statements
previously issued. These statements are effective for financial statement
periods ending after December 15, 1997. Adoption of these new accounting
standards did not have an impact on the consolidated financial statements of the
Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in financial statements. SFAS
No. 131 establishes new guidelines for public business enterprises to report
financial and descriptive information about their operating segments. These
statements are effective for financial statement periods beginning after
December 15, 1997.
In December 1997, the American Institute of Certified Public Accountants
("AICPA") approved Statement of Position ("SOP") 97-3, "Accounting by Insurance
and Other Enterprises for Insurance-Related Assessments." SOP 97-3 provides
guidance for determining when an entity should recognize a liability for
guaranty-fund and other insurance-related assessments and a related asset for
assessments which may be recovered through future premium tax offsets. The SOP
is effective for financial statements for fiscal years beginning after December
15, 1998 with early adoption encouraged. Management has not determined the
effects, if any, of adopting this SOP on the Company's consolidated financial
statements.
Year 2000
Many existing computer programs were designed and developed without regard
to the upcoming change in the century. If not corrected, many computer
applications could fail or create erroneous results by or at the year 2000. The
Company is dependent on computer systems and applications to conduct its
business. The Company's significant processing applications are maintained by an
outsider vendor. Management and vendor representatives have developed a
conversion plan to prepare the Company's systems for year 2000 compliance. The
cost of testing and conversion of system applications is not expected to be
material to the Company, because much of the conversion programming will be the
responsibility of the outside vendor. Management believes that planned
modifications to existing systems and conversions to new systems will be
complete before year 2000 and that year 2000 issues will not pose a significant
problem to the Company. The Company is initiating formal communications with its
outside business partners to determine the extent to which they will be year
2000 compliant. Where practicable, the Company will assess and attempt to
mitigate its risks with respect to such third parties. The Company is not able
to estimate the effect, if any, on its results of operations from the failure of
such parties to be year 2000 compliant.
Effects of Inflation and Interest Rate Changes
Management does not believe that inflation has had a significant effect on
its consolidated results of operations.
Management is aware that prevailing market interest rates may shift
significantly and has strategies in place to manage either an increase or
decrease in prevailing rates. In a rising interest rate environment, the
Company's average cost of funds would increase over time as it prices its new
and renewing interest-sensitive and investment products to maintain generally
competitive market rates. Management would seek to place new funds in
investments which were matched in duration to, and higher yielding than, its
liabilities. Management believes that liquidity to fund withdrawals would be
available through incoming cash flow, the sale of short-term or floating rate
instruments or reverse repurchase agreements on the Company's substantial
mortgage-backed securities portfolio, thereby avoiding the sale of fixed rate
assets in an unfavorable bond market.
In a declining rate environment, the Company's cost of funds would decrease
over time, reflecting lower interest crediting rates on its interest-sensitive
and investment products. Should increased liquidity be required for withdrawals,
management believes that a significant portion of its investments could be sold
without adverse consequences in light of the general strengthening which would
be expected in the bond market.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's audited consolidated financial statements for the three years
ended December 31, 1997 and the related report of independent accountants
thereon are set forth at pages F-2 to F-28 hereof and are incorporated herein by
reference. Reference is made to the Index to Financial Statements on page F-1
herein.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's Directors and Executive Officers are as follows:
<TABLE>
Name Age Position
<S> <C>
Michael A. Merriman 40 Chairman of the Board
Gary L. Muller 51 President, Chief Executive Officer and Director
Timothy S. Sotos 49 Director
Mark K. Fallon 43 Senior Vice President and Assistant Secretary-Investments
David F. Hill 43 Senior Vice President and Chief Marketing Officer
Gary E. Jenkins 40 Senior Vice President, Chief Financial Officer and Treasurer
Donna H. Kinnaird 46 Senior Vice President, Chief Operating Officer-Kansas City
Robert B. Thomas, Jr 51 Senior Vice President, Chief Operating Officer-Dallas
</TABLE>
Americo's current Board of Directors consists of three directorships. Each
director of Americo, except Timothy S. Sotos, was elected to such position in
1992 in connection with the Company's incorporation. Michael A. Merriman and
Gary L. Muller are also directors of FHC. The executive officers of Americo are
elected by the Board of Directors from time to time as it deems necessary or
advisable, and are subject to removal by the Board.
All executive decisions, including decisions concerning executive officer
compensation, are made by the Board of Directors. No member of the Board
receives any compensation, other than reimbursement for travel expenses, for
services as such.
Certain Information About Officers
Michael A. Merriman was elected Chairman of the Board, effective November
1, 1995, of Americo, FHC and several of its subsidiaries, including all of
Americo's insurance subsidiaries. Previously, Mr. Merriman served as a director
and officer of all these same entities.
Gary L. Muller is President and Chief Executive Officer and a director
of Americo. Mr. Muller is also a director and officer of FHC and of several of
its subsidiaries, including all of Americo's insurance subsidiaries.
Timothy S. Sotos was elected as a director of Americo on November 1, 1995.
He also serves as a director of all of the insurance subsidiaries. He is the
Chairman of the Board and Executive Vice President of Clinical Reference
Laboratory, which is 80% owned by the Merriman family. He is the brother-in-law
of Michael A. Merriman.
Mark K. Fallon became Senior Vice President and Assistant Secretary
Investments of Americo and all of the life subsidiaries on November 1, 1995.
Previously, he served as Vice President of Americo and all of the life
subsidiaries since 1993. He was the Director of Investments of American General
Corporation from July 1987 to April 1993.
David F. Hill became Senior Vice President and Chief Marketing Officer of
Americo and all of the life insurance subsidiaries on July 1, 1996. Previously,
he was Senior Vice President of ReliaStar Financial Corporation from September
1993 to March 1996. He served as President and Chief Executive Officer of Pierce
National Life from July 1992 to September 1993.
Gary E. Jenkins has served as Senior Vice President and Chief Financial
Officer of Americo since July 1994. He became Treasurer of Americo and the
insurance subsidiaries on November 1, 1995. From June 1993 to July 1994, Mr.
Jenkins provided financial consulting services to Aachen Holdings Inc. (former
shareholder of Academy Life Insurance Company). He served as Chief Financial
Officer of Academy Life Insurance Company for six years before it was acquired
by Providian Corporation in January 1993.
Donna H. Kinnaird is Senior Vice President and Chief Operating Officer -
Kansas City of Americo and has been Senior Vice President of its insurance
subsidiaries since August 1989. In 1994, she assumed the position of Chief
Operating Officer of the Kansas City-based insurance companies. She served as
Chief Financial Officer from 1989 to 1994.
Robert B. Thomas, Jr. became Senior Vice President and Chief Operating
Officer - Dallas of Americo, and certain of its insurance subsidiaries on
June 30, 1997. He served as Chairman, President and Chief Executive Officer
of United Fidelity Companies from February 1993 to February 1997.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth all compensation paid to (i) the Chief
Executive Officer of the Company and (ii) the other four most highly compensated
Executive Officers of the Company for the three years ended December 31, 1997.
<TABLE>
Summary Compensation Table
Name and
Principal Occupation Annual Compensation All Other
Year Salary Bonus Compensation (1)
<S> <C> <C> <C> <C>
Gary L. Muller 1997 $ 462,000 $ 350,000 $ 3,220
President, Chief Executive Officer and 1996 $ 462,000 $ 350,000 $ 3,203
Director 1995 $ 462,000 $ 350,000 $ 3,140
Michael A. Merriman 1997 $ 363,000 -- $ 3,220
Chairman of the Board 1996 $ 363,000 -- $ 3,203
1995 $ 363,000 -- $ 3,186
Donna H. Kinnaird 1997 $ 200,000 $ 175,000 $ 3,168
Senior Vice President and 1996 $ 190,000 $ 175,000 $ 3,203
Chief Operating Officer-Kansas City 1995 $ 190,000 $ 150,000 $ 3,186
Gary E. Jenkins 1997 $ 200,000 $ 175,000 $ 3,165
Senior Vice President, 1996 $ 175,000 $ 175,000 $ 3,203
Chief Financial Officer and Treasurer 1995 $ 175,000 $ 150,000 $ 186
David F. Hill 1997 $ 200,000 $ 175,000 $ 103,308
Senior Vice President and 1996 $ 100,000 $ 75,000 $ 31,000
Chief Marketing Officer 1995 -- -- --
- - ------------------------------------------------------
</TABLE>
(1) Includes amounts contributed by the Company for the benefit of the person
identified under the Company's Saving Plan (as hereinafter defined) and
Supplemental Accidental Death and Dismemberment coverage. Includes
relocation and tax reimbursement in 1996 and 1997 for David F. Hill.
Supplemental Accidental Death and Dismemberment coverage in the amount of
$500,000 is provided for all senior officers of Americo and its subsidiaries
that hold the following named positions: Vice President, Senior Vice President,
Executive Vice President, President, Chief Executive Officer and Chairman of the
Board. Currently, this policy covers approximately 35 employees of Americo and
its subsidiaries.
Executive officers hold no outstanding options to purchase the Company's
stock.
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company has 10,000 shares of Common Stock outstanding at March 25, 1998
all of which were beneficially owned by FHC, whose principal executive offices
are located at 300 West 11th Street, Kansas City, Missouri 64105 and whose phone
number is (816) 391-2000. The Company has no other outstanding shares of capital
stock.
The following table sets forth certain information with respect to
beneficial ownership by Directors and Executive Officers of Americo, named in
Item 11 "Summary Compensation Table" above, of FHC's Common Stock.
<TABLE>
Amount and Nature
of Beneficial Actual Percent
Title of Class Names of Beneficial Owners Ownership of Class
------------------ ---------------
<S> <C> <C> <C> <C>
Common Stock Michael Merriman 112,000 (1) 29.8%
Gary L. Muller 52,500 (2) 14.0%
Timothy S. Sotos 49,800 (3) 13.3%
All directors and executive officers as a group 214,300 57.1%
</TABLE>
- - -----------------------------
(1) Includes (i) 40,000 shares held in irrevocable trust of Elaine A.
Merriman for the benefit of Michael A. Merriman and Marybeth Merriman
Sotos (the wife of Timothy S. Sotos), of which trust Michael A. Merriman
is the sole Trustee with sole voting and investment power and (ii) 9,000
shares held as Custodian for Jack D. Merriman, II, over which shares
Michael A. Merriman has sole voting and investment power.
(2) During 1995, FHC paid Mr. Muller $234,944 for an option to acquire
17,301 of these shares at a per share price of $188.
(3) Includes (i) 40,500 shares owned by Marybeth Merriman Sotos and (ii)
9,300 shares held as Custodian for Maryelaine Sotos, Timothy J. Sotos and
James P. Sotos, over which shares Timothy S. Sotos has sole voting and
investment power.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Agreements with FHC
Americo or one of its subsidiaries have the following agreements with FHC
or its affiliates, none of which may be deemed the result of arm's length
negotiations between independent parties.
Advisory Agreement. The Company appointed FHC to act as investment advisor
on a non-exclusive basis to the Company and its wholly-owned insurance
subsidiaries pursuant to an advisory agreement between the Company and FHC
("Advisory Agreement"). Under the Advisory Agreement, FHC supervises and directs
the composition of the investment portfolios of the Company and its insurance
subsidiaries in accordance with their respective objectives and policies. For
its services under the Advisory Agreement, FHC is paid in advance a quarterly
fee based on the aggregate statutory book value of the investable assets of the
Company and its subsidiaries as of the end of the prior fiscal quarter. Under
this formula the fee paid for the year ended December 31, 1997 was $7.2 million.
FHC also is entitled to receive reimbursement for certain commissions, brokerage
and other expenses incurred by it in the performance of its duties. The Company
recovers amounts paid to FHC under the Advisory Agreement from the insurance
subsidiaries, subject to regulatory limitations. The Advisory Agreement provides
that FHC shall not be liable for any losses except for those resulting from
willful misfeasance, bad faith or gross negligence, or from reckless disregard
by FHC of its duties.
<PAGE>
Data Processing Agreement. Pursuant to a data processing services agreement
("Data Processing Agreement") between FHC and the Company, FHC provides the
Company and its insurance subsidiaries with record-keeping services for certain
life insurance and annuity products. In providing these services, FHC utilizes
contract personnel and computerized data processing systems. For its services,
FHC is paid a fee of $15.61 for each policy serviced per year, subject to
renegotiation and annual adjustments based on changes in the consumer price
index. This amount generally represents FHC's cost of providing such services
plus amortization of FHC's development costs. The aggregate fee paid for the
year ended December 31, 1997 under the Data Processing Agreement was $11.8
million. FHC also is entitled to reimbursement for its reasonable out-of-pocket
expenses incurred in performing the Data Processing Agreement. The Company is
also a party to a separate data processing services agreement with its
wholly-owned insurance subsidiaries wherein the subsidiaries agree to use such
services and to pay for them pursuant to a separate data processing services
agreement (the "Subsidiary Data Processing Agreement"). Under the Data
Processing Agreement, Americo agrees to indemnify FHC against liabilities
arising out of, among other matters, actions taken by FHC under the agreement in
good faith and due diligence. Americo's subsidiaries made similar
indemnification agreements with Americo under the Subsidiary Data Processing
Agreement.
Reimbursement of Expense Agreement. The Company and its subsidiaries have
entered into a cost sharing agreement with FHC respecting air transportation
expenses arising from the use of an airplane leased by FHC. Under this
agreement, each party pays the cost of any air transportation expenses which can
be identified as incurred for its sole benefit and expenses which cannot be so
identified are allocated based on utilization. Americo and its subsidiaries
incurred approximately $0.7 million of expense under this agreement for the year
ended December 31, 1997.
FHC Lease. The Company's subsidiary, United Fidelity, leases to FHC a
building in Kansas City which is occupied by FHC. Under the terms of the lease,
FHC pays $8,500 per month in rent and has an option to purchase the building for
$1.2 million, an amount equal to its statutory book value and which approximates
its current fair market value. The exercise price of the option will be revised
annually to the greater of fair market value or statutory carrying value.
Management believes that the rentals under the lease are comparable to market
rental values for comparable space and footage in the local market.
Other Transactions
In connection with the Joint Venture, referred to under "Marketing and
Distribution" contained in Item 1 herein, FHC and ASC each entered into separate
services agreements with FAL, pursuant to which FHC and ASC provide certain
administrative functions to FAL with respect to certain tax-qualified insurance
and annuity products ("403(b) Business"). For these services, FAL pays a fixed
fee (on a per policy basis) for all 403(b) Business existing at December 31,
1992 and a percentage fee (based on first year premiums) for all 403(b) Business
written or reinsured by FAL after December 31, 1992. Generally, these percentage
fees will increase by 4% annually. These service agreements each had an initial
term of three years commencing July 30, 1993, and renew annually thereafter
unless terminated by the parties. FAL paid $1,484,129 and $2,113,612 to FHC and
ASC, respectively, under these service agreements during 1997. Each of FHC and
ASC have agreed to indemnify FAL against all liabilities resulting from such
servicer's gross negligence, fraudulent conduct or bad faith in the performance
of its duties under the respective services agreement.
FHC and certain of its life insurance and non-life insurance
subsidiaries, including the Company, are parties to a tax sharing agreement
under which (i) tax savings and tax detriments inure to the benefit or
detriment, respectively, of the party contributing the expense or other item
that reduces or increases, respectively, the consolidated group's taxes from
what they would have been had each member filed separately, and (ii) losses
arising from filing the consolidated return and rights to average income by
carryforwards and carrybacks are equitably divided among the parties in the
same manner that they benefited from savings caused by filing a consolidated
return.
One of the Company's insurance subsidiaries leases office space (and
related parking facilities) in buildings owned by Broadway Square Partners, a
general partnership in which one of the partners is SCOL, Inc. ("SCOL"), a
Missouri corporation, owned by members of the Merriman family. The aggregate
amount paid (including rentals and expense reimbursement) under the lease to
Broadway Square Partners in 1997 was approximately $899,000. The terms of the
lease are as favorable to the Company's subsidiary as those offered other
unaffiliated tenants of the building.
Subsidiaries of the Company paid an aggregate of approximately $312,000 in
1997 to Clinical Reference Laboratory, Inc., a Kansas corporation ("Clinical
Laboratory"), which is 80% owned by the Merriman family and of which Timothy S.
Sotos is Chairman of the Board. The amounts paid were for testing services
performed for the Company's subsidiaries and were competitive with rates charged
by Clinical Laboratory to similarly situated unaffiliated insurance companies
for similar services.
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) Financial Statements and Financial Statement Schedules:
Reference is made to the indexes set forth on pages F-1 and S-1 of this
report.
Financial statements of the Company's 50% owned subsidiaries have been
omitted because the Company's proportionate share of the income from continuing
operations before income taxes of such subsidiaries is less than 20% of
consolidated income from continuing operations before income taxes, and the
Company's investment in and advances to such subsidiaries is less than 20% of
consolidated total assets of the Company.
(b) Exhibits:
- - -------------------------------------------------------------------------
- - -------------------------------------------------------------------------
- - -------------------------------------------------------------------------
<TABLE>
<S> <C>
2.1(a) Stock Purchase Agreement dated March 3, 1995
by and among Victory Financial Group, Inc.,
its wholly-owned subsidiary, Kansas Life
Insurance Company and the Registrant
(incorporated by reference from Exhibit 2.1 to
Registrant's Form 10-Q (File No. 33-64820) for
the quarter ended March 31, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.1(b) Letter Agreement dated July 10, 1995 among Registrant and Victory Financial
Group, Inc. respecting certain provisions of the Stock Purchase Agreement
(incorporated by reference from Exhibit 2.1(b) to Registrant's Form 8-K report
(File No. 33-64820) dated as of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.1(c) Pledge and Escrow Agreement dated July 10, 1995 among the Registrant, Victory
Financial Group, Inc. and NationsBank of Texas, N.A. (incorporated by reference
from Exhibit 2.1(c) to Registrant's Form 8-K report (File No. 33-64820) dated as
of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.1(d) Indemnity Agreement Respecting Mortgages (and other matters) dated July 10, 1995
between Victory Financial Group, Inc. and Registrant (incorporated by reference
from Exhibit 2.1(d) to Registrant's Form 8-K report (File No. 33-64820) dated as
of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.1(e) Letter Agreement dated as of July 7, 1995
among Registrant, The Victory Life Insurance
Company and Victory Financial Group, Inc.
regarding estimated federal income tax
deposits (incorporated by reference from
Exhibit 2.1(e) to Registrant's Form 8-K report
(File No. 33-64820) dated as of July 10,
1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.2 Reinsurance, Transfer and Assumption Agreement
dated as of July 5, 1995, between Kansas Life
Insurance Company and National Farmers Union
Life Insurance Company (incorporated by
reference from Exhibit 2.2 to Registrant's
Form 8-K report (File No. 33-64820) dated as
of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(a)(1) Stock Purchase Agreement dated January 21, 1997 between Great Southern Life
Insurance Company and Farmers Group, Inc. (incorporated by reference from
Exhibit 2.3(a) to Registrant's Form 10-K (File No. 33-64820) for the year ended
December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(a)(2) Amendment No. 1 dated April 15, 1997 to Stock Purchase Agreement by and between
Farmers Group, Inc. and Great Southern Life Insurance Company (incorporated by
reference from Exhibit 2.1(b) to Registrant's Form 10-Q (File No. 33-64820) for
the quarter ended March 31, 1997).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(b) Automatic Coinsurance Reassurance Agreement entered into between The Ohio State
Life Insurance Company and Employers Reassurance Corporation (incorporated by
reference from Exhibit 2.3(b) to Registrant's Form 10-K (File No. 33-64820) for
the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(c) Automatic Coinsurance Reassurance Agreement
entered into between Investors Guaranty Life
Insurance Company and Employers Reassurance
Corporation (incorporated by reference from
Exhibit 2.3(c) to Registrant's Form 10-K (File
No. 33-64820) for the year ended December 31,
1996).
- - ---------------- ----------------
- - ---------------- ----------------
2.3(d) Modified Coinsurance Retrocession Agreement
(Ohio State Life Business) entered into
between Great Southern Life Insurance Company
and Employers Reassurance Corporation
(incorporated by reference from Exhibit 2.3(d)
to Registrant's Form 10-K (File No. 33-64820)
for the year ended December 31, 1996).
- - ---------------- ----------------
- - ---------------- ----------------
2.3(e) Modified Coinsurance Retrocession Agreement
(Investors Guaranty Life Business) to be
entered into between Great Southern Life
Insurance Company and Employers Reassurance
Corporation (incorporated by reference from
Exhibit 2.3(e) to Registrant's Form 10-K (File
No. 33-64820) for the year ended December 31,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(f) Escrow Agreement (Ohio State Life/Investors
Guaranty Life Business) entered into between
Great Southern Life Insurance Company and
Employers Reinsurance Corporation
(incorporated by reference from Exhibit 2.3(f)
to Registrant's Form 10-K (File No. 33-64820)
for the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(g) Investment Management Agreement (Ohio State Life Business) entered into between
Americo Life, Inc. and Employers Reassurance Corporation (incorporated by
reference from Exhibit 2.3(g) to Registrant's Form 10-K (File No. 33-64820) for
the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
2.3(h) Investment Management Agreement (Investors Guaranty Life Business) entered into
between Americo Life, Inc. and Employers Reassurance Corporation (incorporated
by reference from Exhibit 2.3(h) to Registrant's Form 10-K (File No. 33-64820)
for the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
3.1 Restated Articles of Incorporation, as amended, of the Registrant (incorporated
by reference from Exhibit 3.1 to Registrant's Form S-4 (File No. 33-64820) filed
June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
3.2 Bylaws, as amended, of the Registrant
(incorporated by reference from Exhibit 3.2 to
Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.1(a) Conformed copy of Indenture, dated as of May 25, 1993, between Registrant and
Commerce Bank of Kansas City, N.A., as trustee (incorporated by reference from
Exhibit 4.1 to Registrant's Form S-4 (File No. 33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.1(b) Form of 9 1/4% Senior Subordinated Note Due 2005 (included in the Indenture
filed as Exhibit 4.1(a) hereto) (incorporated by reference from Exhibit 4.2 to
Registrant's Form S-4 (File No. 33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.2(a) Credit Agreement dated as of July 6, 1995
between Registrant and The Chase Manhattan
Bank as administrative agent (incorporated by
reference from Exhibit 4.1(a) to Registrant's
Form 8-K (File No. 33-64820) dated as of July
10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.2(b) Security Agreement dated as of July 5, 1995 between Registrant and The Chase
Manhattan Bank as administrative agent (incorporated by reference from Exhibit
4.1(b) to Registrant's Form 8-K report (File
No. 33-64820) dated as of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.2(c)(1) Amended and restated credit agreement dated as of December 27, 1996 between
Registrant and The Chase Manhattan Bank as administrative agent (incorporated by
reference from Exhibit 4.2(c) to Registrant's Form 10-K (File No. 33-64820) for
the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.2(c)(2) Amendment No. 1 to the amended and restated
credit agreement dated as of February 27,
1997, between the Registrant and The Chase
Manhattan Bank as administrative agent
(incorporated by reference from Exhibit 4.2(d)
to Registrant's Form 10-K (File No. 33-64820)
for the year ended December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.3(a) Form of Registrant's $5,000,000 5 1/2% Senior
Subordinated Set-off Note due 2015
(incorporated by reference from Exhibit 4.1(c)
to Registrant's Form 8-K report (File No.
33-64820) dated as of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.3(b) Form of Registrant's $6,000,000, 6 1/2% Senior
Subordinated Note (No. VNO-1) due 2010. (Two
identical notes (No. VNO-1 and No. VNO-2) were
originally issued on July 10, 1995. Pursuant
to instruction 2 to Item 601 of Regulation
S-K, only VNO-1 was filed.) (Incorporated by
reference from Exhibit 4.1(d) to Registrant's
Form 8-K report (File No. 33-64820) dated as
of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.4 Amended and Restated Surplus Debenture No.
004, dated December 31, 1993, as amended, in
the amount of $57,760,000 made by United
Fidelity Life Insurance Company (successor
by merger to FHC Life Insurance
Company) to the Registrant (incorporated by
reference from Exhibit 4.3 to Registrant's
Form 10-Q (File No. 33-64820) for the quarter
ended March 31, 1994).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.5 Amended and Restated Surplus Debenture No. 005, dated December 31, 1993, in the
amount of $26,000,000 made by United Fidelity Life Insurance Company (successor
by merger to FHC Life Insurance Company) to the Registrant (incorporated by
reference from Exhibit 4.4 to Registrant's Form 10-Q (File No. 33-64820) for the
quarter ended March 31, 1994).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.6 Amended and Restated Surplus Debenture No. 006, dated December 1, 1995, as
amended, in the amount of $16,125,753 made by United Fidelity Life Insurance
Company to Registrant (incorporated by reference from Exhibit 4.6 to
Registrant's Form 10-K (File No. 33-64820) for the year ended December 31, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.7 Surplus Debenture No. 007 dated July 10, 1995, in the amount of $38,000,000 made
by United Fidelity Life Insurance Company to the Registrant (incorporated by
reference from Exhibit 4.3 to Registrant's Form 8-K report (File No. 33-64820)
dated as of July 10, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
4.8 In accordance with Item 601(b)(4)(iii)(A) of
Regulation S-K, certain instruments respecting
long term debt of the Registrant and its
subsidiaries have been omitted but will be
furnished to the Commission upon request.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.1 Senior Officer Accidental Death and Dismemberment Policy (incorporated by
reference from Exhibit 10.1 to Registrant's Form S-4 (File No. 33-64820) filed
June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.2(a) Tax Sharing Agreement dated as of December 1, 1994, among the Registrant,
Financial Holding Corporation, Cidat Aviation Incorporated, Assured Leasing
Corporation, Landmark Mortgage Company, First Consulting & Administration, Inc.,
Hanover Financial Corporation, United Fidelity Life Insurance Company, PFS
Holding Company, Premium Finance Specialists, Inc., Premium Financing
Specialists of California and PFS Financing Corporation (incorporated by
reference from Exhibit 10.2 to Registrant's Form 10-K (File No. 33-64820) for
the year ended December 31, 1994).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.2(b) Amendment, effective as of January 1, 1996, to
Tax Sharing Agreement, adding the Victory Life
Insurance Company as a party.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.3(a) Reimbursement of Expense Agreement dated
January 1, 1993, among the Registrant,
Financial Holding Corporation, United Fidelity
Life Insurance Company, The College Life
Insurance Company of America, Loyalty Life
Insurance Company, National Farmers Union Life
Insurance Company, Great Southern Life
Insurance Company, PFS Holding Company and
Premium Financing Specialists, Inc.
(incorporated by reference from Exhibit 10.5
to Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.3(b) Amendment dated August 29, 1997, to
Reimbursement of Expense Agreement removing
Loyalty Life Insurance Company as a party.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.3(c) Amendment dated October 1, 1997, to Reimbursement of Expense Agreement adding
Americo Services, Inc. and The Ohio State Life Insurance Company as parties and
removing Argus Health Systems, Inc. as a party.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.4(a) Cost Sharing Agreement dated as of January 1,
1993, among the Registrant, United Fidelity
Life Insurance Company, The College Life
Insurance Company of America, Premium
Financing Specialists, Inc., PFS Holding
Company, Financial Assurance Marketing
Corporation, Great Southern Life Insurance
Company, Loyalty Life Insurance Company and
National Farmers Union Life Insurance Company
(incorporated by reference from Exhibit 10.8
to Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.4(b) Amendment dated August 29, 1997, to Cost
Sharing Agreement, removing Loyalty Life
Insurance Company as a party.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.4(c) Amendment dated October 1, 1997, to Cost Sharing Agreement adding Americo
Services, Inc. and The Ohio State Life Insurance Company as parties and removing
PFS Holding Company and Premium Financing Specialists, Inc. as parties.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.5 Data Processing Services Agreement dated as of January 1, 1993, between the
Registrant and Financial Holding Corporation (incorporated by reference from
Exhibit 10.9 to Registrant's Form S-4 (File No. 33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.6(a) Subsidiary Data Processing Services Agreement
dated as of January 1, 1993, among the
Registrant, FHC Life Insurance Company, United
Fidelity Life Insurance Company, Great
Southern Life Insurance Company, The College
Life Insurance Company of America, Loyalty
Life Insurance Company and National Farmers
Union Life Insurance Company (incorporated by
reference from Exhibit 10.10 to Registrant's
Form S-4 (File No. 33-64820) filed June 22,
1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.6(b) Amendment dated August 29, 1997, to Subsidiary
Data Processing Services Agreement removing
Loyalty Life as a party.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.6(c) Amendment dated October 1, 1997, to Subsidiary Data Processing Services
Agreement adding Americo Services, Inc. and The Ohio State Life Insurance
Company as parties.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.7(a) Advisory Agreement dated as of January 1, 1993, between the Registrant and
Financial Holding Corporation (incorporated by reference from Exhibit 10.11 to
Registrant's Form S-4 (File No. 33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.7(b) First Amendment to Advisory Agreement dated September 17, 1993 by and between
the Registrant and Financial Holding Corporation (incorporated by reference from
Exhibit 10.8(b) to Registrant's Form 10-Q (File No. 33-64820) for the quarter
ended March 31, 1994).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.8 Office Building Lease dated as of January 1, 1993, between Financial Holding
Corporation and United Fidelity Life Insurance Company (incorporated by
reference from Exhibit 10.12 to Registrant's Form S-4 (File No. 33-64820) filed
June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.9 Lease Agreement dated February 24, 1988,
between Broadway Square partners and United
Fidelity Life Insurance Company (incorporated
by reference from Exhibit 10.13 to
Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.10 Lease dated November 1, 1990, between United Fidelity Life Insurance Company and
First Consulting & Administration, Inc., a subsidiary of Financial Holding
Corporation (included as Exhibit A to Exhibit 10.11) (incorporated by reference
from Exhibit 10.14 to Registrant's Form S-4 (File No. 33-64820) filed June 22,
1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.11 Assignment of Lease dated as of April 1, 1993 between United Fidelity Life
Insurance Company and Finance Holding Corporation respecting the First
Consulting & Administration Lease described in Exhibit 10.10 (incorporated by
reference from Exhibit 10.15 to Registrant's Form S-4 (File No. 33-64820) filed
June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*10.12 Office Lease Agreement dated February 19, 1997, between Metropolitan Life
Insurance Company and Great Southern Life Insurance.
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.13(a) Stock Purchase Agreement dated February 26,
1993, among Financial Holding Corporation,
United Fidelity Life Insurance Company,
Financial Assurance Incorporated and Robert L.
Myer (incorporated by reference from Exhibit
10.17 to Registrant's Form S-4 (File No.
33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.13(b) First Amendment to Stock Purchase Agreement dated June 24, 1993, among Financial
Holding Corporation, United Fidelity Life Insurance Company, Financial Assurance
Incorporated and Robert L. Myer (incorporated by reference from Exhibit 10.17(b)
to Amendment No. 1. to Registrant's Form S-4 (File No. 33-64820) filed August
30, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.14(a) Stock Purchase Agreement dated February 26, 1993, among Financial Holding
Corporation, Robert L. Myer and Annuity Service Corp. (incorporated by reference
from Exhibit 10.18 to Registrant's Form S-4 (File No. 33-64820) filed June 22,
1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.14(b) First Amendment to Stock Purchase Agreement dated June 24, 1993, among Annuity
Service Corp., Financial Holding Corporation, United Fidelity Life Insurance
Company and Robert L. Myer (incorporated by reference from Exhibit 10.18(b) to
Amendment No. 1. to Registrant's Form S-4 (File No. 33-64820) filed August 30,
1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.15 Subscription Agreement dated February 26,
1993, among Financial Holding Corporation,
Robert L. Myer, Annuity Service Corp. and
United Fidelity Life Insurance Company
(incorporated by reference from Exhibit 10.19
to Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.16 Shareholders' Agreement dated July 30, 1993,
among College Insurance Group, Inc., Robert L.
Myer, United Fidelity Life Insurance Company
and Financial Holding Corporation
(incorporated by reference from Exhibit 10.20
to Registrant's Form S-4 (File No. 33-64820)
filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.17(a) Services Agreement dated July 30, 1993,
between Financial Assurance Life Insurance
Company (formerly Financial Assurance
Incorporated) and Financial Holding
Corporation (incorporated by reference from
Exhibit 10.21 to Registrant's Form S-4 (File
No. 33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.17(b) Services Agreement dated July 30, 1993, between Financial Assurance Life
Insurance Company (formerly Financial Assurance Incorporated) and Annuity
Service Corp. (incorporated by reference from Exhibit 10.21(b) to Amendment No.
1. to Registrant's Form S-4 (File No. 33-64820) filed August 30, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.18 Stock Transfer Restriction and Option Agreement dated June 30, 1989 among DST
Systems, Inc., Argus Health Systems, Inc. and Financial Holding Corporation
(incorporated by reference from Exhibit 10.22 to Registrant's Form S-4 (File No.
33-64820) filed June 22, 1993).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.19 Supplemental Tax Sharing Agreements dated
December 31, 1993 among Financial Holding
Corporation, the Registrant and United
Fidelity Life Insurance Company (incorporated
by reference from Exhibit 10.20 to
Registrant's Form 10-Q (File No. 33-64820) for
the Quarter Ended March 31, 1994).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(a)(1) Master Agreement dated as of July 31, 1995,
among The Ohio Life Insurance Company, The
Ohio Casualty Insurance Company, the
Registrant and Great Southern Life Insurance
Company (incorporated by reference from
Exhibit 10.21 to Registrant's Form 10-Q (File
No. 33-64820) for the quarter ended June 30,
1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(a)(2) First Amendment to Master Agreement between The Ohio Life Insurance Company, The
Ohio Casualty Insurance Company and Great Southern Life Insurance Company dated
as of October 2, 1995 (incorporated by reference from Exhibit 10.21(b) to
Registrant's Form 10-Q (File No. 33-64820) for the quarter ended September 30,
1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ----------------- --------------- ----------------------------------------------------------------------------------
*10.20(a)(3) Second Amendment to Master Agreement between The Ohio Life Insurance Company,
The Ohio Casualty Insurance Company and Great Southern Life Insurance Company
dated as of November 17, 1997.
- - ----------------- --------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(b) Assignment and Assumption Agreement between The Ohio Life Insurance Company and
Great Southern Life Insurance Company dated as of October 2, 1995 (incorporated
by reference from Exhibit 10.21(c) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(c) Escrow Agreement between Commerce Bank, N.A. of Kansas City, Missouri, Employers
Reassurance Corporation of Overland Park, Kansas and Great Southern Life
Insurance Company dated as of October 2, 1995 (incorporated by reference from
Exhibit 10.21(e) to Registrant's Form 10-Q (File No. 33-64820) for the quarter
ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(d) Escrow Agreement between Commerce Bank, N.A. of Kansas City, Missouri, Employers
Reassurance Corporation of Overland Park, Kansas and The Ohio Casualty Insurance
Company dated as of October 2, 1995
(incorporated by reference from Exhibit
10.21(f) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended September 30,
1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(e) Investment Management Agreement between the Registrant and Employers Reassurance
Corporation of Overland Park, Kansas dated as of October 2, 1995 (incorporated
by reference from Exhibit 10.21(g) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(f) Assumption Reinsurance Agreement between The Ohio Life Insurance Company and
Great Southern Life Insurance Company dated as of October 2, 1995 (incorporated
by reference from Exhibit 10.21(i) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(g)(1) Reinsurance Agreement between Employers Reassurance Company of Overland Park,
Kansas and The Ohio Life Insurance Company, effective January 1, 1995 (transfer
date October 2, 1995) and amendments thereto (incorporated by reference from
Exhibit 10.21(k) to Registrant's Form 10-Q (File No. 33-64820) for the quarter
ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ----------------- --------------- ----------------------------------------------------------------------------------
*10.20(g)(2) Amendment No. 4 to the Reinsurance Agreement between Employers Reassurance
Company of Overland Park, Kansas and The Ohio Life Insurance Company effective
April 1, 1996.
- - ----------------- --------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(h) Retrocession Agreement between Great Southern Life Insurance Company and
Employers Reassurance Company of Overland Park, Kansas, effective January 1,
1995 and amendments thereto (incorporated by reference from Exhibit 10.21(l) to
Registrant's Form 10-Q (File No. 33-64820) for the quarter ended September 30,
1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.20(i)(1) Services Agreement between the Registrant, The Ohio Life Insurance Company and
The Ohio Casualty Insurance Company dated as of October 2, 1995 (incorporated by
reference from Exhibit 10.21(m) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended September 30, 1995).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ----------------- --------------- ----------------------------------------------------------------------------------
*10.20(i)(2) First Amendment to Services Agreement between the Registrant, The Ohio Life
Insurance Company and The Ohio Casualty Insurance Company dated as of March 27,
1997.
- - ----------------- --------------- ----------------------------------------------------------------------------------
- - ----------------- --------------- ----------------------------------------------------------------------------------
*10.20(i)(3) Amendment to Services Agreement between the
Registrant, The Ohio Life Insurance Company
and The Ohio Casualty Insurance Company dated
as of November 17, 1997.
- - ----------------- --------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(a) Master Agreement dated February 26, 1996 among
Fremont Life Insurance Company, Fremont
General Corp., the Registrant and Great
Southern Life Insurance Company (incorporated
by reference from Exhibit 10 to Registrant's
Form 10-Q (File No. 33-64820) for the quarter
ended March 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(b) First Amendment to Master Agreement dated as
of July 1, 1996, among Fremont Life Insurance
Company, Fremont General Corp., Registrant and
Great Southern Life Insurance Company
(incorporated by reference from Exhibit
10.1(b) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(c) Letter Agreement dated as of July 1, 1996,
among Fremont General Corp., Fremont Life
Insurance Company, Registrant and Great
Southern Life Insurance Company (incorporated
by reference from Exhibit 10.1(c) to
Registrant's Form 10-Q (File No. 33-64820) for
the quarter ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(d) Services Agreement dated as of July 1, 1996,
between Registrant and Fremont Life Insurance
Company (incorporated by reference from
Exhibit 10.1(d) to Registrant's Form 10-Q
(File No. 33-64820) for the quarter ended June
30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(e) Assumption Reinsurance and Coinsurance
Agreement (Universal Life) dated as of July 1,
1996, between Fremont Life Insurance Company
and Great Southern Life Insurance Company
(incorporated by reference from Exhibit
10.1(e) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(f) Assumption Reinsurance and Coinsurance
Agreement (Annuities) dated as of July 1,
1996, between Fremont Life Insurance Company
and Great Southern Life Insurance Company
(incorporated by reference from Exhibit
10.1(f) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(g) Assignment and Assumption Agreement dated as of July 1, 1996, between Fremont
Life Insurance Company and Great Southern Life Insurance Company (incorporated
by reference from Exhibit 10.1(g) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(h) Automatic Coinsurance Universal Life
Reinsurance Agreement dated as of December 31,
1995, between Fremont Life Insurance Company
and Employers Reassurance Corporation
(incorporated by reference from Exhibit
10.1(h) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(i) Amendment No. 1 to the Automatic Coinsurance Universal Life Reinsurance
Agreement dated as of December 31, 1995, between Employers Reassurance
Corporation and Fremont Life Insurance Company (incorporated by reference from
Exhibit 10.1(i) to Registrant's Form 10-Q (File No. 33-64820) for the quarter
ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(j) Automatic Coinsurance Annuity Reinsurance
Agreement dated as of January 1, 1996, between
Employers Reassurance Corporation and Fremont
Life Insurance Company (incorporated by
reference from Exhibit 10.1(j) to Registrant's
Form 10-Q (File No. 33-64820) for the quarter
ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(k) Amendment No. 1 to the Automatic Coinsurance
Annuity Reinsurance Agreement dated as of
January 1, 1996, between Employers Reassurance
Corporation and Fremont Life Insurance Company
(incorporated by reference from Exhibit
10.1(k) to Registrant's Form 10-Q (File No.
33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
<PAGE>
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(l) Escrow Agreement dated as of July 1, 1996, among Commerce Bank, Employers
Reassurance Corporation and Great Southern Life Insurance Company (incorporated
by reference from Exhibit 10.1(l) to Registrant's Form 10-Q (File No. 33-64820)
for the quarter ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(m) Modified Coinsurance Annuity Retrocession
Agreement dated as of January 1, 1996, between
Employers Reassurance Corporation and Great
Southern Life Insurance Company (incorporated
by reference from Exhibit 10.1(m) to
Registrant's Form 10-Q (File No. 33-64820) for
the quarter ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(n) Modified Coinsurance Universal Life and Annuity Retrocession Agreement dated as
of December 31, 1995, between Employers Reassurance Corporation and Great
Southern Life Insurance Company (incorporated by reference from Exhibit 10.1(n)
to Registrant's Form 10-Q (File No. 33-64820) for the quarter ended June 30,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.21(o) Amendment No. 1 to the Investment Management Agreement dated as of December 31,
1995, between Registrant and Employers Reassurance Corporation (incorporated by
reference from Exhibit 10.1(o) to Registrant's Form 10-Q (File No. 33-64820) for
the quarter ended June 30, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.22(a) Agreement to Redeem Partnership Interest among Great Southern Life Insurance
Company, GSSW Limited Partnership, BGFRTS, L.C., and Southwestern Life Insurance
Company dated December 30, 1996 (incorporated by reference from Exhibit 10.22(a)
to Registrant's Form 10-K (File No. 33-64820) for the year ended December 31,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.22(b) Agreement Regarding Purchase, Sale, and
Assignment of Membership Interest among Great
Southern Life Insurance Company, Southwestern
Financial Services Corporation, and
Southwestern Life Insurance Company dated
December 30, 1996 (incorporated by reference
from Exhibit 10.22(b) to Registrant's Form
10-K (File No. 33-64820) for the year ended
December 31, 1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
10.22(c) Agreement Regarding Purchase and Sale of
General Partner Interests between Americo
Services, Inc. and GSSW -- REO Ownership
Corporation dated December 30, 1996
(incorporated by reference from Exhibit
10.22(c) to Registrant's Form 10-K (File No.
33-64820) for the year ended December 31,
1996).
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*21. Subsidiaries of the Registrant
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ---------------- ---------------- ----------------------------------------------------------------------------------
*27. Financial Data Schedule
- - ---------------- ---------------- ----------------------------------------------------------------------------------
- - ----------------------------
</TABLE>
(c) Reports on Form 8-K.
There were no reports on Form 8-K filed for the three months ended
December 31, 1997.
<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 Kansas
City and the State of Missouri, on the 31st day of March, 1998.
AMERICO LIFE, INC.
By: /s/ Gary L. Muller
-----------------------------------------------------
Name: Gary L. Muller
Title: President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the registrant and
in the capacities and on the dates indicated: <TABLE>
Title Date
<S> <C> <C>
/s/ Michael A. Merriman Chairman of the Board of March 31, 1998
- - ----------------------------------------------------- Directors
Michael A. Merriman
/s/ Gary L. Muller President, Chief Executive March 31, 1998
- - ----------------------------------------------------- Officer and Director
Gary L. Muller
/s/ Gary E. Jenkins Senior Vice President, Chief March 31, 1998
- - ----------------------------------------------------- Financial Officer and Treasurer
Gary E.Jenkins (Principal Financial Officer and
Principal Accounting Officer)
</TABLE>
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Page
Audited Financial Statements for the Three Years Ended December 31, 1997:
Report of Independent Accountants F-2
Consolidated Balance Sheet at December 31, 1997 and 1996 F-3
Consolidated Statement of Income for the Years Ended December 31, 1997, 1996 and 1995 F-4
Consolidated Statement of Stockholder's Equity for the Years Ended December 31, 1997, 1996 and 1995 F-5
Consolidated Statement of Cash Flows for the Years Ended December 31, 1997, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-8
</TABLE>
<PAGE>
Report of Independent Accountants
To the Board of Directors and
Stockholder of Americo Life, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of income, of stockholder's equity and of cash flows
present fairly, in all materials respects, the financial position of Americo
Life, Inc. and its subsidiaries at December 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 1997, in conformity with generally accepted accounting
principles. 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 of these statements in
accordance with generally accepted auditing standards which require that we plan
an 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, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for the opinion expressed
above.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 27, 1998
<PAGE>
Americo Life, Inc. and Subsidiaries
Consolidated Balance Sheet
(Dollars in thousands)
December 31, 1997 and 1996
<TABLE>
1997 1996
---- ----
Assets
<S> <C> <C>
Investments:
Fixed Maturities:
Held to maturity, at amortized cost (market: $873,935 and $847,832) $ 851,823 $ 857,451
Available for sale, at market (amortized cost: $735,955 and $671,792) 761,084 670,274
Equity securities, at market (cost: $50,837 and $33,341) 78,949 48,262
Investment in equity subsidiaries 21,670 18,078
Mortgage loans on real estate, net 165,630 184,326
Investment real estate, net 27,630 22,417
Policy loans 200,137 204,607
Other invested assets 18,890 13,437
----------- -----------
Total investments 2,125,813 2,018,852
Cash and cash equivalents 36,859 96,069
Accrued investment income 27,620 25,287
Amounts receivable from reinsurers 1,429,679 314,023
Other receivables 23,875 13,969
Deferred policy acquisition costs 64,622 72,438
Cost of business acquired 300,180 200,710
Other assets 29,370 28,235
------------ ------------
Total assets $4,038,018 $2,769,583
========== ==========
Liabilities and Stockholder's Equity
Policyholder account balances $2,486,436 $1,466,959
Reserves for future policy benefits 881,583 681,545
Unearned policy revenues 12,845 32,128
Policy and contract claims 36,570 30,959
Other policyholder funds 75,960 81,442
Notes payable 132,884 133,312
Amounts payable to reinsurers 12,200 6,221
Federal income taxes payable 164 --
Deferred income taxes 58,126 43,195
Due to broker 31,836 50,013
Amounts due to affiliates 3,137 2,168
Other liabilities 59,415 34,619
----------- -----------
Total liabilities 3,791,156 2,562,561
Stockholder's equity:
Common stock ($1 par value, 30,000 shares authorized, 10,000 shares issued
and outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 56,973 37,189
Retained earnings 186,134 166,078
----------- -----------
Total stockholder's equity 246,862 207,022
----------- -----------
Commitments and contingencies
Total liabilities and stockholder's equity $4,038,018 $2,769,583
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Americo Life, Inc. and Subsidiaries
Consolidated Statement of Income
(Dollars in thousands, except per share amounts)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income
Premiums and policy revenues $203,729 $165,602 $140,130
Net investment income 219,267 186,725 152,047
Net realized investment gains (losses) 2,950 (120) (282)
Gain on disposition of partnership interest -- 15,825 --
Other income 12,331 3,567 2,168
----------- ------------ ------------
Total income 438,277 371,599 294,063
---------- ---------- ----------
Benefits and expenses
Policyholder benefits:
Death benefits 116,196 91,996 73,346
Interest credited on universal life and annuity products 109,392 84,495 59,794
Other policyholder benefits 55,790 57,088 41,828
Change in reserves for future policy benefits (18,438) (14,920) (5,806)
Commissions 11,230 13,473 9,662
Amortization expense 43,694 29,714 26,666
Interest expense 12,089 12,263 10,593
Other operating expenses 77,038 56,703 47,124
----------- ----------- -----------
Total benefits and expenses 406,991 330,812 263,207
---------- ---------- ----------
Income before provision for income taxes 31,286 40,787 30,856
Provision for income taxes 9,230 13,513 11,126
------------ ---------- -----------
Net income $ 22,056 $ 27,274 $ 19,730
========== ========== ==========
Net income per common share $2,205.60 $2,727.40 $1,973.00
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Americo Life, Inc. and Subsidiaries
Consolidated Statement of Stockholder's Equity
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Common stock
Balance at beginning and end of year $ 10 $ 10 $ 10
------------ ----------- -----------
Additional paid-in capital
Balance at beginning and end of year 3,745 3,745 3,745
----------- ----------- -----------
Net unrealized investment gains
Balance at beginning of year 37,189 46,204 23,167
Change during year 19,784 (9,015) 23,037
----------- ------------ -----------
Balance at end of year 56,973 37,189 46,204
----------- ------------ -----------
Retained earnings
Balance at beginning of year 166,078 140,804 123,074
Net income 22,056 27,274 19,730
Dividends (2,000) (2,000) (2,000)
----------- ----------- -----------
Balance at end of year 186,134 166,078 140,804
---------- --------- ----------
Total stockholder's equity $ 246,862 $ 207,022 $ 190,763
========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Americo Life, Inc. and Subsidiaries
Consolidated Statement of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 22,056 $ 27,274 $ 19,730
---------- ---------- ------------
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 47,305 30,103 28,850
Deferred policy acquisition costs (34,220) (19,337) (18,565)
Undistributed earnings of equity subsidiaries (3,622) (5,458) (10,103)
Distributed earnings of equity subsidiaries -- 14,000 --
Amortization of unrealized investment gains (6,973) (6,059) (6,774)
(Increase) decrease in assets net of effects from business acquisitions:
Accrued investment income (797) (1,398) (180)
Other invested assets -- (1,596) 78
Amounts receivable from reinsurers (162,334) (54,942) (28,852)
Amount received from reinsurance transaction -- -- 20,854
Other receivables (9,824) (2,527) (1,417)
Other assets, net of amortization 10,462 (2,274) (2,274)
Increase (decrease) in liabilities net of effects from business acquisitions:
Reserves for future policy benefits and unearned policy revenues 371 (7,489) (11,524)
Policyholder account balances 72,899 10,573 (11,106)
Policy and contract claims (2,258) 7,654 (5,460)
Other policyholder funds (5,482) (11,265) (1,091)
Amounts payable to reinsurers (2,053) (6,734) 2,039
Federal income taxes payable 164 -- (4,330)
Provision for deferred income taxes 4,281 5,576 (3,546)
Other liabilities 7,207 (5,775) 314
Amounts due to/due from affiliates (4,100) 10,739 (8,928)
Net realized (gains) losses on investments (2,950) 120 282
Gain on disposition of partnership interest -- (15,825) --
Gain on sale of subsidiary (4,848) -- --
Amortization on bonds and mortgage loans 1,722 2,244 649
Other changes (4,568) (4,470) (2,065)
----------- ----------- -----------
Total adjustments (99,618) (64,140) (63,149)
---------- ---------- ----------
Net cash used by operating activities (77,562) (36,866) (43,419)
---------- ---------- ----------
(Continued)
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Americo Life, Inc. and Subsidiaries
Consolidated Statement of Cash Flows (Continued)
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from investing activities
Purchases of fixed maturity investments $ (421,408) $ (304,743) $ (463,723)
Purchases of equity securities (67,815) (24,072) --
Purchases of other investments (21,944) (6) (38,760)
Mortgage loans originated (24,777) (1,323) (25,730)
Maturities or redemptions of fixed maturity investments 89,206 45,791 135,402
Sales of fixed maturity investments:
Held to maturity -- -- 5,915
Available for sale 380,251 190,368 233,425
Sales of equity securities 173,455 -- --
Sales of other investments 13,257 19,738 17,826
Sale of subsidiary, net of cash sold 10,911 -- --
Redemption of partnership interest -- 22,440 --
Payment for subsidiary acquired, net of cash acquired (248,581) -- (22,966)
Repayments from mortgage loans 45,287 40,401 24,203
Change in due to broker (18,662) 5,014 44,998
Acquisition of equity subsidiary -- (4,550) --
Change in policy loans 4,470 6,459 680
------------ ------------ ----------
Net cash used by investing activities (86,350) (4,483) (88,730)
----------- ----------- ----------
Cash flows from financing activities
Notes payable issued -- -- 21,000
Repayments of notes payable (542) (545) (285)
Debt issue cost paid -- -- (737)
Receipts credited to policyholder account balances 192,648 176,845 164,386
Return of policyholder account balances (85,404) (95,878) (101,985)
Dividends paid (2,000) (2,000) (2,000)
---------- ---------- -----------
Net cash provided by financing activities 104,702 78,422 80,379
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (59,210) 37,073 (51,770)
Cash and cash equivalents at beginning of year 96,069 58,996 110,766
----------- ---------- ----------
Cash and cash equivalents at end of year $ 36,859 $ 96,069 $ 58,996
========== ========= ==========
Supplemental disclosures of cash flow information Cash paid during year for:
Interest $ 12,095 $ 12,280 $ 10,432
Income taxes 4,789 5,226 14,037
Supplemental schedule of non-cash investing and financing activities
Acquisition of subsidiaries:
Fair value of assets acquired, net of cash acquired $ 948,724 $ -- $ 285,870
Liabilities (700,143) -- (251,002)
Notes payable issued to seller -- -- (11,902)
------------- ------------ -----------
Payment for subsidiaries acquired, net of cash acquired $ 248,581 $ -- $ 22,966
========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
Americo Life, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Dollars in thousands, except per share amounts)
1. Organization and Summary of Significant Accounting Policies
Americo Life, Inc. ("the Company") is a holding company for the following
stock life insurance companies, all of which are 100% owned: United Fidelity
Life Insurance Company ("United Fidelity"), Great Southern Life Insurance
Company ("Great Southern"), The Victory Life Insurance Company ("Victory"), The
College Life Insurance Company of America ("College Life"), National Farmers
Union Life Insurance Company ("National Farmers"), The Ohio State Life Insurance
Company ("Ohio State") and Investors Guaranty Life Insurance Company ("Investors
Guaranty"), collectively referred to as the Insurance Companies. In August 1997,
the Company sold Loyalty Life Insurance Company ("Loyalty Life") to an unrelated
party. United Fidelity owns 50% of College Insurance Group, Inc., a holding
company which owns 100% of both Financial Assurance Life Insurance Company
("Financial Assurance"), a stock life insurance company, and Annuity Service
Corp. The Company also has a 50% interest in Argus Health Systems, Inc.
("Argus"), which processes prescription drug claims. In December 1996, the
Company acquired a 50% interest in Hereford LLP, which owns and manages the
building leased by Argus. Also, in December 1996, Great Southern disposed of its
interest in GSSW Limited Partnership ("GSSW"), a real estate holding company.
The Company is a wholly-owned subsidiary of Financial Holding Corporation
("FHC").
All of the Insurance Companies except Victory, Ohio State and Investors
Guaranty are domiciled in Texas. Victory, Ohio State and Investors Guaranty are
domiciled in Kansas, Ohio and California, respectively. One or more of the
Insurance Companies is licensed in the District of Columbia and all states
except New York. The above companies comprise an Insurance Company Holding Group
as defined by the laws of the State of Texas, Ohio and California and are bound
by certain regulations thereof in the conduct of their business.
Principles of consolidation and basis of presentation
The consolidated financial statements include the accounts of the Company
and its direct and indirect wholly-owned subsidiaries. The Insurance Companies
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). All significant intercompany accounts and
transactions have been eliminated in consolidation.
The preparation of financial statements requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Investments
Fixed maturity investments classified as held to maturity are debt
securities for which the Company has the positive intent and ability to hold to
maturity and are stated at amortized cost with premiums amortized to call dates
and discounts amortized to maturity dates. Marketable equity securities and
fixed maturities available for sale are reported at market value and the
resulting unrealized gains or losses, net of applicable income taxes, are
credited or charged to stockholder's equity. If a decline in the market value of
an individual investment is considered to be other than temporary, the loss is
recorded as a realized investment loss. Gains or losses on sales of securities
are computed using the specific identification method.
When the Company recognizes changes in conditions that cause a fixed
maturity investment to be transferred to a different category (e.g. held to
maturity or available for sale), the security is transferred at market value. If
the security is transferred from available for sale to held to maturity, the
related unrealized gain or loss is amortized to investment income over the
remaining life of the security. If the security is transferred from held to
maturity to available for sale, the unrealized gain or loss is included in
stockholder's equity.
For mortgage-backed securities, the Company anticipates prepayments
utilizing published data when applying the interest method. Periodic adjustments
to securities' carrying values as a result of changes in actual and anticipated
prepayments are credited or charged to net investment income.
<PAGE>
Americo Life, Inc. and Subsidiaries
Notes to Consolidated Financial Statements (Continued)
Equity securities, consisting of marketable common and nonredeemable
preferred stocks, are carried at market value. The Company's 50% or less owned
subsidiaries are accounted for using the equity method, under which the
Company's proportionate share of earnings is recorded as a component of net
investment income.
Mortgage loans on real estate are stated at aggregate unpaid principal
balances, net of unamortized purchase premiums or discounts and less allowances
for estimated losses. Unamortized purchase premiums or discounts are amortized
using the effective yield method over the life of the related loan.
Policy loans are stated at aggregate unpaid principal balances.
Investment real estate is stated at cost, less allowances for depreciation
and, as appropriate, provisions for possible losses.
Futures contracts are accounted for as hedges. Gains or losses on open
contracts are recorded as an adjustment to the basis of the assets hedged and
are included in net unrealized investment gains. Gains or losses on terminated
hedges are recorded as an adjustment to the basis of the asset hedged and
amortized into income over the remaining life of the asset hedged.
In January 1997, the Company implemented Statement of Financial Accounting
Standards ("SFAS") No. 125 "Accounting for Transfers and Servicing of Financial
Assets and Extinguishment of Liabilities". SFAS No. 125 establishes new criteria
for determining whether a transfer of financial assets in exchange for cash or
other consideration should be accounted for as a sale or as pledge of
collateral. The implementation of portions of this statement with respect to
accounting for pledged collateral, repurchase agreements and similar
transactions was deferred for one year by SFAS No. 127, "Deferral of the
Effective Date of Certain Provisions of the FASB Statement No. 125" issued in
December 1996. Implementation of these new accounting standards did not have a
material impact on the consolidated financial statements of the Company.
In February 1997, the Financial Accounting Standards Board ("FASB")
issued SFAS No. 128, "Earnings per Share" and SFAS No. 129, "Disclosure of
Information about Capital Structure". SFAS No. 128 specifies the
computation, presentation and disclosure requirements for earnings per
share. SFAS No. 129 does not establish new disclosure requirements, rather it
codifies certain disclosure requirements contained in other statements
previously issued. Adoption of these new accounting standards did not
have an impact on the consolidated financial statements of the Company.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income" and SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information". SFAS No. 130 establishes standards for the reporting and
display of comprehensive income and its components in financial statements. SFAS
No. 131 establishes new guidelines for public business enterprises to report
financial and descriptive information about their operating segments. These
statements are effective for financial statement periods beginning after
December 15, 1997.
Cash equivalents
The Company considers all highly liquid financial instruments with an
original maturity of three months or less to be cash equivalents.
Deferred policy acquisition costs and cost of business acquired
The costs of new business produced, principally commissions, certain policy
issue and underwriting expenses and certain variable agency expenses, are
deferred. The cost of business acquired represents the amount of purchase price
assigned to the value of the policies at acquisition. The cost of business
acquired asset is no greater than the actuarially determined present value of
future profits of the policies purchased. For traditional life products, these
costs are amortized in proportion to premium revenues over the premium-paying
period of related policies using assumptions consistent with those used in
computing benefit reserves. For universal life, interest-sensitive and
investment products, these costs are amortized in relation to the present value,
using the current credited interest rate, of expected gross profits of the
policies over the anticipated coverage period.
<PAGE>
Retrospective adjustment of these amounts are made annually upon the
revision of estimates of current or future gross profits on universal life-type
and annuity products to be realized from a group of policies. Recoverability of
deferred policy acquisition costs and the cost of business acquired is evaluated
annually by comparing the current estimate of future profits to the unamortized
asset balances. The revision of estimates of future gross profits increased
(decreased) income related to deferred policy acquisition costs before provision
for income taxes by ($4,131), $1,446 and $(1,524) for the years ended December
31, 1997, 1996 and 1995, respectively. The revision of estimates of future gross
profits increased (decreased) income related to the cost of business acquired
before provision for income taxes by $1,617, $(4,673) and $(2,515) for the years
ended December 31, 1997, 1996 and 1995, respectively.
Anticipated investment returns, including realized gains and losses, from
the investment of policyholder balances are considered in determining the
amortization of deferred policy acquisition costs, the cost of business acquired
and unearned policy revenues. When fixed maturities are stated at market value
an adjustment is made to the deferred policy acquisition costs, the cost of
business acquired and unearned policy revenues equal to the change in
amortization that would have been recorded if those fixed maturities had been
sold at their fair value and the proceeds reinvested at current yields. This
adjustment is recorded net of income tax directly to the unrealized gain
component of stockholder's equity.
Universal life-type and annuity products
Policyholder account balances of universal life-type, interest-sensitive
and annuity products represent accumulated contract values, without reduction
for potential surrender charges and deferred front-end contract charges which
are amortized over the term of the policies. Revenue for universal life-type and
other interest-sensitive products are principally comprised of insurance and
policy administration fees and surrender charges, as well as amortization of
deferred front-end contract charges. Benefits and claims are charged to expense
in the period incurred, net of related accumulated contract values released.
Interest on accumulated contract values is credited to contracts as earned.
Crediting rates for universal life-type and annuity products ranged from 3.0% to
7.0% at December 31, 1997.
Traditional life insurance products
Traditional life insurance products include whole life insurance and term
life insurance. Reserves for future policy benefits are estimated using a net
level premium method based upon historical experience of investment yields,
mortality and withdrawals including provisions for possible adverse deviation.
Investment yield assumptions are based on historical rates ranging from 7.5% to
9.0%. Mortality assumptions are based on the 1975-1980 Select and Ultimate Basic
Table with certain modifications including underwriting classifications and year
of issue. Withdrawal assumptions for all products are estimated based on the
Insurance Companies' experience. Additions to these reserves are required when
their balances, in addition to future net cash flows including investment
income, are insufficient to cover future benefits and expenses. Premiums for
these products are recognized as revenue when due. Traditional life insurance
benefits and claims are charged to expense in the period incurred.
Reinsurance
Premiums and expenses include amounts related to reinsurance assumed and
are stated net of amounts ceded. Reinsurance receivables and prepaid reinsurance
premiums are reported as assets and are recognized in a manner consistent with
the liabilities related to the underlying reinsured contracts.
Participating policies
Participating life insurance policies represent approximately 1.7%, 2.9%
and 4.5% of the ordinary life insurance in force at December 31, 1997, 1996 and
1995, respectively. Premium income related to participating life insurance
policies represents 3.3%, 4.4% and 6.5% of premiums and policy revenues for the
years 1997, 1996 and 1995, respectively. The dividends paid and accrued are
calculated in accordance with the terms of the individual policy provisions and
the dividend schedule as reviewed and approved annually by the Board of
Directors.
<PAGE>
Property and equipment
Company-occupied property, data processing equipment and furniture and
office equipment, included in other assets, are stated at cost less accumulated
depreciation of $10,036, and $7,213 at December 31, 1997 and 1996, respectively.
Depreciation is computed on a straight-line basis for financial reporting
purposes using estimated useful lives of three to 30 years. Depreciation expense
was $3,436, $3,051 and $1,957 for the years ended December 31, 1997, 1996 and
1995, respectively.
Income taxes
Provision for income taxes includes deferred taxes arising from temporary
differences between the tax and financial reporting basis of assets and
liabilities. This liability method of accounting for income taxes also requires
the Company to reflect the effect of a tax rate change on accumulated deferred
income taxes in income for the period in which the change is enacted.
Net income per common share
Net income per common share is calculated by dividing the appropriate
income item by the average number of shares of common stock outstanding during
the period. There were no common share equivalents outstanding during 1997, 1996
or 1995.
Reclassifications
Previously reported amounts for prior years have in some instances been
reclassified to conform to the current year presentation.
2. Fair values of financial instruments
The following estimated fair value disclosures are limited to the
reasonable estimates of the fair value of only the Company's financial
instruments. The Company does not anticipate that any significant assets will be
disposed of or that any significant liabilities would be settled at these
estimated fair values.
Investment securities: The estimated fair values of fixed maturity
securities are based on quoted market prices where available. For fixed maturity
securities not actively traded, fair values are estimated using values obtained
from independent pricing services. In the case of private placements, fair
values are determined using market values of comparable securities. The
estimated fair values of equity securities are based on quoted market prices.
Mortgage loans: The fair values of mortgage loans are estimated using
discounted cash flow analyses and interest rates being offered for similar loans
to borrowers with similar credit ratings.
Policy loans: Policy loans are generally issued with coupon rates below
market rates and are considered early payment of the life benefit. As such, the
carrying amount of these financial instruments is a reasonable estimate of their
fair value.
Other invested assets: The fair value of the note receivable from PFS
Holding Company ("PFSH"), a wholly-owned subsidiary of FHC, is estimated by
discounting future cash flows at current market rates.
Cash and cash equivalents: The carrying value of these instruments
approximates fair value.
Annuities: The fair values of the Company's annuities are estimated using
the current policyholder account balances reduced for an estimate of
discounted future profits.
<PAGE>
Notes payable: The fair value of the Company's senior subordinated notes
equals the quoted market price at the reporting date. The carrying value of the
Company's senior bank debt approximates fair value since the current interest
rate reprices every thirty to ninety days. The fair value of the Company's other
notes payable was calculated using a discounted interest rate which reflects
prevailing market rates.
The estimated fair values of the Company's financial instruments at
December 31, are as follows:
<TABLE>
1997 1996
------------------------------- -------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
<S> <C> <C> <C> <C>
Financial assets:
Fixed maturities held to maturity $ 851,823 $ 873,935 $ 857,451 $ 847,832
Fixed maturities available for sale 761,084 761,084 670,274 670,274
Equity securities 78,949 78,949 48,262 48,262
Mortgage loans 165,630 166,634 184,326 183,328
Policy loans 200,137 200,137 204,607 204,607
Other invested assets 10,000 10,032 10,000 9,681
Cash and cash equivalents 36,859 36,859 96,069 96,069
Financial liabilities:
Annuities 1,072,062 1,039,463 527,324 508,882
Notes payable 132,884 137,794 133,312 132,812
</TABLE>
3. Changes in Subsidiaries
On April 15, 1997, the Company acquired all of the outstanding common stock
of Ohio State and Investors Guaranty from Farmers Group, Inc. pursuant to a
stock purchase agreement dated January 21, 1997. The purchase price was
$345,387. The acquisition of Ohio State and Investors Guaranty was accounted for
using the purchase method of accounting. The operating results of Ohio State and
Investors Guaranty after the date of acquisition are included in the Company's
statement of income.
The assets acquired and liabilities assumed related to the acquisition of
Ohio State and Investors Guaranty were as follows:
<TABLE>
<S> <C>
Assets acquired:
Fixed maturities $ 623,790
Equity securities 123,418
Cash and cash equivalents 90,219
Cost of business acquired 141,919
Other assets 59,597
-------------
$ 1,038,943
Liabilities assumed:
Policyholder account balances $ 521,355
Reserves for future policy benefits 153,482
Other liabilities 18,719
--------------
$ 693,556
</TABLE>
On April 16, 1997, Ohio State and Investors Guaranty entered into separate
coinsurance agreements to reinsure 100% of their insurance liabilities to an
unaffiliated insurance company (the "Reinsurer") in exchange for a ceding
commission of approximately $146,000. On the same day, the Reinsurer and the
Company entered into a modified coinsurance agreement under which the Reinsurer
ceded certain risks on a 70% quota share basis on the same insurance liabilities
to the Company. The reinsurance agreements have the net effect of transferring
30% of the profits on the Ohio State and Investors Guaranty policies to the
Reinsurer. Under the coinsurance treaty, the assets supporting the insurance
liabilities are retained by the Reinsurer in an escrow account for the
benefit and protection of the Company. The Reinsurer will receive 100% of
the statutory profits from the reinsured policies until the Reinsurer has
recovered the initial ceding commission.
<PAGE>
Ohio State and Investors Guaranty transferred bonds and policy loans to the
Reinsurer equal to the statutory reserves liabilities less the ceding
commission. The policy liabilities remain the direct liabilities of Ohio State
and Investors Guaranty and therefore remain on the Company's consolidated
balance sheet. The assets retained by the Reinsurer are included on the
Company's consolidated balance sheet as a receivable from the Reinsurer. The
cost of business acquired asset related to the acquired business has been
reduced to reflect the net 30% coinsurance.
The acquisition of Ohio State and Investors was funded by internal funds
and the proceeds of a $240,000 repurchase agreement. Upon receipt of the
$146,000 ceding commission from the Reinsurer, Ohio State and Investors Guaranty
paid dividends totaling $200,000 to the Company. The repurchase agreement was
closed out in 1997.
In July 1995, the Company acquired all the outstanding common stock of
Victory, pursuant to the Stock Purchase Agreement dated as of March 3, 1995
("the Agreement") by and among Victory Financial Group, Inc., a Nevada
corporation (the "Seller"), its wholly-owned subsidiary, The Kansas Life
Insurance Company ("Kansas Life") and the Company. When the Agreement was
executed, Kansas Life was the immediate parent of Victory.
In connection with the acquisition of Victory, the Company, through
National Farmers, entered into a Reinsurance, Transfer and Assumption Agreement
(the "Reinsurance Agreement") under which National Farmers reinsured all the
insurance business of Kansas Life on a 100% coinsurance basis. National Farmers
received securities, cash and other assets totaling $23,295 equal to the
insurance liabilities assumed. National Farmers has subsequently completed the
assumption of this business.
The Company accounted for the acquisition of Victory and the insurance
business of Kansas Life using the purchase method of accounting. The operating
results of Victory and the insurance business acquired from Kansas Life from the
date of acquisition are included in the Company's statement of income.
The total amount paid by the Company for (1) the outstanding common stock
of Victory, (2) related consulting and noncompetition agreements and (3)
transaction expenses, was $42,752. The acquisition was funded by $17,000 of 6.5%
subordinated notes issued by the Company to the Seller, $21,000 borrowed under a
$70,000 revolving credit facility dated as of July 6, 1995 ("Credit Agreement"),
and $4,800 of internal funds.
The effect of the acquisition of Victory and the Reinsurance Agreement on
the Company's balance sheet at the date of acquisition was as follows:
<TABLE>
<S> <C>
Assets acquired:
Investments:
Fixed maturity securities $ 221,873
Cash 16,340
Other 39,455
------------
277,668
Cost of business acquired 20,931
Other assets 6,054
------------
$ 304,653
Liabilities assumed:
Reserves for future policy benefits $ 178,862
Policyholder account balances 46,586
Other liabilities 46,303
Notes payable 32,902
-------------
$ 304,653
</TABLE>
<PAGE>
Summarized unaudited pro forma consolidated financial information of the
Company is set forth in the following table. This financial information is
presented assuming the acquisition of Victory and the Reinsurance Agreement
occurred on January 1, 1995 and the acquisition of Ohio State and Investors
Guaranty occurred on January 1, 1996. <TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Total revenue $ 458,203 $ 452,071 $ 308,734
Net income 21,701 26,083 19,804
Net income per common share 2,170.10 2,608.30 1,980.40
</TABLE>
In 1997, Great Southern sold the stock of Loyalty Life for $12,280
resulting in a $4,848 gain. Prior to this sale, several of the Company's
insurance subsidiaries entered into agreements with Loyalty Life for the
assumption of Loyalty Life insurance liabilities.
<PAGE>
4. Investments
Fixed Maturities
The amortized cost of investments in fixed maturities, the cost of equity
securities and the estimated market values of such investments by category of
securities, are as follows: <TABLE>
December 31, 1997
----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market Value
Cost Gains Losses
<S> <C> <C> <C> <C>
Held to maturity:
U.S. Treasury and government securities $ 2,427 $ 82 $ (20) $ 2,489
Public utility securities 46,984 1,609 (154) 48,439
Corporate securities 467,288 18,420 (1,591) 484,117
Asset-backed securities 30,152 180 (131) 30,201
Mortgage-backed pass-through securities 28,467 967 (33) 29,401
Collateralized mortgage obligations 276,505 4,188 (1,405) 279,288
------------ ------------ ------------ -----------
851,823 25,446 (3,334) 873,935
------------ ------------ ------------ -----------
Available for sale:
U.S. Treasury and government securities 62,094 2,913 (21) 64,986
Public utility securities 29,732 1,073 (28) 30,777
Corporate securities 355,660 16,408 (1,439) 370,629
Asset-backed securities 56,314 1,289 -- 57,603
Mortgage-backed pass-through securities 137,328 3,108 (114) 140,322
Collateralized mortgage obligations 94,827 2,419 (479) 96,767
------------ ------------ ------------ ------------
735,955 27,210 (2,081) 761,084
------------ ------------ ------------ ------------
Subtotal, all fixed maturities 1,587,778 52,656 (5,415) 1,635,019
------------ ------------ ------------ ------------
Equity securities 50,837 28,753 (641) 78,949
------------ ------------ ------------ ------------
Total fixed maturities and equity securities $1,638,615 $ 81,409 $ (6,056) $1,713,968
========== =========== =========== ==========
December 31, 1996
-----------------------------------------------------------
Gross Gross Estimated
Amortized Unrealized Unrealized Market Value
Cost Gains Losses
Held to maturity:
U.S. Treasury and government securities $ 4,594 $ 160 $ (110) $ 4,644
Public utility securities 61,929 2,465 (1,470) 62,924
Corporate securities 448,837 7,638 (12,510) 443,965
Asset-backed securities 27,852 28 (629) 27,251
Mortgage-backed pass-through securities 36,060 735 (385) 36,410
Collateralized mortgage obligations 278,179 1,212 (6,753) 272,638
------------ ------------ ------------ ------------
857,451 12,238 (21,857) 847,832
------------ ------------ ------------ ------------
Available for sale:
U.S. Treasury and government securities 98,100 204 (1,293) 97,011
Public utility securities 27,678 274 (18) 27,934
Corporate securities 262,924 2,935 (3,725) 262,134
Asset-backed securities 52,089 897 (122) 52,864
Mortgage-backed pass-through securities 156,304 383 (644) 156,043
Collateralized mortgage obligations 74,697 844 (1,253) 74,288
------------ ----------- ----------- ------------
671,792 5,537 (7,055) 670,274
------------ ----------- ----------- ------------
Subtotal, all fixed maturities 1,529,243 17,775 (28,912) 1,518,106
------------- ------------ ------------ ------------
Equity securities 33,341 15,484 (563) 48,262
------------ ----------- ------------ ------------
Total fixed maturities and equity securities $1,562,584 $ 33,259 $ (29,475) $1,566,368
============ =========== ============ ============
</TABLE>
<PAGE>
The amortized cost and market values of mortgage-backed securities by
category at December 31, 1997 are as follows:
<TABLE>
Held to Maturity Available for Sale
--------------------------- ---------------------------
Estimated Estimated
Amortized Market Value Amortized Market Value
Cost Cost
<S> <C> <C> <C> <C>
Pass-through agency securities $ 28,467 $ 29,401 $ 137,328 $ 140,322
Collateralized mortgage obligations:
Sequential class 80,849 81,006 45,343 46,573
Planned amortization class 44,240 45,048 15,505 15,558
Very accurately defined maturity 98,750 100,617 6,150 6,048
Accrual class 42,836 43,197 23,539 23,504
Other 9,830 9,420 4,290 5,084
---------- ---------- --------- ----------
276,505 279,288 94,827 96,767
---------- ---------- --------- ----------
Total securities $ 304,972 $ 308,689 $ 232,155 $ 237,089
========== ========== ========= ==========
</TABLE>
The amortized cost and estimated market value of fixed maturities which are
held to maturity and available for sale at December 31, 1997, 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 penalties. <TABLE>
Fixed Maturities Fixed Maturities
Held to Maturity Available for Sale
--------------------------- ---------------------------
Estimated Estimated
Amortized Market Value Amortized Market Value
Cost Cost
<S> <C> <C> <C> <C>
Due in one year or less $ 1,865 $ 1,890 $ 198 $ 200
Due after one year through five years 59,150 59,129 76,560 78,234
Due after five years through ten years 202,675 206,588 100,273 103,081
Due after ten years 253,009 267,438 270,455 284,877
Mortgage-backed securities 335,124 338,890 288,469 294,692
---------- ---------- --------- ----------
$ 851,823 $ 873,935 $ 735,955 $ 761,084
========== ========== ========= ==========
</TABLE>
In November 1995, the FASB issued "A Guide to Implementation of Statement
115 on Accounting for Certain Investments in Debt and Equity Securities" ("the
Guide") which, among other things, provided entities with a one time opportunity
to transfer some or all securities from held to maturity. In December 1995, the
Company transferred fixed maturity securities with an amortized book value of
$195,207 and a market value of $198,329 out of the held to maturity category
into the available for sale category. Additionally, the Company transferred
fixed maturity securities with an amortized book value of $169,439 and a market
value of $178,883 out of the available for sale category into the held to
maturity category. In 1993, the Company also transferred securities from the
available for sale category to the held to maturity category. The net unrealized
gains of $44,550 and $53,426 at December 31, 1997 and 1996, respectively,
relating to these investments transferred to held to maturity are being
amortized into income using the effective yield method over the lives of the
related securities.
At December 31, 1997, the Company held below investment grade (S&P rating
below BBB-) corporate debt securities with an aggregate carrying value of
$23,195 and market value of $23,349. At December 31, 1996, the Company held
below investment grade corporate debt securities with an aggregate carrying
value of $10,125 and market value of $10,168. These holdings amounted to 0.6%
and 0.4% of the Company's total assets at December 31, 1997 and 1996,
respectively.
Fixed maturities with an amortized book value of $38,205 and $72,062 were
on deposit with insurance regulatory agencies of certain states at December 31,
1997 and 1996, respectively.
The Company owns a $10,000, 9.25% senior subordinated note ("the note")
issued by PFSH which matures in September 2004. The note is included in other
invested assets on the Company's consolidated balance sheet.
<PAGE>
Mortgage loans on real estate
At December 31, mortgage loans on real estate consisted of:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Mortgage loan principal $ 167,188 $ 187,477
Net unamortized purchase discount (1,258) (2,851)
Allowance for losses (300) (300)
--------- ---------
Net mortgage loans $ 165,630 $ 184,326
========= =========
</TABLE>
The Company's mortgage loans on real estate are diversified by property
type, location and loan size and are collateralized by the related properties.
At December 31, 1997, mortgage loans on real estate were concentrated in the
following property types and states: <TABLE>
% of
1997 Portfolio
<S> <C> <C>
Property type:
Commercial
Multi-family apartments $ 67,785 40.9%
Office buildings 32,388 19.6
Retail space 39,856 24.1
Industrial/Warehouses 22,955 13.9
Residential 2,646 1.5
---------- --------
Total $ 165,630 100.0%
========== ========
</TABLE>
At December 31, 1997, the following states had a concentration of mortgage
loans aggregating more than 10% of the Company's mortgage loans: Texas -
$35,121; Missouri - $35,660; and Kansas - $19,820.
Investment in equity subsidiaries
The following table presents summarized financial information on a combined
proportionate basis of the Company's equity affiliates. Amounts presented
included the accounts of the Company's equity subsidiaries, CIG, Argus, Hereford
LLP (acquired in 1996), a hotel development joint venture (acquired in 1995) and
GSSW (disposed of in 1996). <TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current assets $ 16,630 $ 12,952 $ 22,371
Noncurrent assets 96,494 67,358 90,359
Current liabilities 4,883 2,829 3,517
Noncurrent liabilities 86,571 59,403 60,157
Net revenues 28,910 32,401 37,737
Expenses applicable to net revenues 23,521 26,307 25,682
Income from continuing operations 5,083 6,505 11,978
Net income 3,244 5,458 9,457
</TABLE>
In 1996, GSSW distributed $6,000 cash to the Company. In December 1996, the
Company liquidated its interest in GSSW in exchange for cash of $22,629 and
100% interests in several real estate limited partnerships which were then
owned by GSSW resulting in a gain of $15,825. The limited partnerships, with
assets consisting primarily of investment real estate, are included in the
consolidated financial statements of the Company at December 31, 1997 and 1996.
In December 1996, the Company received a dividend from Argus consisting of
$8,000 cash and a $1,500 note receivable from a related party. The Company used
$4,500 of the cash received to purchase a 50% interest in Hereford LLP, which
owns and manages the building leased by Argus.
<PAGE>
Net investment income
Net investment income for the years ended December 31, is comprised of the
following:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Fixed maturities $ 117,197 $ 104,442 $ 98,034
Equity securities 1,437 1,101 524
Equity in earnings of equity subsidiaries 3,622 5,458 10,103
Mortgage loans on real estate 16,712 21,344 20,169
Policy loans 12,420 13,719 12,247
Reinsurance funds held by reinsurer 65,747 37,425 6,007
Cash, short-term investments and other 8,770 7,452 8,988
--------- --------- ---------
Total investment income 225,905 190,941 156,072
Less investment expenses (6,638) (4,216) (4,025)
--------- --------- ---------
Net investment income $ 219,267 $ 186,725 $ 152,047
========= ========= =========
</TABLE>
Realized gains and losses
Realized gains and losses from the sales and other redemptions of
investments for the years ended December 31, are as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Held to maturity:
Realized gains $ -- $ 93 $ --
Realized losses -- (124) (668)
Available for sale:
Realized gains 4,688 2,162 274
Realized losses (4,097) (3,524) (407)
Equity securities:
Realized gains 4,582 2,340 372
Realized losses (5,349) (1,851) (264)
Other investments:
Realized gains 5,339 788 502
Realized losses (2,213) (4) (91)
---------- ----------- -----------
Total net realized investment gains (losses) $ 2,950 $ (120) $ (282)
========== ========== ==========
</TABLE>
During 1995, the Company sold held to maturity investments with an
amortized cost of $6,583. The Company sold these investments based upon evidence
of the deterioration of the issuers' creditworthiness. The Company realized
losses of $668 on these sales.
Following are the components of net unrealized investment gains as of
December 31:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Investments carried at amortized cost:
Fixed maturities available for sale $ 25,129 $ (1,518)
Fixed maturities reclassified from available for sale to held to 44,550 53,426
maturity
Investments carried at estimated fair value:
Equity securities 28,112 14,922
Effect on other balance sheet accounts (11,321) (11,123)
Deferred income taxes (29,497) (18,518)
----------- -----------
Net unrealized investment gains $ 56,973 $ 37,189
=========== ===========
</TABLE>
The carrying value of investments that were non-income producing during the
three year period ended December 31, 1997 was not material to the Company's
consolidated financial position.
<PAGE>
5. Deferred Policy Acquisition Costs and Cost of Business Acquired
The balances of and changes in deferred policy acquisition costs and the
cost of business acquired as of and for the years ended December 31, are as
follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Deferred policy acquisition costs:
Balance, beginning of year $ 72,438 $ 56,568 $ 48,905
Capitalization of expenses 34,220 19,337 18,565
Interest accretion 5,802 4,075 3,779
Amortization (27,207) (7,401) (12,080)
Amounts related to fair value adjustment of fixed maturity securities (20,631) (141) (2,601)
---------- ----------- ---------
Balance, end of year $ 64,622 $ 72,438 $ 56,568
========= ========= ========
Cost of business acquired:
Balance, beginning of year $200,710 $163,660 $132,623
Additions 124,052 60,181 52,156
Interest accretion 18,157 12,210 9,862
Amortization (47,741) (34,908) (26,394)
Amounts related to fair value adjustment of fixed maturity securities 4,165 1,658 (4,587)
Impact of realization of acquired tax benefits 837 (2,091) --
----------- ---------- --------
Balance, end of year $300,180 $200,710 $163,660
======== ======== ========
</TABLE>
The estimated amortization and interest accretion of the cost of business
acquired for the five years ending December 31, 2002 are as follows:
<TABLE>
Interest Estimated
Amortization Accretion Net Decrease
<S> <C> <C> <C>
1998 $ 54,932 $ 17,981 $ 36,951
1999 50,534 15,665 34,869
2000 44,890 13,358 31,532
2001 39,675 11,158 28,517
2002 34,783 9,587 25,196
</TABLE>
6. Insurance Liabilities and Reinsurance
Insurance liabilities at December 31, consist of the following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Universal life $ 1,414,374 $ 939,635
Annuities 1,072,062 527,324
----------- ------------
$ 2,486,436 $ 1,466,959
=========== ============
Future policy benefits:
Traditional life $ 866,585 $ 659,718
Accident and health 2,605 3,090
Supplementary contracts 12,393 18,737
----------- ------------
$ 881,583 $ 681,545
=========== ============
</TABLE>
Approximately 72% of the annuity account balances of the Insurance
Companies are subject to surrender charges upon early withdrawal.
The Insurance Companies cede and assume reinsurance with unaffiliated
companies. The maximum portion of the risk retained on the life of any
individual is $350.
As more fully described in Note 3, the Company entered into separate
coinsurance agreements during 1997 to reinsure 100% of the insurance liabilities
of Ohio State and Investors Guaranty to the Reinsurer. On the same day, the
Reinsurer and Great Southern entered into a modified coinsurance agreement.
These agreements effectively transfer 30% of the profits of Ohio State and
Investors Guaranty policies to the Reinsurer.
In October 1995, the Company entered into several agreements with an
unaffiliated insurance company and the Reinsurer. One of the agreements calls
for the direct insurer to reinsure substantially all of its insurance policies
and contracts to the Reinsurer on a coinsurance basis. The direct insurer
transferred approximately $348,000 of assets to the Reinsurer and received a
ceding commission of $37,328. On July 2, 1996, the Company entered into similar
agreements with another unaffiliated insurance company. The direct insurer
transferred approximately $405,000 of assets to the Reinsurer and received a
ceding commission of $34,745. The Reinsurer entered into modified coinsurance
agreements to reinsure certain risks on the same insurance policies to Great
Southern. The modified coinsurance agreements provide that the assets and
insurance liabilities related to the reinsured policies are to be retained by
the Reinsurer. The assets retained by the Reinsurer are held in an escrow
account for the benefit of Great Southern.
Great Southern also entered into reinsurance agreements with the direct
insurers which provide for Great Southern to reinsure the life insurance
policies and contracts of the direct insurers on either a coinsurance or an
assumption basis subject to the existing coinsurance agreements with the
Reinsurers. The completion of the assumption of the policies will be subject to
necessary insurance department and policyholder approvals.
These various agreements are collectively referred to as the "Reinsurance
Agreements". The Company accounted for the Reinsurance Agreements by recording
the direct and assumed insurance liabilities reinsured and a receivable from
Reinsurer equal to the assets held by the Reinsurer. Premiums and policy
revenues and policyholder benefits assumed under the modified coinsurance
agreements are included in the Company's statement of income. Interest income
earned on the assets held by the Reinsurer is recorded as investment income.
At December 31, the amounts receivable from reinsurers, the cost of
business acquired and the insurance liabilities related to the Reinsurance
Agreements included on the Company's consolidated balance sheet are as follows:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Amounts receivable from reinsurers $1,175,922 $184,234
Cost of business acquired 193,708 88,748
Insurance liabilities 1,364,453 245,361
</TABLE>
The Reinsurer will receive all statutory profits from the reinsured
policies until the Reinsurer has recovered the initial ceding commission. Upon
termination of the modified coinsurance agreement, Great Southern is required to
reimburse the Reinsurer for the amount of the unrecovered ceding commission.
Amounts receivable from reinsurers consists of the following at December
31:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Amounts recoverable for ceded future policy benefits $ 1,532,449 $ 350,062
Unrecovered ceding commission (144,478) (61,127)
Amounts recoverable on ceded policy and contract claims 15,362 10,223
Amounts recoverable on paid losses 5,971 3,247
Other 20,375 11,618
------------- ------------
$ 1,429,679 $ 314,023
=========== ===========
</TABLE>
<PAGE>
Amounts receivable from reinsurers include $14,713 and $13,269 from one
unrelated insurance company at December 31, 1997 and 1996, respectively. Also
included in amounts receivable from reinsurers is $149,141 and $100,122 from
Financial Assurance at December 31, 1997 and 1996, respectively.
Reinsurance contracts do not relieve the Company from its obligation to
policyholders. Failure of reinsurers to honor their obligations would result in
losses to the Company. The Company evaluates the financial condition of its
reinsurers and monitors concentrations of credit risk arising from activities or
economic characteristics of the reinsurers to minimize its exposure to
significant losses from reinsurer insolvencies. At December 31, 1997, no
allowance has been established as all amounts are deemed collectible.
Premiums ceded under reinsurance agreements were $48,279, $35,050 and
$41,224 for the years ended December 31, 1997, 1996 and 1995, respectively.
Reinsurance recoveries netted against other policyholder benefits totaled
$55,825, $50,678 and $32,139 for the years ended December 31, 1997, 1996 and
1995, respectively. The Insurance Companies are liable for reinsurance ceded to
other companies in the event the reinsurers are unable to pay their portion of
the policy benefits.
Certain of the Insurance Companies have ceded blocks of insurance under
financial reinsurance treaties to provide funds for acquisitions and other
purposes. These reinsurance transactions represent financial arrangements under
generally accepted accounting principles, and accordingly, are not reflected in
the accompanying financial statements except for the associated risk fees. The
risk fees paid to the reinsurers under these treaties totaled $766, $884 and
$1,194 for the years ended December 31, 1997, 1996 and 1995, respectively. These
fees are charged against premiums and policy revenues in the consolidated
statement of income. For statutory accounting purposes, these financial
reinsurance transactions provide a reserve credit which increases statutory
surplus.
Certain financial reinsurance treaties entered into by the Insurance
Companies contain minimum statutory surplus requirements and require the
Insurance Companies to place securities in an escrow account ($80,260 at
December 31, 1997) to secure obligations to the reinsurer. The Insurance
Companies are in compliance with all requirements at December 31, 1997.
7. Notes Payable
Notes payable at December 31, are comprised of the following:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Senior subordinated notes bearing interest at 9.25%, due 2005 $ 100,000 $ 100,000
Borrowing under $70,000 amended and restated credit agreement, bearing interest at
7/8% over LIBOR rate (6 7/8% at December 31, 1997), due in six equal semi-annual
installments of $3,500 beginning in 2000 21,000 21,000
Unsecured discounted $12,000 notes, bearing interest at an effective interest rate of
11.5%, payable in semi-annual equal installments due 2010 8,297 8,584
Unsecured discounted $5,000 note, bearing interest at an effective interest rate of
12.0% due 2015 3,015 2,981
Other 572 747
---------- ---------
$ 132,884 $ 133,312
========== =========
</TABLE>
On or after June 1, 1998, the senior subordinated notes (the Notes) are
redeemable at the option of the Company, in whole or in part, at the redemption
prices (expressed as percentages of principal amount) set forth below:
<TABLE>
<S> <C>
1998 104.6250%
1999 102.3125%
2000 and thereafter 100.0000%
</TABLE>
In 1995, the Company entered into a $70,000 Credit Agreement which was
provided by a syndicate of lenders with The Chase Manhattan Bank as the
administrative agent. The Credit Agreement was amended and restated in December
1996 and subsequently amended in February 1997. The Credit Agreement operates as
a revolving credit facility until December 31, 1999. The amount of loans then
outstanding will convert into a term loan and amortized in six equal semi-annual
installments commencing July 1, 2000. Amounts outstanding under the Credit
Agreement accrue interest at a variable rate or the prime rate. Amounts
outstanding under the Credit Agreement rank senior to the Company's other
currently outstanding debt and are secured by a pledge of the common stock of
the Company's subsidiaries, United Fidelity and Landmark Mortgage Company, and
by the surplus debentures of United Fidelity. The Company pays 0.2% per year on
the unused portion of the Credit Agreement.
The unsecured discounted notes issued to the Seller bear interest at 6.5%
per annum payable semi-annually and rank pari passu with the Notes. The Company
recorded the notes at their fair value at the date of issuance using effective
interest rates of 11.5% and 12.0%. The unamortized discount at December 31, 1997
was $4,396. The $5,000 note is subject to contractual set-off rights and is held
under a pledge and escrow agreement to secure the Seller's indemnification
obligations to the Company.
The Notes and the Credit Agreement contain certain covenants including, but
not limited to, limitations on indebtedness, liens securing indebtedness, sale
or issuance of capital stock of the Company's subsidiaries, restricted payments,
issuance of other subordinated indebtedness, financial reinsurance, investments,
dividends and other distributions by the Company's subsidiaries, dividends by
the Company, transactions with affiliates, the sale of assets and repayment of
subordinated indebtedness by the Company. The Company was in compliance with all
debt covenants at December 31, 1997.
The aggregate principal payments due during each of the next five years are
as follows:
<TABLE>
<S> <C>
1998 $ 628
1999 618
2000 4,157
2001 7,702
2002 7,748
Later years 112,031
------------
$ 132,884
</TABLE>
8. Stockholder's Equity and Statutory Surplus
The Insurance Companies are required by the applicable state's department
of insurance to maintain minimum levels of statutory capital and surplus. The
reported statutory capital and surplus of each company at December 31, 1997 was:
<TABLE>
Reported Statutory
Company Capital and Surplus
<S> <C>
United Fidelity $ 98,057
Great Southern 128,720
College Life 38,728
National Farmers 33,938
Victory 5,958
Ohio State 117,951
Investors Guaranty 31,949
</TABLE>
<PAGE>
Dividend distributions of the Insurance Companies to their respective
stockholder exceeding the greater of statutory net gain from operations during
the preceding year or 10% of capital and surplus at the end of the preceding
year are subject to the prior approval of the applicable state department of
insurance. Dividends from the Insurance Companies may be paid only from
statutory earned surplus as determined in accordance with accounting practices
prescribed or permitted by the applicable state insurance regulatory
authorities. In addition, the National Association of Insurance Commissioners
(NAIC) and Texas each have minimum risk-based capital requirements which
effectively restrict the payment of dividends by the Insurance Companies. At
December 31, 1997 the Insurance Companies had statutory capital and surplus in
excess of the levels required by the NAIC and Texas risk-based capital
guidelines.
The American Institute of Certified Public Accountants Statement of
Position (SOP) 94-5 "Disclosure of Certain Matters in the Financial Statements
of Insurance Enterprises" requires insurance enterprises to disclose permitted
statutory accounting practices which have a material effect on capital and
surplus or RBC. Permitted practices encompass those practices not prescribed by
state laws, regulations and administrative rules or by existing NAIC
authoritative literature. The Company does not have any statutory accounting
practices which are required to be disclosed under SOP 94-5.
Accounting practices used to prepare statutory financial statements for
regulatory filings of stock life insurance companies differ from GAAP. The
following tables reconcile capital stock and surplus and net income of the
Insurance Companies determined in accordance with accounting practices
prescribed or permitted by the state insurance departments with consolidated
stockholder's equity and net income of the Company on a GAAP basis. Included in
the amounts stated in accordance with statutory accounting practice are amounts
recorded in accordance with GAAP for non-insurance subsidiaries.
Stockholder's Equity
<TABLE>
December 31,
1997 1996
---- ----
<S> <C> <C>
Capital stock and surplus, on basis of statutory accounting practices, as filed with
insurance regulatory authorities $ 124,600 $ 115,246
Cost of business acquired 129,831 109,093
Deferred policy acquisition costs 64,622 72,438
Invested assets adjustments 67,630 44,699
Reserves for future policy benefits 52,728 62,506
Asset valuation reserve and interest maintenance reserve 31,766 24,833
Surplus debentures (137,130) (137,714)
Reserve credits on financial reinsurance treaties (30,735) (42,899)
Deferred income taxes (58,127) (43,195)
Other
1,677 2,015
---------- ----------
Stockholder's equity, on basis of GAAP $ 246,862 $ 207,022
========== ==========
</TABLE>
<PAGE>
Net Income
<TABLE>
Year Ended December 31,
-----------------------------------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income, on basis of statutory accounting practices, as filed with
insurance regulatory authorities $ 163,927 $ 47,124 $ 23,140
Amortization of cost of business acquired (29,584) (22,698) (16,532)
Net change in deferred policy acquisition costs 10,464 13,191 10,264
Change in realized gains (losses) 3,020 895 (7,627)
Adjustment of policy and claim liabilities 18,347 6,242 6,889
Adjustment of reserves and premiums on financial reinsurance (12,164) (9,188) 4,098
Deferred income tax provision (1,909) (5,576) 3,546
Interest expense on notes payable (9,368) (12,263) (10,593)
Adjustment of fixed maturity securities amortization 2,347 2,064 4,176
Effects of reinsurance transaction (124,585) 6,048 --
Amortization of debt acquisition costs (73) (336) (301)
Other 1,634 1,771 2,670
----------- ----------- ----------
Net income, on basis of GAAP $ 22,056 $ 27,274 $ 19,730
=========== =========== ==========
</TABLE>
9. Income Taxes
Americo Life, Inc. and certain of the Insurance Companies file a
consolidated federal life and non-life income tax return with FHC and FHC's
non-life subsidiaries. The remaining Insurance Companies file separate or
consolidated life insurance company federal income tax returns, as applicable.
The Company and its subsidiaries are charged or credited an amount of federal
income tax equal to the tax that would have been due for each entity on a
separate return basis in accordance with a written tax allocation agreement. Net
operating losses of members in each consolidated return are utilized on a
first-in, first-out basis. <TABLE>
The provision for U.S. federal income taxes for the years ended December 31, is comprised of the following:
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Current tax provision $ 4,953 $ 7,937 $ 14,672
Deferred tax provision 4,277 5,576 (3,546)
---------- ---------- ----------
Provision for income taxes $ 9,230 $ 13,513 $ 11,126
========== ========= ==========
</TABLE>
The provision for income taxes differed from the amounts computed by
applying the applicable U.S. statutory federal income tax rate of 35% to pretax
income from continuing operations as a result of the following differences:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Computed tax at statutory rate $ 10,950 $ 14,275 $ 10,800
Increase (decrease) in tax resulting from:
Increase in valuation allowance -- -- 572
Availability of dividends received deduction to offset taxable
temporary differences (1,376) (503) (934)
Other (344) (259) 688
--------- -------- ---------
Provision for income taxes $ 9,230 $ 13,513 $ 11,126
========= ======== =========
</TABLE>
<PAGE>
The provision for deferred income taxes for the years ended December 31, is
comprised of the following:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Investments $ 3,978 $ 2,310 $ (7,759)
Reserves (14,023) 727 642
Reinsurance (328) (583) 1,767
Cost of business acquired 7,322 (2,991) 1,467
Deferred policy acquisition costs 6,642 3,537 333
Net operating losses 481 2,333 444
Other 205 243 (440)
-------- -------- ----------
Provision for deferred income taxes $ 4,277 $ 5,576 $ (3,546)
======== ======== ==========
</TABLE>
The Company's net deferred federal tax liabilities are comprised of the tax
cost or benefit associated with the following items based on the 35% tax rate in
effect:
<TABLE>
1997 1996
---- ----
<S> <C> <C>
Deferred tax liability:
Cost of business acquired $ 47,184 $ 39,862
Investments 7,910 3,932
Deferred policy acquisition costs 12,779 6,137
Reinsurance 2,645 3,228
Net unrealized investment gains 30,156 19,497
Other 201 321
--------- ----------
Total deferred tax liability 100,875 72,977
--------- ----------
Deferred tax asset:
Policy reserves 44,847 30,891
Utilization of net operating losses 455 902
Other deductible temporary differences -- 542
--------- ---------
Deferred income tax assets before valuation allowances 45,302 32,335
Less: valuation allowance (2,553) (2,553)
--------- ---------
Total deferred tax asset 42,749 29,782
--------- ---------
Net deferred tax liability $ 58,126 $ 43,195
========= =========
</TABLE>
A valuation allowance is provided at December 31, 1997 and 1996 related to
the tax benefit of loss carryovers and deductible differences because it is more
likely than not that such benefits will not be realized.
Under the provision of the pre-1984 life insurance company income tax
regulations, a portion of "gain from operations" of a life insurance company was
not subject to current taxation but was accumulated, for tax purposes, in a
special tax memorandum account designated as "Policyholders' Surplus Account"
(PSA). Federal income taxes will become payable on this account at the then
current tax rate when and to the extent the account exceeds a specific maximum,
or when and if distributions to stockholders, other than stock dividends and
other limited exceptions, are made in excess of the accumulated previously-taxed
income. At December 31, 1997, the Insurance Companies had aggregate balances in
their PSA of approximately $11,549. Federal income tax of $4,043 would be due if
the entire balance is distributed at the current income tax rate of 35%. No
provision has been recorded relating to any potential distributions from the PSA
subsequent to 1997.
At December 31, 1997, the Insurance Companies with balances in their PSA
had aggregate balances in their Shareholder Surplus Accounts of approximately
$94,264 from which distributions could be made without incurring any federal tax
liability with respect to the PSA accounts.
The Company has a non-life regular net operating loss carryover of
approximately $1,300 which will expire in2008 if unutilized and no alternative
minimum tax net operating loss carryover.
<PAGE>
10. Commitments and Contingencies
The Company leases certain data processing equipment and office space, some
of which are from related parties, under operating leases. Rental expense was
$3,216, $1,931 and $1,881 in 1997, 1996 and 1995, respectively, and is included
in other operating expenses. Approximate future minimum lease commitments for
leases whose terms are greater than one year at December 31, 1997 are as
follows: <TABLE>
<S> <C>
1998 $ 2,556
1999 2,348
2000 1,159
2001 818
2002 and thereafter 3,884
------------
$ 10,765
</TABLE>
Great Southern is a defendant in four purported class action lawsuits
alleging deceptive sales practices in the marketing of its whole life and
universal life insurance policies and seeking unspecified compensatory, punitive
and/or treble damages. These cases are: Harriett D. Mann and Dan C. Wynn v.
Great Southern Life Insurance Company (U.S. District Court for the Middle
District of Florida, filed on September 22, 1997); Irwin Ginsberg v. Great
Southern Life Insurance Company (U.S. District Court for the Southern District
of Florida, filed on February 24, 1997); James Morgan McGraw, Frances Norman,
Robert Harry Bishop and Charlene McGraw v. Great Southern Life Insurance Company
and Ervin Jackson (U.S. District Court for the Eastern District of Texas,
amended petition alleging class action filed July 1, 1997); and Yvonne H. Massey
v. Great Southern Life Insurance Company, Ralph Williams & Associates, Inc. and
Ralph Williams (U.S. District Court for the Northern District of Alabama, filed
September 19, 1997). Great Southern has filed a motion before the U.S. Judicial
Panel on Multidistrict Litigation requesting that these lawsuits be transferred
to a single district and consolidated for pretrial proceedings. A fifth
purported class action lawsuit making similar allegations, Ernest Marqoquin v.
Great Southern Life Insurance Company and Dale Darnell, was filed against Great
Southern on February 11, 1998 in Cameron County District Court, Texas. On March
19, 1998, Great Southern removed this case to the United States District Court
for the Southern District of Texas. Great Southern intends to seek to have this
case added to the consolidated multidistrict litigation proceedings. Great
Southern intends to defend all these cases vigorously. The amount of any
liability that may arise as a result of these cases, if any, cannot be
reasonably estimated at this time and no provision for loss has been made in the
accompanying financial statements.
The Company is named as defendant in a number of other lawsuits arising
from the normal course of business. Management does not expect that these
actions will result in a material loss to the Company.
11. Employee Benefit Plans
Great Southern is a sponsor of several contributory postretirement benefit
plans which provide life and medical insurance to participating retired
employees and agents. Pursuant to the purchase agreement, Great Southern's
former parent assumed responsibility for employees and agents who retired on or
after August 1, 1984. Future costs of benefits for employees and agents who
retired prior to August 1, 1984, are the responsibility of the Company. A
liability for these postretirement benefits of $2,680 is included in other
liabilities at both December 31, 1997 and 1996.
12. Segment Information
Consolidated business segment information as of and for the years ended
December 31, is summarized as follows:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Revenues:
Individual life and other insurance $ 422,037 $ 365,071 $ 283,168
Corporate and other non-insurance 16,240 6,528 10,895
-------------- ------------- --------------
Total $ 438,277 $ 371,599 $ 294,063
============== ============== ==============
Income before provision for income taxes:
Individual life and other insurance $ 23,465 $ 25,398 $ 23,439
Corporate and other non-insurance 7,821 15,389 7,417
-------------- -------------- ---------------
Total $ 31,286 $ 40,787 $ 30,856
============== ============== ==============
Assets:
Individual life and other insurance $ 3,968,866 $ 2,712,489 $ 2,394,397
Corporate and other non-insurance 69,152 57,094 65,408
--------------- --------------- --------------
Total $ 4,038,018 $ 2,769,583 $ 2,459,805
============= ============= ==============
</TABLE>
Individual life and other insurance revenues include premiums paid by
policyholders on traditional insurance contracts, product charges on universal
life and investment-type contracts, other income, allocations of net investment
income and net realized investment gains and losses.
Corporate and other non-insurance revenues represent investment income on
equity affiliates and unallocated assets, and unallocated net realized
investment gains and losses.
Individual life and other insurance income before provision for income
taxes represents total revenue, policy and claim benefits, operating expenses
and net realized investment gains and losses. Corporate and other non-insurance
income before provision for income taxes represents corporate revenues, expenses
not directly allocable to product segments, debt service costs, unallocated net
realized investment gains and losses and amortization expense relating to debt
acquisition costs and goodwill. Corporate and non-insurance amortization expense
was $941, $336 and $301 for the years ended December 31, 1997, 1996 and 1995,
respectively.
13. Related Parties
The Company and FHC are involved in advisory and data processing services
agreements. Under the advisory agreement, FHC supervises and directs the
composition of the investment portfolios of the Company and its subsidiaries in
accordance with their respective objectives and policies. For these services,
FHC is compensated based on the aggregate statutory book value of the investable
assets of the Insurance Companies. Under the data processing agreement, FHC
provides the Company and its subsidiaries with record-keeping services for
certain life insurance and annuity products. For its services, FHC is paid a fee
per policy serviced. The Company and its subsidiaries are also involved in a
cost-sharing agreement with FHC respecting air transportation expenses arising
from the use of an airplane leased by FHC.
The Company leases to FHC a building which is occupied by FHC. In addition,
the Company utilizes a laboratory which is partially-owned by several
stockholders of FHC for testing purposes.
Amounts due from (to) affiliates at December 31, 1997 and 1996 include
$(2,036) and $(293) due from (to) FHC arising from intercompany tax allocation
and other amounts from CIG and FHC arising from the normal course of business.
<PAGE>
The following table summarizes the related party transactions for the three
years ended December 31:
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Data processing agreement between the Company and FHC $ 11,802 $ 9,778 $ 8,073
Advisory agreement between the Company and FHC 7,180 6,143 4,750
Air transportation cost sharing agreement 667 765 551
Rental expense 906 913 899
Laboratory services 312 178 163
</TABLE>
College Life and Great Southern are involved in coinsurance agreements with
Financial Assurance. Under the terms of the agreements, College Life and Great
Southern agree to reinsure certain business, as defined in a separate marketing
agreement, to Financial Assurance on a 50% coinsurance basis. Additionally,
College Life and Great Southern agree to reimburse Financial Assurance for a
portion of the policy issue and maintenance expenses relating to servicing the
policies.
14. Subsequent Event
The Company has agreed to sell 100% of the outstanding common stock of
Investors Guaranty to an unrelated party. The Company will continue to assume
the risks associated with Investors Guaranty policies on a 70% quota share
basis. The Company intends to reinsure these risks on an assumption basis in the
future.
<PAGE>
AMERICO LIFE, INC. AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
Page
<S> <C>
Report of Independent Accountants on Financial Statement Schedules S-2
Schedule II Condensed Financial Information of Registrant S-3
Schedule IV Reinsurance S-7
Schedule V Valuation and Qualifying Accounts S-8
</TABLE>
All other financial statement schedules for which provision is made in
the applicable accounting regulation of the Securities and Exchange Commission
are not required under the related instructions or are inapplicable, and
therefore have been omitted.
<PAGE>
Report of Independent Accountants on
Financial Statement Schedules
To the Board of Directors and
Stockholder of Americo Life, Inc.
Our audits of the consolidated financial statements referred to in our
report dated March 27, 1998, appearing on page F-2 of this Form 10-K also
included an audit of the Financial Statement Schedules listed in Item 14(a) of
this Form 10-K. In our opinion, these Financial Statement Schedules present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related consolidated financial statements.
PRICE WATERHOUSE LLP
Kansas City, Missouri
March 27, 1998
<PAGE>
Schedule II
Americo Life, Inc. and Subsidiaries
Condensed Financial Information of Registrant
Balance Sheet
(Dollars in thousands)
December 31, 1997 and 1996
<TABLE>
1997 1996
---- ----
Assets
<S> <C> <C>
Equity securities, at market (cost: $6,855 and $5,228) $ 12,368 $ 7,565
Investment in subsidiaries 227,784 184,584
Cash and cash equivalents 96 5,259
Surplus debentures receivable 137,305 137,845
Property and equipment, net 2,127 2,126
Other assets 10,506 11,119
--------- ---------
Total assets $ 390,186 $ 348,498
========= =========
Liabilities and Stockholder's Equity
Notes payable $ 132,312 $ 132,564
Accrued interest payable 908 915
Amounts due to affiliates 332 1,515
Deferred income taxes 5,288 2,612
Other liabilities 4,484 3,870
---------- ---------
Total liabilities 143,324 141,476
---------- ---------
Stockholder's equity:
Common stock ($1 par value, 30,000 shares authorized, 10,000 issued and
outstanding) 10 10
Additional paid-in capital 3,745 3,745
Net unrealized investment gains 56,973 37,189
Retained earnings 186,134 166,078
---------- ----------
Total stockholder's equity 246,862 207,022
---------- ----------
Total liabilities and stockholder's equity $ 390,186 $ 348,498
========= =========
</TABLE>
See notes to condensed financial information
<PAGE>
Schedule II
Americo Life, Inc. and Subsidiaries
Condensed Financial Information of Registrant
Statement of Income
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Income
Management and data processing fees from subsidiaries $ 13,602 $ 12,055 $ 10,708
Interest income on surplus debentures receivable 12,757 12,842 11,053
Net investment income 428 415 819
Net realized investment gains (losses) (430) 107 --
Other income 4,936 6,673 1,557
------------ ----------- ----------
Total income 31,293 32,092 24,137
----------- ---------- ----------
Expenses
Management and advisory fees to parent 18,982 15,921 12,823
Interest expense 12,089 12,263 10,593
Other operating expenses 2,092 2,958 1,454
Amortization expense 941 664 301
--------- --------- ----------
Total expenses 34,104 31,806 25,171
--------- --------- ----------
Income (loss) before provision for (benefit from) income taxes and
equity in income of subsidiaries (2,811) 286 (1,034)
Provision for (benefit from) income taxes 614 1,418 (581)
--------- --------- ----------
Loss before equity in income of subsidiaries (3,425) (1,132) (453)
Equity in income of subsidiaries 25,481 28,406 20,183
--------- --------- ----------
Net income $ 22,056 $ 27,274 $ 19,730
========= ========= ==========
</TABLE>
See notes to condensed financial information
<PAGE>
Schedule II
Americo Life, Inc. and Subsidiaries
Condensed Financial Information of Registrant
Statement of Cash Flows
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities
Net income $ 22,056 $ 27,274 $ 19,730
Adjustments to reconcile net income to net cash provided (used) by
operating activities:
Undistributed equity in earnings of subsidiaries (25,481) (28,406) (20,183)
Dividends received from subsidiaries -- 8,000 --
Depreciation and amortization 1,572 943 462
(Increase) decrease in other assets, net of amortization expense 328 (545) (4,820)
Decrease in other liabilities (96) (1,220) (1,332)
Provision for deferred income taxes 1,564 408 428
Increase (decrease) in amounts due to/from affiliates (1,183) 4,541 (2,684)
Other changes 613 (535) 306
--------- --------- ---------
Total adjustments (22,683) (16,814) (27,823)
--------- --------- ---------
Net cash provided (used) by operating activities (627) 10,460 (8,093)
--------- --------- ----------
Cash flows from investing activities
Payment for subsidiary acquired -- -- (23,252)
Receipt from UFL for subsidiary acquired -- -- 5,500
Amounts collected on surplus debentures receivable 524 750 --
Capital contribution to subsidiary acquired -- (261) --
Payment for equity subsidiary acquired -- (4,550) --
Purchases of equity securities (5,393) (663) (6,289)
Proceeds from sales of equity securities 3,507 3,368 --
Mortgage loans originated -- (71) (74)
Purchases of property and equipment, net (633) (1,814) --
----------- ---------- ---------
Net cash used by investing activities (1,995) (3,241) (24,115)
---------- ----------- ---------
Cash flows from financing activities
Notes payable issued -- -- 21,000
Repayments of notes payable (541) (506) (244)
Debt issue costs -- -- (737)
Dividends paid (2,000) (2,000) (2,000)
----------- ---------- ----------
Net cash provided (used) by financing activities (2,541) (2,506) 18,019
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents (5,163) 4,713 (14,189)
Cash and cash equivalents at beginning of year 5,259 546 14,735
----------- ------------ ----------
Cash and cash equivalents at end of year $ 96 $ 5,259 $ 546
============ ========== ===========
Supplemental disclosure of cash flow information
Cash paid during year for interest $ 12,095 $ 12,280 $ 10,432
</TABLE>
See notes to condensed financial information
<PAGE>
Schedule II
Americo Life, Inc. and Subsidiaries
Condensed Financial Information of Registrant
Notes to Condensed Financial Information
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
In 1996, the Company received a dividend totaling $15,673 representing a
50% interest in Argus. Subsequently, the Company received a dividend from Argus
consisting of $8,000 cash and a $1,500 note receivable from a related party.
The Company sold its interest in a subsidiary acquired in 1995 to a
wholly-owned subsidiary, in exchange for a surplus debenture for $38,000 and
cash of $5,500.
The accompanying condensed financial information should be read in
conjunction with the Consolidated Financial Statements and the accompanying
notes thereto in this Form 10-K.
<PAGE>
Schedule IV
Americo Life, Inc. and Subsidiaries
Reinsurance
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
Percentage
Assumed of Amount
Year Ended Gross Ceded to Other From Other Net Assumed
December 31, Amount Companies Companies Amount to Net
<S> <C> <C> <C> <C> <C>
1997
Insurance in force $ 44,310,608 $ 13,844,254 $ 5,283,041 $ 35,749,395 14.7%
============ ============ ============ ============ =====
Premiums $ 244,647 $ 48,279 $ 7,361 $ 203,729 3.6%
============ ============ ============ ============ =====
1996
Insurance in force $ 23,125,887 $ 5,189,238 $ 4,804,462 $ 22,741,111 21.1%
============ ============ ============ ============ =====
Premiums $ 174,910 $ 35,050 $ 25,742 $ 165,602 15.5%
============ ============ ============ ============ =====
1995
Insurance in force $ 22,836,922 $ 4,564,600 $ 4,107,256 $ 22,379,578 18.4%
============ ============ ============ ============ =====
Premiums $ 176,351 $ 41,224 $ 5,003 $ 140,130 3.6%
============ ============ ============ ============ =====
</TABLE>
<PAGE>
Schedule V
Americo Life, Inc. and Subsidiaries
Valuation and Qualifying Accounts
(Dollars in thousands)
For the Years Ended December 31, 1997, 1996 and 1995
<TABLE>
Additions
---------------------------
Balance at Charged to Charged to Balance at
Year Ended Beginning Cost and Other End of
December 31, of Period Expenses Accounts Deductions Period
(1)
<S> <C> <C> <C> <C> <C>
1997
Reserve for impairment of mortgage loans
on real estate $ 300 $ -- $ -- $ -- $ 300
Write-down for impairment of real estate 107 -- -- -- 107
Allowance for receivables from agents 2,123 1,345 -- -- 3,468
------------ ------------ ---------- ----------- -----------
Total $ 2,530 $ 1,345 $ -- $ -- $ 3,875
=========== =========== ========== =========== ===========
1996
Reserve for impairment of mortgage loans
on real estate $ 300 $ -- $ -- $ -- $ 300
Write-down for impairment of real estate 120 -- -- 13 107
Allowance for receivables from agents 2,450 250 -- 577 2,123
----------- ---------- ---------- ---------- -----------
Total $ 2,870 $ 250 $ -- $ 590 $ 2,530
=========== ========== ========== ========== ===========
1995
Reserve for impairment of mortgage loans
on real estate $ 908 $ -- $ -- $ 608 $ 300
Write-down for impairment of real estate 351 -- -- 231 120
Allowance for receivables from agents 2,467 195 -- 212 2,450
----------- ------------ ----------- ----------- ----------
Total $ 3,726 $ 195 $ -- $ 1,051 $ 2,870
=========== ============ =========== ========== ==========
</TABLE>
----------------------------------------------
(1) Amounts transferred from other allowance accounts.
Exhibit 10.2(b)
AMENDMENT TO
TAX SHARING AGREEMENT
Life-Nonlife
This Amendment to Tax Sharing Agreement--Life-Nonlife (the "Amendment")
is made as of the 1st day of January, 1996, by and between FINANCIAL HOLDING
CORPORATION, a Missouri corporation, AMERICO LIFE, INC., a Missouri corporation,
GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas corporation, PREMIUM FINANCING
SPECIALISTS, INC., a Missouri corporation, CIDAT AVIATION, INC., a Delaware
corporation, UNITED FIDELITY LIFE INSURANCE COMPANY, a Texas corporation
("UFL"), THE COLLEGE LIFE INSURANCE COMPANY OF AMERICA, a Texas corporation, PFS
HOLDING COMPANY, a Missouri corporation, COLLEGE INSURANCE GROUP, INC., a
Missouri corporation, ASSURED LEASING CORPORATION, a Missouri corporation,
LANDMARK MORTGAGE COMPANY, a Missouri corporation, FIRST CONSULTING AND
ADMINISTRATION, INC., a Missouri corporation, HANOVER FINANCIAL CORPORATION, a
Missouri corporation, PREMIUM FINANCING SPECIALISTS OF CALIFORNIA, INC., a
California corporation, and PFS FINANCING CORPORATION, a Missouri corporation.
WHEREAS, the parties entered into that certain Tax Sharing
Agreement--Life-Nonlife dated as of December 29, 1995 (the "Agreement"); and
WHEREAS, the parties wish to amend the Agreement so that The Victory
Life Insurance Company ("Victory"), a wholly-owned subsidiary of UFL, will
become a party;
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree that, effective January 1, 1996, the Agreement
shall apply to Victory, and Victory shall thereafter enjoy all rights of a
"Subsidiary" under the Agreement, and by its execution and delivery of this
Amendment, Victory agrees to be bound by the terms of the Agreement as a
"Subsidiary."
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
PREMIUM FINANCING FINANCIAL HOLDING CORPORATION
SPECIALISTS, INC.
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
PFS HOLDING COMPANY ASSURED LEASING CORPORATION
By By
Name Name
Title Title
COLLEGE INSURANCE GROUP, FIRST CONSULTING AND
INC. ADMINISTRATION, INC.
By By
Name Name
Title Title
LANDMARK MORTGAGE PREMIUM FINANCING SPECIALISTS
COMPANY ADMINISTRATION, OF CALIFORNIA, INC.
INC.
By By
Name Name
Title Title
HANOVER FINANCIAL PFS FINANCING CORPORATION
CORPORATION
By By
Name Name
Title Title
THE VICTORY LIFE INSURANCE CIDAT AVIATION, INC.
COMPANY
By By
Name Name
Title Title
Exhibit 10.3(b)
AMENDMENT TO
REIMBURSEMENT OF EXPENSE AGREEMENT
This Amendment to Reimbursement of Expense Agreement (the
AAmendment@) is made as of the 29th day of August, 1997, by and between
FINANCIAL HOLDING CORPORATION, a Missouri corporation, AMERICO LIFE, INC.,
a Missouri corporation, GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas
corporation (AGreat Southern@), PREMIUM FINANCING SPECIALISTS, INC., a
Missouri corporation, ARGUS HEALTH SYSTEMS, INC., a Delaware corporation,
UNITED FIDELITY LIFE INSURANCE COMPANY, a Texas corporation, THE COLLEGE
LIFE INSURANCE COMPANY OF AMERICA, a Texas corporation, PFS HOLDING
COMPANY, a Missouri corporation, LOYALTY LIFE INSURANCE COMPANY, a Texas
corporation (ALoyalty@), COLLEGE INSURANCE GROUP, INC., a Missouri
corporation, NATIONAL FARMERS UNION LIFE INSURANCE COMPANY, a Texas
corporation, and FINANCIAL ASSURANCE INCORPORATED, a Texas corporation.
WHEREAS, the parties entered into that certain Reimbursement of
Expense Agreement dated as of July 30, 1993 (the AAgreement@); and
WHEREAS, on August 29, 1997, Great Southern intends to sell all
the outstanding stock of Loyalty to Healthcare COMPARE Corp.; and
WHEREAS, to facilitate such sale of stock, the parties wish to
amend the Agreement to remove Loyalty from the Agreement in the manner
provided herein;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that, effective as of the close of
business on August 29, 1997, the Agreement shall cease to apply to Loyalty,
and Loyalty shall thereafter have no rights or obligations under the
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
<PAGE>
PREMIUM FINANCING FINANCIAL HOLDING CORPORATION
SPECIALISTS, INC.
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
PFS HOLDING COMPANY LOYALTY LIFE INSURANCE COMPANY
By By
Name Name
Title Title
NATIONAL FARMERS UNION COLLEGE INSURANCE GROUP, INC.
LIFE INSURANCE COMPANY
By By
Name Name
Title Title
ARGUS HEALTH SYSTEMS, INC. FINANCIAL ASSURANCE
INCORPORATED
By By
Name Name
Title Title
Exhibit 10.3 (c)
AMENDMENT TO
REIMBURSEMENT OF EXPENSE AGREEMENT
This Amendment to Reimbursement of Expense Agreement (the
AAmendment@) is made as of October 1, 1997, by and among Financial Holding
Corporation, a Missouri corporation, Americo Life, Inc., a Missouri
corporation (AAmerico@), Great Southern Life Insurance Company, a Texas
corporation (AGreat Southern@), Premium Financing Specialists, Inc., a
Missouri corporation, Argus Health Systems, Inc., a Delaware corporation
(AArgus@), United Fidelity Life Insurance Company, a Texas corporation, The
College Life Insurance Company of America, a Texas corporation, PFS Holding
Company, a Missouri corporation, College Insurance Group, Inc., a Missouri
corporation, National Farmers Union Life Insurance Company, a Texas
corporation, and Financial Assurance Life Insurance Company, a Texas
corporation (formerly, Financial Assurance Incorporated) (collectively, the
foregoing are referred to herein as the AExisting Parties@), and Americo
Services, Inc., a Missouri corporation (AASI@), and The Ohio State Life
Insurance Company, an Ohio corporation (AOSL@).
WHEREAS, the Existing Parties entered into that certain
Reimbursement of Expense Agreement dated as of July 30, 1993, which
agreement was amended as of August 29, 1997 (as amended, the AAgreement@);
and
WHEREAS, Great Southern acquired all the outstanding capital stock
of OSL effective as of April 15, 1997; and
WHEREAS, ASI is a wholly owned subsidiary of Americo; and
WHEREAS, the Existing Parties wish to amend the Agreement so that
OSL and ASI will each become a party to the Agreement, and each of OSL and
ASI desires to become a party to the Agreement; and
WHEREAS, the Existing Parties wish to amend the Agreement to
remove Argus from the Agreement;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, effective as of October 1, 1997:
(a) the Existing Parties agree that the Agreement is
hereby amended to apply to OSL and ASI, and that each of OSL and
ASI shall henceforth enjoy all rights of a party to such
Agreement; and
<PAGE>
(b) by their respective execution and delivery of this
Amendment, each of OSL and ASI agree to be bound by the terms of
the Agreement as a party thereto; and
(c) the Agreement shall cease to apply to Argus, and Argus
shall thereafter have no rights or obligations under the
Agreement.
Except as herein amended, the Agreement shall remain in full force
and effect without change.
IN WITNESS WHEREOF, the Existing Parties and OSL and ASI have
executed this Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
PREMIUM FINANCING FINANCIAL HOLDING CORPORATION
SPECIALISTS, INC.
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
<PAGE>
PFS HOLDING COMPANY AMERICO SERVICES, INC.
By By
Name Name
Title Title
NATIONAL FARMERS UNION COLLEGE INSURANCE GROUP, INC.
LIFE INSURANCE COMPANY
By By
Name Name
Title Title
ARGUS HEALTH SYSTEMS, INC. FINANCIAL ASSURANCE LIFE
INSURANCE COMPANY
By By
Name Name
Title Title
THE OHIO STATE LIFE
INSURANCE COMPANY
By
Name
Title
Exhibit 10.4 (b)
AMENDMENT TO
COST SHARING AGREEMENT
This Amendment to Cost Sharing Agreement (the AAmendment@) is made
as of the 29th day of August, 1997, by and between AMERICO LIFE, INC., a
Missouri corporation, GREAT SOUTHERN LIFE INSURANCE COMPANY, a Texas
corporation (AGreat Southern@), PREMIUM FINANCING SPECIALISTS, INC., a
Missouri corporation, LANDMARK MORTGAGE COMPANY, a Missouri corporation,
UNITED FIDELITY LIFE INSURANCE COMPANY, a Texas corporation, THE COLLEGE
LIFE INSURANCE COMPANY OF AMERICA, a Texas corporation, PFS HOLDING
COMPANY, a Missouri corporation, LOYALTY LIFE INSURANCE COMPANY, a Texas
corporation (ALoyalty@), and NATIONAL FARMERS UNION LIFE INSURANCE COMPANY,
a Texas corporation.
WHEREAS, the parties entered into that certain Cost Sharing
Agreement dated as of July 30, 1993 (the AAgreement@); and
WHEREAS, on August 29, 1997, Great Southern intends to sell all
the outstanding stock of Loyalty to Healthcare COMPARE Corp.; and
WHEREAS, to facilitate such sale of stock, the parties wish to
amend the Agreement to remove Loyalty from the Agreement in the manner
provided herein;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that, effective as of the close of
business on August 29, 1997, the Agreement shall cease to apply to Loyalty,
and Loyalty shall thereafter have no rights or obligations under the
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
<PAGE>
PREMIUM FINANCING LANDMARK MORTGAGE COMPANY
SPECIALISTS, INC.
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
PFS HOLDING COMPANY LOYALTY LIFE INSURANCE COMPANY
By By
Name Name
Title Title
NATIONAL FARMERS UNION
LIFE INSURANCE COMPANY
By
Name
Title
Exhibit 10.4 (c)
AMENDMENT TO
COST SHARING AGREEMENT
This Amendment to Cost Sharing Agreement (the AAmendment@) is made
as of October 1, 1997, by and among Americo Life, Inc., a Missouri
corporation (AAmerico@), Great Southern Life Insurance Company, Premium a
Texas corporation (AGreat Southern@), Premium Financing Specialists, Inc.,
a Missouri corporation (APFS@), Landmark Mortgage Company, a Missouri
corporation, United Fidelity Life Insurance Company, a Texas corporation,
The College Life Insurance Company of America, a Texas corporation, PFS
Holding Company, a Missouri corporation (APFS Holding@), and National
Farmers Union Life Insurance Company, a Texas corporation (collectively,
the foregoing are referred to herein as the Existing Parties@), Americo
Services, Inc., a Missouri corporation (AASI@), and The Ohio State Life
Insurance Company, an Ohio corporation (AOSL@).
WHEREAS, the Existing Parties entered into that certain Cost
Sharing Agreement dated as of July 30, 1993, which agreement was amended as
of August 29, 1997 (as amended, the AAgreement@); and
WHEREAS, because Great Southern purchased all the outstanding
capital stock of OSL effective as of April 15, 1997, and ASI is a wholly
owned subsidiary of Americo, the Existing Parties wish to amend the
Agreement so that OSL and ASI will each become a party to the Agreement,
and each of OSL and ASI desires to become a party to the Agreement;
WHEREAS, because PFS and PFS Holding are no longer subsidiaries of
Americo, the Existing Parties wish to amend the Agreement to remove PFS and
PFS Holding from the Agreement in the manner provided herein;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, effective as of October 1, 1997:
(a) the Existing Parties agree that the Agreement is
hereby amended to apply to OSL and ASI, and that OSL and ASI shall
henceforth enjoy all rights of a ASubsidiary@ under the Agreement;
and
(b) by their respective execution and delivery of this
Amendment, each of OSL and ASI agree to be bound by the terms of
the Agreement as a ASubsidiary@; and
<PAGE>
(c) the Agreement shall cease to apply to PFS and PFS
Holding, and PFS and PFS Holding shall thereafter have no rights
or obligations under the Agreement.
Except has herein amended, the Agreement shall remain in full
force and effect without change.
IN WITNESS WHEREOF, the Existing Parties and OSL and ASI have
executed this Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
AMERICO SERVICES, INC. LANDMARK MORTGAGE COMPANY
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
NATIONAL FARMERS UNION THE OHIO STATE LIFE INSURANCE
LIFE INSURANCE COMPANY COMPANY
By By
Name Name
Title Title
<PAGE>
PREMIUM FINANCING PFS HOLDING, INC.
SPECIALISTS, INC.
By By
Name Name
Title Title
Exhibit 10.6 (b)
AMENDMENT TO
SUBSIDIARY DATA PROCESSING SERVICES AGREEMENT
This Amendment to Subsidiary Data Processing Services Agreement
(the AAmendment@) is made as of the 29th day of August, 1997, by and
between AMERICO LIFE, INC., a Missouri corporation, GREAT SOUTHERN LIFE
INSURANCE COMPANY, a Texas corporation (AGreat Southern@), UNITED FIDELITY
LIFE INSURANCE COMPANY, a Texas corporation, THE COLLEGE LIFE INSURANCE
COMPANY OF AMERICA, a Texas corporation, LOYALTY LIFE INSURANCE COMPANY, a
Texas corporation (ALoyalty@), and NATIONAL FARMERS UNION LIFE INSURANCE
COMPANY, a Texas corporation.
WHEREAS, the parties entered into that certain Subsidiary Data
Processing Services Agreement dated as of January 1, 1993 (the
AAgreement@); and
WHEREAS, on August 29, 1997, Great Southern intends to sell all
the outstanding stock of Loyalty to Healthcare COMPARE Corp.; and
WHEREAS, to facilitate such sale of stock, the parties wish to
amend the Agreement to remove Loyalty from the Agreement in the manner
provided herein;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree that, effective as of the close of
business on August 29, 1997, the Agreement shall cease to apply to Loyalty,
and Loyalty shall thereafter have no rights or obligations under the
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this
Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
<PAGE>
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
NATIONAL FARMERS UNION LOYALTY LIFE INSURANCE COMPANY
LIFE INSURANCE COMPANY
By By
Name Name
Title Title
Exhibit 10.6 (c)
AMENDMENT TO
SUBSIDIARY DATA PROCESSING SERVICES AGREEMENT
This Amendment to Subsidiary Data Processing Services Agreement
(the AAmendment@) is made as of October 1, 1997, by and among Americo Life,
Inc., a Missouri corporation (AAmerico@), Great Southern Life Insurance
Company, a Texas corporation (AGreat Southern@), United Fidelity Life
Insurance Company, a Texas corporation, The College Life Insurance Company
of America, a Texas corporation, and National Farmers Union Life Insurance
Company, a Texas corporation (collectively, the foregoing are referred to
herein as the AExisting Parties@), and Americo Services, Inc., a Missouri
corporation (AASI@), and The Ohio State Life Insurance Company, an Ohio
corporation (AOSL@).
WHEREAS, the Existing Parties entered into that certain Subsidiary
Data Processing Services Agreement dated as of January 1, 1993, which
agreement was amended as of August 29, 1997 (as amended, the AAgreement@);
and
WHEREAS, Great Southern purchased all the outstanding capital
stock of OSL effective as of April 15, 1997; and
WHEREAS, ASI is a wholly owned subsidiary of Americo; and
WHEREAS, the Existing Parties wish to amend the Agreement so that
OSL and ASI will each become a party to the Agreement, and each of OSL and
ASI desires to become a party to the Agreement;
NOW, THEREFORE, in consideration of the premises and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, effective as of October 1, 1997:
(a) the Existing Parties agree that the Agreement is
hereby amended to apply to each of OSL and ASI, and that each of
OSL and ASI shall henceforth enjoy all rights of a ASubsidiary@
under the Agreement; and
(b) by their respective execution and delivery of this
Amendment, each of OSL and ASI agree to be bound by the terms of
the Agreement as a ASubsidiary.@
Except as herein amended, the Agreement shall remain in full force
and effect without change.
<PAGE>
IN WITNESS WHEREOF, the Existing Parties and OSL and ASI have
executed this Amendment as of the date first above written.
AMERICO LIFE, INC. GREAT SOUTHERN LIFE INSURANCE
COMPANY
By By
Name Name
Title Title
UNITED FIDELITY LIFE THE COLLEGE LIFE INSURANCE
INSURANCE COMPANY COMPANY OF AMERICA
By By
Name Name
Title Title
NATIONAL FARMERS UNION AMERICO SERVICES, INC.
LIFE INSURANCE COMPANY
By By
Name Name
Title Title
THE OHIO STATE LIFE
INSURANCE COMPANY
By
Name
Title
Exhibit 10.12
OFFICE LEASE
at
LINCOLN PLAZA
Between
METROPOLITAN LIFE INSURANCE COMPANY (LANDLORD)
And
GREAT SOUTHERN LIFE INSURANCE COMPANY (TENANT)
DATED: February 19, 1997
<PAGE>
TABLE OF CONTENTS
ARTICLE ONE - BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . . . 1
1.01 BASIC LEASE PROVISIONS . . . . . . . . . . . . . . . . .1
1.02 ENUMERATION OF EXHIBITS . . . . . . . . . . . . . . . . 1
1.03 DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE TWO - PREMISES, TERM AND FAILURE TO GIVE POSSESSION . . . . .. . 3
2.01 LEASE OF PREMISES . . . . . . . . . . . . . . . . . .. 3
2.02 TERM . . . . . . . . . . . . . . . . . . . . . . . . . .3
2.03 FAILURE TO GIVE POSSESSION . . . . . . . . . . . . . . .3
2.04. CONDITION OF PREMISES . . . . . . . . . . . . . . . .. 3
ARTICLE THREE - RENT . . . . . . . . . . . . . . . . . . . . . . . ..3
ARTICLE FOUR - RENT ADJUSTMENT . . . . . . . . . . . . . . . .. . . . . .4
4.01 RENT ADJUSTMENT . . . . . . . . . . . . . . . . . .. . .4
4.02 ELECTRICAL COSTS . . . . . . . . . . . . . . . . . .. . 4
4.03 PROCEDURE . . . . . . . . . . . . . . . . . . . . . . . 4
4.04 BOOKS AND RECORDS . . . . . . . . . . . . . . . . . .. 4
4.05 PARTIAL OCCUPANCY . . . . . . . . . . . . . . . . . .. 4
ARTICLE FIVE - SECURITY DEPOSIT . . . . . . . . . . . . . . . . . . . . .5
ARTICLE SIX - SERVICES . . . . . . . . . . . . . . . . . . . . . . . .. 5
6.01 LANDLORD'S GENERAL SERVICES . . . . . . . . . . . . . . 5
6.02 ELECTRICAL SERVICES . . . . . . . . . . . . . . . . . . 5
6.03 ADDITIONAL AND AFTER-HOUR SERVICES . . . . . . . . . . .6
6.04 TELEPHONE SERVICES . . . . . . . . . . . . . . . .. . .6
6.05 DELAYS IN FURNISHING SERVICES . . . . . . . . . . .. . 6
ARTICLE SEVEN - POSSESSION, USE AND CONDITION OF PREMISES . . . . . . . .6
7.01 POSSESSION AND USE OF PREMISES . . . . . . . . . . .. . 6
7.02 LANDLORD ACCESS TO PREMISES . . . . . . . . . . 7
7.03 QUIET ENJOYMENT . . . . . . . . . . . . . . . . 7
ARTICLE EIGHT - MAINTENANCE . . . . . . . . . . . . . . . . . . .. . . .8
8.01 LANDLORD'S MAINTENANCE . . . . . . . . . . . . . . . . 8
8.02 TENANT'S MAINTENANCE . . . . . . . . . . . . . . . . . .8
ARTICLE NINE - ALTERATIONS AND IMPROVEMENTS . . . . . . . . . . . . . . .8
9.01 TENANT'S ALTERATIONS . . . . . . . . . . . . . . . . . .8
9.02 LIENS . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE TEN - ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . .9
10.01 ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . .. 9
10.02 RECAPTURE . . . . . . . . . . . . . . . . . . . . .. . 9
10.03 EXCESS RENT . . . . . . . . . . . . . . . . . . . .. 9
10.04 TENANT LIABILITY . . . . . . . . . . . . . . . . . .. . 9
10.05 ASSUMPTION AND ATTORNMENT . . . . . . . . . . . . . . .10
ARTICLE ELEVEN - DEFAULT AND REMEDIES . . . . . . . .. . . . . . . . . . 10
11.01 EVENTS OF DEFAULT . . . . . . . . . . . . . . . . . . .10
11.02 LANDLORD'S REMEDIES . . . . . . . . . . . . . . . .. . 10
11.03 ATTORNEY'S FEES . . . . . . . . . . . . . . . . . .. .11
11.04 BANKRUPTCY . . . . . . . . . . . . . . . . . . . . .. 11
ARTICLE TWELVE - SURRENDER Of PREMISES . . . . . . . . . . . . . . . . .11
12.01 IN GENERAL . . . . . . . . . . . . . . . . . . . . . . 11
12.02 LANDLORD'S RIGHTS . . . . . . . . . . . . . . . . . . .11
ARTICLE THIRTEEN - HOLDING OVER . . . . . . . . . . .. . . . . . . . .. .12
ARTICLE FOURTEEN - DAMAGE BY FIRE OR OTHER CASUALTY .. . . . . . . . . . 12
14.01 SUBSTANTIAL UNTENANTABILITY . . . . . . . . . . . . . .12
14.02 INSUBSTANTIAL UNTENANTABILITY . . . . . . . . . . .. . 12
14.03 RENT ABATEMENT . . . . . . . . . . . . . . . . . .. . 12
ARTICLE FIFTEEN - EMINENT DOMAIN . . . . . . . . . . . . . . . . . . . .12
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART . . . . . . . . . .12
15.02 TAKING OF PART . . . . . . . . . . . . . . . . . . . . 12
15.03 COMPENSATION . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE SIXTEEN - INSURANCE . . . . . . . . . . . . . . . . . . . . . . 13
16.01 TENANT'S INSURANCE . . . . . . . . . . . . . . . . . 13
16.02 FORM OF POLICIES . . . . . . . . . . . . . . . . . . . 13
16.03 LANDLORD'S INSURANCE . . . . . . . . . . . . . . . .. .13
16.04 WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . .13
16.05 NOTICE OF CASUALTY . . . . . . . . . . . . . . . . . . 14
ARTICLE SEVENTEEN - WAIVER OF CLAIMS AND INDEMNITY . . .. . . . . . . . .14
17.01 WAIVER OF CLAIMS . . . . . . . . . . . . . . . . . .. .14
17.02 INDEMNITY BY TENANT . . . . . . . . . . . . . . . .. . 14
ARTICLE EIGHTEEN - RULES AND REGULATIONS . . . . . . . . . . . . . . . .14
18.01 RULES . . . . . . . . . . . . . . . . . . . . . . .. .14
18.02 ENFORCEMENT . . . . . . . . . . . . . . . . . . . . 14
i
<PAGE>
ARTICLE NINETEEN - LANDLORD'S RESERVED RIGHTS . . . . . . . . . . . . .14
19.01 RESERVED RIGHTS . . . . . . . . . . . . . . . . . . . 14
ARTICLE TWENTY - ESTOPPEL CERTIFICATE . . . . . . . . . . . . . . .. . 15
20.01 IN GENERAL . . . . . . . . . . . . . . . . . . . . . .15
20.02 ENFORCEMENT . . . . . . . . . . . .. . . . . . . . . . 15
ARTICLE TWENTY-ONE - RELOCATION OF TENANT . . . . . . . . . . . . . . .15
ARTICLE TWENTY-TWO - REAL ESTATE BROKERS . . . . . .. . . . . . . . . . 15
ARTICLE TWENTY-THREE - MORTGAGEE PROTECTION . . . . . . . . . . . .. . 15
23.01 SUBORDINATION AND ATTORNMENT . . . . . . . . . . .. . 15
23.02 MORTGAGEE PROTECTION . . . . . . . . . . . . . . . . .15
ARTICLE TWENTY-FOUR - NOTICES . . . . . . . . . . . . . . . . . . .. . 16
ARTICLE TWENTY-FIVE - MISCELLANEOUS . . . . . . . . . . . . . . . . . .16
25.01 LATE CHARGES . . . . . . . . . . . . . . . . . . . . .16
25.02 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . .16
25.03 DEFAULT UNDER OTHER LEASE . . . . .. . . . . . . . . . 16
25.04 OPTION . . . . . . . . . . . . . . . . . . . . . .. . .16
25.05 TENANT AUTHORITY . . . . . . . . . . . . . . . . . . .16
25.06 ENTIRE AGREEMENT . . . . . . . . . . . . . . . . . . .16
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE . . . .17
25.08 EXCULPATION . . . . . . . . . . . . . . . . . .. . . . 17
25.09 ACCORD AND SATISFACTION . . . . . . . . . . . . . . . .17
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING . . . .. . 17
25.11 BINDING EFFECT . . . . . . . . . . . . . . . . .. .. . 17
25.12 CAPTIONS . . . . . . . . . . . . . . . . . . . .. . . .17
25.13 APPLICABLE LAW . . . . . . . . . . . . . . . . . .. 17
25.14 ABANDONMENT . . . . . . . . . . . . . . . . . . . . . 17
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES . . .. .. 17
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OFFICE LEASE
ARTICLE ONE
BASIC LEASE PROVISIONS
1.01 BASIC LEASE PROVISIONS - In the event of any conflict between these
Basic Lease Provisions and any other Lease provision, such other Lease
provision shall control.
(1) BUILDING AND ADDRESS: One Lincoln Plaza, 500 N. Akard, Dallas,
Texas 75201.
(2) LANDLORD: Metropolitan Life Insurance Company, a New York corporation.
(3) TENANT:
(a) Name: Great Southern Life Insurance Company
(b) State of incorporation or partnership: Texas
(4) DATE OF LEASE: February 19, 1997
(5) LENGTH OF LEASE TERM: approximately 120 months.
(6) PROJECTED COMMENCEMENT DATE: June 1, 1997
(7) PROJECTED EXPIRATION DATE: May 31, 2007
(8) BASE RENT.
Period from/to Monthly Annually Rate/SF of Rentable Area
Months 1-120 $58,230.67 $698,768.00 $14.00
(9) PREMISES: SUITE NO. 5000
49,912 SQUARE FEET OF RENTABLE AREA (approx.)
47,930 SQUARE FEET OF USABLE AREA (approx.)
(10) SECURITY DEPOSIT: $0.00
(11) TENANT'S USE OF PREMISES: General office use.
1.02 ENUMERATION OF EXHIBITS
The exhibits and riders set forth below and attached to this Lease or
incorporated in this Lease by this reference:
EXHIBIT A. Legal Description of Land
EXHIBIT B. Plan of Premises
EXHIBIT C. Workletter Agreement
EXHIBIT D. Rules and Regulations
EXHIBIT E. Parking
EXHIBIT F. Renewal Option
EXHIBIT G. Termination Option
EXHIBIT H. Subordination, Non-Disturbance and Attornment Agreement
EXHIBIT I. Right of First Refusal
EXHIBIT J. Right to Lease Additional Space
1.03 DEFINITIONS
For purposes hereof, the following terms shall have the following meanings:
AFFILIATE: Any corporation or other business entity which is currently owned or
controlled by, owns or controls, or is under common ownership or control with
Tenant.
ALLOWANCE: "Allowance" shall mean an amount equal to the product of $12.25
times the number of square feet of Rentable Area included in the Premises.
Tenant may use the allowance for furniture, fixtures and equipment and
installation and cable costs.
BUILDING: The "Building" shall mean the office building located upon the Land.
CENTRE: (Not Applicable).
COMMENCEMENT DATE: The date specified in Section 1.01(6) as the Projected
Commencement Date, unless changed by operation of Article Two.
COMMON AREAS: All areas of the Real Property made available by Landlord from
time to time for the general common use or benefit of the tenants of the
Building, and their employees and invitees, or the public, as such areas
currently exist and as they may be changed from time to time.
DECORATION: Tenant Alterations which do not require a building permit and which
do not involve any of the structural elements of the Building, or any of the
Building's system, including, without limitation, Its electrical, mechanical,
plumbing and security and life/safety systems.
DEFAULT RATE: The maximum interest rate permitted by law.
ENVIRONMENTAL LAWS: Any Law governing the use, storage, disposal or generation
of any Hazardous Material, including without limitation, the Comprehensive
Environmental Response Compensation and Liability Act of 1980, as amended and
the Resource Conservation and Recovery Act of 1976, as amended.
EXPENSE STOP: The sum of $5.50 per square foot of Rentable Area in the Building.
EXPIRATION DATE: The date specified in Section 1.01(7) unless changed by
operation of Article Two.
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FORCE MAJEURE: Any accident, casualty, act of God, war or civil commotion,
strike or labor troubles, or any cause whatsoever beyond the reasonable control
of Landlord, including, but not limited to, energy shortages or governmental
preemption in connection with a national emergency, or by reason of government
laws or any rule, order or regulation of any department or subdivision thereof
or any governmental agency, or by reason of the conditions of supply and demand
which have been or are affected by war or other emergency.
HAZARDOUS MATERIAL: Such substances, material and wastes which are or become
regulated under any Environmental Law; or which are classified as hazardous or
toxic under any Environmental Law; and explosives and firearms, radioactive
material, asbestos, and polychlorinated biphenyls.
INDEMNITIES: Collectively, Landlord, any Mortgagee or ground lessor of the
Property, the property manager and the leasing manager for the Property and
their respective directors, officers, agents and employees.
INITIAL IMPROVEMENTS: "Initial Improvements", when used herein, shall mean those
improvements or remodeling to the Premises, if any, which Landlord agrees to
provide according to the Workletter attached hereto as Exhibit "C".
LAND: The parcels of real estate on which the Building is located, as legally
described in Exhibit "A" attached hereto.
LAWS: All laws, ordinances, rules, regulations and other requirements adopted by
any governmental body, or agency or department having jurisdiction over the
Property, the Premises or Tenant's activities at the Premises and any covenants,
conditions or restrictions of record which affect the Property.
LEASE: This instrument and all exhibits and riders attached hereto, as may be
amended from time to time.
LEASE YEAR: The twelve month period beginning on the first day of the first
month following the Commencement Date (unless the Commencement Date is the first
day of a calendar month in which case beginning on the Commencement Date), and
each subsequent twelve month, or shorter, period until the Expiration Date.
MONTHLY BASE RENT: The monthly rent specified in Section 1.01(8).
MORTGAGEE: Any holder of a mortgage, deed of trust or other security instrument
encumbering the Property.
NATIONAL HOLIDAYS: New Year's Day, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day and other
holidays recognized by the Landlord.
OPERATING EXPENSES: Operating Expenses shall mean all direct and indirect costs
and expenses in each calendar year of operating, maintaining, repairing,
managing and owning the Property plus all operating expenses of the Exterior
Common Areas (defined below) plus Taxes, but exclusive of electrical costs.
Operating Expenses shall not include the cost of capital improvements,
depreciation, interest, lease commissions, principal payments on mortgage and
other non-operating debts of Landlord, and Landlord's general and administrative
expenses and overhead. Operating Expenses shall, however, include the
amortization of capital improvements which are primarily for the purpose of
reducing Operating Expenses, or which are required by governmental authorities.
"Exterior Common Areas" shall mean that portion of the Property (and other
tracts of real property comprising the multi-building project in the event the
Building is located in such a project) which are not located within the Building
(or other building in a multi-building project) and which are provided and
maintained for the common use and benefit of Landlord and tenants of the
Building (or multi-building project) generally and the employees, Invitees and
licensees of Landlord and such tenants; including without limitation, all
parking areas (enclosed or otherwise) and all streets, sidewalks, walkways, and
landscaped areas.
PREMISES: The space located in the Building, described In Section 1.01(9) and
depicted on Exhibit "B" attached hereto.
PROPERTY: The Building, the Land, any other Improvements located on the Land,
including, without limitation, any parking structures and the personal property,
fixtures, machinery, equipment, system and apparatus located in or used in
conjunction with any of the foregoing.
REAL PROPERTY: The Property excluding any personal property.
RENT: Collectively, Monthly Base Rent, Rent Adjustments and all other charges,
payments, late fees or other amounts required to be paid by Tenant under this
Lease.
RENTABLE AREA OF THE BUILDING (existing as of the date of this Lease): 1,109,081
square feet.
RENTABLE AREA OF THE PREMISES: The amount of square footage set forth in Section
1.01(9), which represents the sum of (1) the "Usable Areas" within the Premises
(i.e., the gross area enclosed by the surface of the exterior glass walls, the
mid-point of any walls separating portions of the Premises from those of
adjacent tenants, the slab penetration line of all walls separating the Premises
from Service Areas and the corridor side of walls separating the Premises from
Common Areas) plus (2) a pro rate port of the Common Areas within the Building,
such proration to be based upon the ratio of the Usable Area within the Premises
to the total Usable Area within the Building existing as of the date of this
Lease, including the area encompassed by any columns or other structural
elements which provide support to the Premises and/or the Building. Rentable
Area shall not include any Service Areas. The estimates of Rentable Area within
the Premises and in the Building may be revised at Landlord's election if
Landlord's architect determines such estimate to be inaccurate in any material
degree after examination of the final "as built" drawings of the Premises and
the Building, and the Base Rental shall be adjusted accordingly, based upon the
rate per square foot of Rentable Area specified in section 1.01(8) hereof.
RENT ADJUSTMENT: Any amounts owed by Tenant for payment of Operating Expenses.
The Rent Adjustments shall be determined and paid as provided in Article Four.
SECURITY DEPOSIT: The funds specified in Section 1.01(10), if any, deposited by
Tenant with Landlord as security for Tenant's performance of its obligations
under this Lease.
SERVICE AREAS: "Service Areas" shall mean those areas within the outside watts
used for building stairs, elevator shafts, flues, vents, stacks, pipe shafts and
other vertical penetrations (but shall not include any such areas for the
exclusive use of a particular tenant).
SHELL IMPROVEMENTS: "Shell Improvements" shall mean (I) lay-in acoustical
ceiling grid with acoustical ceiling tile in the Premises; (II) central air
conditioning and heating ducts and diffusers in a placement deemed typical by
Landlord and (III) lay-in fluorescent light fixtures in a placement deemed
typical by Landlord.
SUBSTANTIALLY COMPLETE: The completion of the initial improvements, except for
minor insubstantial details of construction, decoration or mechanical
adjustments which remain to be done, as verified and mutually agreed upon by
Tenant's architect and Landlord's architect.
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TAXES: All federal, state and local governmental taxes, assessments and charges
of every kind or nature, whether general, special, ordinary or extraordinary,
which Landlord shall pay or become, obligated to pay because of or in connection
with the ownership, leasing, management, control or operation of the Property or
any of its components, or any personal property used in connection therewith,
which shall also include any rental or similar taxes levied in lieu of or in
addition to general real and/or personal property taxes. For purposes hereof,
Taxes for any year shall be Taxes which are assessed or become a lien during
such year, whether or not such taxes are billed and payable in a subsequent
calendar year. There shall be included in Taxes for any year the amount of all
fees, costs and expenses (including reasonable attorneys' fees) paid by Landlord
during such year in seeking or obtaining any refund or reduction of taxes. Taxes
for any year shall be reduced by the net amount of any tax refund received by
Landlord attributable to such year. If a special assessment payable in
installments is levied against any part of the Property, Taxes for any year
shall include only the installment of such assessment and any Interest payable
or paid during such year. Taxes shall not include any federal or state
Inheritance, general income, franchise, gift or estate taxes, except that if a
change occurs In the method of taxation resulting In whole or in part in the
substitution of any such taxes, or any other assessment, for any Taxes as above
defined, such substituted taxes or assessments shall be included in the Taxes.
TENANT ALTERATIONS: Any alterations, improvements, additions, installations
or construction in or to the Premises or any Building systems serving the
Premises pursuant to Section 9.01.
TENANT DELAY: Any event or occurrence caused by Tenant which delays the
competition of the initial improvements, as described in
the Workletter.
TERM: The term of this Lease commencing on the Commencement Date and expiring on
the Expiration Date.
TERMINATION DATE: The Expiration Date or such earlier date as this Lease
terminates or Tenant's right to possession of the Premises terminates.
WORKLETTER: The Agreement regarding the manner of completion of the initial
improvements, attached hereto as Exhibit "C".
ARTICLE TWO
PREMISES, TERM AND FAILURE TO GIVE POSSESSION
2.01 LEASE OF PREMISES
Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the
Premises for the Term and upon the conditions provided in this Lease. in the
event Landlord delivers possession of the Premises to Tenant prior to the
Commencement Date, Tenant shall be subject to all of the terms, covenants and
conditions of this Lease (except with respect to the payment of Rent) as of the
date of such possession.
2.02 TERM
(a) The Commencement Date shall be the date which is the earlier to
occur of:
(I) the Projected Commencement Date (provided the initial
improvements are Substantially Complete on or before such date; or
(II) May 1, 1997.
(b) Within thirty (30) days following the occurrence of the
Commencement Date, Landlord, through its property manager, and Tenant shall
enter into an agreement confirming the Commencement Date and the Expiration
Date.
2.03 FAILURE TO GIVE POSSESSION
If the Landlord shall be unable to give possession of the Premises on the
Projected commencement Date by reason of the following: (I) the initial
improvements are not Substantially Complete (through no fault of Landlord), or
(ii) the holding over or retention of possession of any tenant, tenants or
occupants, the Landlord shall not be subject to any liability for the failure to
give possession on sold date. Under such circumstances the rent reserved and
covenanted to be paid herein shall not commence until the Premises are made
available to Tenant by Landlord and the initial improvements are Substantially
Complete, and no such failure to give possession on the Projected Commencement
Date shall affect the validity of this Lease or the obligations of the Tenant
hereunder. The Lease shall be amended so that the term shall be extended by the
period of time possession is delayed. The said Premises shall be deemed to be
ready for Tenant's occupancy in the event the initial improvements are
Substantially Complete, or if the delay in the availability of the Premises for
occupancy shall be due to any Tenant Delay and/or default on the part of Tenant
and/or its subtenant or subtenants. In the event of any dispute as to whether
the initial improvements are Substantially Complete, the decision of Landlord's
architect shall be final and binding on the parties.
2.04 CONDITION OF PREMISES
Tenant shall notify Landlord in writing within thirty (30) days after the later
of (I) Substantial Completion of the initial improvements, or (II) when Tenant
takes possession of the Premises, of any non-latent defects in the Premises
claimed by Tenant or in the materials or workmanship furnished by Landlord in
completing the initial improvements. Except for defects stated in such notice
and latent defects discovered within the first twelve (12) months of the Term,
of which Tenant gives Landlord notice within such time period, Tenant shall be
conclusively deemed to have accepted the Premises "AS IS" in the condition
existing on the date Tenant first takes possession, and to have waived all
claims relating to the then existing condition of the Premises. Landlord shall
proceed diligently to correct the defects stated in such notice unless Landlord
disputes the existence of any such defects. In the event of any dispute as to
the existence of any such defects, the decision of Landlord's architect shall be
final and binding on the parties. No agreement of Landlord to alter, remodel,
decorate, clean or improve the Premises or the Building and no representation
regarding the condition of the Premises or the Building has been made by or on
behalf of Landlord to Tenant, except as my be specifically stated in this Lease
or in the Workletter.
ARTICLE THREE
RENT
Tenant agrees to pay to Landlord at the property management office specified in
Section 24(b)(1), or to such other persons, or at such other places designated
by Landlord, without any prior demand therefor in immediately available funds
and without any deduction whatsoever, Rent, including, without limitation,
Monthly Base Rent and Rent Adjustments in accordance with Article Four, during
the Term. Monthly Base Rent shall be paid monthly in advance on the first day of
each month of the Term, except that the first installment of Monthly Base Rent
shall be paid by Tenant to Landlord concurrently with Tenant's execution of this
Lease. Monthly Base Rent shall be prorated for partial months within the Term.
Unpaid Rent shall bear interest at the Default Rate from the date due until
paid. Tenant's covenant to pay Rent shall independent of every other covenant in
this Lease.
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ARTICLE FOUR
RENT ADJUSTMENT
4.01 RENT ADJUSTMENT
The base Rent payable hereunder shall be adjusted ("Rent Adjustment") from time
to time in accordance with the following provisions:
Tenant's base Rent is based, in part, upon the estimate that annual
Operating Expenses will be equal to the Expense Stop. During the Term, Tenant
shall pay as a Rent Adjustment hereunder an amount (per each square foot of
Rentable Area within the Premises) equal to the excess ("Excess") from time to
time of Operating Expenses per square foot of Rentable Area in the Building over
the Expense Stop. Landlord may collect such additional Base Rent in arrears on a
yearly basis. Landlord shall also have the option to make a good faith estimate
of the excess for each upcoming calendar year (or remainder thereof, if
applicable) and, upon thirty (30) days' written notice to Tenant, may require
the monthly payment of Base Rent to be adjusted in accordance with such
estimate. Any amounts paid based on any such estimate shall be subject to
adjustment pursuant to Section 4.02 below when Operating Expenses are available
for such calendar year.
4.02 ELECTRICAL COSTS
Notwithstanding anything contained in the Lease to the contrary, Operating
Expenses shall not Include the cost of electricity, but the Base Rent hereunder
shall be increased by an amount equal to Tenant's pro rate share of the cost of
electricity to the Building ("Electrical Costs"), which pro rate share shall be
equal to the product of (I) the Electrical Costs and (II) the fraction having a
numerator equal to the Rentable Area of the Premises and a denominator equal to
the Rentable Area in the Building. The Electrical Costs used to calculate
Tenant's pro rate share as heretofore described shall not include the cost of
any extraordinary electrical use by other tenants of the Building, where such
costs are charged to such tenants. Landlord may from time to time deliver to
Tenant an invoice for such pro rate share of Electrical Costs and Tenant shall
make payment of such amount to Landlord within three (3) days of delivery of the
invoice. Landlord from time to time shall also have the option to make a good
faith estimate of Tenant's pro rate share of the Electrical Costs for each
upcoming year and, upon thirty (30) days' written notice to Tenant, my require
the monthly payment of Base Rent to be adjusted in accordance with such
estimate. Any amounts paid based on such an estimate shall be subject to
adjustment as hereafter provided when actual Electrical Costs are available for
such year.
4.03 PROCEDURE
The following additional provisions shall apply to Rent Adjustments per Section
4.01:
(a) By April 1 of each calendar year during Tenant's occupancy, or as
soon thereafter as practical, Landlord shall furnish to Tenant a statement
("Landlord's Statement") of Landlord's Operating Expenses and Electrical Costs
for the previous calendar year. If for any calendar year additional Base Rent
was collected for the prior year, as a result. Of Landlord's estimate of
Operating Expenses and Electrical Costs in excess of the additional Base Rent
due during such prior year (as the case may be), then Landlord shall promptly
refund to Tenant any overpayment. Likewise, Tenant shall pay to Landlord, on
demand, any underpayment with respect to the prior year. In no event shall
operating Expenses per square foot of Rentable Area within the Building be
deemed to be less than the Expense Stop, it being the intent of Landlord and
Tenant that Tenant shall at all times be responsible for the payment of, and
shall pay, not less then the amount of Base Rent for the applicable period
(before adjustment) specified in this Lease.
(b) In the event that the Term commences on a day other then January 1
or terminates on a day other than December 31, the Excess for that part of the
first (1st) calendar year or lost calendar year during the Term of the Lease
shall be determined as follows:
(I) The Expense Stop shall be prorated based upon the number of months
in such partial calendar year. With respect to any partial calendar month
occurring during such partial calendar year, the Expense Stop shall also be
prorated based upon the number of days in that partial calendar month.
(II) The Excess, if any, for the applicable partial calendar year shall
then be the amount by which (A) actual Operating Expenses per square foot of
Rentable Area in the Building for such calendar year, prorated based upon the
number of months and days in the applicable partial calendar year, exceed (8)
the Expense Stop, as prorated pursuant to the provisions of this Subsection
4.03(b).
(III) With respect to a proration for the first (1st) calendar year and
in the event that Landlord's estimate of the Operating Expenses to be incurred
during such partial calendar year exceeds the Expense Stop, as prorated pursuant
to the provisions of this Subsection 4.03(b), Landlord may, upon thirty (30)
days prior written notice to Tenant, require the Monthly Base Rent occurring
during such partial calendar year to be adjusted in accordance with such
estimate.
4.04 BOOKS AND RECORDS
Landlord shall maintain books and records showing Operating Expenses in
accordance with generally accepted
accounting and management practices, consistently applied. The Tenant or its
representative (which representative shall be a certified public accountant
licensed to do business in the state in which the Property is located) shall
have the right, for a period of sixty (60) days following the date upon which
Landlord's Statement is delivered to Tenant, to examine the Landlord's books and
records with respect to the items in the foregoing statement of Operating
Expenses during normal business hours, upon written notice, delivered at least
three (3) business days in advance. If Tenant does not object in writing to
Landlord's Statement within (60) days of Tenant's receipt thereof, specifying
the nature of the item in dispute and the reasons therefor, then Landlord's
Statement shall be considered final and accepted by Tenant. Any amount due to
the Landlord as shown on Landlords Statement, whether or not disputed by Tenant
as provided herein shall be paid by Tenant when due as provided above, without
prejudice to any such written exception.
4.05 PARTIAL OCCUPANCY
Notwithstanding any language in the lease or in this Article Four seemingly to
the contrary, Landlord may at Landlord's sole election, determine an estimate
Operating Expenses for any calendar year within the term by increasing the
variable components of Operating Expenses to the amount which landlord projects
would have been incurred had the building been occupied to the extent of
ninety-five (95%) of the Rentable Area therein during all of the applicable
calendar year. In such event, the term "Operating Expenses", as used in this
Article Four and in the lease, shall include (I) the actual Operating Expenses
incurred during any portion of such calendar year in which the Building is
occupied to the extent of ninety-five percent (95%) or more of the Rentable Area
therein, plus (ii) the Operating Expenses which would have been incurred had the
Building been occupied to the extent of ninety-five percent (95%) of the
Rentable Area therein; and Landlord shall have the option of making such
estimate in advance for any upcoming calendar year.
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ARTICLE FIVE
SECURITY DEPOSIT
Tenant, concurrently with the execution of this Lease, shall pay to Landlord the
Security Deposit. The Security Deposit may be applied by Landlord to cure any
default of Tenant under this Lease, and upon notice by Landlord of such
application, Tenant shall replenish the Security Deposit in full by paying to
Landlord within ten (10) days of demand the amount so applied. Landlord shall
not pay any interest on the Security Deposit. The Security Deposit shall not be
deemed an advance payment of Rent, nor a measure of damages for any default by
Tenant under this Lease, nor shall it be a bar or defense of any action which
Landlord may at any time commence against Tenant. In the absence of evidence
satisfactory to Landlord of an assignment of the right to receive the Security
Deposit or the remaining balance thereof, Landlord may return the Security
Deposit to the original Tenant, regardless of one or more assignments of this
Lease. Upon the transfer of Landlord's interest under this Lease, Landlord's
obligation to Tenant with respect to the security deposit shall terminate upon
assumption of such obligation by the transferee.
If Tenant shall fully and faithfully comply with all the terms, provisions,
covenants, and conditions of this Lease, the Security Deposit, or any balance
thereof, shall be returned to Tenant after the following:
(a) the expiration of the Term of this Lease;
(b) the removal of Tenant and its property from the Premises;
(c) the surrender of the Premises by Tenant to Landlord in
accordance with this Lease; and
(d) the payment by Tenant of any outstanding Rent, including, without
limitation, all Rent Adjustments due pursuant to the Lease as computed by
Landlord.
ARTICLE SIX
SERVICES
6.01 LANDLORD'S GENERAL SERVICES
So long as the Lease is in full force and effect and Tenant has paid all Rent
then due, Landlord shall furnish the following services:
(1) heat and air-conditioning in the Premises, Monday through Friday from
8:00 A.M. to 6:00 P.M., Saturday. From 8:00 A.M. to 1:00 P.M.,
excluding National Holidays, as necessary in Landlord's reasonable
judgment for the comfortable occupancy of the Premises under normal
business operations, subject to compliance with all applicable
voluntary and mandatory regulations and laws;
(2) tempered and cold water for use in lavatories in common with other
tenants from the regular supply of the Building;
(3) customary cleaning and janitorial services in the Premises five (5)
days per week, excluding National Holidays;
(4) Washing of the outside windows in the Premises weather permitting at
intervals reasonably determined by Landlord;
(5) automatic passenger elevator service in common with other tenants of
the Building and freight elevator service subject to reasonable
scheduling by Landlord and payment of Landlord's standard charges;
(6) all Building Grade fluorescent bulb replacement in the Premises
necessary to maintain the lighting provided as a part of the Shell
Improvements and fluorescent and incandescent bulb replacement in the
Common Areas and Service Areas; and
(7) routine maintenance and electric Lighting service for all Common Areas
and Service Areas of the Building in the manner and to the extent
deemed by Landlord to be standard.
6.02 ELECTRICAL SERVICES
Tenants use of electrical services furnished by Landlord shall be subject to the
following:
(a) Landlord will provide the necessary facilities to supply (I) two
(2) watts per square foot of Usable Area within the Premises, at 277 volts, for
Tenant's fluorescent lighting and (II) two (2) watts per square foot of Usable
Area within the Promises, at 120 volts, for Tenant's receptacle/equipment toads
(excluding Tenant's dedicated circuits). Collectively, Tenant's lighting and
receptacle/equipment shall not have an electrical design load greater then an
average of four (4) watts per square foot of Usable Area within the Premises
("Standard Building Capacity"). The electrical costs component of Basic Costs Is
calculated on the basis of the Standard Building Capacity.
(b) The electrical facilities In the Building available for Tenant's
use are (1) 277/480 volts, 3 phase, for large equipment toads and fluorescent
lighting; and (II) 120/208 volts, 3 phase, for small equipment toads and
Incandescent lighting. Tenant shall notify Landlord, In writing, of any
equipment that has a rated electrical load greater then 500 watts and/or that
requires a service voltage other than 120 volts, and Landlord's written approval
shall be required with respect to the installation of any such high electrical
consumption equipment in the Premises.
(c) Tenant shall pay for all costs of meters, sub-meters, wiring,
risers, transformers, electrical panels, air conditioning and other items
required by Landlord, in Landlord's reasonable discretion, to accommodate
Tenant's design toads and capacities that exceed Standard Building Capacity,
including, without limitation, the installation and maintenance thereof.
Installation costs may be paid out of Tenant's Allowance. Notwithstanding the
foregoing, Landlord may refuse to install and withhold consent for Tenant's
installation of any wiring, risers, transformers, electrical panels, or air
conditioning if, in Landlord's reasonable judgment, the same would cause damage
or injury to the Building or the Premises or cause or create a dangerous or
hazardous condition or entail excessive or unreasonable alterations or repairs
to the Building or the Premises, or would interfere with or create or constitute
a disturbance to other tenants or occupants of the Building. In no event shall
Landlord incur any liability for Landlord's refusal to install, or withholding
of consent for Tenant's installation of, any such electrical facility or
equipment.
(d) Tenant shall pay to Landlord, upon demand, the cost of the
consumption of electrical service in excess of the Standard Building Capacity at
rates determined by Landlord which shall be In accordance with any applicable
laws.
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(e) Landlord may, at its option, upon not less then sixty (60) days'
prior written notice to Tenant, discontinue the availability of such
extraordinary electrical service. If Landlord gives any such notice, Tenant will
contract directly with the applicable public utility for the supplying of such
electrical service to the Premises.
6.03 ADDITIONAL AND AFTER-HOUR SERVICES
At Tenants request, Landlord shall furnish additional quantities of any of the
services or utilities specified in section 6.01, if Landlord can reasonably do
so, on the terms set forth herein. Tenant shall deliver to Landlord a written
request for such additional services or utilities prior to 3:00 P.M. on Monday
through Friday (except National Holidays) for service an those days, and prior
to 3:00 P.M. on the lost business day prior to Saturday, Sunday or a National
Holiday. For services or utilities requested by Tenant and furnished by
Landlord, Tenant shot[ pay to Landlord as a charge therefor Landlord's
prevailing rates for such services and utilities. If Tenant shall fail to make
any such payment, Landlord may, upon notice to Tenant and in addition to
Landlord's other remedies under this Lease, discontinue any or all of such
additional services.
6.04 TELEPHONE SERVICES
All telegraph, telephone, and electric connections which Tenant may desire shall
be first approved by Landlord in writing, (which approval shall not be
unreasonably withheld or delayed), before the same are installed, and the
location of all wires and the work in connection therewith shall be performed by
contractors approved by Landlord and shall be subject to the direction of
Landlord. Landlord reserves the right to designate and control the entity or
entities providing telephone or other communication cable installation, repair
and maintenance in the Building and to restrict and control access to telephone
cabinets. in the event Landlord designates a particular vendor or vendors to
provide such cable installation, repair and maintenance for the Building, Tenant
agrees to abide by and participate in such program. Tenant shall be responsible
for and shall pay all costs incurred in connection with the installation of
telephone cables and rotated wiring in the Premises, which may be paid out of
Tenant's Allowance, including, without limitation, any hook-up, access and
maintenance fees related to the installation of such wires and cables in the
Premises and the commencement of service therein, and the maintenance thereafter
of such wire and cables; and there shall be included in Operating Expenses for
the Building all installation, hook-up or maintenance costs incurred by Landlord
in connection with telephone cables and related wiring in the Building which are
not allocable to any individual users of such service but are allocable to the
Building generally. If Tenant fails to maintain all telephone cables and related
wiring in the Premises and such failure effects or interferes with the operation
or maintenance of any other telephone cables or related wiring In the Building,
Landlord or any vendor hired by Landlord may enter into and upon the Premises
forthwith and perform such repairs, restorations or alterations as Landlord
deems necessary in order to eliminate any such interference (and Landlord may
recover from Tenant all of Landlord's costs in connection therewith). Upon the
Termination Date, Tenant agrees to remove all telephone cables and related
wiring installed by Tenant for and during Tenant's occupancy, which Landlord
shall request Tenant to remove. Tenant agrees that neither Landlord nor any of
its agents or employees shall be liable to Tenant, or any of Tenant's employees,
agents, customers or invitees or anyone claiming through, by or under Tenant,
for any damages, injuries, losses, expenses, claims or causes of action because
of any interruption, diminution, delay or discontinuance at any time for any
reason in the furnishing of any telephone service to the Premises and the
Building, unless such damages, injuries, losses, expenses, claims or causes of
action result in whole or in part from the gross negligence or willful
misconduct of Landlord.
6.05 DELAYS IN FURNISHING SERVICES
Tenant agrees that Landlord shall not be liable to Tenant for damages or
otherwise, for any failure to furnish, or a delay in furnishing, any service
when such failure or delay is occasioned, in whole or in part, by repairs,
improvements or mechanical breakdowns by the act or default of Tenant or other
parties or by an event of Force Majeure. No interruption or malfunction of any
utility service shall constitute an eviction or disturbance of Tenant's use or
possession of the Premises or a breech by Landlord of any of Landlord's
obligations hereunder or render Landlord liable or responsible to Tenant for any
loss or damage which Tenant may sustain or incur if either the quantity or
character of any utility service is changed or is no longer available to or is
no longer suitable for Tenant's requirements or entitle Tenant to be relieved
from any of Tenant's obligations hereunder, including, without limitation, the
obligation to pay Rent, or grant Tenant any right to set-off, abatement, or
recoupment. Notwithstanding any other provision in this Lease seemingly to the
contrary, at any time when Landlord is making such facilities for such utility
services available to the Premises, Landlord may, at Landlord's option, upon not
less then sixty (60) days prior written notice to Tenant, discontinue the
availability of any such utility service. If Landlord gives any such notice of
discontinuance, Landlord shall make all the necessary arrangements with the
public utility service supplying the utility to the area in which the Building
is located with respect to obtaining such utility service to the Premises; but
Tenant will contract directly with such public utility service for the supplying
of such utility services to the Premises. Except as otherwise provided herein,
failure to any extent to make available, or any slowdown, stoppage, or
interruption of, the specified utility services resulting from any cause,
including, without limitation, Landlord's compliance with any voluntary or
similar governmental or business guidelines now or hereafter published or any
requirements now or hereafter established by any governmental agency, board, or
bureau having jurisdiction over the operation of the Building shall not render
Landlord liable in any respect for damages to either persons, property, or
business, nor be construed as an eviction of Tenant or work an abatement of
Rent, nor relieve Tenant of Tenant's obligations for fulfillment of any covenant
or agreement hereof. Should any equipment or machinery furnished by Landlord
break down or for any cause cease to function properly, Landlord shall use
reasonable diligence to repair same promptly, but Tenant shall have no claim for
abatement of Rent or damages on account of any interruption of service
occasioned thereby or resulting therefrom. In the event that Tenant shall give
notice to Landlord stating correctly that any cessation of a service described
in Section 6.01(1), (2). or (5), above (not caused by Tenant, its agents,
customers servants, contractors, employees, or invitees) shall have rendered all
or any portion of the Premises untenantable, and in the event that such
cessation continues for a period of five (5) or more consecutive business days
after Landlord receives such notice from Tenant, and in the further event that
Tenant ceases occupying such portion of the Premises solely on account of such
cessation, then Rent shall abate as to such portion of the Premises from and
after the later to occur of (I) the sixth (6th) business day following the day
Tenant gave such notice, or (if) the date Tenant so ceases occupancy, until such
service is restored or Tenant reoccupies such portion of the Premises (whichever
date is earlier). For purposes of the foregoing sentence, Tenant shall not be
considered to have occupied the Premises if Tenant simply enters the Premises
for a temporary purpose such as accessing or retrieving vital business records.
In the event that the cessation of such service was not a result of or in
connection with fire or other casualty (in which case the provisions of Article
14 of this Lease, rather then this sentence, shall apply with respect to
Tenant's rights of termination of this Lease) and such service is not restored
within seventy-five (75) days after the later to occur of the sixth (6th)
business day following the date Tenant gave such notice or the date Tenant
ceased to occupy such portion of the Premises solely on account of the cessation
of such service and Tenant has not reoccupied such portion of the Premises, then
Tenant shall have the option to terminate this Lease as to that portion of the
Premises by giving written notice of such termination to Landlord within fifteen
(15) days of the expiration of such seventy-five (75) day period. Tenant's
remedies for failure to provide services as set out in the above two sentences
of this paragraph shall constitute Tenant's sole and exclusive remedies for any
interruption or malfunction of services called for in Section 6.01(1), (2) or
(5).
ARTICLE SEVEN
POSSESSION, USE AND CONDITION OF PREMISES
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7.01 POSSESSION AND USE Of PREMISES
(a) Tenant shall be entitled to possession of the Premises when the
Work to Substantially Complete. Tenant shall occupy and use the Premises only
for the uses specified in Section 1.01(11) to conduct Tenant's business. Tenant
shall not occupy or use the Premises (or permit the use or occupancy of the
Premises) for any purpose or in any manner which: (1) is unlawful or in
violation of any Law or Environmental Law; (2) may be dangerous to persons or
property or which my increase the cost of, or invalidate, any policy of
insurance carried on the Building or covering its operations; (3) is contrary to
or prohibited by the terms and conditions of this Lease or the rules of the
Building set forth in Article Eighteen; or (4) would tend to create or continue
a nuisance.
(b) Tenant and Landlord shall each comply with all Environmental Laws
concerning the proper storage, handling and disposal of any Hazardous Material
with respect to the Property. Tenant shall not generate, store, handle or
dispose of any Hazardous Material in, on, or about the Property without the
prior written consent of Landlord; provided, however, Tenant shot I be entitled
to store and/or handle in, on or about the Property without the prior written
consent of Landlord such minimal amounts of Hazardous Materials as may be
necessary or desirable in the operation of Tenant's business and the storage,
use and/or disposal of which do not and shall not violate any applicable
Environmental Laws. In the event that Tenant is notified of any investigation or
violation of any Environmental Law arising from Tenant's activities at the
Premises, Tenant shall Immediately deliver to Landlord a copy of such notice. In
such event or In the event Landlord reasonably believes that a violation of
Environmental Law exists, Landlord may conduct such tests and studies relating
to compliance by Tenant with Environmental Laws or the alleged presence of
Hazardous Materials upon the Premises as Landlord doom desirable, all of which
shall be completed at Landlord's expense. Landlord's inspection and testing
rights are for Landlord's own protection only, and Landlord has not, and shall
not be deemed to have assumed any responsibility to Tenant or any other party
for compliance with Environmental Laws, as a result of the exercise, or
non-exercise of such rights. Tenant shall indemnify, defend, protect and hold
harmless the indemnities from any and all loss, claim, expense, liability and
cost (including reasonable attorneys' fees) arising out of or in any way related
to the presence of any Hazardous Material introduced to the Premises during the
Term by any party other than Landlord in violation of the terms of this Lease.
if any Hazardous Material is released, discharged or disposed of on or about the
Property and such release, discharge or disposal is not caused by Tenant or
other occupants of the Premises, or their employees, agents or contractors, such
release, discharge or disposal shall be deemed casualty damage under Article
Fourteen to the extent that the Premises are affected thereby; in such case,
Landlord and Tenant shall have the obligations and rights respecting such
casualty damage provided under such Article.
(c) Landlord and Tenant acknowledge that the Americans With
Disabilities Act of 1990 (42 U.S.C $12101 at seq.) and regulations and
guidelines promulgated thereunder, as all of the same may be amended and
supplemented from time to time (collectively referred to herein as the "ADA")
establish requirements for business operations, accessibility and barrier
removal, and that such requirements may or may not apply to the Premises and the
Building depending on, among other things: (1) whether Tenant's business is
deemed a "public accommodation" or "commercial facility", (2) whether such
requirements are "readily achievable", and (3) whether a given alteration
effects a "primary function area" or triggers "path of travel" requirements. The
parties hereby agree that: (a) Landlord shall be responsible for implementing
ADA Title III compliance in the Common Areas, (b) Tenant shall be responsible
for ADA Title III compliance in the Premises, including any leasehold
Improvements or other work to be performed in the Premises under or in
connection with this Lease, and (c) Landlord way perform, or require that Tenant
perform, and Tenant shall be responsible for the cost of, ADA Title III "path of
travel" requirements resulting directly from alterations in the Premises. Tenant
shall be solely responsible for requirements under Title I of the ADA relating
to Tenant's employees.
(d) Landlord and Tenant acknowledge that the Texas Architectural
Barriers Act, Art. 9102, Tex. Civ. Stat. Am. (1994), and regulations and
guidelines promulgated thereunder, as all of the same may be mended and
supplemented from time to time (collectively referred to herein as "TABA"
establish requirements for accessibility and barrier removal. The parties hereby
agree that, (1) with respect to the Premises, Tenant shall be responsible for
compliance with TABA, including, without limitation, submission (through the
Property manager) of required plans and documents to the State of Texas for
approval of accessibility design features, in connection with the work set forth
in the Worktetter attached hereto, if any, and any other construction or
alterations to the Premises during the Term, except that Landlord agrees to be
responsible for such compliance in connection with any work done by Landlord
pursuant to Section 8.01 hereof; and (2) Landlord shall be responsible for
compliance with TABA, including, without limitation, submission of required
plans and documents to the State of Texas for approval of accessibility design
features, in connection with construction or alterations to the Common Areas,
except that Tenant agrees to be responsible for such compliance in connection
with any such work which my be necessitated solely as a result of Tenant's use
of the Premises.
7.02 LANDLORD ACCESS TO PREMISES
(a) Tenant shall permit Landlord to erect, use and maintain pipes,
ducts, wiring and conduits in and through the Premises, so long as Tenant's use,
layout or design of the Premises is not materially affected or altered. Landlord
or Landlord's agents shall have the right to enter upon the Premises in the
event of an emergency, or to inspect the Premises, to perform janitorial and
other services, to conduct safety and other testing in the Premises and to make
such repairs, alterations, improvements or additions to the Premises or the
Building as Landlord may deem necessary or desirable so long as such activities
do not interfere with or interrupt Tenant's business activities. Janitorial and
cleaning services shall be performed after normal business hours. Any entry or
work by Landlord may be during normal business hours and Landlord may use
reasonable efforts to ensure that any entry or work shall not materially
interfere with Tenant's occupancy of the Promises, however, any such
interference shall not be a default by Landlord.
(b) If Tenant shall not be personally present to permit an entry into
the Premises when for any reason an entry therein shall be necessary or
permissible, Landlord (or Landlord's agents), after attempting to notify Tenant
(unless Landlord believes an emergency situation exists), may enter the Premises
without rendering Landlord or its agents liable therefor (if during such entry
Landlord or Landlord's agent shall accord reasonable care to Tenants property),
and without relieving Tenant of any obligations under this Lease.
(c) Landlord may enter the Premises for the purpose of conducting such
inspections, tests and studies as Landlord may deem desirable or necessary to
confirm Tenant's compliance with all Laws and Environmental Laws or for other
purposes necessary in Landlord's reasonable judgment to ensure the sound
condition of the Building and the system serving the Building. Landlord's rights
under this Section 7.02(c) are for Landlord's own protection only, and Landlord
has not, and shall not be deemed to have assumed any responsibility to Tenant or
any other party for compliance with Laws or Environmental Laws, as a result of
the exercise or non-exercise of such rights.
(d) Landlord may do any of the foregoing, or undertake any of the
inspection or work described in the preceding paragraphs without such action
constituting an actual or constructive eviction of Tenant, in whole or in part,
or giving rise to an abatement of Rent by reason of loss or interruption of
business of the Tenant, or otherwise.
7.03 QUIET ENJOYMENT
Landlord covenants that so long as Tenant is in compliance with the covenants
and conditions set forth in this Lease, Tenant shall have the right to quiet
enjoyment of the Premises without hindrance or interference from Landlord or
those claiming through Landlord, and subject to the rights of any Mortgagee.
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ARTICLE EIGHT
MAINTENANCE
8.01 LANDLORD'S MAINTENANCE
Subject to the provisions of Article Fourteen, Landlord shall maintain and make
necessary repairs to the foundations, roofs, exterior walls, and the structural
elements of the Building, the electrical, plumbing, heating, ventilation and
air-conditioning systems of the Building and the public corridors, washrooms and
lobby of the Building, except that: (a) Landlord shall not be responsible for
the maintenance or repair of any floor or wall coverings in the Premises or any
of such system which are located within the Premises and are supplemental or
special to the Building's standard system; and (b) subject to section 16.04
below, the cost of performing any of said maintenance or repairs whether to the
Premises or to the Building caused solely by the negligence of Tenant, its
employees, agents, servants, licensees, subtenants, contractors or invitees,
shall be paid by Tenant. Landlord shall not be liable to Tenant for any expense,
injury, loss or damage resulting from work done in the Building or upon the
Property or the use of any adjacent or nearby building, land, street, or alley.
8.02 TENANT'S MAINTENANCE
Subject to the provision of Article Fourteen, Tenant, at its expense, shall keep
and maintain the Premises and all Tenant Alterations in good order, condition
and repair and in accordance with all Laws and Environmental Laws. Tenant shall
not permit waste and shall promptly and adequately repair all damages to the
Premises and replace or repair all damaged or broken glass in the interior of
the Premises, fixtures or appurtenances. Any repairs or maintenance shall be
completed with materials of similar quality to the original materials, all such
work to be completed under the supervision of Landlord. Any such repairs or
maintenance shall be performed only by contractors or mechanics approved by
Landlord, which approval shall not be unreasonably withheld or delayed, and
whose work will not cause or threaten to cause disharmony or interference with
Landlord or other tenants in the Building and their respective agents and
contractors performing work in or about the Building. If Tenant fails to perform
any of its obligations set forth in this Section 8.02, Landlord may, in its sole
discretion and upon 24 hours prior notice to Tenant (except without notice in
the case of emergencies), perform the same, and Tenant shall pay to Landlord any
costs or expenses incurred by Landlord upon demand.
ARTICLE NINE
ALTERATIONS AND IMPROVEMENTS
9.01 TENANT'S ALTERATIONS
(a) Except for completion of the Initial Improvements pursuant to the
Workletter, the following provisions shall apply to the completion of " Tenant
Alterations:
(1) Tenant shall not, except as provided herein, without the prior written
consent of Landlord, which consent shall not be unreasonably withheld
or delayed, make or cause to be made any Tenant Alterations in or to
the Premises or any Building system serving the Premises. Prior to
making any Tenant Alterations, Tenant shall give Landlord five (5) days
prior written notice (or such earlier notice as would be necessary
pursuant to applicable law) to permit Landlord sufficient time to post
appropriate notices of non-responsibility. Subject to all other
requirements of this Article Nine, Tenant may undertake Decoration work
without Landlord's prior written consent. Tenant shall furnish Landlord
with the names and addresses of all contractors and subcontractors and
copies of all contracts. All Tenant Alterations shall be completed at
such time and in such manner as Landlord may from time to time
designate, and only by contractors or mechanics approved by Landlord,
which approval shall not be unreasonably withheld or delayed, and whose
work will not cause or threaten to cause disharmony or interference
with Landlord or other tenants in the Building and their respective
agents and contractors performing work in or about the Building.
Landlord may further condition its consent upon Tenant furnishing to
Landlord and Landlord approving prior to the commencement of any work
or delivery of materials to the Premises related to the Tenant
Alterations such of the following as specified by Landlord:
architectural plans and specifications, opinions from engineers
reasonably acceptable to Landlord stating that the Tenant Alterations
will not in any way adversely effect the Building's systems, Including.
without limitation, the mechanical, heating, plumbing, security,
ventilating, air-conditioning, electrical, and the fire and life safety
systems in the Building, necessary permits and licenses, certificates
of insurance, and such other documents in such form reasonably
requested by Landlord. Landlord may, in the exercise of reasonable
judgment, request that Tenant provide Landlord with appropriate
evidence of Tenant's ability to complete and pay for the completion of
the Tenant Alterations such as a performance bond or letter of credit.
Upon completion of the Tenant Alterations. Tenant shall deliver to
Landlord an as-built mylar and digitized (if available) set of plans
and specifications for the Tenant Alterations. Notwithstanding the
foregoing, Landlord's approval shall not be required with respect to
any alteration(s) to the Premises which (a) together cost Fifteen
Thousand and No/100 Dollars ($15,000.00) or less, and (b) do not
affect, in any way, the mechanical, electrical, plumbing and/or
structural components of the Premises or Property.
(2) Tenant shall pay the cost of all Tenant Alterations and the cost of
decorating the Premises and any work to the Building occasioned
thereby. In connection with completion of any Tenant Alterations,
Tenant shall pay Landlord a construction fee at Landlord's then
standard rate; provided, however, such construction fee shall not in
any event exceed two percent (2%) of the contract amount with respect
to such Tenant Alterations. Upon completion of Tenant Alterations,
Tenant shall furnish Landlord with contractors' affidavits and full and
final waivers of lien and receipted bills covering all labor and
materials expended and used in connection therewith.
(3) Tenant agrees to cause to be completed all Tenant Alterations (I) in
accordance with all Laws, Environmental Laws, all requirements of
applicable insurance companies and in accordance with Landlord's
standard construction rules and regulations, and (II) in a good and
workmanlike manner with the use of good grades of materials. Tenant
shall notify Landlord immediately if Tenant receives any notice of
violation of any Low in connection with completion of any Tenant
Alterations and shall immediately take such steps as are necessary to
remedy such violation. Such supervision or right to supervise by
Landlord or any approvals given by Landlord under this Lease shall not
constitute any warranty by Landlord to Tenant of the adequacy of the
design, workmanship or quality of such work or materials for Tenant's
intended use or of compliance with the requirements of Section
9.01(a)(3)(i) and (ii) above or impose any liability upon Landlord In
connection with the performance of such work.
(b) All Tenant Alterations which cannot be removed without substantial
damage to the Premises, whether installed by Landlord or Tenant, shall without
compensation or credit to Tenant, become part of the Premises and the property
of Landlord at the time of their installation and shall remain in the Premises,
unless pursuant to Article Twelve, Tenant may remove them or s required to
remove them at Landlord's request.
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9.02 LIENS
Tenant shall not permit any lien or claim for lien of any mechanic, laborer or
supplier or any other lien to be filed against the Building, the Land, the
Premises, or any part thereof arising out of work performed, or alleged to have
been performed by, or at the direction of, or on behalf of Tenant. If any such
lien or claim for lien is filed, Tenant shall within ten (10) days of receiving
notice of such lien or claim (a) have such lien or claim for lien released of
record or (b) deliver to Landlord a bond in form, content, amount, and issued by
surety, satisfactory to Landlord, indemnifying, protecting, defending and
holding harmless the indemnities against all costs and liabilities resulting
from such lien or claim for lian and the foreclosure or attempted foreclosure
thereof. If tenant fails to take any of the above actions, Landlord, without
investigating the validity of such lien or claim for lien, way, upon prior
notice to Tenant, pay or discharge the same and Tenant shall, as payment of
additional Rent hereunder, reimburse Landlord upon demand for the amount so paid
by Landlord, including Landlord's expenses and attorneys' fees.
ARTICLE TEN
ASSIGNMENT AND SUBLETTING
10.01 ASSIGNMENT AND SUBLETTING
(a) Without the prior written consent of Landlord (which consent shall
not be unreasonably withheld or delayed), Tenant may not sublease, assign,
mortgage, pledge, hypothecate or otherwise transfer or permit the transfer of
this Lease or the encumbering of Tenant's interest therein in whole or in part,
by operation of law or otherwise or permit the use or occupancy of the Premises,
or any part thereof, by anyone other then Tenant. Except as otherwise provided
herein, if Tenant desires to enter into any sublease of the Premises or
assignment of this Lease, Tenant shall deliver written notice thereof to
Landlord ("Tenant's Notice"), together with the identity of the proposed
subtenant or assignee and the proposed principal terms thereof and financial and
other information sufficient for Landlord to make an informed judgment with
respect to such proposed subtenant or assignee at least sixty (60) days prior to
the commencement date of the term of the proposed sublease or assignment. if
Tenant proposes to sublease less then all of the Rentable Area of the Premises,
the space proposed to be sublet and the space retained by Tenant must each be a
marketable unit as reasonably determined by Landlord and otherwise in compliance
with all Laws. Landlord shall notify Tenant in writing of its approval or
disapproval of the proposed sublease or assignment or its decision to exercise
its rights under Section 10.02 within thirty (30) days after receipt of Tenant's
Notice (and &it required information). In no event may Tenant sublease any
portion of the Premises or assign the Lease to any other tenant of the Building.
Tenant shall submit for Landlord's approval (which approval shelf not be
unreasonably withheld) any advertising which Tenant or its agents Intend to use
with respect to the space proposed to be sublet.
(b) In making its determination of whether to consent to any proposed
sublease or assignment, Landlord may take into consideration the business
reputation and credit-worthiness of the proposed subtenant or assignee; the
intended use of the Premises by the proposed subtenant or assignee; the nature
of the business conducted by such subtenant or assignee and whether such
business would be deleterious to the reputation of the Building or Landlord or
would violate the provisions of any other losses of tenants of the Building; the
estimated pedestrian and vehicular traffic in the Premises and to the Building
which would be generated by the proposed subtenant or assignee; whether the
proposed assignee or subtenant is a department, representative or agency of any
governmental body, foreign or domestic; whether the proposed assignee or
subtenant is a bonafide prospective tenant of Landlord in the Building, as
demonstrated by a written proposal dated within ninety (90) days prior to the
date of Tenant's request for approval; and any other factors which Landlord
shall deem relevant. In no event shall Landlord be obligated to consider a
consent to any proposed (I) sublease of the Premises or assignment of the Lease
if a Default then exists under the Lease, or a fact condition exists, which but
for the giving of notice or the passage of time would constitute a Default, or
(II) assignment of the Lease which would assign less then the entire Premises.
(c) If Landlord chooses not to recapture the space proposed to be
subleased or assigned as provided in Section 10.02, Landlord shall not
unreasonably withhold its consent to a subletting or assignment under this
Section 10.01. Any approved sublease or assignment shall be expressly subject to
the terms and conditions of this Lease. Any such subtenant or assignee shall
execute such documents as Landlord may reasonably require to evidence such
subtenant or assignee's assumption of such obligations and liabilities. Tenant
shall deliver to Landlord a copy of all agreements executed by Tenant and the
proposed subtenant and assignee with respect to the Premises. Landlord's
approval of a sublease or assignment shall not constitute a waiver of Tenant's
obligation to obtain Landlord's consent to further assignments or subleases.
(d) For purposes of this Article Ten, an assignment shall be deemed to
include a change in the majority control of Tenant, resulting from any transfer,
sale or assignment of shares of stock of Tenant occurring by operation of law or
otherwise if Tenant is a corporation whose shares of stock are not traded
publicly. If Tenant is a partnership, any change in the partners of Tenant shall
be deemed to be an assignment.
(e) Notwithstanding anything to the contrary contained in this Article
Ten, Tenant shall have the right, without the prior written consent of Landlord,
to sublease the Premises, or to assign this Lease to an Affiliate.
10.02 RECAPTURE
Except as provided in Section 10.01(e) Landlord shall have the option to exclude
from the Premises covered by this Lease ("recapture"), the space proposed to be
sublet or subject to the assignment, effective as of the proposed commencement
date of such sublease or assignment. If Landlord elects to recapture, Tenant
shall surrender possession of the space proposed to be subleased or subject to
the assignment to Landlord on the effective date of such proposed sublease or
assignment of the Premises such date being the Termination Date for such space.
Effective as of the date of recapture of any portion of the Premises pursuant to
this section, the Monthly Base Rent, Rentable Area of the Premises and Tenant's
Rent Adjustment shall be adjusted accordingly.
10.03 EXCESS RENT
Tenant shelf pay Landlord on the first day of each month during the term of the
sublease or assignment, fifty percent (50%) of the amount by which the sum of
all rent and other consideration (direct or indirect) due from the subtenant or
assignee for such month exceeds: (I) that portion of the Monthly Base Rent and
Rent Adjustments due under this Lease for said month which is allocable to the
space sublet or assigned; and (II) the following costs and expenses for the
subletting or assignment of such space: (1) brokerage commissions and attorneys'
fees and expenses, (2) advertising for subtenants or assignees; (3) the actual
costs paid in making any improvements or substitutions in the Premises required
by any sublease or assignment; and (4) "free rent" periods, costs of any
inducements or concessions given to subtenant or assignee, moving costs, and
other amounts in respect of such subtenant's or assignee's other leases or
occupancy arrangements. All such costs will be amortized over the term of the
sublease or assignment pursuant to sound accounting principles.
10.04 TENANT LIABILITY
In the event of any sublease or assignment, whether or not with Landlord's
consent, Tenant shall not be released or discharged from any liability, whether
post, present or future, under this Lease, including any liability arising from
the exercise of any renewal or expansion option, to the extent expressly
permitted by
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Landlord. If Landlord grants consent to such sublease or assignment, Tenant
shall pay all reasonable attorneys' fees and expenses incurred by Landlord with
respect to such assignment or sublease. In addition, if Tenant has any options
to extend the term of this Lease or to add other space to the Premises, such
options shall not be available to any subtenant or assignee, directly or
indirectly without Landlord's express written consent.
10.05 ASSUMPTION AND ATTORNMENT
If Tenant shall assign this Lease as permitted herein, the assignee shall
expressly assure all of the obligations of Tenant hereunder in a written
instrument satisfactory to Landlord and furnished to Landlord not later then
fifteen (15) days prior to the effective date of the assignment. If Tenant shall
sublease the Premises an permitted herein, Tenant shall, at Landlord's option,
within fifteen (15) days following any request by Landlord, obtain and furnish
to Landlord the written agreement of such subtenant to the effect that the
subtenant will attorn to Landlord and will pay all Rent (and excess rent
described in Section 10.03 above) directly to Landlord.
ARTICLE ELEVEN
DEFAULT AND REMEDIES
11.01 EVENTS OF DEFAULT
The occurrence or existence of any one or more of the following shall constitute
a "Default" by Tenant under this Lease:
(1) Tenant fails to pay any installment or other payment of Rent including
without limitation Rent Adjustment Deposits or Rent Adjustments, within ten (10)
days after the later to occur of (A) the date of written notice from Landlord
that such sum is due, provided, however, that Landlord shall not be required to
give more then two (2) such notices during any twelve (12) month period during
the Term, or (B) the date on which such payment is due hereunder if Landlord has
previously given two (2) such notices with respect to payments due during the
prior eleven (11) months;
(2) Tenant fails to observe or perform any of the other covenants, conditions or
provisions of this Lease or the Workletter and fails to cure such default within
thirty (30) days after written notice thereof to Tenant (unless the default
involves a hazardous condition, which shall be cured forthwith); provided,
however, if such default is incapable of being cured within said thirty (30) day
period, Tenant shall have such period of time as may be necessary in order to
cure such default as long as Tenant has commences such cure within said initial
thirty (30) day period and hereafter diligently prosecutes such cure to
completion, not to exceed sixty (60) days.
(3) the interest of Tenant in this Lease is levied upon under execution or other
legal process;
(4) a petition is filed by or against Tenant to declare Tenant bankrupt or
seeking a plan of reorganization or arrangement under any Chapter of the
bankruptcy Act, or any amendment, replacement or substitution therefor, or to
delay payment of, reduce or modify Tenant's debts, which in the case of an
involuntary action is not discharged within thirty (30) days;
(5) Tenant is declared insolvent by law or any general assignment of Tenant's
property is made for the benefit of creditors;
(6) a receiver is appointed for Tenant or Tenants property, which appointment is
not discharged within thirty (30) days;
(7) any action taken by or against Tenant to reorganize or modify Tenant's
capital structure in a materially adverse way which in the case of an
involuntary action is not discharged within thirty (30) days;
(8) upon the dissolution of Tenant; or
(9) the failure to immediately surrender occupancy and deliver up the Premises
as provided in Paragraph 5 of the Termination Option Exhibit, Exhibit "G" to
this Lease.
11.02 LANDLORD'S REMEDIES
(a) If a Default occurs, Landlord shall have the rights and remedies
hereinafter set forth, which shall be distinct and cumulative: (I) Landlord may
terminate this Lease by giving Tenant notice of Landlord's election to do so, in
which event, the term of this Lease shall end and all of Tenant's rights and
interests shall expire on the date stated in such notice; (II) Landlord may
terminate Tenant's right of possession of the Premises without terminating this
Lease by giving notice to Tenant that Tenant's right of possession shall end on
the date specified in such notice; or (III) Landlord may enforce the provisions
of this Lease and may enforce and protect the rights of the Landlord hereunder
by a suit or suits in equity or at law for the specific performance of any
covenant or agreement contained herein, or for the enforcement of any other
appropriate legal or equitable remedy, including recovery of all monies due or
to become due from Tenant under any of the provisions of this Lease. All
Landlord remedies shall be cumulative and not exclusive.
(b) In the event that Landlord terminates the Lease, Landlord shall be
entitled to recover (I) the sum of all Rents and other indebtedness accrued to
the date of such termination, plus (II) the cost of recovering the Premises,
(III) the cost of reletting the Premises, or portions thereof (including,
without limitation, brokerage commissions) and (IV) the cost of repairs,
alterations, improvements, additions and decorations to the Premises to the
extent Landlord deems reasonably necessary or desirable. (Items (II) through
(IV) are herein defined as the "Recovery Costs"). In addition, in the event that
Tenant's Default constitutes a material breach, Landlord shall be entitled to
recover a sum equal to the difference between (x) the total lose Rent due under
this Lease for the remainder of the Term and (y) the then fair market rental
value of the Premises during such period, discounted to present value at the
rate of ten percent (10%) ("Discounted Future Rent").
(c ) In the event Landlord proceeds pursuant to subparagraph (a)(II)
above, Landlord shall be entitled to recover (1) the sum of all Rents and other
indebtedness accrued to the date of such termination of Tenant's possession,
plus (2) the Recovery Costs (as defined above). Landlord may, but shall not be
obligated to (except as may be required by law), relet the Premises, or any part
thereof for the account of Tenant, for such rent and term and upon such terns
and conditions as are reasonably acceptable to Landlord. For purposes of such
reletting, Landlord is authorized to decorate, repair, alter and improve the
Premises to the extent reasonably necessary or desirable. If the Premises are
relet and the consideration realized therefrom after payment of all Landlord's
reletting Expenses, is insufficient to satisfy the payment when due of Rent
reserved under this Lease for any monthly period, then Tenant shall pay Landlord
upon demand any such deficiency monthly ("Rental Deficiency"). If such
consideration is greater than the amount necessary to pay the full amount of the
Rent, the full mount of such excess shall be retained by Landlord and shall in
no event be payable to Tenant. Tenant agrees that Landlord may file suit to
recover any sums due to Landlord hereunder from time to time and that such suit
or recovery of any amount due Landlord hereunder shall not be any defense to any
subsequent action brought for any amount not theretofore reduced to judgment in
favor of Landlord. Notwithstanding any such reletting without termination,
Landlord may at any time thereafter elect to terminate this Lease for such
previous Default. In the alternative (but only in the event that Tenant's
Default constitutes a material breach), Landlord may elect to terminate Tenant's
right to occupy the Premises and to immediately recover as damages, in lieu of
the Rental Deficiency, a sum equal to the Discounted Future Rent (as defined
above).
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(d) In the event a Default occurs, Landlord may, at Landlord's option,
enter into the Premises, remove Tenant's property, fixtures, furnishings, signs
and other evidences of tenancy, and take and hold such property; provided,
however, that such entry and possession shall not terminate this Lease or
release Tenant, in whole or in part, from Tenant's obligation to pay the Rent
reserved hereunder for the full Term or from any other obligation of Tenant
under this Lease. Any and all property which may be removed from the Premises by
Landlord pursuant to the authority of the Lease or law, to which Tenant is or
may be entitled, may be handled, removed or stored by Landlord at the risk, cost
and expense of Tenant, and Landlord shall in no event be responsible for the
value, preservation or safekeeping thereof. Tenant shall pay Landlord, upon
demand, any and all expenses incurred in such removal and all storage charges
against such property so long as the same shall be in the Landlord's possession
or under the Landlord's control. Any such property of Tenant not retaken from
storage by Tenant within thirty (30) days after the Termination Date, shall be
conclusively presumed to have been conveyed by Tenant to Landlord under this
Lease as a bill of sate without further payment or credit by Landlord to Tenant.
11.03 ATTORNEY'S FEES
Tenant shall pay upon demand, all costs and expenses, including reasonable
attorneys' fees, incurred by Landlord and resulting from Tenant's Default.
11.04 BANKRUPTCY
The following provisions shall apply in the event of the bankruptcy or
insolvency of Tenant:
(a) In connection with any proceeding under Chapter 7 of the Bankruptcy
Code where the trustee of Tenant elects to assume this Lease for the purposes of
assigning it, such election or assignment, may only be made upon compliance with
the provisions of (b) and (c) below, which conditions Landlord and Tenant
acknowledge to be commercially reasonable. In the event the trustee elects to
reject this Lease then Landlord shall immediately be entitled to possession of
the Premises without further obligation to Tenant or the trustee.
(b) Any election to assume this Lease under Chapter 11 or 13 of the
Bankruptcy Code by Tenant as debtor-in-possession or by Tenant's trustee (the
"Electing Party") must provide for:
The Electing Party to cure or provide to Landlord adequate assurance
that it will cure all monetary defaults under this Lease within fifteen
(15) days from the date of assumption and it will cure all nonmonetary
defaults under this Lease within thirty (30) days from the date of
assumption. Landlord and Tenant acknowledge such condition to be
commercially reasonable.
(c) If the Electing Party has assumed this Lease or elects to assign
Tenant's interest under this Lease to any other person, such interest may be
assigned only if the intended assignee has provided adequate assurance of future
performance (as herein defined), of all of the obligations imposed on Tenant
under this Lease. For the purposes hereof, "adequate assurance of future
performance" means that Landlord has ascertained that each of the following
conditions has been satisfied:
(I) The assignee has submitted a current financial statement,
certified by its chief financial officer, which shows a net worth and
working capital in amounts sufficient to assure the future performance
by the assignee of Tenant's obligations under this Lease; and
(II) Landlord has obtained consents or waivers from any third
parties which may be required under a lease, mortgage, financing
arrangement, or other agreement by which Landlord is bound, to enable
Landlord to permit such assignment.
(d) Landlord's acceptance of rent or any other payment from any
trustee, receiver, assignee, person, or other entity will not be deemed to have
waived, or waive, the requirement of Landlord's consent, Landlord's right to
terminate this Lease for any transfer of Tenant's interest under this Lease
without such consent, or Landlord's claim for any amount of Rent due from
Tenant.
ARTICLE TWELVE
SURRENDER OF PREMISES
12.01 IN GENERAL
Upon the Termination Date, Tenant shall surrender and vacate the Premises
immediately and deliver possession thereof to Landlord in a clean, good and
tenantable condition, ordinary wear and tear, and damage caused by casualty,
condemnation or Landlord excepted. Tenant shall deliver to Landlord all keys to
the Premises. Tenant shall be entitled to remove from the Promises all movable
personal property of Tenant, Tenant's trade fixtures and such Tenant Alterations
which at the time of their installation Landlord and Tenant agreed may be
removed by Tenant or which may be otherwise removed pursuant to the provisions
of this Lease. Tenant shall also remove such other Tenant Alterations as
required by Landlord, including, but not limited to, any Tenant Alterations
containing Hazardous Materials. Tenant immediately shall repair all damage
resulting from removal of any of Tenant's property, furnishings or Tenant
Alterations, shall close all floor, ceiling and roof openings and shall restore
the Premises to a tenantable condition as reasonably determined by Landlord. If
any of the Tenant Alterations which were installed by Tenant involved the
towering of ceilings, raising of floors or the installation of specialized wall
or floor coverings or lights, then Tenant shall also be obligated to return such
surfaces to their condition prior to the commencement of this Lease. Tenant
shall also be required to close any staircases or other openings between floors.
in the event possession of the Premises is not delivered to Landlord when
required hereunder, or if Tenant shall fail to remove those item described
above, Landlord may, at Tenants expense, remove any of such property therefrom
without any liability to Landlord and undertake, at Tenant's expense such
restoration work as my be required hereunder.
12.02 LANDLORD'S RIGHTS
All property which my be removed from the Premises by Landlord shall be
conclusively presumed to have been abandoned by Tenant and Landlord may deal
with such property as provided In Section 11.02(d). Tenant shalt also reimburse
Landlord for all costs and expenses Incurred by Landlord In removing any of
Tenant Alterations and In restoring the Premises to the condition required by
this Lease at the Termination Date.
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ARTICLE THIRTEEN
HOLDING OVER
Tenant shall pay Landlord the greater of (I) double the monthly Rent payable for
the month immediately preceding the holding over (including increases for Rent
Adjustments which Landlord my reasonably estimate) or, (II) double the fair
market rental value of the Premises as reasonably determined by Landlord for
each month or portion thereof that Tenant retains possession of the Premises, or
any portion thereof, after the Termination Date (without reduction for any
partial month that Tenant retains possession). Tenant shall also pay all actual
damages sustained by Landlord by reason of such retention of possession. The
provisions of this Article shall not 'constitute a waiver by Landlord of any
re-entry rights of Landlord and Tenant's continued occupancy of the Premises
shall be as a tenancy in sufferance.
ARTICLE FOURTEEN
DAMAGE BY FIRE OR OTHER CASUALTY
14.01 SUBSTANTIAL UNTENANTABILITY
(a) if any fire or other casualty (whether insured or uninsured)
renders all or a substantial portion of the Premises or the Building
untenantable, Landlord shall, with reasonable promptness after the occurrence of
such damage, estimate the length of time that will be required to Substantially
Complete the repair and restoration and shall by notice advise Tenant of such
estimate ("Landlord's Notice"). If Landlord estimates that the amount of time
required to Substantially Complete such repair and restoration will exceed one
hundred eighty (180) days from the date such damage occurred, then Landlord, or
Tenant if all or a substantial portion of the Premises is rendered untenantable,
shall have the right to terminate this Lease as of the date of such damage upon
giving written notice to the other at any time within twenty (20) days after
delivery of Landlord's Notice, provided that if Landlord so chooses, Landlord's
Notice may also constitute such notice of termination.
(b) Unless this Lease is terminated as provided in the preceding
subparagraph, Landlord shall proceed with reasonable promptness to repair and
restore the Premises to its condition as existed prior to such casualty, subject
to reasonable delays for insurance adjustments and Force Majeure delays, and
also subject to zoning laws and building codes then in effect. Landlord shall
have no liability to Tenant, and Tenant shall not be entitled to terminate this
Lease if such repairs and restoration are not in fact completed within the time
period estimated by Landlord so long as Landlord shall proceed with reasonable
diligence to complete such repairs and restoration.
(c) Tenant acknowledges that Landlord shall be entitled to the full
proceeds of any insurance coverage, whether carried by Landlord or Tenant, for
damages to the Premises, except for those proceeds of Tenant's insurance of its
own personal property and equipment which would be removable by Tenant at the
Termination Date. All such insurance proceeds shall be payable to Landlord
whether or not the Premises are to be repaired and restored.
(d) Notwithstanding anything to the contrary herein set forth: (I)
Landlord shall have no duty pursuant to this Section to repair or restore any
portion of any Tenant Alterations or to expend for any repair or restoration of
the Premises or Building amounts in excess of Insurance proceeds paid to
Landlord and available for repair or restoration; and (II) Tenant shall not have
the right to terminate this Lease pursuant to this Section if any damage or
destruction was caused by the act or neglect of Tenant, its agent or employees.
(e) Any repair or restoration of the Premises performed by Tenant shall
be in accordance with the provisions of Article Nine hereof.
14.02 INSUBSTANTIAL UNTENANTABILITY
If the Premises or the Building is damaged by a casualty but neither is rendered
substantially untenantable, then Landlord shall proceed to repair and restore
the Building or the Premises other then Tenant Alterations, with reasonable
promptness, unless such damage is to the Premises and occurs during the last six
(6) months of the Term, in which event either Tenant or Landlord shall have the
right to terminate this Lease as of the date of such casualty by giving written
notice thereof to the other within twenty (20) days after the date of such
casualty.
14.03 RENT ABATEMENT
Except for the negligence or willful act of Tenant or its agents, employees,
contractors or invitees, if all or any part of the Premises are rendered
untenentable by fire or other casualty and this Lease is not terminated, Monthly
Base Rent and Rent Adjustments shall abate for that part of the Premises which
is untenantable on a per diem basis from the date of the casualty until Landlord
has Substantially Completed the repair and restoration work in the Premises
which it is required to perform, provided, that as a result of such casualty,
Tenant does not occupy the portion of the Premises which is untenantable during
such period.
ARTICLE FIFTEEN
EMINENT DOMAIN
15.01 TAKING OF WHOLE OR SUBSTANTIAL PART
In the event the whole or any substantial part of the Building or of the
Premises is taken or condemned by any competent authority for any public use or
purpose (including a deed given in lieu of condemnation) and is thereby rendered
untenantable, this Lease shall terminate as of the date title vests in such
authority, and Monthly Base Rent and Rent Adjustments shall be apportioned as of
the Termination Date.
15.02 TAKING OF PART
In the event a part of the Building or the Premises is taken or condemned by any
competent authority (or a deed is delivered in lieu of condemnation) and this
Lease is not terminated, the Lease shall be amended to reduce the Monthly Base
Rent and Tenant's Rent Adjustment to reflect the Rentable Area of the Premises
or Building, as the case may be, remaining after any such taking or
condemnation. Landlord, upon receipt and to the extent of the award in
condemnation (or proceeds of sale) shall make necessary repairs and restorations
to the Premises (exclusive of Tenant Alterations) and to the Building to the
extent necessary to constitute the portion of the Building not so taken or
condemned as a complete architectural and economically efficient unit.
Notwithstanding the foregoing, if as a result of any taking, or a governmental
order that the grade of any street or alley adjacent to the Building is to be
changed and such taking or change of grade makes it necessary or desirable to
substantially remodel or restore the Building or prevents the economical
operation of the Building, Landlord shall have the right to terminate this Lease
upon ninety (90) days prior written notice to Tenant.
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15.03 COMPENSATION
Landlord shall be entitled to receive the entire award (or sate proceeds) from
any such taking, condemnation or sale without any payment to Tenant, and Tenant
hereby assigns to Landlord Tenant's interest, if any, in such award; provided,
however, Tenant shall have the right separately to pursue against the condemning
authority a separate award in respect of the loss, if any, to Tenant Alterations
paid for by Tenant without any credit or allowance from Landlord so long as
there is no diminution of Landlord's award as a result.
ARTICLE SIXTEEN
INSURANCE
16.01 TENANT'S INSURANCE
Tenant, at Tenant's expense, agrees to maintain in force, with a company or
companies reasonably acceptable to Landlord, during the Term: (a) Commercial
General Liability insurance on a primary basis and without any right of
contribution from any insurance carried by Landlord covering the Premises on an
occurrence basis against all claims for personal injury, bodily injury, death
and property damage, including contractual liability covering the
indemnification provisions in this Lease. Such insurance shall be for such
limits that are reasonably required by Landlord from time to time but not less
than a combined single limit of Two Million and No/100 Dollars (S2,000,000.00);
(b) Workers' Compensation and Employers, Liability Insurance for an amount of
not less then One Million and No/100 Dollars ($1,000,000.00), both in accordance
with the laws of The State of Texas; (c) "All Risks" property insurance in an
amount adequate to cover the full replacement cost of all equipment,
installations, fixtures and contents of the Premises in the event of loss and
any such policy shall contain a provision requiring the Insurance carriers to
waive their rights of subrogation against Landlord; and (d) in the event a motor
vehicle is to be used by Tenant in connection with its business operation from
the Premises, Comprehensive Automobile Liability Insurance coverage with limits
of not less than One Million and No/100 Dollars ($1,000,000.00) combined single
limit coverage against bodily injury liability and property damage liability
arising out of the use by or on behalf of Tenant, its agents and employees In
connection with this Lease, of any owned, non-owned or hired motor vehicles.
16.02 FORM OF POLICIES
Each policy referred to in 16.01 shall satisfy the following requirements. Each
policy shall (I) name Landlord and the indemnities as additional insureds, (II)
be issued by one or more responsible insurance companies licensed to do business
in Texas reasonably satisfactory to Landlord, (III) not permit coinsurance, (IV)
shall provide that such insurance may not be canceled or amended without thirty
(30) days' prior written notice to the Landlord, and (v) shall provide that the
policy shall not be invalidated should the insured waive in writing prior to a
loss, any or all rights of recovery against any other party for losses covered
by such policies. Tenant shall deliver to Landlord, certificates of insurance
and at Landlord's request, copies of all policies and renewals thereof to be
maintained by Tenant hereunder, not less then ten (10) days prior to the
Commencement Date and not less then ten (10) days prior to the expiration date
of each policy.
16.03 LANDLORDS INSURANCE
Landlord, agrees to purchase and keep in full force and effect during the Term
hereof, including any extensions or renewals thereof, insurance under policies
issued by insurers of recognized responsibility, qualified to do business in
Texas on the Building in amounts not less then the greater of eighty (80%)
percent of the then full replacement cost (without depreciation) of the Building
(above foundations) or an amount sufficient to prevent Landlord from becoming a
co-insurer under the term of the applicable policies, against fire and such
other risks as may be included in standard form of all risk coverage insurance
reasonably available from time to time. Landlord agrees to maintain in force
during the Term, Commercial General Liability insurance covering the Building on
an occurrence basis against all claims for personal injury, bodily injury, death
and property damage. Such insurance shall be for a combined single limit of Five
Million and No/100 Dollars ($5,000,000.00). Neither Landlord's obligation to
carry such insurance nor the carrying of such insurance shall, be deemed to be
an indemnity by Landlord with respect to any claim, liability, loss, cost or
expense due, in whole or in part, to Tenant's negligent acts or omissions or
willful misconduct.
16.04 WAIVER OF SUBROGATION
(a) Landlord agrees that if obtainable at no, or minimal, additional
cost, and so long as the same is permitted under the laws of Texas, It will
Include In Its "All Risks" policies appropriate clauses pursuant to which the
Insurance companies (I) waive all right of subrogation against Tenant with
respect to tosses payable under such policies and/or (II) agree that such
policies shall not be invalidated should the Insured waive in writing prior to a
loss any or sit right of recovery against any party for tosses covered by such
policies.
(b) Tenant agrees to include, if obtainable at no, or minimal,
additional cost, and so long as the same is permitted under the laws of Texas,
In its "All Risks" Insurance policy or policies on Its furniture, furnishings,
fixtures and other property removable by Tenant under the provisions of its to
lease of space in the Building, appropriate clauses pursuant to which the
insurance company or companies (I) waive the right of subrogation against
Landlord and/or ny tenant of space In the Building with respect to losses
payable under such policy or policies and/or (III) agree that such policy or
policies shall not be invalidated should the insured waive in writing prior to a
loss any or all right of recovery against any party for losses covered by such
policy or policies. If Tenant is unable to obtain in such policy or policies
either of the clauses described in the preceding sentence, Tenant shall, if
legally possible and without necessitating a change in insurance carriers, have
Landlord named in such policy or policies as an additional insured. If Landlord
shall be named as an additional insured in accordance with the foregoing,
Landlord agrees to endorse promptly to the order of Tenant, without recourse,
any check, draft, or order for the payment of money representing the proceeds of
any such policy or representing any other payment growing out of or connected
with said policies, and Landlord does hereby irrevocably waive any and all
rights in and to such proceeds and payments.
(c) Provided that Landlord's right of full recovery under all its
policy or policies aforesaid is not adversely affected or prejudiced thereby,
Landlord hereby waives any and all right of recovery which it might otherwise
have against Tenant, its servants, agents and employees, for loss or damage
occurring to the Building and the fixtures, appurtenances and equipment therein,
to the extent the same is covered by Landlord's insurance, notwithstanding that
such loss or damage may result from the negligence or fault of Tenant, its
servants, agents or employees. Provided that Tenant's right of full recovery
under its aforesaid policy or policies is not adversely affected or prejudiced
thereby, Tenant hereby waives any and all right of recovery which it might
otherwise have against Landlord, its servants, agents and employees and against
every other tenant in the Building who shall have executed a similar waiver as
set forth in this Section 16.04 (c) for lose or damage to Tenant's furniture,
furnishings, fixtures and other property removable by Tenant under the
provisions hereof to the extent that same Is covered by Tenant's insurance,
notwithstanding that such loss or damage my result from the negligence or fault
of Landlord, its servants, agents or employees, or such other tenant and the
servants, agents or employees thereof.
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(d) Landlord and Tenant hereby agree to advise the other promptly if
the clauses to be included in their respective insurance policies pursuant to
subparagraphs (a) and (b) above cannot be obtained an the terms hereinbefore
provided and thereafter to furnish the other with a certificate of insurance or
copy of such policies showing the naming of the other as an additional insured,
as aforesaid. Landlord and Tenant hereby also agree to notify the other promptly
of any cancellation or change of the term of any such policy which would affect
such clauses or naming. All such policies which name both Landlord and Tenant as
additional insureds shall to the extent obtainable, contain agreements by the
insurers to the effect that no act or mission of any additional insured will
invalidate the policy as to the other additional insureds.
16.05 NOTICE OF CASUALTY
Tenant shall give Landlord notice in case of a fire or material accident in the
Premises promptly after Tenant is aware of such event.
ARTICLE SEVENTEEN
WAIVER OF CLAIMS AND INDEMNITY
17.01 WAIVER OF CLAIMS
To the extent permitted by law, Tenant releases the indemnities from, and waives
all claims for, damage to person or property sustained by the Tenant or any
occupant of the Building or Premises resulting directly or indirectly from any
existing or future condition, defect, matter or thing in and about the Property
or the Premises or any part of either or any equipment or appurtenance therein,
or resulting from any accident in or about the Property, or resulting directly
or indirectly from any act or neglect of any tenant or occupant of the Building
or of any other person, including Landlord's agents and servants, except where
resulting from the willful and wrongful act of any of the indemnities. Tenant
hereby waives any consequential damages, compensation or claims for
inconvenience or lose of business, rents, or profits as a result of such injury
or damage. If any such damage, whether to the Premises or to any part of the
Property or any part thereof, or whether to Landlord or to other tenants in the
Building, results from any act or neglect of Tenant, its employees, servants,
agents, contractors, invitees and customers, Tenant shall be liable therefor and
Landlord may, at Landlord's option, repair such damage and Tenant shall, upon
demand by Landlord, as payment of additional Rent hereunder, reimburse Landlord
within ten (10) days of demand for the total cost of such repairs, in excess of
amounts, if any, paid to Landlord under insurance covering such damages. Tenant
shall not be liable for any damage caused by its acts or neglect if Landlord or
a tenant has recovered the full amount of the damage from proceeds of Insurance
policies and the Insurance company has waived its right of subrogation against
Tenant.
17.02 INDEMNITY BY TENANT
Intentionally Deleted.
ARTICLE EIGHTEEN
RULES AND REGULATIONS
18.01 RULES
Tenant agrees for itself and for its subtenants, employees, agents, and invitees
to empty with the rules and regulations listed an Exhibit "D" attached hereto
and with all reasonable modifications and additions thereto which Landlord may
make from time to time.
18.02 ENFORCEMENT
Nothing in this Lease shall be construed to impose upon the Landlord any duty or
obligation to enforce the rules and regulations as set forth on Exhibit "D" or
as hereafter adopted, or the terms, covenants or conditions of any other lease
as against any other tenant, and the Landlord shall not be liable to the Tenant
for violation of the same by any other tenant, its servants, employees, agents,
visitors or licensees. Landlord shall use reasonable efforts to enforce the
rules and regulations of the Building in a uniform and non-discriminatory
manner. Tenant shall pay to Landlord all damages caused by Tenant's failure to
comply with the provisions of this Article Eighteen and shall also pay to
Landlord as additional Rent an amount equal to any increase in insurance premium
caused by such failure to comply.
ARTICLE NINETEEN
LANDLORD'S RESERVED RIGHTS
19.01 RESERVED RIGHTS
Landlord shall have the following rights exercisable without notice to Tenant
and without liability to Tenant for damage or injury to persons, property or
business and without being deemed an eviction or disturbance of Tenant's use or
possession of the Premises or giving rise to any claim for setoff or abatement
of Rent: (1) To change the Building's name or street address upon thirty (30)
days' prior written notice to Tenant; (2) To install, affix and maintain all
signs on the exterior and for interior of the Building; (3) To designate and/or
approve prior to installation, all types of signs, window shades, blinds,
drapes, awnings or other similar item, and all internal lighting that may be
visible from the exterior of the Premises; (4) Upon reasonable notice to Tenant,
to display the Premises to prospective tenants at reasonable hours during the
last twelve (12) months of the Term; (5) To grant to any party the exclusive
right to conduct any business or render any service in or to the Building,
provided such exclusive right shall not operate to prohibit Tenant from using
the Premises for the purpose permitted hereunder; (6) To change the arrangement
and/or location of entrances or passageways, doors and doorways, corridors,
elevators, stairs, washroom or public portions of the Building, and to close
entrances, doors, corridors, elevators or other facilities, provided that such
action shall not materially and adversely interfere with Tenant's access to the
Premises or the Building; (7) To have access for Landlord and other tenants of
the Building to any mail chutes and boxes located in or on the Premises as
required by any applicable rules of the United States Post Office; and (8) To
close the Building after normal business hours, except that Tenant and its
employees and invitees shall be entitled to admission at all times, under such
regulations as Landlord prescribes for security purposes.
ARTICLE TWENTY
ESTOPPEL CERTIFICATE
20.01 IN GENERAL
Within twenty (20) days after request therefor by Landlord, Mortgagee or any
prospective mortgagee or owner, Tenant agrees as directed in such request to
execute an Estoppel Certificate in recordable form, binding upon Tenant,
certifying (I) that this Lease is unmodified and in full force and effect (or if
there have been modifications, a description of such modifications and that this
Lease as modified is in full force and effect
14
<PAGE>
(II) the dates to which Rent has been paid; (III) that Tenant is in the
possession of the Premises if that is the case; (Iv) that Landlord is not In
default under this Lease, or, If Tenant believes Landlord is in default, the
nature thereof in detail; (V) that Tenant has no off-sets or defenses to the
performance of its obligations under this Lease (or if Tenant believes there are
any off-sets or defenses, a full and complete explanation thereof); (VI) that
the Premises have been completed in accordance with the term and provisions
hereof or the Workletter, that Tenant has accepted the Premises and the
condition thereof and of all improvements thereto and has no claims against
Landlord or any other party with respect thereto; and (VII) that if an
assignment of rents or teases has been served upon the Tenant by a Mortgagee,
Tenant will acknowledge receipt thereof and agree to be bound by the provisions
thereof; (VIII) that Tenant will give to the Mortgagee copies of all notices
required or permitted to be given by Tenant to Landlord; and (IX) to any other
information reasonably requested.
20.02 ENFORCEMENT
In the event that Tenant fails to deliver an Estoppel Certificate, then such
failure shall be a Default for which there shall be no cure or grace period. In
addition to any other remedy available to Landlord, Landlord may impose a
penalty equal to $500.00 for each day that Tenant fails to deliver an Estoppel
Certificate and Tenant shall be deemed to have irrevocably appointed Landlord as
Tenant's attorney-in-fact to execute and deliver such Estoppel Certificate.
ARTICLE TWENTY-ONE
RELOCATION OF TENANT
Intentionally Deleted.
ARTICLE TWENTY-TWO
REAL ESTATE BROKERS
Tenant represents that Tenant has not dealt with any real estate broker, sales
person, or finder in connection with this Lease other then Landlord's broker,
Lincoln Property Company (the "Broker"), and no such person initiated or
participated in the negotiation of this Lease, or showed the Premises to Tenant
other than Broker Landlord shall be responsible for the payment of all
commissions to the Broker, if any, specified in this Article.
ARTICLE TWENTY-THREE
MORTGAGEE PROTECTION
23.01 SUBORDINATION AND ATTORNMENT
This Lease is and shall be expressly subject and subordinate at all times to (I)
any ground or underlying lease of the Real Property, now or hereafter existing,
and all amendments, renewals and modifications to any such lease, and (II) the
lien of my first mortgage or trust deed now or hereafter encumbering fee title
to the Real Property and/or the lease hold estate under any such lease, unless
such ground lease or ground lessor, or mortgage or Mortgagee, expressly provides
or elects that the Lease shall be superior to such lease or mortgage. If any
such mortgage or trust deed is foreclosed, or if any such lease is terminated,
upon request of the Mortgagee or ground lessor, as the case may be, Tenant will
attorn to the purchaser at the foreclosure sale or to the ground lessor under
such lease, as the case my be, provided, however, that such purchaser or ground
lessor shall not be (I) bound by any payment of Rent for more then one month in
advance except payments in the nature of security for the performance by Tenant
of its obligations under this Lease; (II) subject to any offset, defense or
damages arising out of a default of any obligations of any preceding Landlord;
or (III) bound by any amendment or modification of this Lease made without the
written consent of the Mortgagee Or ground lessor; or (IV) liable for any
security deposits not actually received in cash by such purchaser or ground
lessor. This subordination shall be self-operative and no further certificate or
instrument of subordination need be required by any such Mortgages or ground
lessor. In confirmation of such subordination, however, Tenant shall execute
promptly any reasonable certificate or instrument that Landlord, Mortgagee or
ground lessor may request. Tenant hereby constitutes Landlord's Tenant's
attorney-in-fact to execute such certificate or instrument for and on behalf of
Tenant upon Tenant's failure to do so within fifteen (15) days of a request to
do so. Upon request by such successor in interest, Tenant shall execute and
deliver reasonable instruments confirming the attornment provided for herein. In
addition, Landlord will use its reasonable efforts to obtain a non-disturbance
agreement from any future mortgagee. Which shall be acceptable to Tenant if in
form and content, except for the completion of the applicable blanks therein,
identical to the form of Subordination, Non-Disturbance and Attornment Agreement
attached hereto as Exhibit "H" and incorporated herein by reference for all
purposes or shall contain term and conditions no more adverse to Tenant then
contained in the form attached hereto as Exhibit "H" then such form of
non-disturbance agreement shall be deemed reasonably satisfactory to Tenant.
23.02 MORTGAGEE PROTECTION
Tenant agrees to give any Mortgagee or ground lessor, by registered or certified
mail, a copy of any notice of default served upon the Landlord by Tenant,
provided that prior to such notice Tenant has received notice (by way of service
on Tenant of a copy of an assignment of rents and leases, or otherwise) of the
address of such Mortgagee or ground lessor. Tenant further agrees that if
Landlord shall have failed to cure such default within the time provided for in
this Lease, then the Mortgagee or ground lessor shall have an additional thirty
(30) days after receipt of notice thereof within which to cure such default or
if such default cannot be cured within that time, then such additional notice
time as way be necessary, if, within such thirty (30) days, any Mortgagee or
ground lessor has commenced and is diligently pursuing the remedies necessary to
cure such default (including but not limited to commencement of foreclosure
proceedings or other proceedings to acquire possession of the Real Property, if
necessary to effect such cure). Such period of time shall be extended by any
period within which such Mortgagee or ground lessor is prevented from commencing
or pursuing such foreclosure proceedings or other proceedings to acquire
possession of the Real Property by reason of Landlord's bankruptcy. Until the
time allowed as aforesaid for Mortgagee or ground lessor to cure such defaults
has expired without cure, Tenant shall have no right to, and shall not,
terminate this Lease on account of default. This Lease my not be modified or
amended so as to reduce the rent or shorten the term, or so as to adversely
affect in any other respect to any material extent the rights of the Landlord,
nor shall this Lease be canceled or surrendered, without the prior written
consent, in each instance, of the ground lessor or the Mortgagee.
ARTICLE TWENTY-FOUR
NOTICES
(a) All notices, demands or requests provided for or permitted to be
given pursuant to this Lease must be in writing and shall be personally
delivered, sent by Federal Express or other overnight courier service, or mailed
by first class, registered or certified mall, return receipt requested, postage
prepaid.
15
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(b) All notices, demands or requests to be sent pursuant to this Lease
shall be deemed to have been properly given or served by delivering or sending
the same in accordance with this Section, addressed to the parties hereto at
their respective addresses listed below:
(1) Notices to Landlord shall be addressed:
Lincoln Property Company
Attn: Mack Pogue or Building Manager
500 N. Akard, Suite 3300
Dallas, Texas 75201
with a copy to the following:
Metropolitan Life Insurance Company
Attn: Assistant Vice-President
5420 LBJ Freeway, Suite 1310
Dallas, Texas 75240
(2) Notices to Tenant shall be addressed:
500 N. Akard
Suite 5000
Dallas, TX 75201
with a copy to the following:
Jenkens & Gilchrist, A Professional Corporation
1445 Ross Avenue, Suite 3200
Dallas, Texas 75202
Attention: Mark A. Todd, Esq.
(c) If notices, demands or requests are sent by registered or certified
mail, said notices, demands or requests shall be effective upon being deposited
in the United States mail. However, the time period in which a response to any
such notice, demand or request must be given shall commence to run from the date
of receipt on the return receipt of the notice, demand or request by the
addressee thereof. Rejection or other refusal to accept or the inability to
deliver because of changed address of which no notice was given shall be deemed
to be receipt of notice, demand or request sent. Notices may also be served by
personal service upon any officer, director or partner of Landlord or Tenant or
in the case of delivery by Federal Express or other overnight courier service,
notices shall be effective upon acceptance of delivery by an employee, officer,
director or partner of Landlord or Tenant.
(d) By giving to the other party at least thirty (30) days written
notice thereof, either party shall have the right from time to time during the
term of this Lease to change their respective addresses for notices, statements,
demands and requests, provided such new address shall be within the United
States of America.
ARTICLE TWENTY-FIVE
MISCELLANEOUS
25.01 LATE CHARGES
All payments required hereunder (other then the Monthly Base Rent and Rent
Adjustments, which shall be due as hereinbefore provided) to Landlord shall be
paid within ten (10) days after Landlord's demand therefor. All such amounts
(including, without limitation Monthly Base Rent and Rent Adjustments not paid
when due shall bear interest from the date due until the date paid at the
Default Rate in effect on the date such payment was due.
25.02 WAIVER OF JURY TRIAL
Intentionally Deleted.
25.03 DEFAULT UNDER OTHER LEASE
Intentionally Deleted.
25.04 OPTION
This Lease shall not become effective as a lease or otherwise until executed and
delivered by both Landlord and Tenant. The submission of the Lease to Tenant
does not constitute a reservation of or option for the Premises, except that it
shall constitute an irrevocable offer on the part of Tenant in effect for
fifteen (15) days to lease the Premises on the terms and conditions herein
contained.
25.05 TENANT AUTHORITY
Tenant represents and warrants to Landlord that it has full authority and power
to enter into and perform its obligations under this Lease, that the person
executing this Lease is fully empowered to do so, and that no consent or
authorization is necessary from any third party. Landlord may request that
Tenant provide Landlord evidence of Tenant's authority.
25.06 ENTIRE AGREEMENT
This Lease, the Exhibits attached hereto and the Workletter contain the entire
agreement between Landlord and Tenant concerning the Premises and there are no
other agreements, either oral or written. This Lease shall not be modified
except by a writing executed by Landlord and Tenant.
25.07 MODIFICATION OF LEASE FOR BENEFIT OF MORTGAGEE
If Mortgagee of Landlord requires a modification of this Lease which shall not
result in any increased cost or expense to Tenant or in any other material and
adverse change in the rights and obligations of Tenant hereunder, then Tenant
agrees that the Lease may be so modified.
16
<PAGE>
25.08 EXCULPATION
Tenant agrees, on its behalf and on behalf of its successors and assigns, that
any liability or obligation under this Lease shall only be enforced against
Landlord's equity interest in the Property and in no event against any other
assets of the Landlord, or Landlord's officers or directors.
25.09 ACCORD AND SATISFACTION
No payment by Tenant or receipt by Landlord of a lesser amount then any
installment or payment of Rent due shall be deemed to be other than on account
of the mount due, and no endorsement or statement on any check or any letter
accompanying any check or payment of Rent shall be deemed an accord and
satisfaction, and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment of Rent
or pursue any other remedies available to Landlord. No receipt of money by
Landlord from Tenant after the termination of this Lease or Tenant's right of
possession of the Premises shall reinstate, continue or extend the Term.
25.10 LANDLORD'S OBLIGATIONS ON SALE OF BUILDING
In the event of any sale or other transfer of the Building, Landlord shall be
entirely freed and relieved of all agreements and obligations of Landlord
hereunder accruing or to be performed after the date of such sale or transfer,
provided that all of Landlord's obligations hereunder are specifically assumed
by the buyer or transferee.
25.11 BINDING EFFECT
This Lease shall be binding upon and inure to the benefit of Landlord and Tenant
and their respective heirs, legal representatives, successors and permitted
assigns.
25.12 CAPTIONS
The Article and Section captions in this Lease are inserted only as smatter of
convenience and in no way define, limit, construe, or describe the scope or
intent of such Articles and Sections.
25.13 APPLICABLE LAW
This Lease shall be construed in accordance with the laws of the State of Texas.
If any term, covenant or condition of this Lease or the application thereof to
any person or circumstance shall I, to any extent, be invalid or unenforceable,
the remainder of this Lease, or the application of such term, covenant or
condition to persons or circumstances other then those as to which it is held
invalid or unenforceable, shall not be affected thereby and each item, covenant
or condition of this Lease shall be valid and be enforced to the fullest extent
permitted by law.
25.14 ABANDONMENT
In the event Tenant abandons the Promises but is otherwise in compliance with
all the terms, covenants and conditions of this Lease, Landlord shall (I) have
the right to enter into the Premises in order to show the space to prospective
tenants, (II) have the right to reduce the services provided to Tenant pursuant
to the terms of this Lease to such levels as Landlord reasonably determines to
be adequate services for an unoccupied premises and (III) during the last six
(6) months of the Term, have the right to prepare the Premises for occupancy by
another tenant upon the end of the Term.
25.15 LANDLORD'S RIGHT TO PERFORM TENANT'S DUTIES
Except as otherwise provided heroin, if Tenant fails timely to perform any of
its duties under this Lease or the Workletter, Landlord shall have the right
(but not the obligation), to perform such duty on behalf and at the expense of
Tenant upon prior notice to Tenant, and all sums expended or expenses incurred
by Landlord in performing such duty shall be deemed to be additional Rent under
this Lease and shall be due and payable upon demand by Landlord.
25.16 TERMINATION OF EXISTING LEASE
"As of the Commencement Date of this Lease, Tenant's existing lease between
Tenant and One Lincoln Plaza - A Joint Venture, Landlord's predecessor in
interest, dated August 4, 1993 as amended by the First Amendment to Office Lease
Agreement dated March 4, 1994 ("First Amendment"), as amended by the Second
Amendment to Office Lease Agreement dated April 18, 1995 ("Second Amendment")
and as amended by the Third Amendment to Office Lease Agreement dated September
18, 1995 ("Third Amendment") covering 50,961 s.f of Rentable Area shall be
terminated and of no further force or effect."
NOTICE OF INDEMNIFICATION: THE PARTIES TO THIS LEASE HEREBY ACKNOWLEDGE
AND AGREE THAT THIS LEASE (AND ATTACHED EXHIBITS)CONTAINS CERTAIN
INDEMNIFICATION PROVISIONS.
IN WITNESS WHEREOF, this Lease has been executed as of the date set forth in
Section 1.01(4) hereof.
LANDLORD: TENANT:
METROPOLITAN LIFE INSURANCE GREAT SOUTHERN LIFE INSURANCE COMPANY
COMPANY
By: __________________________ By: _________________________________
David G. Rogers, Richard Juneau, Secretary
Asst. Vice-President
Date: ___2/14/97______________ Date: _2/11/97_______________________
17
<PAGE>
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT
This First Amendment to Office Lease Agreement ("Amendment"), by and
between METROPOLITAN LIFE INSURANCE COMPANY, a New York corporation
("Landlord"), and GREAT SOUTHERN LIFE INSURANCE COMPANY., a Texas corporation
("Tenant"), is dated the 2nd day of December, 1997.
WITNESSETH:
WHEREAS, Landlord and Tenant heretofore entered into that certain
Office Lease Agreement dated February 19, 1997 ("Lease"), under and pursuant to
the terms of which Tenant has leased from Landlord certain office space known as
Suite 5000 and containing approximately 49,912 square feet of Rentable Area
("Premises") in that certain office building commonly known as "One Lincoln
Plaza" ("Building"), which is located at 500 N. Akard St., Dallas, Texas, as
more particularly described in the Lease; and
WHEREAS, Tenant desires to add approximately 7,664 square feet of
Rentable Area on the 31 floor ("Expansion Space") (being approximately 6,663
square feet of Usable Area) to the Existing Premises, which Expansion Space is
outlined on Exhibit "A' attached hereto; and
WHEREAS, Tenant agrees, within thirty (30) days after receipt of notice
from Landlord, to vacate the Expansion Space; should Tenant elect not to
exercise its right to lease additional space, as more particularly defined on
Schedule 1 to Exhibit "J" of the Lease; and
WHEREAS, Tenant and Landlord agree to amend the suite number from Suite
5000 to Suite 500.
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein and in the Lease, the parties hereto do hereby
covenant and agree as follows:
1. Defined Terms. Terms defined in the Lease and delineated herein by
initial capital letters shall have the same meaning ascribed thereto in the
Lease, except to the extent that the meaning of such term is specifically
modified by the provisions hereof. In addition, other terms not defined in the
Lease but defined herein will, when delineated with initial capital letters,
have the meanings ascribed thereto in this Amendment. Terms and phrases which
are not delineated by initial capital letters shall have the meanings commonly
ascribed thereto.
2. Premise. From and after the Expansion Space Commencement Date, the
term "Premises" (as defined in Article 1.01(9) of the Lease) shall include the
Expansion Space for all purposes, including, without limitation, the
determination of Tenant's share of Basic Costs, and thereafter, the "Premises"
shall be comprised of the Existing Premises and the Expansion Space, and the
Premises are stipulated for all purposes to contain approximately 57,576 square
feet of Rentable Area. Being approximately 54,593 square feet of Usable Area.
3. Expansion Space Commencement Date, As used herein, the "Expansion
Space Commencement Date" Shall mean December 1, 1997.
4. Lease Term. The Lease Term for the Expansion Space ("Expansion Space
Lease Term") shall mean a term commencing of the Expansion Space Commencement
Date and continuing on a month to month basis expiring on June 30, 1998.
Notwithstanding the foregoing, and without changing the Lease Term with respect
to the existing Premises, the Lease Term for the Existing Premises will expire
on May 31, 2007.
5. Base Rental. Article 1.01(8) of the Lease shall be
amended , and the following additional paragraphs shall be inserted in the
Lease:
With respect to the Expansion Space, commencing on the Expansion Space
Commencement Date and continuing through, June 30, 1998, "Base Rental"
shall mean the sum of $12.00 per square foot of Rentable Area within
the Expansion Space per annum, all as adjusted pursuant to Article 4.01
of the Lease. Notwithstanding the foregoing, and without changing the
Base Rental with respect to the Existing Premises, Base Rental for the
Existing Premises shall remain at $14.00 per square feet of Rentable
Area within the Existing Premises.
6. Commissions. Tenant represents and warrants that no broker has
represented it in this Amendment transaction and that no broker is owed a
commission or fee in connection with the consummation of this Amendment
transaction. Tenant hereby indemnities and holds Landlord harmless against any
loss, claim, expense or liability with respect to any commissions or brokerage
fees claimed on account of the amendment of this Lease or expansion of the
Premises hereunder, if applicable, due to any action of Tenant. The provisions
of this Paragraph 6 shall survive the expiration of the Lease Term or any
renewal or extension thereof.
7. Exhibits. The following exhibit and schedule are attached
hereto and incorporated herein and made a part of this Lease for all purposes:
Exhibit "Al Floor Plan of Expansion Space
8. Effect of Amendment. Except as expressly amended by the provisions
hereof, the terms and provisions contained in the Lease shall continue to govern
the rights and obligations of the parties; and all provisions and covenants in
the Lease shall remain in full force and effect as stated therein, except to the
extent specifically modified by the provisions of this Amendment. This Amendment
and the Lease shall be construed as one instrument.
FIRST AMENDMENT TO OFFICE LEASE AGREEMENT - Page 1
<PAGE>
NOTICE OF INDEMNIFICATION: THE PARTIES TO THIS AMENDMENT HEREBY ACKNOWLEDGE AND
AGREE THAT THIS AMENDMENT AND ATTACHED EXHIBITS CONTAIN CERTAIN INDEMNIFICATION
PROVISIONS.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Amendment in
multiple counterparts as of the last day and year written below.
LANDLORD:
METROPOLITAN LIFE INSURANCE COMPANY,
a New York corporation
By:_______________________________
David G. Rogers,
Date:______12/2/97______________
Assistant Vice President
TENANT:
GREAT SOUTHERN LIFE INSURANCE COMPANY
a Texas corporation
By:
Name:
Date: 11/18/97
Secretary
Exhibit 10.20(a3)
SECOND AMENDMENT
TO
MASTER AGREEMENT
This Second Amendment to Master Agreement (the "Amendment") is entered into
by and among The Ohio Life Insurance Company, an Ohio corporation ("Ohio Life"),
The Ohio Casualty Insurance company, an Ohio corporation ("Ohio Casualty"),
Americo Life, Inc., a Missouri corporation ("ALI"), and Great Southern Life
Insurance Company, a Texas corporation ("Great Southern"). Ohio Life and Ohio
Casualty are referred to collectively herein as "Ohio", and ALI and Great
Southern are referred to collectively herein as "Americo".
WITNESSETH:
WHEREAS, the parties originally entered into a Master Agreement on July 31,
1995, which was subsequently amended by the First Amendment to Master Agreement
as of October 2, 1995 (collectively hereinafter, the "Master Agreement"); and
WHEREAS, the parties now desire to amend certain provisions of the Master
Agreement, as provided in this Amendment;
NOW, THEREFORE, for and in consideration of the premises and the mutual
agreements, representations and warranties contained in this Amendment, and for
other consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
1. Modification of Reinsured Business.
A portion of the Reinsured Business (as that term is defined in the Master
Agreement) relates to a deferred compensation program established by Ohio for
certain agents (the "Deferred Comp Program"). The accounts comprising the
Deferred Comp Program are identified in Exhibit 1, which is attached hereto and
incorporated herein by this reference (the "Deferred Comp Program Accounts").
Effective April 1, 1997, the Deferred Comp Program Accounts shall cease to be
Reinsured Business, as that term is defined in and for all purposes of the
Master Agreement.
2. No Other Revisions. Except only as provided in this Amendment, all terms
and conditions of the Master Agreement remain in full force and effect.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers by all requisite corporate and other actions and
approval as of November 17, 1997.
THE OHIO LIFE INSURANCE COMPANY
By
-------------------------------
Name Lauren N. Patch
-------------------------------
Title Vice Chairman and President
-------------------------------
THE OHIO CASUALTY INSURANCE COMPANY
By
-------------------------------
Name Lauren N. Patch
-------------------------------
Title Vice Chairman and President
-------------------------------
AMERICO LIFE, INC.
By
-------------------------------
Name Gary L. Jenkins
-------------------------------
Title Senior Vice Pres. & Chief Financial Officer
-------------------------------
GREAT SOUTHERN LIFE INSURANE
COMPANY.
By
-------------------------------
Name Donna Kinnaird
-------------------------------
Title Senior Vice Pres. & Assistant Treasurer
-------------------------------
Exhibit 10.20(g2)
AMENDMENT NO. 4
The Coinsurance Life, Annuity and Disability Income Reinsurance
Agreement effective as of January 1, 1995 (as amended by Amendment No. 1 dated
as of August 3, 1995, and Amendment Nos. 2 and 3 dated as of October 2, 1995),
between EMPLOYERS REASSURANCE CORPORATION of Overland Park, Kansas
(?CORPORATION?), and THE OHIO LIFE INSURANCE COMPANY of Hamilton, Ohio
(?CEDANT?), is hereby amended as follows:
On and after April 1, 1996, the following exclusion is added to Article
I:
This Agreement does not apply to the following accident and
health insurance policies (the ?Excluded Policies?):
All individual disability income insurance contracts of the
CEDANT in force on the effective date of this agreement and
issued by the CEDANT to become effective on or after the
effective date of this agreement (January 1, 1995), including
all riders originally written therewith or later added
thereto.
All group accident and health insurance of the CEDANT
(including accidental death and dismemberment plan issued to
its affiliate) in force on the effective date of this
agreement and issued by the CEDANT to become effective on or
after the effective date of this agreement.
All group accident and health insurance policies (including
long term care) reinsured by the CEDANT prior to the effective
date of this agreement and certificates issued thereunder to
become effective on or after the effective date of this
agreement.
Losses paid by the CEDANT on and after April 1, 1996, with respect to
the Excluded Policies (regardless of when such losses were incurred) are hereby
excluded from this Agreement and shall not be the responsibility of the
CORPORATION.
Immediately after execution of this Amendment, cash in an amount equal
to $4,801,115, constituting the net amount calculated to reflect:
(a) that portion of the reserves identified in Article VI of
this Agreement attributable to the Excluded Policies at the close of
business on March 31, 1996, less the amount of any losses that have
been paid on or after April 1, 1996, through December 31, 1996, with
respect to the Excluded Policies; and
<PAGE>
(b) the net result of all other activity with respect to the
Excluded Policies for periods beginning on or after April 1, 1996,
through December 31, 1996;
shall be transferred by the CORPORATION to CEDANT via wire transfer to an
account designated by CEDANT. The calculation of such amount is set forth below:
(1) Liabilities as of 3/31/96 equal to: $3,551,996
reserves as agreed upon as of 3/31/96, including
reserves for losses incurred but not reported 3,597,761
less due premium as of 3/31/96 (45,765)
(2) Plus investment income on the liabilities for the period
4/1/96 through 12/31/96, based on
7% interest rate per year 186,480
(3) Plus activity on the business from 4/1/96 through 12/31/96, as
defined by the following
calculation: 1,497,472
premiums collected net of reinsurance 2,174,167
less benefits paid net of reinsurance (417,035)
less commissions paid net of reinsurance (205,306)
less premium tax (2.5% of premiums net
of reinsurance) (54,354)
less due and unpaid reinsurance amounts
as of 12/31/96 0
(4) Less amounts due under Services Agreement (434,833)
----------------
(5) TOTAL TRANSFER AMOUNT (1+2+3 - 4) $4,801,115
In all other respects not inconsistent herewith, said Agreement shall
remain unchanged.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed in duplicate.
THE OHIO LIFE INSURANCE EMPLOYERS REASSURANCE
COMPANY CORPORATION
By By
Name Name
Title Title
Date 3/26/97 Date 3/26/97
Exhibit 10.20 (i2)
FIRST AMENDMENT TO SERVICES AGREEMENT
This First Amendment to Services Agreement (the AAmendment@) is
made as of the 27th day of March, 1997, by and among AMERICO LIFE, INC., a
Missouri corporation (AALI@), THE OHIO LIFE INSURANCE COMPANY, an Ohio
corporation (AOhio Life@), and THE OHIO CASUALTY INSURANCE COMPANY, an Ohio
corporation (AOhio Casualty@). Ohio Life and Ohio Casualty are collectively
referred to herein as AOhio.@
WHEREAS, ALI and Ohio are parties to that certain Services
Agreement dated as of October 2, 1995 (the AServices Agreement@); and
WHEREAS, the parties wish to amend the Services Agreement in
the manner provided in this
Amendment;
NOW, THEREFORE, for and in consideration of the premises and the
mutual agreements contained in this Amendment, and for other consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties
agree as follows:
1. SERVICED BUSINESS. Effective as of April 1, 1996, the Serviced
Business (as defined in the Services Agreement) shall exclude the following
accident and health insurance policies (the AExcluded Policies@):
All liabilities associated with the accident and health (AA&H@)
insurance policies of Ohio Life in force on January 1, 1995, or
issued by Ohio Life to become effective on or after January 1,
1995, and all related riders and contracts of reinsurance,
including:
(a) All individual A&H contracts issued by Ohio Life;
(b) All individual A&H contracts reinsured to Ohio Life
from Ohio Casualty; and
(c) All group A&H contracts issued by or reinsured to Ohio
Life, including the Ohio Casualty employee voluntary accidental
death and dismemberment insurance and the CIGNA RE long term care
insurance.
Such exclusion shall not affect any settlements occurring after
April 1, 1996, under the Services Agreement with respect to periods prior
to April 1, 1996. Cash in an amount equal to $434,833, constituting the net
amount calculated to reflect all settlements that have occurred under this
Agreement with respect to the Excluded Policies for periods beginning on or
after April 1, 1996, through December 31, 1996, shall be transferred by ALI
to Ohio immediately upon execution of this Amendment via wire transfer to
an account designated by Ohio. The calculation of such amount is set forth
on the attached Schedule A.
<PAGE>
2. OTHER PROVISIONS. All references in the Services Agreement to the
AAgreement@ shall be deemed to include this Amendment and the terms contained in
this Amendment. Except as amended by this Amendment, all terms and conditions of
the Services Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties to this Amendment have caused this
Amendment to be executed by their respective duly authorized officers as of the
date first above written.
THE OHIO LIFE INSURANCE THE OHIO CASUALTY
INSURANCE COMPANY COMPANY
By By
------------------------------ ---------------------------
Name Name
Title Title
AMERICO LIFE, INC.
By
---------------------------
Title
Exhibit 10.20 (i3)
AMENDMENT
TO
SERVICES AGREEMENT
The Amendment to Services Agreement ("Amendment") is entered into by and
among Americo Life, Inc., a Missouri corporation ("ALI"), The Ohio Life
Insurance Company, and Ohio corporation ("Ohio Life"), and the Ohio Casualty
Insurance Company, an Ohio corporation ("Ohio Casualty"). Ohio Life and Ohio
Casualty sometimes are collectively referred to herein as "Ohio."
WITNESSETH:
WHEREAS, ALI and Ohio originally entered into the Services Agreement (the
"Services Agreement") on October 2, 1995; and
WHEREAS, ALI and Ohio now desire to amend certain provisions of the
Services Agreement, as provided in this Amendment;
NOW, THEREFORE, for and in consideration of the foregoing recitals, which
are incorporated into the operative provisions of this Amendment, the mutual
covenants and agreements contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto covenant and agree as follows:
1. Modification of Serviced Business
(A) A portion of the Serviced Business (as that term is defined in the
Services Agreement relates to deferred compensation established by Ohio for
certain agents (the "Deferred Comp Program"). The accounts comprising the
Deferred Comp Program are identified on Exhibit 1, which is attached hereto and
incorporated herein by this reference (the "Deferred Comp Program Accounts").
Notwithstanding any provisions of this Amendment and/or the Services Agreement
to the contrary:
i. ALI shall be wholly and solely responsible for servicing and
administering the Deferred Comp Program Accounts from April 1,
1997 until the closing contemplated by the Global Settlement
Agreement between ALI and Ohio, among others (the "GSA
Closing"), and ALI shall be liable to Ohio and/or the Deferred
Comp Program Account beneficiaries, as the case may be, for
any errors committed or omissions made by ALI in rendering
such services;
ii. Ohio shall be wholly and solely responsible for servicing and
administering the Deferred Comp Program Accounts from and
after the GSA Closing, and shall be liable to ALI and/or the
Deferred Comp Program Account beneficiaries, as the case may
be, for any errors committed or omissions made by Ohio in
rendering such services; and
iii. Ohio shall be wholly and solely responsible for any and all
benefits payable under the Deferred Comp Program Accounts to
the Deferred Comp Program Account beneficiaries from and after
April 1, 1997.
(B) i. Ohio administered and serviced certain pension plans
identified on Exhibit 2, which is attached hereto and
incorporated herein by this reference (the "Pension Plans").
Effective October 2, 1995, the Pension Plans shall be Serviced
Business, as that term is defined in and for all purposes of
the Services Agreement.
ii. Ohio and ALI recognize that certain problems exist with
respect to the administration and servicing prior to October
2, 1995 of the Mearhoff and Hartz pension plans, which are
included in the Pension Plans. As of April 1, 1997, the
Mearhoff and Hartz pension plans shall cease to be
Pension Plans, and Ohio shall assume sole
responsibility for the administration and servicing of the
Mearhoff and Hartz pension plans. However, the assets
comprising the Mearhoff and Hartz pension plans shall
remain in the possession of ALI, at all times being held,
invested, distributed and otherwise utilized for the sole
benefit of such plans. Ohio shall attempt to resolve these
problems and in doing so, Ohio shall be solely responsible
for all costs and expenses, including any penalties and
fines, associated with resolving these problems. Ohio
shall also administer and service the Mearhoff and Hartz
pension plans in their ordinary course of business,
utilizing the funds held by ALI. Concurrently with the
execution of this Amendment, ALI shall transfer to Ohio
all documents and records, including electronic data,
in the possession or under the control of ALI which are
necessary, desirable or appropriate for Ohio to administer
and service the Mearhoff and Hartz plans.
iii. When the problems associated with the Mearhoff and Hartz
pension plans have been resolved to the reasonable, mutual
satisfaction of Ohio and ALI, Ohio shall cease (with written
notice to ALI) its administration and servicing of the
Mearhoff and Hartz pension plans and the Mearhoff and Hartz
pension plans again shall be deemed to be Serviced Business
for a purposes under the Services Agreement from and after the
date of tender to ALI.
iv. Except only for the Mearhoff and Hartz pension plans as
provided for above, Ohio shall be relieved of any and all
administration, servicing and other liabilities and
responsibilities of any kind or type whatsoever related to the
Pension Plans arising after and pertaining to the period
October 2, 1995.
2. Modifications to Servicing. ALI shall use its best efforts to
immediately cure all existing servicing deficiencies related to policyholders
and structured settlement beneficiaries, as identified specifically by Ohio in a
letter from Richard B. Kelly to Donna Kinnaird and Gary Jenkins dated October
31, 1997.
Additionally, all communications from ALI with respect to the Serviced
Business shall reflect consistently and clearly ALI's role in the servicing of
such business. ALI shall not represent to policyholders that it is Ohio Life or
Ohio Casualty, and ALI shall answer telephone calls related to the Serviced
Business as "Insurance Companies," rather than "Ohio Life." ALI shall also cease
using Ohio Life stationery and other printed materials, except only where
required to do so by applicable state law.
On or before June 30, 1998, ALI shall cease using the existing Ohio
telephone number (1-800-456-Ohio) with respect to the Serviced Business, shall
transfer all rights in and to that telephone number of Ohio Casualty.
3. No other Revisions. Except only as provided in this Amendment, all terms
and conditions of the Services Agreement remain in full force and effect.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
by their respective officers duly authorized by all requisite corporate and
other actions and other actions and approval, as of November 17, 1997.
AMERICO LIFE, INC.
By
--------------------------------------------------------
Name Gary L. Jenkins
----------------------------------------------
Title Senior Vice Pres. & Chief Financial Officer
----------------------------------------------
THE OHIO LIFE INSURANCE COMPANY
By
--------------------------------------------------------
Name Lauren N. Patch
----------------------------------------------
Title Vice Chairman and President
----------------------------------------------
THE OHIO CASUALTY INSURANCE COMPANY
By
--------------------------------------------------------
Name Lauren N. Patch
----------------------------------------------
Title Vice Chairman and President
----------------------------------------------
Exhibit 21
LIFE OF SUBSIDIARIES OF THE REGISTRANT
WHOLLY-OWNED SUBSIDIARIES:
Americo Services, Inc. Missouri
United Fidelity Life Insurance Company Texas
Great Southern Life Insurance Company Texas
The College Life Insurance Company of America Texas
National Farmers Union Life Insurance Company Texas
The Victory Life Insurance Company Kansas
The Ohio State Life Insurance Company Ohio
Investors Guaranty Life Insurance Company California
Landmark Mortgage Company Missouri
GSSW-REO Westwood Arlington, L.P. Texas
GSSW-REO Westwood Briarwood, L.P. Kansas
GSSW-REO Westwood Baytown, L.P. Kansas
Dickinson Arms-REO L.P. Kansas
GSSW-REO Land L.P. Florida
GSSW REO Landmark L.P. Alabama
Windrush-REO L.P. Texas
Riverdale Square-REO L.P. Georgia
GSSW-REO L.C. Texas
50%-OWNED SUBSIDIARIES:
Argus Health Systems, Inc. Delaware
Hereford LLP Missouri
College Insurance Group Missouri
Financial Assurance Life Insurance Company Texas
Annuity Service Corporation Texas
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(Replace this text with the legend)
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<CIK> 0000908139
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<FISCAL-YEAR-END> DEC-31-1997
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