SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ................. to ....................
Commission File Number 1-12540
WESTERN NATIONAL CORPORATION
(Exact name of registrant as specified in its articles of incorporation)
DELAWARE 75-2502064
(State of incorporation) (I.R.S. Employer
Identification No.)
5555 SAN FELIPE ROAD, SUITE 900, HOUSTON, TEXAS
77056
(Address of principal executive offices)
(Zip Code)
Registrant's telephone number, including area code: (713) 888-7800
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Shares of common stock outstanding as of March 31, 1996: 62,420,073
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
June 30, December 31,
1996 1995
(unaudited) (audited)
ASSETS
<S> <C> <C>
Investments:
Fixed maturities - actively managed
at fair value (amortized cost: 1996-
$8,034.0; 1995-$7,654.5) $7,977.8 $7,996.7
Fixed maturities - held to maturity
at amortized cost (fair value: 1996-
$1.9; 1995 - $2.1) 1.1 1.1
Equity securities at fair value
(cost: 1996 - $17.1; 1995 - $0.8) 16.7 0.8
Mortgage loans 126.7 86.5
Credit-tenant loans 197.7 249.7
Policy loans 68.0 68.3
Other invested assets 28.4 24.5
Short-term investments 232.2 417.6
--------- --------
Total invested assets 8,648.6 8,845.2
Accrued investment income 152.3 131.7
Reinsurance receivable 2.0 1.8
Cost of policies purchased 80.3 35.8
Cost of policies produced 379.0 228.7
Deferred income taxes 12.0 8.9
Other assets 24.4 61.4
--------- --------
TOTAL ASSETS $9,298.6 $9,313.5
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------------
Liabilities:
Insurance liabilities $8,116.0 $7,915.8
Notes payable 147.9 147.8
Investment borrowings and due
to brokers 206.6 257.3
Deferred income taxes 58.3 118.4
Other liabilities 84.2 88.6
--------- --------
TOTAL LIABILITIES 8,613.0 8,527.9
Shareholders' Equity:
Common stock and additional
paid-in capital (par value $.001 per
share; 500,000,000 shares authorized;
issued and outstanding: 1996-
62,420,073; 1995 - 62,348,000) 347.9 346.8
Net unrealized appreciation
(depreciation) of securities, net
of applicable deferred income taxes:
1996 - $(8.9); 1995 - $67.4 (16.4) 125.2
Retained earnings 354.1 313.6
--------- --------
TOTAL SHAREHOLDERS' EQUITY 685.6 785.6
--------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $9,298.6 $9,313.5
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(IN MILLIONS - EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
REVENUES:
Insurance policy and
fee income $ 4.5 $ 8.1 $ 8.7 $ 14.0
Net investment income 172.1 162.3 343.8 323.7
Net realized investment
gains (losses) (5.3) (32.0) (4.9) (64.8)
------- ------- ------- -------
TOTAL REVENUES 171.3 138.4 347.6 272.9
BENEFITS AND EXPENSES:
Insurance policy benefits 27.8 26.3 55.9 56.8
Change in future policy
benefits and other
liabilities (1.4) 3.8 (2.7) (0.6)
Interest expense on
annuities and financial
products 93.0 90.4 184.5 179.2
Interest expense on notes
payable 2.6 2.6 5.3 5.3
Interest expense on
investment and short-term
borrowings 2.0 1.1 4.9 1.5
Amortization related to
operations 10.2 7.8 20.0 15.4
Amortization and change
in future policy benefits
related to realized gains
(losses) (0.9) (13.1) (0.6) (24.9)
Other operating costs and
expenses 5.2 5.1 10.6 11.0
------- ------- ------- -------
TOTAL BENEFITS AND EXPENSES 138.5 124.0 277.9 243.7
Income before income taxes 32.8 14.4 69.7 29.2
Income tax expense 11.4 4.9 24.3 10.2
------- ------- ------- -------
NET INCOME $ 21.4 $ 9.5 $ 45.4 $ 19.0
======= ======= ======= =======
EARNINGS PER COMMON SHARE
AND COMMON EQUIVALENT SHARE:
Weighted average shares 62.9 62.4 62.8 62.4
Net income $ 0.34 $ 0.15 $ 0.72 $ 0.30
======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
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<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C> <C>
Common stock and additional
paid-in capital:
Balance, beginning of period $ 346.8 $ 346.3
Issuance of shares of common stock
related to restricted stock awards,
options and benefit plans (1996-
72,073 shares; 1995-45,000 shares) 1.1 0.5
--- --------
Balance, end of period $ 347.9 $ 346.8
======== ========
Net unrealized appreciation
(depreciation) of securities:
Balance, beginning of period $ 125.2 $(322.1)
Change in unrealized appreciation
(depreciation) (141.6) 352.6
-------- --------
Balance, end of period $ (16.4) $ 30.5
======== ========
Retained earnings:
Balance, beginning of period $ 313.6 $ 316.3
Net income 45.4 19.0
Dividends on common stock (4.9) (5.1)
-------- --------
Balance, end of period $ 354.1 $ 330.2
======== ========
Total shareholders' equity $ 685.6 $ 707.5
======== ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-4-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN MILLIONS)
(UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996 1995
<S> <C> <C>
Cash flows from operating activities:
Net income $ 45.4 $ 19.0
Adjustments to reconcile net
income to net cash provided
by operations:
Amortization and depreciation 21.9 (14.5)
Realized (gains) losses on
investments, net 1.3 62.9
Income taxes (143.9) 26.1
Increase in insurance
liabilities (0.4) 14.5
Interest credited to insurance
liabilities 188.3 179.2
Fees charged to insurance
liabilities (2.0) (2.5)
Accrual and amortization of
investment income (23.5) (6.9)
Deferral of cost of policies
produced (56.8) (23.2)
Other 199.4 (3.5)
---------- ----------
Net cash provided by operating
activities 229.7 251.1
---------- ----------
Cash flows from investing activities:
Sales of investments 1,365.6 1,810.2
Maturities and redemptions of
investments 259.2 128.1
Purchases of investments (2,015.7) (1,977.2)
---------- ----------
Net cash provided by (used in)
investing activities (390.9) (38.9)
---------- ----------
Cash flows from financing activities:
Deposit to insurance liabilities 743.4 297.4
Withdrawals from insurance
liabilities (729.3) (541.9)
Dividends on common stock (4.9) (5.1)
Due to brokers 114.5 196.3
Investment borrowings, net (147.9) 102.6
---------- ----------
Net cash provided by (used in)
financing activities (24.2) 49.3
---------- ----------
Net increase (decrease) in
short-term investments (185.4) 261.5
Short-term investments -
beginning of period 417.6 28.0
---------- ----------
Short-term investments -
end of period $ 232.2 $ 289.5
========== ==========
Supplemental cash flow disclosure:
Income taxes (refunded) paid, net $ (31.1) $ 15.6
========== ==========
Interest paid on notes payable
and investment borrowings $ 9.1 $ 6.5
========== ==========
</TABLE>
The accompanying notes are an integral part of the financial statements.
-5-
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following notes should be read in conjunction with the notes to
consolidated financial statements contained in the 1995 Annual Report on Form
10-K of Western National Corporation (the "Company").
1. SIGNIFICANT ACCOUNTING POLICIES
The unaudited consolidated financial statements as of June 30, 1996, and
for the three-month and six-month periods ended June 30, 1996 and 1995,
reflect all adjustments, consisting only of normal recurring items that are
necessary in the opinion of management to present fairly the Company's
financial position, results of operations and cash flows on a basis consistent
with that of the prior audited consolidated financial statements.
Intercompany amounts and transactions were eliminated.
2. ADJUSTMENT TO ACTIVELY MANAGED FIXED MATURITIES
The Company classifies fixed maturity investments into two categories in
accordance with SFAS No. 115. The categories are "actively managed", which
are carried at estimated fair value, and "held to maturity", which are carried
at amortized cost. The adjustment to carry actively managed fixed maturity
investments at fair value resulted in the following cumulative adjustments to
balance sheet accounts as of June 30, 1996 and December 31, 1995.
ADJUSTMENTS TO ACTIVELY MANAGED FIXED MATURITIES
(IN MILLIONS)
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
EFFECT OF EFFECT OF
COST FAIR VALUE CARRYING COST FAIR VALUE CARRYING
BASIS ADJUSTMENTS VALUE BASIS ADJUSTMENTS VALUE
<S> <C> <C> <C> <C> <C> <C>
INVESTMENTS:
Actively managed
fixed maturities $ 8,034.0 $(56.2) $ 7,977.8 $ 7,654.5 $342.2 $ 7,996.7
Equity securities 17.1 (0.4) 16.7 0.8 - 0.8
Other invested assets 24.2 4.2 28.4 13.5 11.0 24.5
$ 8,075.3 $(52.4) $ 8,022.9 $ 7,668.8 $353.2 $ 8,022.0
OTHER BALANCE SHEET ITEMS:
Cost of policies
purchased $ 73.6 $ 6.7 $ 80.3 $ 75.8 $(40.0) $ 35.8
Cost of policies
produced 362.8 16.2 379.0 325.1 (96.4) 228.7
Insurance liabilities (8,116.0) - (8,116.0) (7,879.5) (36.3) (7,915.8)
Other liabilities (88.4) 4.2 (84.2) (100.8) 12.2 (88.6)
Deferred income taxes (67.2) 8.9 (58.3) (50.9) (67.5) (118.4)
------- -------
Unrealized appreciation
of investments, net $(16.4) $125.2
======= =======
</TABLE>
3. CHANGES IN COMMON STOCK
On June 1, 1996, the Company paid a common stock dividend of $.04 per
share. The total amount paid in common stock dividends for the second quarter
and the first six months of 1996 was $2.5 million and $4.9 million,
respectively. On July 23, 1996, the board of directors declared a common
stock dividend of $ .04 per share payable on September 3, 1996, to
shareholders of record at the close of business on August 12, 1996. The total
dividend payment will be approximately $2.5 million.
-6-
<PAGE>
During the first six months of 1996, 1,000 common shares were issued
pursuant to the exercise of stock options, 54,000 shares of restricted stock
were awarded to certain executive officers, and 17,073 shares of newly-issued
common stock were contributed to employee benefit plans.
4. CHANGES IN CALCULATION AND PRESENTATION OF INVESTMENT SPREAD
In the first quarter 1996, Western revised the manner in which it reports
investment spread on insurance liabilities. Western began excluding
first-year bonus interest on certain deferred annuities, which is generally
paid in lieu of commissions, from its average crediting rate calculations.
The revised method defines investment spread on insurance liabilities as the
difference between the average yield on invested assets and the average base
liability crediting rate. Bonus interest is capitalized along with other
acquisition expenses and amortized over the lifetime of the block of business.
Western believes that the exclusion of the capitalized bonus interest is more
consistent with the presentation of interest expenses and acquisition expenses
in its Statement of Operations. This change to Western's investment spread
calculations has no effect on the unaudited Consolidated Financial Statements.
Prior periods have been adjusted to reflect this change. The following
table sets forth investment spread on insurance liabilities as revised and as
originally reported as of the last day of each of the quarters indicated:
<TABLE>
<CAPTION>
Q2/96 Q1/96 Q4/95 Q3/95 Q2/95 Q1/95 Q4/94
_____ _____ _____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Revised 2.07% 1.99% 1.91% 1.98% 1.94% 1.93% 1.97%
As originally reported N/A N/A 1.85% 1.89% 1.86% 1.86% 1.90%
</TABLE>
Prior to the second quarter 1996, Western only presented investment
spread on insurance liabilities as of the last day of each quarter. In second
quarter 1996, Western also began presenting an average investment spread on
insurance liabilities for each quarter. Western believes that the average
investment spread on insurance liabilities more accurately reflects Western's
experience during the reported period.
The following table sets forth Western's average investment spread on
insurance liabilities for each of the quarters indicated:
<TABLE>
<CAPTION>
Q2/96 Q1/96 Q4/95 Q3/95 Q2/95 Q1/95 Q4/94
_____ _____ _____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C> <C> <C>
Average investment
spread 2.09% 1.96% 2.08% 2.12% 1.98% 2.05% 2.15%
</TABLE>
-7-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
BACKGROUND
Western National Corporation (the "Company") is a Delaware corporation
organized in October 1993 to serve as the holding company for Western National
Life Insurance Company ("Western"), a Texas life insurance company founded in
1944. Western is a leading provider of retirement annuity products, with $8.8
billion of statutory assets at June 30, 1996. Unless the context otherwise
requires, references to the "Company" are references to Western National
Corporation and its consolidated subsidiaries.
Approximately 40% of the Company's outstanding common stock is owned by a
subsidiary of American General Corporation, a Texas corporation ("AGC").
References to "American General" are references to AGC and its direct and
indirect majority-controlled subsidiaries.
RESULTS OF OPERATIONS
General
The Company's operating earnings are primarily a function of its
investment spread, the amount of its invested assets, and its operating
expenses. Accordingly, management's principal emphasis is on generating
profits through adequate pricing of its insurance products and maintaining
appropriate investment spreads over the life of the policies sold. Investment
spread is the excess of net investment income over interest credited to
insurance liabilities, and is a function of the level of, and yield on,
invested assets and the interest crediting rates on insurance liabilities. The
Company's investment spread over recent periods has been maintained through a
combination of active investment management and the ability to change rates
credited on a majority of its insurance liabilities. Management adjusts
crediting rates based upon pricing objectives, current investment performance,
market interest rates, and competitive factors. Although the Company has the
right to adjust interest crediting rates on most products, such adjustments to
crediting rates may not be sufficient to maintain targeted investment spreads
in all economic and market-rate environments. Furthermore, competitive and
other factors may limit the Company's ability to adjust crediting rates. A
narrowing of spreads may adversely affect operating results. Western believes
that its policy structure, which generally provides for resetting of policy
crediting rates at least annually and imposes withdrawal penalties during the
first five to ten years a policy is in force, mitigates substantially the
potentially adverse effects of interest rate changes, except in the case of
sudden and dramatic changes in market rates.
The spread between investment yield and the average base crediting rate
on insurance liabilities was approximately 2.07% at June 30, 1996, compared to
1.99% at March 31, 1996, and 1.94% at June 30, 1995. Western's average
investment spread on insurance liabilities was 2.09% for the second quarter
1996, compared to 1.96% for the first quarter 1996, and 1.98% for the second
quarter 1995. Capitalized bonus interest is excluded from Western's
investment spread on insurance liabilities calculations. See Note 4 to the
unaudited Consolidated Financial Statements. Western generally expects to
maintain a spread within the range of spreads it has achieved in recent
quarters. The amount of the investment spread on insurance liabilities varies
over time as a result of market factors, competitive influences, and
investment yields.
Operating earnings (excluding realized investment gains (losses) net of
applicable adjustments to amortization, expenses and taxes) for the quarter
were $24.3 million, or $.39 per share, up from $21.7 million, or $.35 per
share, in the second quarter 1995. For the six months ended June 30, 1996,
operating income was $48.2 million, or $.77 per share, compared to $44.7
million, or $.72 per share, in the first half of 1995. Because the decision
to realize investment gains or losses lies to a great degree in management's
discretion, and may reflect tax or other considerations unrelated to core
earning power, management believes that operating earnings are the best
indication of earnings capacity for financial services organizations such as
Western.
-8-
<PAGE>
The following table sets forth operating and net income for the periods
indicated (in millions):
<TABLE>
<CAPTION>
QUARTER ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Operating Income:
- -------------------------------
Operating revenues $176.6 $170.4 $352.5 $337.7
Benefits and expenses 139.4 137.1 278.5 268.6
------- ------- ------- -------
Pre-tax operating income 37.2 33.3 74.0 69.1
Income tax expense from
operations 12.9 11.6 25.8 24.4
------- ------- ------- -------
Net operating income 24.3 21.7 48.2 44.7
Realized investment gains
(losses) net of amortization,
expenses and taxes (2.9) (12.2) (2.8) (25.7)
------- ------- ------- -------
Net income $ 21.4 $ 9.5 $ 45.4 $ 19.0
======= ======= ======= =======
</TABLE>
Net investment income. Net investment income for the second quarter 1996
increased 6% to $172.1 million from $162.3 million in the second quarter 1995,
and year-to-date increased 6% to $343.8 million from $323.7 million for the
year-earlier period. This category of earnings, net of interest expense on
short-term investment borrowings, was $170.1 million for the second quarter
1996 compared to $161.2 million for the second quarter 1995. Year-to-date net
investment income, excluding interest expense on short-term borrowings, was
$338.9 million, compared to $322.2 million for the year-earlier period. The
increases in net investment income for the quarter and the six-month period
are attributable to an increase in the amount of invested assets, lower
portfolio management expenses, and an increase in income resulting from
prepayment revenues, which is included in this category of earnings. The
Company had $1.4 million of income resulting from prepayment revenues in the
second quarter 1996, compared to prepayment losses of $0.7 million in the
year-earlier quarter. Prepayment revenues resulted in $3.5 million of income
year-to-date, compared to prepayment losses of $1.0 million in the
year-earlier period. The amount of prepayment revenues received by Western
varies significantly from period to period based on both the composition of
the portfolio and the level of and direction of changes in market interest
rates. Generally, prepayment revenues will increase as market interest rates
decline and decrease as market interest rates rise. Net investment income for
the second quarter and for the first six months of 1996 also included $0.6
million and $2.7 million, respectively, from Western's equity share of net
income in the Conseco Capital Partners II, L.P. investment ("CCPII"). CCPII
reported no income to Western for the first quarter 1995 and reported $0.6
million of income attributable to Western's interest for the second quarter
1995.
The average portfolio yield (calculated based on amortized cost) was
approximately 8.2% in both the second quarter 1996 and the second quarter
1995. The average amount of net investable assets (calculated based on
amortized cost) for the second quarter 1996 increased from the year-earlier
period by approximately $400 million to approximately $8.5 billion.
Net realized investment gains (losses). Net realized investment losses
were $5.3 million in the second quarter and $4.9 million in the first half
of 1996, compared to losses of $32.0 million and $64.8 million in the second
quarter and first half of 1995, respectively. Net of related adjustments to
amortization, reserves, related expenses, and taxes, net realized investment
losses for the second quarter 1996 and year-to-date were $2.9 million and $2.8
million, respectively, compared to losses of $12.2 million and $25.7 million
in the corresponding periods. The amount of investment gains or losses
fluctuates depending on general market conditions and interest rates as well
as the level of activity in the portfolio. Western follows an active strategy
in the management of its portfolio, in which decisions to buy, sell, or hold
securities are dictated principally by relative value analysis, or other
portfolio management considerations, rather than the gain or loss to be
realized on any given trade. Western will generally report realized
investment gains in periods during which the market value of the portfolio
exceeds amortized cost and realized investment losses in periods in which
market value is less than amortized cost. Although Western's overall
portfolio
-9-
<PAGE>
value exceeded amortized cost during most of 1995, management elected to incur
substantial realized losses in 1995 in order to enhance portfolio yield and to
utilize certain capital loss tax carrybacks that would otherwise have expired
at the end of 1995.
Amortization and change in future policy benefits related to realized
investment gains (losses). As described in Note 1 to the Consolidated
Financial Statements of the Company's 1995 Annual Report on Form 10-K, the
realization of investment gains and losses affects the timing of amortization
of the cost of policies purchased and the cost of policies produced. As a
result of the net realized investment losses from sales of fixed maturities,
amortization of the cost of policies produced was decreased by $0.9 million in
the second quarter 1996 and by $0.6 million year-to-date, compared to
decreases of $13.1 million and $24.9 million in the second quarter and first
half of 1995, respectively.
Insurance policy and fee income. Insurance policy and fee income was
$4.5 million and $8.1 million in the second quarters of 1996 and 1995,
respectively. The year-to-date level for 1996 was $8.7 million, which was a
$5.3 million decrease from the year-earlier period. This income relates
primarily to premiums from products with mortality and morbidity features,
such as traditional life insurance and certain single premium immediate
annuities (SPIAs). It also includes surrender charge income, primarily from
deferred annuities, and fee income from direct sales operations. The decrease
in this area of income is primarily attributable to a decrease in the number
of policies written by Western with mortality and morbidity features.
However, modest increases in this source of income are expected due to
Western's plan to introduce a Modified Endowment Contract ("MEC") in the third
quarter 1996.
Insurance policy benefits and other liabilities. Total second quarter
insurance policy benefits (including changes in future policy benefits), which
relate solely to policies with mortality and morbidity features, decreased
$3.7 million from the year-earlier quarter. Insurance policy benefits for the
first six months of 1996 decreased by $3.0 million from the year-earlier
period. The first halves of 1996 and 1995 reflected favorable mortality
experience of $3.4 million and $3.1 million, respectively, on life contingent
SPIA contracts. Mortality experience varies from period to period due to
variances between actual mortality and expected mortality within the periods.
Such variances may be favorable or unfavorable.
Interest expense on annuities and financial products. Interest expense
on annuities and financial products increased by $2.6 million in the second
quarter 1996 and by $5.3 million year-to-date compared to the corresponding
year-earlier periods. This increase is primarily attributable to an increase
in reserves to $8.1 billion at June 30, 1996, from $7.7 billion at June 30,
1995. The average rate credited on all insurance liabilities decreased to
approximately 6.2% at June 30, 1996, from 6.3% a year earlier. Average
crediting rates on annuities may increase if market interest rates rise, or as
lower cost policies lapse, are repriced, or are replaced with policies having
higher crediting rates. Conversely, if market interest rates generally
decrease, the average crediting rate will generally tend to decrease as well.
Amortization related to operations. Scheduled amortization, which
excludes the effects of realized gains and losses, of the cost of policies
produced and the cost of policies purchased increased by $2.4 million in the
second quarter 1996 and by $4.6 million year-to-date compared to the
corresponding year-earlier periods. The increase in scheduled amortization is
the result of increases in the amount of in-force business and changes in
assumptions made in the fourth quarter 1995 concerning crediting rates on
policyholder balances and expected lapses of certain out-of-surrender-charge
blocks of business. Asset balances and scheduled amortization of the cost of
policies produced and the cost of policies purchased are reviewed annually for
products governed by SFAS 97 and may be reviewed more frequently if
circumstances dictate. This accounting standard requires that the asset
balances and future amortization be unlocked; i.e., re-computed based on
actual past experience and updated expectations of future experience. This
unlocking may result in both one-time adjustments related to prior
amortization as well as changes to ongoing amortization rates. No unlocking
adjustments were made in the first half of 1996, compared to an unlocking
adjustment of $1.6 million in the corresponding 1995 period.
Other operating costs and expenses. Other operating costs and expenses
were $5.2 million for the second quarter 1996, which was a $0.1 million
increase from the year-earlier quarter. Year-to-date other operating costs
and expenses were $10.6 million, compared to $11.0 million in the
year-earlier period. Other operating costs and expenses for the second
quarter 1996 included a guaranty fund expense of $0.5 million, compared to a
guaranty fund expense of $0.8 million for the second quarter 1995. Excluding
guaranty fund expenses, this category of expenses increased
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<PAGE>
by $0.4 million in the second quarter 1996 compared to the corresponding 1995
quarter. This increase was primarily attributable to an increase in expenses
relating to the Company's direct marketing subsidiary.
Western may be required under the solvency or guaranty laws of most
states in which it does business to pay assessments (up to certain prescribed
limits) to fund policyholder losses or liabilities of insurance companies that
become insolvent. At June 30, 1996, Western had a reserve for guaranty fund
assessments of $28.7 million, which it believes is adequate for all known
insolvencies.
Interest expense on investment and short-term borrowings and notes
payable. Interest expense of $4.6 million for the second quarter 1996 was up
from $3.7 million in the year-earlier quarter. Second quarter 1996 interest
expense consists of $2.0 million in interest expense on investment and
short-term borrowings and $2.6 million in interest expense relating to the
Senior Notes. Interest expense for the first six months of 1996 was $10.2
million, compared to $6.8 million in the corresponding period. Year-to-date
interest expense consists of $4.9 million in interest expense on investment
and short-term borrowings and $5.3 million in interest expense relating to the
Senior Notes. The amount of investment interest expense will vary
substantially from time to time based on the level of market interest rates
and the volume of investment borrowings.
Income taxes. Second quarter income taxes increased to $11.4 million
from $4.9 million in the year-earlier quarter, and year-to-date income tax
increased to $24.3 million from $10.2 million for the year-earlier period.
These increases resulted primarily from higher levels of net income due to the
termination at the end of 1995 of the Company's realized loss/tax recovery
program. See "Net realized investment gains (losses)", above.
The components of income tax included in the consolidated balance sheet
are as follows (in millions):
<TABLE>
<CAPTION>
JUNE 30, 1996 DECEMBER 31, 1995
<S> <C> <C>
Deferred income tax liabilities:
Western's operations $67.2 $ 50.9
Unrealized appreciation
(depreciation) (8.9) 67.5
------ ------
Deferred income tax liabilities $58.3 $118.4
====== ======
Deferred income tax assets:
Company net operating loss
carryforward $12.0 $ 8.9
------ ------
Deferred income tax assets $12.0 $ 8.9
====== ======
</TABLE>
The deferred income tax liability of $58.3 million at June 30, 1996, was
primarily the result of the temporary differences between tax and financial
bases of the cost of policies produced, the cost of policies purchased, and
insurance liabilities. The temporary differences between tax and financial
bases related to net unrealized depreciation of actively-managed fixed
maturities, which are carried at market value in accordance with the
requirements of SFAS 115, reduced the tax liability by $8.9 million.
The deferred income tax asset of $12.0 million at June 30, 1996, was
attributable to net operating losses incurred by the Company that could not be
utilized by Western since each files separate federal income tax returns.
Management believes that it is more likely than not that the deferred tax
asset of $12.0 million will be realized against future years' taxable income
generated at the holding company level during the carryforward period.
Net income. Second quarter 1996 net income was $21.4 million, or $.34
per share, up from $9.5 million, or $.15 per share, for the prior year's
second quarter. Year-to-date net income was $45.4 million, or $.72 per share,
up from $19.0 million, or $.30 per share, for the year-earlier period. The
increases in net income for the second quarter 1996 and year-to-date were
primarily the result of the termination at the end of 1995 of the Company's
realized loss/tax recovery program and increases in operating revenues.
-11-
<PAGE>
INVESTMENTS
At June 30, 1996, Western had invested assets of approximately $8.6
billion after giving effect to a mark-to-market adjustment under SFAS No. 115
of $52.4 million. See Note 2 to the unaudited Consolidated Financial
Statements. Western's invested assets consist principally of actively managed
fixed-income securities, as well as small volumes of credit-tenant loans on
commercial property, short-term investments, and other investments.
The following table shows Western's investment performance for the six
months ended June 30, 1996, and June 30, 1995 (in millions and before giving
effect to SFAS No. 115 adjustment).
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Weighted average book value of invested assets(1) $8,531.9 $8,130.2
Net investment income(2) 338.9 322.2
Yield on average invested assets 8.2% 8.2%
<FN>
_______________
(1) Net of short-term investment borrowings and amounts due to brokers.
(2) Net of interest expense on short-term investment borrowings.
</TABLE>
Although market interest rates increased generally in the first half of
1996 from the levels prevailing in late 1995, changes in market rates affect
the portfolio yield only slowly due to the relatively small volume of new
investments in any one period in relation to the size of the overall
portfolio. In addition, because the portfolio includes a mix of securities
with yields both above or below the average portfolio yield (as well as both
above and below current market interest rates), changes in portfolio yield
will not necessarily parallel changes in market interest rates, except over
longer periods of time. Securities that are sold or otherwise redeemed, or
that are partially prepaid, may be yielding rates above or below the portfolio
yield or current market interest rates. As part of Western's realized
loss/tax recovery program in 1995, a majority of the portfolio sales
transactions were concentrated in lower yielding issues; therefore, average
portfolio yield remained relatively unchanged in 1995 despite the general
decrease in market interest rates.
The following table sets forth the composition of the Company's fixed
maturity portfolio as of the dates indicated:
<TABLE>
<CAPTION>
FIXED MATURITIES BY TYPE JUNE 30, DECEMBER 31,
(IN MILLIONS, BASED ON CARRYING VALUE) 1996 1995
<S> <C> <C>
U.S. Treasury securities and obligations of
U.S. government corporations and agencies $ 16.5 $ 60.0
Obligations of states and political
subdivisions 185.6 173.9
Public utility securities 1,232.8 1,376.0
Other corporate securities 4,327.5 4,033.0
Mortgage-backed securities 2,216.5 2,354.9
-------- --------
Total $7,978.9 $7,997.8
======== ========
</TABLE>
-12-
<PAGE>
The following table sets forth the quality of Western's fixed maturities
(which do not include short-term investments) as of June 30, 1996, classified
in accordance with the highest rating by a nationally recognized statistical
rating organization or, as to fixed maturities not commercially rated, based
on ratings assigned by the National Association of Insurance Commissioners
("NAIC"):
<TABLE>
<CAPTION>
FIXED MATURITIES BY GAAP GAAP FAIR VALUE
QUALITY RATING AT CARRYING AMORTIZED FAIR AS % OF FIXED AS % OF AS
% OF
JUNE 30, 1996 VALUE COST VALUE MATURITIES INV.ASSETS AMORT.COST
(IN MILLIONS)
<S> <C> <C> <C> <C> <C> <C> <C>
AAA $2,417.8 $2,440.2 $2,417.8 30.3% 28.2% 99.1%
AA 782.7 798.4 782.7 9.8 9.1 98.0
A 2,231.3 2,238.8 2,231.3 28.0 26.0 99.7
BBB+ 739.2 728.3 739.2 9.3 8.6 101.5
BBB 874.7 883.2 874.7 10.9 10.2 99.0
BBB- 468.3 475.7 468.3 5.9 5.4 98.5
-------- -------- -------- ------ ----- ------
Total investment grade 7,514.0 7,564.6 7,514.0 94.2 87.5 99.3
BB+ 105.7 108.8 105.7 1.3 1.2 97.2
BB 70.1 69.9 70.1 0.9 0.8 100.3
BB- 162.6 164.5 162.6 2.0 1.9 98.8
B+ and below 126.5 127.3 127.3 1.6 1.5 100.0
-------- -------- -------- ------ ----- ------
Total below investment
grade 464.9 470.5 465.7 5.8 5.4 99.0
Total fixed maturities $7,978.9 $8,035.1 $7,979.7 100.0% 92.9% 99.3%
======== ======== ======== ====== ===== ======
<FN>
_______________
The NAIC assigns securities quality ratings and uniform prices called "NAIC Designations",
which are used by insurers when preparing their annual statements. The NAIC assigns
ratings to publicly-traded as well as privately-placed securities. The NAIC Designations
range from Class 1 to Class 6, with Class 1 being the highest quality. For purposes of the
table above, and only for fixed maturities not commercially rated, any NAIC Class 1
securities would be included in the "A" rating category; Class 2, "BBB-"; Class 3, "BB-";
and Classes 4, 5 and 6, "B+ and below".
</TABLE>
Investments in fixed maturity securities that are rated below investment
grade as determined by nationally recognized statistical rating organizations
(or, if not rated by such firms, with ratings below Class 2 assigned by the
NAIC) were 5.4% of total invested assets and 5.8% of total fixed maturity
investments at June 30, 1996. Western intends to maintain approximately the
present percentage of its portfolio invested in fixed maturity securities that
are rated below investment grade, although such percentages may vary by
several percentage points from time to time. Investments in below investment
grade corporate debt securities generally have greater risks than other
corporate debt investments. Risk of loss upon default by the borrower is
greater with such securities because they generally are unsecured and often
are subordinated to other creditors of the issuers. Furthermore, the issuers
usually have higher levels of indebtedness and are more sensitive to adverse
economic conditions, such as recession or increasing interest rates, than are
investment grade issuers. Western is sensitive to its risk exposure and
carefully monitors its below investment grade securities.
None of Western's fixed maturity investments were in substantive default
(i.e., in default due to nonpayment of interest or principal) as of June 30,
1996, compared to $10.9 million in substantive default as of June 30, 1995.
Western recorded no writedowns of fixed maturity investments for credit
impairment in the mortgage portfolio during the first six months of 1996 or
1995.
-13-
<PAGE>
At June 30, 1996, Western's actively managed fixed maturity portfolio had
net unrealized losses of $56.2 million. The net loss, which consisted of
$118.5 million of unrealized gains and $174.7 million of unrealized losses,
compares with net unrealized gains of $342.2 million at December 31, 1995.
Estimated fair values for managed fixed maturity investments are primarily
based on estimates from nationally recognized pricing services and
broker-dealer market makers. The amounts of unrealized gains and losses
fluctuate due to both credit factors and changes in market interest rates.
The market value of fixed income securities generally decreased during the
first six months of 1996, as a result of the rise in market interest rates.
Fixed maturity investments at June 30, 1996, consisted primarily of debt
securities of the U.S. government, public utilities and other corporations,
and mortgage-backed securities. Investments in mortgage-backed securities
include collateralized mortgage obligations ("CMOs") and mortgage-backed
pass-through securities.
At June 30, 1996, Western held mortgage loans with a carrying value of
$126.7 million (or 1.5% of total invested assets), up from $84.7 million at
March 31, 1996. This increase reflects Western's reclassification of $43.5
million of investments from the credit-tenant loan category to the mortgage
loan category. These reclassified investments represent credit-tenant loans
on which the commercial credit rating of the tenant, Kmart Corp., was
downgraded to below investment grade status by several national statistical
rating services. None of Western's mortgage loans were 90 or more days past
due at June 30, 1996. Western recorded no writedowns for credit impairment in
the mortgage portfolio during the first six months of 1996.
The Company occasionally uses derivative financial instruments,
consisting primarily of interest rate swaps, to alter interest rate exposure
arising from mismatches between assets and liabilities. Under the terms of the
interest rate swaps, the Company agrees with other parties to exchange, at
specified intervals, the differences between fixed-rate and floating-rate
interest amounts calculated by reference to an agreed notional amount. The
Company pays the floating rate and receives the fixed rate under the
contracts, with the net amount paid or received being charged or credited to
net investment income. At June 30, 1996, the Company had outstanding interest
rate swap agreements with notional contract amounts totaling $330.0 million.
The agreements expire at various dates through 1999. Under the agreements the
Company principally received fixed rates averaging 7.3% and paid floating
rates, primarily based on LIBOR, averaging 5.5% during the first six months of
1996. The swaps, which are marked to market in accordance with SFAS 115,
resulted in a $4.2 million decrease in other liabilities at June 30, 1996.
For a discussion regarding the effects of changing interest rates on the
Company's investments, see the Company's 1995 Annual Report on Form 10-K,
"Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations - Effects of Changing Interest Rates on Investments".
SALES
Total premiums collected in the second quarter 1996 were $440.1 million,
up 185% from the corresponding 1995 quarter and up 63% from the first quarter
1996. While sales levels are affected by market competition and other
factors, the second quarter of the year has traditionally been the best sales
quarter for the annuity industry generally. Year-to-date premiums collected
were $709.3 million, up 145% from the corresponding period of 1995. Western
utilizes four marketing distribution channels - Financial Institutions,
Personal Producing General Agents (PPGAs), Direct Marketing, and Specialty.
Additionally, Western markets a variable annuity product through its financial
institution, PPGA and direct marketing channels.
-14-
<PAGE>
The following table sets forth premium generated by distribution channel
(in millions):
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
PREMIUMS AND DEPOSITS COLLECTED:
Financial institutions
Retail $122.5 $101.3 $275.4 $ 187.0
Proprietary 244.0 - 293.1 -
------- ------- ------- ------------------
Total 366.5 101.3 568.5 187.0
Personal producing general
agents 37.0 39.0 70.4 76.0
Specialty sales 35.7 13.9 68.8 24.4
Direct marketing 1.2 0.6 2.3 2.3
------- ------- ------- ------------------
Total direct premiums and
deposits collected 440.4 154.8 710.0 289.7
Reinsurance ceded (0.3) (0.4) (0.7) (0.6)Premiums and
------- ------- ------- ------------------
Deposits Collected (1) $440.1 $154.4 $709.3 $ 289.1
======= ======= ======= ==================
SALES PRODUCTION DATA:
Western National Life $440.1 $154.4 $709.3 $ 289.1
Independent Advantage
Financial and Insurance
Services, Inc. (2) 8.2 11.1 15.9 23.7
------- ------- ------- ------------------
Total Sales Production $448.3 $165.5 $725.2 $ 312.8
======= ======= ======= ==================
<FN>
Effective January 1, 1996, the Company revised the way it reports Premiums and
Deposits Collected. Previously, internal exchanges were included in Premiums
and Deposits Collected. Beginning January 1, 1996, internal exchanges are not
included in Premiums and Deposits Collected, and prior periods have been
adjusted to reflect this method of reporting. An internal exchange is the
rollover of an existing policyholder's deposit to a revised contract with a new
surrender charge period, on which there is generally reduced or no commission
expense. Western had $38.1 million and $10.2 million of internal exchanges in
the second quarters of 1996 and 1995, respectively, and $86.5 million and $17.9
million of internal exchanges for the first six months of 1996 and 1995,
respectively.
(2) Represents fixed and variable annuity and life insurance sales of
nonaffiliated life insurance company products.
</TABLE>
FINANCIAL INSTITUTIONS. Sales through financial institutions accounted
for more than three-fourths of Western's overall sales in both the second
quarter and year-to date 1996 results. Second quarter sales in this area were
up 262% to $366.5 million, compared to $101.3 million for the second quarter
1995. Financial institution sales for the first six months of 1996 were
$568.5 million, compared to $187.0 million for the year-earlier period.
Financial institution sales are expected to continue to constitute a very
large percentage of Western's total sales in future periods, especially in
light of Western's proprietary annuity relationships. Such relationships are
more fully described below.
Western's second quarter 1996 sales in the financial institution market
reflected high levels of production from relatively few large bank
distribution relationships. The largest five relationships accounted for 70%
of sales in the second quarter 1996, compared to 38% of sales for full-year
1995. This increased concentration may make Westerns sales levels more
vulnerable to the loss of any single major relationship. Each of the largest
five relationships accounted for the following percentage of sales in the
second quarter 1996: First Union 47%, Shawmut 8%, First of America 6%, Home
Savings 5%, and U.S. Bancorporation 4%. First Union began marketing Western
non-proprietary fixed annuity products in mid-1995. In March 1996, Western
and First Union launched a proprietary fixed annuity program, and such program
resulted in sales of $172.2 million for the second quarter 1996. Western's
management believes that its relationship with First Union has the potential
for substantial continued production in future periods.
-15-
<PAGE>
Of the $366.5 million in total financial institution sales for the second
quarter 1996, 67% were proprietary sales and 33% were retail sales. The
$568.5 million of financial institution sales year-to-date consisted of 52%
proprietary sales and 48% retail sales.
Proprietary Sales. In 1995, Western initiated its first proprietary
fixed annuity distribution arrangement in the financial institution market.
In these proprietary arrangements, Western and the distributing financial
institution jointly develop a product to be offered solely through that
institution, and jointly establish product specifications and target spreads.
This process requires a mutual agreement regarding policy benefits, sales
compensation and profitability. In most cases, the distributing financial
institution, subject to investment guidelines established and monitored by
Western, manages Western's general account assets resulting from annuity sales
of its proprietary product and receives an investment management fee. Western
is solely responsible for policy administration, service and insurance
regulatory compliance, and retains the right to establish interest crediting
rates. Western believes that it was the first insurance company to develop a
proprietary fixed annuity program that provides for the selling financial
institution to also manage the resulting assets, and expects this program to
provide it with a competitive advantage in the financial institution
marketplace.
At year-end 1995, Western had established, or had agreements to
establish, proprietary fixed annuity programs at several financial
institutions, the largest of which was First Union. The first proprietary
program commenced sales in the third quarter 1995, and a second proprietary
program commenced in the fourth quarter 1995. The remaining proprietary
programs entered into in 1995 were all at varying stages of production as of
June 30, 1996. During the first six months of 1996, Western announced and
launched two new proprietary programs. Proprietary annuity sales for the
second quarter and the first six months of 1996 were $244.0 million and $293.1
million, respectively, compared with zero in the 1995 corresponding periods.
Retail Sales. Second quarter 1996 retail sales, which include all
non-proprietary sales through financial institutions, were up 21% to $122.5
million, compared to $101.3 million for the second quarter 1995. Retail sales
for the first six months of 1996 were $275.4 million, up 47% from retail sales
of $187.0 million for the year-earlier period. These results reflect both an
increase in same-store sales and the addition of new retail outlets.
Same-store sales were favorably affected by the somewhat steeper market-yield
curve in the first half of 1996, as compared with the flat market-yield curve
in the first half of 1995, which resulted in increased competition from
competing financial instruments (e.g., bank CDs) in the prior periods.
PERSONAL PRODUCING GENERAL AGENTS. Second quarter sales through PPGAs
decreased 5% to $37.0 million from $39.0 million in the second quarter 1995.
For the first six months of 1996, PPGA sales were $70.4 million, compared to
$76.0 million in 1995. The decreases in this channel were primarily the
result of increased competition from equity-oriented products in this market.
DIRECT MARKETING. Western's conservation unit, which is part of its
direct sales operations, effected $38.1 million of internal exchanges in the
second quarter 1996, compared to $10.2 million in the second quarter 1995.
Internal exchanges for the first six months of 1996 and 1995 totaled $86.5
million and $17.9 million, respectively. Sales of Western products through
the Company's direct marketing subsidiary, Independent Advantage Financial and
Insurance Services, Inc. ("IAF"), were $1.2 million for the second quarter
1996, compared to $0.6 million for the second quarter 1995. Such sales were
$2.3 million for the first six months of both 1996 and 1995. In the second
quarter and first six months of 1996, IAF sold $8.2 million and $15.9 million,
respectively, of annuity and life products of nonaffiliated life insurance
companies, compared to $11.1 million and $23.7 million for the corresponding
periods in 1995.
SPECIALTY. Second quarter specialty sales, which include SPIAs,
supplemental contracts, and life insurance, increased 157% to $35.7 million,
compared to $13.9 million for the second quarter 1995. Year-to-date specialty
sales increased 182% to $68.8 million, compared to $24.4 million for the
year-earlier period. This increase was due to additional structured
settlement sales under a modified coinsurance agreement with American General
Life Insurance Company. The agreement provides for the parties to jointly
market SPIA policies in the structured settlement market and for such policies
to be administered by Western. Under the agreement, American General Life
Insurance Company issues the policies, and a portion of each risk, normally
50%, is reinsured to Western (which portion is reported by Western as
specialty sales). Sales pursuant to the agreement commenced in the fourth
quarter 1995.
-16-
<PAGE>
VARIABLE ANNUITIES. In the second quarter and first six months of 1996,
premiums collected from sales of Western's variable annuity product were $1.5
million and $2.7 million, respectively. Western did not have a variable
annuity product in the corresponding 1995 periods. Sales of variable annuity
products were relatively low during the first six months of 1996, principally
because the product had not been available in several of the larger states in
which Western does business, including California, Florida, and New Jersey.
The product became available for sale in California in March 1996 and in
Florida in May 1996, and Western anticipates that the product will be
available in New Jersey during the third quarter 1996. Western is currently
concentrating on developing distribution channels for this product, and the
level of future sales will be dependent on the outcome of these efforts.
PREMIUM AND DEPOSIT DATA
Effective January 1, 1996, the Company began excluding internal exchanges
from its deposit and withdrawal data. Data reported for prior periods has
been adjusted to reflect this change. Western had $38.1 million and $86.5
million of internal exchanges for the second quarter and first six months of
1996, respectively, compared to $10.2 million and $17.9 million in the
corresponding 1995 periods.
The following table indicates sales by product line for the periods
indicated:
PREMIUM AND DEPOSIT DATA
(IN MILLIONS)
<TABLE>
<CAPTION>
Quarter Ended June 30, Six Months Ended June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
FIRST-YEAR DIRECT PREMIUMS
AND DEPOSITS
Single premium deferred
annuities $386.3 $115.8 $604.7 $215.5
Flexible premium deferred
annuities 3.3 8.2 6.7 13.7
Single premium immediate
annuities 33.2 13.1 64.1 22.6
------- ------- ------- -------
Total first-year 422.8 137.1 675.5 251.8
------- ------- ------- -------
RENEWAL DIRECT PREMIUMS
AND DEPOSITS
Flexible premium deferred
annuities 15.1 16.6 29.8 35.7
Life and other 2.5 1.1 4.7 2.2
------- ------- ------- -------
Total renewal 17.6 17.7 34.5 37.9
------- ------- ------- -------
NET PREMIUMS AND DEPOSITS
COLLECTED
Total direct premiums and
deposits collected 440.4 154.8 710.0 289.7
Reinsurance ceded (0.3) (0.4) (0.7) (0.6)
------- ------- ------- -------
NET PREMIUMS AND DEPOSITS
COLLECTED $440.1 $154.4 $709.3 $289.1
======= ======= ======= =======
</TABLE>
-17-
<PAGE>
The table below sets forth the change in contract values of annuities in
force (net of reinsurance), excluding annuities and supplemental contracts
with life contingencies, for the periods indicated (in millions):
<TABLE>
<CAPTION>
IMMEDIATE
ANNUITIES
DEFERRED WITHOUT LIFE
ANNUITIES CONTINGENCIES TOTAL
<S> <C> <C> <C>
December 31, 1994 $5,984.2 $407.7 $6,391.9
Deposits 265.3 14.4 279.7
Distributions (486.5) (34.8) (521.3)
Credited interest 163.5 17.0 180.5
--------- ------- ---------
June 30, 1995 $5,926.5 $404.3 $6,330.8
December 31, 1995 $6,121.0 $412.7 $6,533.7
Deposits 642.2 15.7 657.9
Distributions (599.3) (40.8) (640.1)
Credited interest 169.9 16.8 186.7
--------- ------- ---------
June 30, 1996 $6,333.8 $404.4 $6,738.2
========= ======= =========
</TABLE>
Distributions (withdrawals, deaths and annuitizations) in the first six
months of 1996 increased from the previous year's period primarily due to an
increase in the amount of annuity deposits surrenderable without penalty. As
a percentage of average deferred annuity liabilities, the year-to-date average
annualized distribution rate for the first six months of 1996 was 18.3%,
compared to 15.7% for the first six months of 1995. Year-to-date withdrawals
were somewhat higher than anticipated. Withdrawals tend to be sensitive to
changes in market interest rates and alternative investment opportunities, and
they will fluctuate from period to period.
REINSURANCE
In conformity with industry practice, Western reinsures a portion of the
business it sells. Under such reinsurance arrangements, the original insurer
remains liable under the reinsured policies in the event the reinsurer is
unable to fulfill its obligations. Premiums ceded were not material in the
quarters ended June 30, 1996, and 1995. Additionally, Western is a party to a
stand-by coinsurance agreement with an insurer under which the insurer has
agreed to provide coinsurance for selected Western policies upon the
occurrence of certain contingencies.
FINANCIAL CONDITION
Liquidity for Insurance Operations
Western's business generally provides adequate cash flow from premium
collections and investment income to meet its obligations. The liabilities
related to insurance policies are primarily long term and generally are paid
from operating cash flows. Most assets are invested in bonds and other
securities, most of which are readily marketable. Although there is no
present need or intent to dispose of such investments to meet liquidity needs,
Western could liquidate portions of these investments if the need arose. To
increase its return on investments and improve liquidity, Western may from
time to time enter into reverse repurchase agreements, dollar roll
transactions (which are specialized forms of collateralized lending involving
mortgage-backed securities) or other short-term borrowings.
Of Western's total insurance liabilities at June 30, 1996, 20% could not
be surrendered, 45% could be surrendered only by incurring a surrender charge,
and 35% could be surrendered without penalty. The extent of increases and
decreases in the percentage of interest-sensitive reserves subject to
withdrawal without penalty will depend on the level of new sales, as well as
on the level of policyholder withdrawals. In general, policy liabilities not
subject to a surrender charge are more likely to be withdrawn by policyholders
than are those that remain subject to such
-18-
<PAGE>
charges. Of those liabilities subject to surrender charge, the average
remaining surrender charge period was approximately 2.9 years and the
surrender charge averaged approximately 4.6% of accumulated policy value at
June 30, 1996.
Payment characteristics of insurance liabilities at June 30, 1996, were
as follows (in millions):
<TABLE>
<CAPTION>
<S> <C>
Payments under contracts containing fixed payment dates:
Due in one year or less $ 64.1
Due after one year through five years 230.6
Due after five years through ten years 240.8
Due after ten years 3,100.9
--------
Total gross payments with payment dates fixed by contract 3,636.4
Less amounts representing future interest on such contracts 2,003.4
--------
Insurance liabilities with payment dates fixed by contract 1,633.0
Insurance liabilities with payment dates not fixed by contract 6,483.0
--------
Total insurance liabilities $8,116.0
========
</TABLE>
Of the above insurance liabilities under contracts containing fixed
payment dates, approximately 30% related to payments that will be made on such
date only if the contract holder is living. Expected mortality is considered
in determining the amount of this liability. The remainder of the insurance
liabilities with fixed payment dates were payable regardless of the contract
holder's survival.
Approximately 20% of insurance liabilities were subject to interest
rates, ranging from 3% to 11%, fixed for the life of the contract. The
remainder of the liabilities generally were subject to interest rates that may
be reset, subject to minimum guaranteed rates, at least annually.
Western believes that it has adequate short-term investments and readily
marketable securities to cover the payments under contracts containing fixed
payment dates plus any likely cash needs for surrenders. At June 30, 1996,
Western had fixed maturities and short-term investments, net of investment
borrowings and amounts due to brokers, with a total market value of more than
$8.0 billion, or 93% of invested assets. Western believes that most of these
investments could be readily sold or used to facilitate borrowings under
dollar roll and reverse repurchase agreements.
The Texas Department of Insurance, the NAIC and several other states
evaluate the sufficiency of an insurer's capital by computing a risk-adjusted
capital level which takes into consideration risks associated with the assets
and insurance products of the insurer. Using the NAIC computations, Western's
total adjusted capital was more than twice the company action risk-based
capital level as calculated at June 30, 1996, under the guidelines.
Holding Company Liquidity and Capital
At June 30, 1996, shareholders' equity was $685.6 million, compared to
$785.6 million as of December 31, 1995. Book value at June 30, 1996, was
$10.99 per share, compared with $12.61 at December 31, 1995. The decrease is
due to the net adjustment made in the market value of the Company's investment
portfolio as required under SFAS No. 115. See Note 2 to the Consolidated
Financial Statements of the Company's 1995 Annual Report on Form 10-K.
Excluding the effects of SFAS No. 115, shareholders' equity would have been
$702.0 million, or $11.25 per share, at June 30, 1996, compared with $660.4
million, or $10.60 per share, at December 31, 1995. In general, SFAS No. 115
requires that actively managed portfolios of marketable securities be marked
to current market value, with the resulting unrealized gain or loss reported
as an adjustment to shareholders' equity (see Note 2). Because no
corresponding adjustment is made to liabilities, management of the Company is
of the view that SFAS No. 115 distorts the true economic effects of changes in
interest rates on the financial condition of financial services companies, and
that resulting equity and book value determinations are not meaningful
indicators of financial strength. Because SFAS No. 115 causes the Company's
reported book value to vary substantially with changes in market interest
rates, the Company expects its shareholders' equity to vary widely over time,
increasing during periods of declining interest rates and decreasing during
periods of rising interest rates.
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<PAGE>
Because Western is governed for insurance regulatory purposes by
statutory accounting principles that do not give effect to the adjustments
required by SFAS No. 115, the application of SFAS No. 115 does not affect
Western's statutory operations or regulatory capital position.
As a result of the Company's holding company structure, the parent
company's ability to make required debt service payments and meet other cash
needs depends upon dividends and fees received from its wholly-owned
subsidiaries. Dividend payments by insurance companies, such as Western, are
subject to statutory limitations and in certain cases to the approval of the
insurance regulatory authorities. The maximum dividend payment which Western
may make without prior approval in 1996 is $42.4 million, which management
believes is more than sufficient to meet the Company's anticipated debt
service obligations, dividends on common stock, and operating expenses during
the year. To date, Western has not paid a dividend to the Company in 1996.
On June 8, 1995, the Company entered into a five-year credit agreement
(the "Credit Agreement") with First Union National Bank of North Carolina and
certain other financial institutions (collectively referred to as the
"Lenders"). Under the Credit Agreement, the Lenders have agreed to extend
credit to the Company on a revolving basis, upon the Company's request, in an
aggregate principal amount up to $100.0 million. The Credit Agreement
contains certain provisions that require the Company and its material
subsidiaries to maintain specified levels of financial solvency during the
term of the agreement. At June 30, 1996, the Company had $39.6 million
outstanding under the Credit Agreement.
On June 1, 1996, the Company paid a common stock dividend of $.04 per
share. The total amount paid was $2.5 million. On July 23, 1996, the board
of directors declared a common stock dividend of $ .04 per share payable on
September 3, 1996, to shareholders of record at the close of business on
August 12, 1996. The total dividend payment will be approximately $2.5
million.
OTHER INFORMATION
With respect to statements herein that may be construed as predictive of
future performance, readers should be aware that performance may differ from
that currently anticipated. Such differences may be either positive or
negative and may be significant. Differences may arise from, among other
things, changes in the economic, legal, and competitive environment in which
the Company operates. Reference is made to the Company's 1995 Annual Report
on Form 10-K for additional information on factors affecting the Company's
business.
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<PAGE>
PART II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Shareholders (the "Annual Meeting") was
held on May 15, 1996. The results of the matters voted upon at the Annual
Meeting were as follows:
Election of Directors. The following directors, constituting the
Company's entire board, were elected to terms ending in 1997:
<TABLE>
<CAPTION>
Number of Number of
Name Votes For Votes Withheld
<S> <C> <C>
Don G. Baker 57,644,987 3,795
Alan R. Buckwalter III 57,644,987 4,295
Robert M. Hermance 57,644,987 4,295
Sydney F. Keeble 57,644,987 12,695
Michael J. Poulos 57,644,987 11,811
Alan Richards 57,644,987 14,602
Richard W. Scott 57,644,987 11,202
</TABLE>
Independent Auditors. The appointment of Coopers & Lybrand, L.L.P. as
the Company's independent auditors for the year 1996 was ratified with
57,678,207 votes for, 22,134 votes against, and 60,064 abstentions/broker
non-votes.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
a) Exhibits
3.2 Amended and Restated Bylaws of the Company.
10.1 Termination Agreement, dated May 15, 1996, between the
Company and Bruce R. Abrams.
10.2 Replacement Consulting Agreement, dated July 10, 1996,
between the Company and Alan Richards Consulting, Inc.
11.1 Computation of Earnings Per Share.
27.1 Financial Data Schedule.
b) Reports on Form 8-K
None.
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<PAGE>
SIGNATURE
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
WESTERN NATIONAL CORPORATION
By:/s/Arthur R. McGimsey
Arthur R. McGimsey
Executive Vice President and
Chief Financial Officer
Dated: August 13, 1996
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<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS - EXCEPT PER SHARE DATA))
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996
<S> <C> <C> <C>
PRIMARY:
average shares outstanding 62.4
Common equivalent shares related to:
Stock options at average market price
(as determined by application of the
treasury stock method) 0.4
-----
Weighted average shares and common
stock equivalents 62.8
=====
Net income $45.4
=====
Net income per common share $0.72
=====
Six Months Ended June 30,
--------------------------------------
1996
--------------------------------------
FULLY DILUTED
Weighted average shares outstanding 62.4
Common equivalent shares related to:
Stock options at end of period price
(as determined by application of the
treasury stock method) 0.4
-----
Weighted average shares and common stock
equivalents 62.8
=====
Net income $45.4
=====
Net income per common share $0.72
=====
</TABLE>
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EXHIBIT 3.2
WESTERN NATIONAL CORPORATION
AMENDED AND RESTATED
BY-LAWS
AUGUST 12, 1996
<PAGE>
TABLE OF CONTENTS
ARTICLE I. STOCKHOLDERS
Section 1.1. Annual Meeting. 1
Section 1.2. Special Meetings. 1
Section 1.3. Notice of Meetings and Adjourned Meetings. 1
Section 1.4. Quorum. 1
Section 1.5. Voting. 2
Section 1.6. Notice of Stockholder Nominations and Business. 2
Section 1.7. Proxies. 4
Section 1.8. Fixing Date for Determination of Stockholders of Record. 5
Section 1.9. Stockholder List. 6
Section 1.10. Voting of Shares by Certain Holders. 6
Section 1.11. Voting Procedures and Inspectors of Elections. 6
Section 1.12. Consent of Stockholders in Lieu of Meeting. 7
ARTICLE II. DIRECTORS
Section 2.1. General Powers. 8
Section 2.2. Number, Election and Term of Office of Directors. 8
Section 2.3. Resignation or Removal. 8
Section 2.4. Vacancies. 8
Section 2.5. Place of Meetings. 9
Section 2.6. Regular Meetings. 9
Section 2.7. Special Meetings. 9
Section 2.8. Quorum and Voting. 9
Section 2.9. Telephonic Meetings. 9
Section 2.10. Compensation. 10
Section 2.11. Presumption of Assent. 10
Section 2.12. Action without Meeting. 10
Section 2.13. Presiding Officer. 10
Section 2.14. Executive Committee. 10
Section 2.15. Other Committees. 11
Section 2.16. Alternates. 11
Section 2.17. Quorum and Manner of Acting-Committees. 11
Section 2.18. Committee Chairman, Books, and Records, Etc. 11
Section 2.19. Reliance upon Records. 11
Section 2.20. Interested Directors. 12
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<PAGE>
ARTICLE III. OFFICERS
Section 3.1. Number and Designation. 12
Section 3.2. Election and Term of Office. 12
Section 3.3. Removal and Resignation. 12
Section 3.4. Vacancies. 12
Section 3.5. Chairman of the Board. 12
Section 3.6. Vice Chairman of the Board. 12
Section 3.7. President. 13
Section 3.8. The Vice Presidents. 13
Section 3.9. The Secretary. 13
Section 3.10. The Treasurer. 14
Section 3.11. Assistant Treasurers and Secretaries. 14
Section 3.12. Salaries. 14
ARTICLE IV. CONTRACTS, LOANS, CHECKS AND DEPOSITS
Section 4.1. Contracts. 14
Section 4.2. Loans. 14
Section 4.3. Checks, Drafts, Etc. 15
Section 4.4. Deposits. 15
ARTICLE V. CERTIFICATES OF STOCK AND THEIR TRANSFER
Section 5.1. Certificates of Stock. 15
Section 5.2. Lost, Stolen or Destroyed Certificates. 15
Section 5.3. Transfers of Stock. 15
Section 5.4. Stockholders of Record. 16
ARTICLE VI. GENERAL PROVISIONS
Section 6.1. Fiscal Year. 16
Section 6.2. Seal. 16
ARTICLE VII. OFFICES
Section 7.1. Registered Office. 16
Section 7.2. Other Offices. 16
ARTICLE VIII. NOTICES
Section 8.1. Manner of Notice. 16
Section 8.2. Waiver of Notice. 17
ARTICLE IX. DIVIDENDS
ARTICLE X. AMENDMENTS
-ii-
<PAGE>
BY-LAWS
ARTICLE I. STOCKHOLDERS
SECTION 1.1. ANNUAL MEETING. The annual meeting of stockholders for
the election of directors and the transaction of such other business as may
properly come before such meeting shall be held each year on such date and at
such time and place, within or without the State of Delaware, as shall be
determined by resolution of the Board of Directors. If the day fixed for the
annual meeting is a legal holiday, such meeting shall be held on the next
succeeding business day. If the election of directors shall not be held on
the day designated herein for the annual meeting of stockholders, or at any
adjournment thereof, the Board of Directors shall cause such election to be
held at a special meeting of stockholders to be called as soon thereafter as
is convenient.
SECTION 1.2. SPECIAL MEETINGS. Subject to the rights of the holders
of any class or series of stock having preferences over the Common Stock of
the Corporation as to dividends or upon liquidation ("Preferred Stock"),
special meetings of stockholders may be called only (i) by the Board of
Directors pursuant to a resolution adopted by a majority of the entire Board
of Directors or (ii) by any holder of 35% or more of the outstanding Common
Stock of the Company for the purpose of removing and/or electing directors.
Special meetings of stockholders may be held at such time and place, within or
without the State of Delaware, as shall be determined by resolution of the
Board of Directors or as may be specified in the call of any such special
meeting. If not otherwise designated, the place of any special meeting shall
be the principal place of business of the Corporation in the State of the
Corporation's principal executive office as determined by the Board of
Directors (the "Corporation's Principal Executive Office"). Business
transacted at any special meeting shall be confined to the purpose or purposes
stated in the notice of such special meeting.
SECTION 1.3. NOTICE OF MEETINGS AND ADJOURNED MEETINGS. Written
notice of every meeting of stockholders, stating the place, date, time and
purposes thereof, shall, except when otherwise required by the Certificate of
Incorporation of the Corporation (the "Certificate of Incorporation") or the
laws of the State of Delaware, be given at least 10 but not more than 60 days
prior to such meeting to each stockholder of record entitled to vote thereat,
in the manner set forth in Section 8.1 of these By-Laws, by or at the
direction of the Board of Directors. Any meeting at which a quorum of
stockholders is present, in person or by proxy, may be adjourned from time to
time without notice, other than announcement at such meeting, until its
business shall be completed. At such adjourned meeting, any business may be
transacted which might have been transacted at the original meeting. If the
adjournment is for more than 30 days, or if after the adjournment a new record
date is fixed for the adjourned meeting, written notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote thereat
as above provided.
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<PAGE>
SECTION 1.4. QUORUM. Except as otherwise provided by the laws of the
State of Delaware or by the Certificate of Incorporation, the presence, in
person or by proxy, of the holders of record of shares of capital stock of the
Corporation entitling the holders thereof to cast a majority of the votes
entitled to be cast on the question shall constitute a quorum at any meeting
of stockholders, notwithstanding the subsequent withdrawal of enough
stockholders to leave less than a quorum. If at any meeting a quorum shall
not be present, the chairman of such meeting shall, if approved by the
affirmative vote of the holders of a majority of the voting power of the
shares of capital stock of the Corporation so represented, adjourn such
meeting to another time and/or place without notice other than announcement at
such meeting. If the adjournment is for more than 30 days, or if after the
adjournment a new record date is fixed for the adjourned meeting, written
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote thereat as above provided. At such adjourned meeting, if a
quorum shall be present or represented, any business may be transacted which
might have been transacted at the original meeting, notwithstanding the
subsequent withdrawal of enough stockholders to leave less than a quorum.
SECTION 1.5. VOTING. Unless otherwise provided by these By-Laws, the
Certificate of Incorporation or in any preferred stock designation in the
Certificate of Incorporation (a "Preferred Stock Designation"), each
stockholder entitled to vote at any meeting of stockholders shall be entitled
to one vote for each share of capital stock of the Corporation held of record.
Election of directors at all meetings of the stockholders at which directors
are to be elected shall be by ballot, and, except as otherwise set forth in
any Preferred Stock Designation with respect to the right of the holders of
any series of Preferred Stock to elect additional directors under specified
circumstances, a plurality of the votes cast thereat shall elect directors.
Except as otherwise provided by law, the Certificate of Incorporation, any
Preferred Stock Designation, these By-Laws or any resolution adopted by the
entire Board of Directors, with respect to all matters, other than the
election of directors, submitted to the stockholders at any meeting the
affirmative vote of the holders of a majority of the voting power of the
shares of capital stock of the Corporation represented at the meeting and
entitled to vote on the question shall be the act of the stockholders.
SECTION 1.6. NOTICE OF STOCKHOLDER NOMINATIONS AND BUSINESS. (a) At
any annual meeting of the stockholders, nominations of persons for election to
the Board of Directors and the proposal of business to be considered by the
stockholders shall be brought before the annual meeting (i) pursuant to the
Corporation's notice of meeting, (ii) by or at the direction of the Board of
Directors or (iii) by any stockholder who was a stockholder of record at the
time of giving notice as provided for in this Section 1.6(a), who is entitled
to vote with respect thereto and who complies with the notice procedures set
forth in this Section 1.6(a). For nominations or other business to be
properly brought before an annual meeting by a stockholder, the stockholder
must have given timely notice thereof in writing to the Secretary and such
other business must otherwise be a proper matter for stockholder action. To
be timely, a stockholders's notice must be delivered to or mailed to and
received by the Secretary at the Corporation's Principal Executive Office not
later than the close of business on the 60th day nor earlier than
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<PAGE>
the close of business on the 90th day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event
that the date of the annual meeting is more than 30 days before or more than
60 days after such anniversary date, notice by the stockholder to be timely
must be so delivered not earlier than the close of business on the 90th day
prior to such annual meeting and not later than the close of business on the
later of the 60th day prior to such annual meeting or the close of business on
the 10th day following the day on which public announcement of the date of
such meeting is first made by the Corporation, whichever occurs first. In no
event shall the public or other announcement of an adjournment of an annual
meeting or the adjournment thereof commence a new time period for the giving
of stockholder's notice as described above. A stockholder's notice to the
Secretary shall set forth (i) as to each person whom such stockholder proposes
to nominate for election or reelection as a director, all information relating
to such person that is required to be disclosed in solicitations of proxies
for election of directors in an election contest, or is otherwise required, in
each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and Rule 14a-11 thereunder (including
such person's written consent to being named in the proxy statement as a
nominee and to serving as a director if elected); (ii) as to any other
business such stockholder proposes to bring before the annual meeting, a brief
description of the business desired to be brought before the annual meeting,
the reasons for conducting such business at the annual meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (iii) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made, (A) the name and address of such
stockholder, as they appear on the books of the Corporation, and the name and
address of such beneficial owner and (B) the class and number of shares of the
capital stock of the Corporation that are owned beneficially and of record by
such stockholder and such beneficial owner.
Notwithstanding anything in the third sentence of the preceding paragraph
of this Section 1.6(a) to the contrary, in the event that the number of
directors to be elected to the Board of Directors is increased and there is no
public announcement by the Corporation naming all of the nominees for director
or specifying the size of the increased Board of Directors at least 70 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 1.6(a) shall be considered
timely, but only with respect to nominees for any new positions created by
such increase, if it shall be delivered to or mailed to and received by the
Secretary not later than the close of business on the 10th day following the
day on which such public announcement is first made by the Corporation.
(b) At any special meeting of the stockholders, only such business
shall be conducted as shall have been brought before the meeting pursuant to
the Corporation's notice of meeting. Nomination of persons for election to
the Board of Directors may be made at a special meeting of stockholders at
which directors are to be elected pursuant to the Corporation's notice of
meeting (i) by or at the direction of the Board of Directors or (ii) provided
that the Board of Directors has determined that directors shall be elected at
such special meeting, by any stockholder who is a stockholder of record at the
time of giving of notice provided for in this Section 1.6. In the event the
Corporation calls a special meeting of stockholders for the purpose
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<PAGE>
of electing one or more directors to the Board of Directors, any such
stockholder may nominate a person or persons (as the case may be) for election
to such position(s) as specified in the Corporation's notice of meeting if the
stockholder's notice required by Section 1.6(a) shall be delivered to the
Secretary at the Corporation's Principal Executive Office not earlier than the
close of business on the 90th day prior to such special meeting and not later
than the close of business on the later of the 60th day prior to such special
meeting or the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board of Directors to be elected at such meeting. In no event shall the
public or other announcement of an adjournment of the special meeting or the
adjournment thereof commence a new time period for the giving of a
stockholder's notice as described above.
(c) (i) Notwithstanding anything in the By-Laws to the contrary, only
such persons who are nominated in accordance with the procedures set forth in
this Section 1.6 shall be eligible for election as directors and only such
business shall be brought before or conducted at a meeting of stockholders as
shall have been brought before the meeting in accordance with the procedures
set forth in this Section 1.6. The chairman of the meeting shall, if the
facts so warrant, determine and declare to the meeting that a nomination was
not made, or other business was not brought before the meeting, in accordance
with the provisions of this Section 1.6 and, if he or she should so determine,
he or she shall so declare to the meeting, and any such defective nomination
or other business so determined to be not properly brought before the meeting
shall be disregarded.
(ii) For purposes of this Section 1.6, "public announcement" shall mean
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the Corporation with the Securities and Exchange Commission pursuant
to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 1.6, a
stockholder shall also comply with all applicable requirements of the Exchange
Act and the rules and regulations thereunder with respect to the matters set
forth in this Section 1.6. Nothing in this Section 1.6 shall be deemed to
affect any rights (A) of stockholders to request inclusion of proposals in the
Corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or
(B) of the holders of any series of Preferred Stock to elect directors under
specified circumstances.
SECTION 1.7. PROXIES. At every meeting of stockholders, each
stockholder having the right to vote thereat shall be entitled to vote in
person or by proxy. Such proxy shall be filed with the Secretary before or at
the time of the meeting. No proxy shall be valid after three years from its
date, unless such proxy provides for a longer period.
A stockholder may authorize another person or persons to act for such
stockholder as proxy (i) by executing a writing authorizing such person or
persons to act as such, which execution may be accomplished by such
stockholder or such stockholder's authorized officer, director, employee or
agent signing such writing or causing his or her signature to be affixed to
such writing by any
-5-
<PAGE>
reasonable means, including, but not limited to, facsimile signature, or (ii)
by transmitting or authorizing the transmission of a telegram, cablegram or
other means of electronic transmission (a "Transmission") to the person who
will be the holder of the proxy or to a proxy solicitation firm, proxy support
service organization or like agent duly authorized by the person who will be
the holder of the proxy to receive such Transmission; provided, however,
that any such Transmission must either set forth or be submitted with
information from which it can be determined that such Transmission was
authorized by such stockholder. The Secretary or such other person or persons
as shall be appointed from time to time by the Board of Directors shall
examine Transmissions to determine if they are valid. If it is determined
that a Transmission is valid, the person or persons making that determination
shall specify the information upon which such person or persons relied. Any
copy, facsimile telecommunication or other reliable reproduction of such
writing or such Transmission may be substituted or used in lieu of the
original writing or Transmission for any and all purposes for which the
original writing or Transmission could be used; provided, however, that
such copy, facsimile telecommunication or other reproduction shall be a
complete reproduction of the entire original writing or Transmission.
SECTION 1.8. FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
(a) In order that the Corporation may determine the stockholders entitled
to notice of or to vote at any meeting of stockholders or any adjournment
thereof, the Board of Directors may fix a record date, which record date shall
not precede the date upon which the resolution fixing such record date shall
be adopted by the Board of Directors, and which record date shall not be more
than 60 nor less than 10 days before the date of such meeting. If no such
record date shall have been fixed by the Board of Directors, such record date
shall be at the close of business on the day next preceding the day on which
such notice is given or, if such notice is waived, at the close of business on
the day next preceding the day on which such meeting shall be held. A
determination of stockholders of record entitled to notice of or to vote at
any meeting of stockholders shall apply to any adjournment of such meeting;
provided, however, that the Board of Directors may fix a new record date
for the adjourned meeting.
(b) In order that the Corporation may determine the stockholders
entitled to consent to corporate action in writing without a meeting, the
Board of Directors may fix a record date, which record date shall not precede
the date upon which the resolution fixing such record date shall be adopted by
the Board of Directors, and which record date shall not be more than 10 days
after the date upon which such resolution shall be adopted. If no such record
date shall have been fixed by the Board of Directors, such record date shall
be, if no prior action by the Board of Directors shall be required by the laws
of the state of Delaware, the first date on which a signed written consent
setting forth the action taken or proposed to be taken shall be delivered to
the Corporation at its registered office in the State of Delaware or to the
Secretary at the Corporation's Principal Executive Office. Delivery made to
the Corporation's registered office shall be by hand or by certified or
registered mail, return receipt requested. If no such record date shall have
been fixed by the Board of Directors and prior action by the Board of
Directors shall be required by the laws of the State of Delaware, such record
date shall be at the close of business on the day on which the Board of
Directors shall adopt the resolution taking such prior action.
-6-
<PAGE>
(c) In order that the Corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or any
allotment of any rights or the stockholders entitled to exercise any rights in
respect of any change, conversion or exchange of any capital stock, or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing such record date shall be adopted by the Board of Directors, and which
record date shall not be more than 60 days prior to such payment, allotment or
other action. If no such
record date shall have been fixed, such record date shall be at the close of
business on the day on which the Board of Directors shall adopt the resolution
relating to such payment, allotment or other action.
SECTION 1.9. STOCKHOLDER LIST. The Secretary or any other officer who
has charge of the stock ledger of the Corporation shall prepare, at least 10
days before every meeting of stockholders, a complete list of the stockholders
entitled to vote at such meeting, arranged in alphabetical order, and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to such meeting, during ordinary business
hours, for a period of at least 10 days prior to such meeting, either at a
place within the city where such meeting is to be held, which place shall be
specified in the notice of such meeting, or, if not so specified, at the place
where such meeting is to be held. The list shall also be produced and kept at
the time and place of such meeting during the whole time thereof, and may be
inspected by any stockholder who is present. Such list shall be the only
evidence as to who are the stockholders entitled to examine such stock ledger,
or to vote in person or by proxy at any meeting of stockholders.
SECTION 1.10. VOTING OF SHARES BY CERTAIN HOLDERS. Shares of capital
stock of the Corporation standing in the name of another corporation, domestic
or foreign, and entitled to vote may be voted by such officer, agent or proxy
as the by-laws of such other corporation may prescribe or, in the absence of
such provision, as the board of directors of such other corporation may
determine.
Shares of capital stock of the Corporation standing in the name of a
deceased person, a minor, an incompetent or a corporation declared bankrupt
and entitled to vote may be voted by an administrator, executor, guardian,
conservator or trustee, as the case may be, either in person or by proxy,
without transfer of such shares into the name of the official so voting.
A stockholder whose shares of capital stock of the Corporation are
pledged shall be entitled to vote such shares unless on the transfer books of
the Corporation the pledgor has expressly empowered the pledgee to vote such
shares, in which case only the pledgee, or such pledgee's proxy, may represent
such shares and vote thereon.
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<PAGE>
Shares of capital stock of the Corporation belonging to the Corporation,
or to another corporation if a majority of the shares entitled to vote in the
election of directors of such other corporation shall be held by the
Corporation, shall not be voted at any meeting of stockholders and shall not
be counted in determining the total number of outstanding shares for the
purpose of determining whether a quorum is present. Nothing in this Section
1.10 shall be construed to limit the right of the Corporation to vote shares
of capital stock of the Corporation held by it in a fiduciary capacity.
SECTION 1.11. VOTING PROCEDURES AND INSPECTORS OF ELECTIONS.
(a) The Board of Directors shall, in advance of any meeting of
stockholders, appoint one or more inspectors (individually an "Inspector," and
collectively the "Inspectors") to act at such meeting and make a written
report thereof. The Board of Directors may designate one or more persons as
alternate Inspectors to replace any Inspector who shall fail to act. If no
Inspector or alternate shall be able to act at such meeting, the person
presiding at such meeting shall appoint one or more other persons to act as
Inspectors thereat. No director or candidate for the office of director shall
be appointed as an Inspector.
Each Inspector, before entering upon the discharge of his or her duties,
shall take and sign an oath to faithfully execute the duties of Inspector with
strict impartiality and according to the best of his or her ability.
(b) The Inspectors shall (i) ascertain the number of shares of
capital stock of the Corporation outstanding and the voting power of each,
(ii) determine the shares of capital stock of the Corporation represented at
such meeting and the validity of proxies and ballots, (iii) count all votes
and ballots, (iv) determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the Inspectors and
(v) certify their determination of the number of such shares represented at
such meeting and their count of all votes and ballots. The Inspectors may
appoint or retain other persons or entities to assist them in the performance
of their duties.
(c) The date and time of the opening and the closing of the polls for
each matter upon which the stockholders will vote at such meeting shall be
announced at such meeting. No ballots, proxies or votes, nor any revocations
thereof or changes thereto, shall be accepted by the Inspectors after the
closing of the polls unless the Court of Chancery of the State of Delaware
upon application by any stockholder shall determine otherwise.
(d) In determining the validity and counting of proxies and ballots,
the Inspectors shall be limited to an examination of the proxies, any
envelopes submitted with such proxies, any information provided in accordance
with the second paragraph of Section 1.7 of these By-Laws, ballots and the
regular books and records of the Corporation, except that the Inspectors may
consider other reliable information for the limited purpose of reconciling
proxies and ballots submitted by or on behalf of banks, brokers, their
nominees or similar persons which represent more votes than the holder of a
proxy is authorized by a stockholder of record to cast or more votes than such
stockholder holds of record. If the Inspectors consider other reliable
information
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for the limited purpose permitted herein, the Inspectors, at the time they
make their certification pursuant to paragraph (b) of this Section 1.11, shall
specify the precise information considered by them, including the person or
persons from whom they obtained such information, when the information was
obtained, the means by which such information was obtained and the basis for
the Inspectors' belief that such information is accurate and reliable.
SECTION 1.12. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Except as
otherwise provided in the Certificate of Incorporation or these By-Laws with
respect to the election of directors by stockholders, any action required to
be taken or which may be taken at any annual or special meeting of
stockholders may be taken without a meeting, without prior notice and without
a vote if a consent or consents in writing, setting forth the action so taken,
shall be signed by persons entitled to vote capital stock of the Corporation
representing not less than the minimum number of shares that would be
necessary to authorize or take such action at a meeting at which all shares of
capital stock of the Corporation entitled to vote thereon were present and
voted. Every written consent shall bear the date of signature of each
stockholder (or his, her or its proxy) who shall sign such consent. Prompt
notice of the taking of corporate action without a meeting of stockholders by
less than unanimous written consent shall be given to those stockholders who
shall not have consented in writing. All such written consents shall be
delivered to the Corporation at its registered office in the state of Delaware
or to the Secretary at the Corporation's Principal Executive Office. Delivery
made to the Corporation's registered office shall be by hand or by certified
or registered mail, return receipt requested. No written consent shall be
effective to authorize or take the corporate action referred to therein
unless, within 60 days of the earliest dated written consent delivered in the
manner required by this Section 1.12 to the Corporation, written consents
signed by a sufficient number of persons to authorize or take such action
shall be delivered to the Corporation at its registered office in the State of
Delaware or to the Secretary at the Corporation's Principal Executive Office
as aforesaid. All such written consents shall be filed with the minutes of
proceedings of the stockholders and actions authorized or taken under such
written consents shall have the same force and effect as those adopted by vote
of the stockholders at any annual or special meeting thereof.
ARTICLE II. DIRECTORS
SECTION 2.1. GENERAL POWERS. The business and affairs of the
Corporation shall be managed by or under the direction of the Board of
Directors.
SECTION 2.2. NUMBER, ELECTION AND TERM OF OFFICE OF DIRECTORS.
Subject to the rights of the holders of any series of Preferred Stock to elect
directors under specified circumstances, (i) the number of directors shall be
fixed from time to time exclusively by the Board of Directors pursuant to a
resolution adopted by a majority of the entire Board of Directors and (ii)
except as otherwise provided in Section 2.4 of this Article, the directors
shall be elected each year at the annual meeting of the stockholders or at a
special meeting of the stockholders. Elections may not be effected by the
written consent of the stockholders. Each such directors shall hold office,
unless he or she is removed in accordance with the provisions
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of these By-Laws or he or she resigns or dies or becomes so incapacitated he
or she can no longer perform any of his or her duties as a director, for the
term for which he or she is elected and until his or her successor shall have
been elected and qualified. Directors need not be residents of the State of
Delaware or stockholders of the Corporation.
SECTION 2.3. RESIGNATION OR REMOVAL. Any director may resign by
giving written notice to the Board of Directors, the Chairman of the Board or
the President. Any such resignation shall take effect at the time of receipt
of such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to
make it effective. Subject to the rights of the holders of any series of
Preferred Stock, any director, or the entire Board of Directors, may be
removed from office at any time, but only for cause and only by the
affirmative vote of the holders of a majority of all of the then outstanding
shares of capital stock of the Corporation entitled to vote generally in the
election of directors, voting as a single class.
SECTION 2.4. VACANCIES. Subject to the rights of the holders of any
series of Preferred Stock, and unless the Board of Directors otherwise
determines, newly created directorships resulting from any increase in the
authorized number of directors or any vacancies in the Board of Directors
resulting from death, resignation, retirement, disqualification, removal from
office or other cause may be filled only by a majority vote of the directors
then in office, though less than a quorum, and directors so chosen shall hold
office for a term expiring at the annual meeting of stockholders and until
such director's successor shall have been duly elected and shall have
qualified or until his or her earlier death, retirement, resignation,
disqualification or removal. No decrease in the number of authorized
directors constituting the entire Board of Directors shall shorten the term of
any incumbent director.
SECTION 2.5. PLACE OF MEETINGS. Meetings of the Board of Directors
may be held at such places, within or without the State of Delaware, as the
Board of Directors may from time to time determine or as may be specified in
the call of any such meeting.
SECTION 2.6. REGULAR MEETINGS. A regular annual meeting of the Board
of Directors shall be held, without call or notice, immediately after and at
the same place as the annual meeting of stockholders, for the purpose of
organizing the Board of Directors, electing officers and transacting any other
business that may properly come before such meeting. Additional regular
meetings of the Board of Directors may be held without call or notice at such
times as shall be fixed by resolution of the Board of Directors.
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SECTION 2.7. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by the Chairman of the Board, or the President or by
any two directors then in office. Notice of each special meeting shall be
mailed by the Secretary to each director at least two days before such
meeting, or be given by the Secretary personally or by telegraph or telecopy
at least 24 hours before such meeting, in the manner set forth in Section 8.1
of these By-Laws. Such notice shall set forth the date, time and place of
such meeting but need not, unless otherwise required by the laws of the State
of Delaware, state the purpose of such meeting.
SECTION 2.8. QUORUM AND VOTING. A majority of the entire Board of
Directors shall constitute a quorum for the transaction of business at any
meeting of the Board of Directors. The act of the majority of the directors
present at any meeting at which a quorum is present shall be the act of the
Board of Directors, unless otherwise provided by the laws of the State of
Delaware, the Certificate of Incorporation or these By-Laws. A majority of
the directors present at any meeting at which a quorum shall be present may
adjourn such meeting to any other date, time or place without further notice
other than announcement at such meeting. If at any meeting a quorum shall not
be present, a majority of the directors present may adjourn such meeting to
any other date, time or place without notice other than announcement at such
meeting.
SECTION 2.9. TELEPHONIC MEETINGS. Members of the Board of Directors
or of any committee designated by the Board of Directors may participate in a
meeting of the Board of Directors or such committee through conference
telephone or similar communications equipment by means of which all persons
participating in such meeting can hear each other, and participation in any
meeting conducted pursuant to this Section 2.9 shall constitute presence in
person at such meeting.
SECTION 2.10. COMPENSATION. Unless otherwise restricted by the
Certificate of Incorporation, the Board of Directors shall have the authority
to fix the compensation of directors. The directors shall be paid their
reasonable expenses, if any, of attendance at each meeting of the Board of
Directors or a committee thereof and may be paid a fixed sum for attendance at
each such meeting and an annual retainer or salary for services as a director
or committee member. No such payment shall preclude any director from serving
the Corporation in any other capacity and receiving compensation therefor.
SECTION 2.11. PRESUMPTION OF ASSENT. Unless otherwise provided by the
laws of the State of Delaware, a director who is present at a meeting of the
Board of Directors or a committee thereof at which action is taken on any
corporate matter shall be presumed to have assented to the action taken unless
his or her dissent shall be entered in the minutes of such meeting or unless
he or she shall file his or her written dissent to such action with the person
acting as secretary of such meeting before the adjournment thereof or shall
forward such dissent by registered mail to the Secretary immediately after the
adjournment of such meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
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SECTION 2.12. ACTION WITHOUT MEETING. Unless otherwise restricted by
the Certificate of Incorporation or these By-Laws, any action required or
permitted to be taken at any meeting of the Board of Directors, or any
committee thereof, may be taken without a meeting if a written consent thereto
is signed by all members of the Board of Directors or of such committee, as
the case may be, and such written consent is filed with the minutes of
proceedings of the Board of Directors or such committee.
SECTION 2.13. PRESIDING OFFICER. The presiding officer at any meeting
of the Board of Directors or stockholders shall be the Chairman of the Board,
or the President in the absence of the Chairman of the Board or, in the
absence of the President, any director elected chairman by vote of a majority
of the directors present at such meeting.
SECTION 2.14. EXECUTIVE COMMITTEE. The Board of Directors may, in its
discretion, by resolution passed by a majority of the entire Board of
Directors, designate an Executive Committee consisting of such number of
directors as the Board of Directors shall determine. The Executive Committee
shall have and may exercise all of the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation
with respect to any matter which may require action prior to, or which in the
opinion of the Executive Committee may be inconvenient, inappropriate or
undesirable to be postponed until, the next meeting of the Board of Directors;
provided, however, that the Executive Committee shall not have the power
or authority of the Board of Directors in reference to changing the membership
or filling vacancies in the Board of Directors or the Executive Committee,
amending the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of such a dissolution, amending these By-laws, declaring a
dividend, authorizing the issuance of capital stock of the Corporation or
adopting a certificate of ownership and merger. Any member of the Board of
Directors may request the chairman of the Executive Committee to call a
meeting of the Executive Committee with respect to a specified subject. The
Board of Directors shall have the power to change at any time the members of
the Executive Committee, to fill vacancies and to dissolve the Executive
Committee.
SECTION 2.15. OTHER COMMITTEES. The Board of Directors may from time
to time, in its discretion, by resolution passed by a majority of the entire
Board of Directors, designate other committees of the Board of Directors
consisting of such number of directors as the Board of Directors shall
determine, which shall have and may exercise such lawfully delegable powers
and duties of the Board of Directors as shall be conferred or authorized by
such resolution. The Board of Directors shall have the power to change at any
time the members of any such committee, to fill vacancies and to dissolve any
such committee.
SECTION 2.16. ALTERNATES. The Board of Directors may from time to
time designate from among the directors alternates to serve on any committee
of the Board of Directors to replace any absent or disqualified member at any
meeting of such committee. Whenever a quorum cannot be secured for any
meeting of any committee from among the regular members thereof and
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designated alternates, the member or members of such committee present at such
meeting and not disqualified from voting, whether or not constituting a
quorum, may unanimously appoint another director to act at such meeting in
place of any absent or disqualified member.
SECTION 2.17. QUORUM AND MANNER OF ACTING-COMMITTEES. A majority of
the members of any committee of the Board of Directors shall constitute a
quorum for the transaction of business at any meeting of such committee, and
the act of a majority of the members present at any meeting at which a quorum
is present shall be the act of such committee.
SECTION 2.18. COMMITTEE CHAIRMAN, BOOKS, AND RECORDS, ETC. The
chairman of each committee of the Board of Directors shall be selected from
among the members of such committee by the Board of Directors.
Each committee shall keep a record of its acts and proceedings, and all
actions of each committee shall be reported to the Board of Directors at its
next meeting.
Each committee shall fix its own rules of procedure not inconsistent with
these By-Laws or the resolution of the Board of Directors designating such
committee and shall meet at such times and places and upon such call or notice
as shall be provided by such rules.
SECTION 2.19. RELIANCE UPON RECORDS. Every director, and every member
of any committee of the Board of Directors, shall, in the performance of his
or her duties, be fully protected in relying in good faith upon the records of
the Corporation and upon such information, opinions, reports or statements
presented to the Corporation by any of the Corporation's officers or
employees, or committees of the Board of Directors, or by any other person as
to matters the director or member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation, including, but not limited
to, such records, information, opinions, reports or statements as to the value
and amount of the assets, liabilities and/or net profits of the Corporation,
or any other facts pertinent to the existence and amount of surplus or other
funds from which dividends might properly be declared and paid, or with which
the Corporation's capital stock might properly be purchased or redeemed.
SECTION 2.20. INTERESTED DIRECTORS. The presence of a director, who
is directly or indirectly a party in a contract or transaction with the
Corporation, or between the Corporation and any other corporation,
partnership, association or other organization in which such director is a
director or officer or has a financial interest, may be counted in determining
whether a quorum is present at any meeting of the Board of Directors or a
committee thereof at which such contract or transaction is discussed or
authorized, and such director may participate in such meeting to the extent
permitted by applicable law, including Section 144 of the General Corporation
Law of the State of Delaware.
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ARTICLE III. OFFICERS
SECTION 3.1. NUMBER AND DESIGNATION. The officers of the Corporation
shall be a President, one or more Vice Presidents, a Secretary and a
Treasurer. The Corporation also may have, at the discretion of the Board of
Directors, a Chairman, one or more Vice Chairmen, and such Assistant
Secretaries, Assistant Treasurers or other officers or agents as may be
elected or appointed by the Board of Directors. Any two or more offices may
be held by the same person unless the Certificate of Incorporation or these
By-Laws provide otherwise.
SECTION 3.2. ELECTION AND TERM OF OFFICE. The officers of the
Corporation shall be elected annually by the Board of Directors at the first
meeting of the Board of Directors held after the election of directors. If
the election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as may be convenient. Vacancies may be
filled or new offices created and filled at any meeting of the Board of
Directors. Each officer shall hold office until his or her successor shall
have been duly elected and shall have qualified or until his or her earlier
death, resignation or removal.
SECTION 3.3. REMOVAL AND RESIGNATION. Any officer or agent elected or
appointed by the Board of Directors may be removed by the Board of Directors
whenever in its judgment the best interests of the Corporation would be served
thereby, but such removal shall be without prejudice to the contract rights,
if any, of the person so removed. Any officer or agent may resign at any time
by giving written notice to the Board of Directors, the President or the
Secretary. Any such resignation shall take effect at the time of receipt of
such notice or at any later time specified therein; and, unless otherwise
specified therein, acceptance of such resignation shall not be necessary to
make it effective.
SECTION 3.4. VACANCIES. A vacancy in any office because of death,
retirement, resignation, disqualification, removal or otherwise may be filled
by the Board of Directors for the unexpired portion of the term.
SECTION 3.5 CHAIRMAN OF THE BOARD. The Chairman of the Board shall be
the Chief Executive Officer of the Corporation and shall have general charge
of, and supervision and authority over, all of the affairs and business of the
Corporation. The Chairman of the Board shall have general supervision of and
direct all officers, agents and employees of the Corporation; shall see that
all orders and resolutions of the Board are carried into effect; and in
general, shall exercise all powers and perform all duties incident to his
office and such other powers and duties as may from time to time be assigned
to him or her by the Board.
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SECTION 3.6. VICE CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board and the President, a Vice Chairman of the Board shall
preside at all meetings of the shareholders and the Board of Directors; shall
have authority to execute all legal instruments necessary for the transaction
of the Corporation's business; and shall have such other powers and duties as
may be delegated to him by the Board of Directors or the Chief Executive
Officer. A Vice Chairman may, but need not be, a member of the Board of
Directors.
SECTION 3.7. PRESIDENT. The President shall be the Chief Operating
Officer of the Corporation and shall have general charge of, and supervision
and authority over, its operations. The President shall have the authority to
sign, with the Secretary or an Assistant Secretary, any and all certificates
for shares of the capital stock of the Corporation, and shall have the
authority to sign singly deeds, bonds, mortgages, contracts, or other
instruments to which the Corporation is a party (except in cases where the
signing and execution thereof shall be expressly delegated by the Board or by
these By-Laws, or by law to some other officer or agent of the Corporation);
and, in the absence, disability or refusal to act of the Chairman of the
Board, shall preside at meetings of the stockholders and of the Board of
Directors and shall possess all of the powers and perform all of the duties of
the Chairman of the Board. The President shall also serve the Corporation in
such other capacities and perform such other duties and have such additional
authority and powers as are incident to his or her office or as may be defined
in these By-Laws or delegated to him or her from time to time by the Board or
by the Chairman of the Board.
SECTION 3.8 THE VICE PRESIDENTS. In the absence of the President or
in the event of his or her inability or refusal to act, the Vice President (or
in the event there shall be more than one Vice President, the Vice Presidents
in the order determined by the Board of Directors or, if there shall have been
no such determination, then in the order of their election) shall perform the
duties of the President and, when so acting, shall have all the powers of and
be subject to all the restrictions upon the President. The Board of Directors
may also designate certain Vice Presidents as being in charge of designated
divisions, plants or functions of the Corporation's business and add
appropriate descriptions to their titles. In addition, any Vice President
shall perform such duties as from time to time may be assigned to him or her
by the President or the Board of Directors.
SECTION 3.9. THE SECRETARY. The Secretary shall (a) keep the minutes
of proceedings of the stockholders, the Board of Directors and any committee
of the Board of Directors in one or more books provided for that purpose; (b)
see that all notices are duly given in accordance with the provisions of these
By-Laws or as required by law; (c) be custodian of the corporate records and
of the seal of the Corporation; (d) affix the seal of the Corporation or a
facsimile thereof, or cause it to be affixed, and, when so affixed, attest the
seal by his or her signature, to all certificates for shares of capital stock
of the Corporation prior to the issue thereof and to all other documents the
execution of which on behalf of the Corporation under its seal is duly
authorized by the Board of Directors or otherwise in accordance with the
provisions of these By-Laws; (e) keep a register of the post office address of
each stockholder, director or committee member, which shall be furnished to
the Secretary by such stockholder, director or member; (f) have general charge
of the stock transfer books of the Corporation; and (g) in general perform
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all duties incident to the office of Secretary and such other duties as from
time to time may be assigned to him or her by the President or the Board of
Directors.
SECTION 3.10. THE TREASURER. The Treasurer shall have charge and
custody of and be responsible for all funds and securities of the Corporation,
receive and give receipts for moneys due and payable to the Corporation from
any source whatsoever, deposit all such moneys in the name of the Corporation
in such banks, trust companies or other depositories as shall be selected in
accordance with the provisions of Article IV of these By-Laws, disburse the
funds of the Corporation as ordered by the Board of Directors, the Chairman of
the Board or the President or as otherwise required in the conduct of the
business of the Corporation and render to the President or the Board of
Directors, upon request, an accounting of all his or her transactions as
Treasurer and a report on the financial condition of the Corporation. The
Treasurer shall in general perform all the duties incident to the office of
Treasurer and such other duties as from time to time may be assigned to him or
her by the President or the Board of Directors. If required by the Board of
Directors, the Treasurer shall give a bond (which shall be renewed regularly),
in such sum and with such surety or sureties as the Board of Directors shall
determine, for the faithful discharge of his or her duties and for the
restoration to the Corporation, in case of his or her death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his or her possession or under his or her
control belonging to the Corporation.
SECTION 3.11. ASSISTANT TREASURERS AND SECRETARIES. In the absence of
the Secretary or the Treasurer, as the case may be, or in the event of his or
her inability or refusal to act, the Assistant Secretaries and the Assistant
Treasurers, respectively, in the order determined by the Board of Directors
(or if there shall have been no such determination, then in the order of their
election), shall perform the duties and exercise the powers of the Secretary
or the Treasurer, as the case may be. In addition, the Assistant Secretaries
and the Assistant Treasurers shall, in general, perform such duties as may be
assigned to them by the President, the Secretary, the Treasurer or the Board
of Directors. Each Assistant Treasurer shall, if required by the Board of
Directors, give a bond (which shall be renewed regularly), in such sum and
with such surety or sureties as the Board of Directors shall determine, for
the faithful discharge of his or her duties.
SECTION 3.12. SALARIES. The salaries of the officers and agents of
the Corporation shall be fixed from time to time by the Board of Directors or
by such officer as it shall designate for such purpose. No officer shall be
prevented from receiving such salary by reason of the fact that he or she is
also a director of the Corporation.
ARTICLE IV. CONTRACTS, LOANS, CHECKS AND DEPOSITS
SECTION 4.1. CONTRACTS. The Board of Directors may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
and deliver any instrument in the name of and on behalf of the Corporation,
and such authority may be general or confined to specific instances.
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SECTION 4.2. LOANS. No loans shall be contracted on behalf of the
Corporation and no evidences of indebtedness shall be issued in the name of
the Corporation unless authorized by or pursuant to a resolution adopted by
the Board of Directors. Such authority may be general or confined to specific
instances.
SECTION 4.3. CHECKS, DRAFTS, ETC. All checks, drafts or other orders
for payment of money issued in the name of the Corporation shall be signed by
such officers, employees or agents of the Corporation as shall from time to
time be designated by the Board of Directors, the President or the Treasurer.
SECTION 4.4. DEPOSITS. All funds of the Corporation not otherwise
employed shall be deposited from time to time to the credit of the Corporation
in such banks, trust companies or other depositories as shall be designated
from time to time by the Board of Directors, the President or the Treasurer;
and such officers may designate any type of depository arrangement (including,
but not limited to, depository arrangements resulting in net debits against
the Corporation) as may from time to time be offered or made available.
ARTICLE V. CERTIFICATES OF STOCK AND THEIR TRANSFER
SECTION 5.1. CERTIFICATES OF STOCK. Shares of capital stock of the
Corporation shall be represented by certificates which shall be in such form
as may be determined by the Board of Directors, shall be numbered and shall be
entered on the books of the Corporation as they are issued. Such certificates
shall indicate the holder's name and the number of shares evidenced thereby
and shall be signed by the President or a Vice President and by the Secretary
or an Assistant Secretary. If any stock certificate shall be manually signed
(a) by a transfer agent or an assistant transfer agent or (b) by a transfer
clerk acting on behalf of the Corporation and a registrar, the signature of
any officer of the Corporation may be facsimile. In case any such officer
whose facsimile signature has been used on any such stock certificate shall
cease to be such officer, whether because of death, resignation, removal or
otherwise, before such stock certificate shall have been delivered by the
Corporation, such stock certificate may nevertheless be delivered by the
Corporation as though the person whose facsimile signature has been used
thereon had not ceased to be such officer.
SECTION 5.2. LOST, STOLEN OR DESTROYED CERTIFICATES. The Board of
Directors in individual cases, or by general resolution or by delegation to
the transfer agent for the Corporation, may direct that a new stock
certificate or certificates for shares of capital stock of the Corporation be
issued in place of any stock certificate or certificates theretofore issued by
the Corporation claimed to have been lost, stolen or destroyed, upon the
filing of an affidavit to that effect by the person claiming such loss, theft
or destruction. When authorizing such an issuance of a new stock certificate
or certificates, the Board of Directors may, in its discretion and as a
condition precedent to such issuance, require the owner of such lost, stolen
or destroyed stock certificate or certificates to advertise the same in such
manner as the Corporation shall require and/or to give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be
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made against the Corporation with respect to the stock certificate or
certificates claimed to have been lost, stolen or destroyed.
SECTION 5.3. TRANSFERS OF STOCK. Upon surrender to the Corporation or
the transfer agent of the Corporation of a stock certificate for shares of
capital stock of the Corporation duly endorsed or accompanied by proper
evidence of succession, assignment or authority to transfer or, if the
relevant stock certificate for shares of capital stock of the Corporation is
claimed to have ben lost, stolen or destroyed, upon compliance with the
provisions of Section 5.2 of these By-Laws, and upon payment of applicable
taxes with respect to such transfer, and in compliance with any restrictions
on transfer applicable to such stock certificate or the shares represented
thereby of which the Corporation shall have notice and subject to such rules
and regulations as the Board of Directors may from time to time deem advisable
concerning the transfer and registration of stock certificates for shares of
capital stock of the Corporation, the Corporation shall issue a new stock
certificate or certificates for such shares to the person entitled thereto,
cancel the old stock certificate and record the transaction upon its books.
Transfers of shares shall be made only on the books of the Corporation by the
registered holder thereof or by such holder's attorney or successor duly
authorized as evidenced by documents filed with the Secretary or transfer
agent of the Corporation. Whenever any transfer of shares of capital stock of
the Corporation shall be made for collateral security, and not absolutely, it
shall be so expressed in the entry of transfer if, when the stock certificate
or certificates representing such shares are presented to the Corporation for
transfer, both the transferor and transferee request the Corporation to do so.
SECTION 5.4. STOCKHOLDERS OF RECORD. The Corporation shall be
entitled to treat the holder of record of any share of capital stock of the
Corporation as the holder thereof and shall not be bound to recognize any
equitable or other claim to or interest in such share on the part of any other
person, whether or not it shall have express or other notice thereof, except
as otherwise provided by the laws of the State of Delaware.
ARTICLE VI. GENERAL PROVISIONS
SECTION 6.1. FISCAL YEAR. The fiscal year of the Corporation shall
end on the 31st day of December in each year or such other day as may be fixed
from time to time by the Board of Directors.
SECTION 6.2. SEAL. The corporate seal of the Corporation shall have
inscribed thereon the name of the Corporation and the words "CORPORATE SEAL"
and "DELAWARE"; and it shall otherwise be in the form approved by the Board of
Directors. Such seal may be used by causing it, or a facsimile thereof, to be
impressed or affixed or otherwise reproduced.
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ARTICLE VII. OFFICES
SECTION 7.1. REGISTERED OFFICE. The registered office of the
Corporation in the State of Delaware shall be located at Corporation Trust
Center, 1209 Orange Street in the City of Wilmington, County of New Castle,
and the name of its registered agent is The Corporation Trust Company.
SECTION 7.2. OTHER OFFICES. The Corporation may have offices at such
other places, both within or without the State of Delaware, as shall be
determined from time to time by the Board of Directors or as the business of
the Corporation may require.
ARTICLE VIII. NOTICES
SECTION 8.1. MANNER OF NOTICE. Except as otherwise provided by law,
whenever under the provisions of the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws notice is required to be given
to any stockholder, director or member of any committee of the Board of
Directors, such notice may be given by personal delivery or by depositing it,
in a sealed envelope, in the United States mails, air mail or first class,
postage prepaid, addressed, or by delivering it to a telegraph company,
charges prepaid, for transmission, or by transmitting it via telecopier to
such stockholder, director or member either at the address of such
stockholder, director or member as it appears on the books of the Corporation
or, in the case of such a director or member, at his or her business address;
and such notice shall be deemed to be given at the time when it is thus
personally delivered, deposited, delivered or transmitted, as the case may be.
Such requirement for notice shall also be deemed satisfied, except in the
case of stockholder meetings with respect to which written notice is required
by law, if actual notice is received orally or by other writing by the person
entitled thereto as far in advance of the event with respect to which notice
is being given as the minimum notice period required by the laws of the State
of Delaware or these By-Laws.
Whenever notice is required to be given under any provision of the laws
of the State of Delaware, the Certificate of Incorporation or these By-Laws to
any stockholder to whom (i) notice of two consecutive annual meetings of
stockholders, and all notices of meetings of stockholders or of the taking of
action by stockholders by written consent without a meeting to such
stockholder during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of
dividends or interest on securities of the Corporation during a 12-month
period, have been mailed addressed to such stockholder at the address of such
stockholder as shown on the records of the Corporation and have been returned
undeliverable, the giving of such notice to such stockholder shall not be
required. Any action or meeting which shall be taken or held without notice
to such stockholder shall have the same force and effect as if such notice had
been duly given. If any such stockholder shall deliver to the Corporation a
written notice setting forth the then current address of such stockholder, the
requirement that notice be given to such stockholder shall be reinstated.
-19-
SECTION 8.2. WAIVER OF NOTICE. Whenever any notice is required to be
given under any provision of the laws of the State of Delaware, the
Certificate of Incorporation or these By-Laws, a written waiver thereof,
signed by the person or persons entitled to such notice, whether before or
after the time stated therein, shall be deemed equivalent to such notice.
Attendance by a person at a meeting shall constitute a waiver of notice of
such meeting, except when such person attends such meeting for the express
purpose of objecting, at the beginning of such meeting, to the transaction of
any business because such meeting has not been lawfully called or convened.
Neither the business to be transacted at, nor the purpose of, any regular or
special meeting of stockholders, the Board of Directors or a committee of the
Board of Directors need be specified in any written waiver of notice unless so
required by the laws of the State of Delaware, the Certificate of
Incorporation or these By-Laws.
ARTICLE IX. DIVIDENDS
The Board of Directors may from time to time declare, and the Corporation
may pay, dividends, in cash, in property or in shares of capital stock of the
Corporation, on its outstanding shares of capital stock in the manner and upon
the terms and conditions provided by law and by the Certificate of
Incorporation.
ARTICLE X. AMENDMENTS
These By-Laws may be altered, amended or repealed by the Board of
Directors or the stockholders; provided, however, that with respect to any
alteration, amendment or repeal of any provision of the By-Laws by the
stockholders, notwithstanding any other provision of these By-Laws or any
provision of law which might otherwise permit a lesser vote or no vote, but in
addition to any affirmative vote of the holders of any particular class or
series of capital stock of the Corporation required by law, the Certificate of
Incorporation, any Preferred Stock Designation or these By-Laws, the
affirmative vote of the holders of at least 80% of the voting power of all of
the then outstanding shares of capital stock of the Corporation entitled to
vote generally in the election of directors, voting as a single class, shall
be required for such an alteration, amendment or repeal by the stockholders.
-20-
<PAGE>
EXHIBIT 10.1
EXECUTION COPY
TERMINATION AGREEMENT
TERMINATION AGREEMENT, dated as of the 15th day of May, 1996, between
WESTERN NATIONAL CORPORATION, a Delaware corporation ("Company"), and Bruce R.
Abrams (hereinafter called "Executive").
RECITALS
WHEREAS, Executive is employed by Company in an executive or managerial
capacity; and
WHEREAS, Company desires to provide Executive with certain payments in
the event Executive's employment is terminated following the occurrence of
certain events as specified herein;
PROVISIONS
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants contained herein, the parties agree as follows:
1. Term. This Agreement shall terminate upon the first to occur of
(i) Executive reaching the normal retirement age for executive officers of the
Company as in effect from time to time; (ii) the payment to Executive of the
Termination Amount as contemplated by Section 3 hereof; (iii) the termination
of Executive's employment other than as a result of a Control Termination as
defined herein; or (iv) May 15, 1999.
2. Control Termination.
(a) The term "Control Termination" as used herein shall mean (a)
termina-tion of this Agreement by the Company in anticipation of or following
a "change in control" of the Company (as defined below), or (b) termination of
this Agreement by Executive following a "change in control" of the Company (as
defined below) upon the occurrence of any of the following events:
(i) significant change in the nature or scope of Executive's
authori-ties or duties from those in effect prior to a change of control, a
reduction in his total compensation from that in effect prior to a change of
control, or a breach by the Company of any other provision of this Agreement;
or
(ii) reasonable determination by Executive that, as a result of
a change in circumstances significantly affecting his position, he is unable
to exercise the authorities, powers, functions or duties attached to his
position as in effect prior to the change in control; or
<PAGE>
(iii) the location of Executive's principal place of employment
is moved outside the standard metropolitan statistical geographic area in
which it was located immediately prior to the change in control; or
(iv) any reduction in benefit or bonus payment levels from those
in effect prior to a "change in control" shall be implemented.
(b) The term "change in control" shall mean a change in control of a
nature that would be required to be reported in response to Item 6(e) of
Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act
of 1934 (the "Act") as revised effective January 20, 1987, or, if Item 6(e) is
no longer in effect, any regulations issued by the Securities and Exchange
Commission pursuant to the Act which serve similar purposes; provided that,
without limitation,
(x) such a change in control shall be deemed to have occurred if
and when either (A) except as provided in (y) below, any "person" (as such
term is used in Sections 13(d) and 14(d) of the Act) is or becomes a
"beneficial owner" (as such term is defined in Rule 13d-3 promulgated under
the Act), directly or indirectly, of securities of the Company representing
25% or more of the combined voting power of the Company's then outstanding
securities entitled to vote with respect to the election of its Board of
Directors or (B) as the result of a tender offer, merger, consolidation, sale
of assets, or contest for election of directors, or any combination of the
foregoing transactions or events, individuals who were members of the Board of
Directors of the Company immediately prior to any such transaction or event
shall not constitute a majority of the Board of Directors following such
transaction or event, and
(y) no change of control shall be deemed to have occurred if and
when any such person becomes, with the approval of the Board of Directors of
the Company, the beneficial owner of securities of the Company representing
25% or more but less than 50% of the combined voting power of the Company's
then outstanding securities entitled to vote with respect to the election of
its Board of Directors and in connection therewith represents, and at all
times continues to represent, in a filing, as amended, with the Securities and
Exchange Commission on Schedule 13D or Schedule 13G (or any successor Schedule
thereto) that "such person has acquired such securities for investment and not
with the purpose nor with the effect of changing or influencing the control of
the Company, nor in connection with or as a participant in any transaction
having such purpose or effect", or words of comparable meaning and import.
The designation by any such person, with the approval of the Board of
Directors of the Company, of a single individual to serve as a member of, or
observer at meetings of, the Company's Board of Directors, shall not be
considered "changing or influencing the control of the Company" within the
meaning of this paragraph, so long as such individual does not constitute at
any time more than one-third of the total number of directors serving on such
Board. Notwithstanding the foregoing, any action taken or omitted to be taken
by American
-2-
<PAGE>
General Corporation, a Texas corporation ("AG") or its majority
controlled subsidiaries in accordance with and during the term of the
Shareholder's Agreement, dated as of December 2, 1994, between the Company and
AG, including, but not limited to, the acquisition of up to an aggregate 79%
of the shares of Common Stock of the Company from time to time outstanding,
and the designation by AG of not more than two individuals as directors of the
Company (so long as such two individuals do not constitute more than one-third
of the entire board), shall not constitute a change of control hereunder;
provided that the acquisition by any person other than AG or a majority
controlled subsidiary of AG of securities representing more than 25% of the
outstanding voting securities of the Company shall not be deemed to be an
action taken or not taken by AG or a majority controlled subsidiary of AG
within the meaning of this Section.
3. Control Termination. In the event of a Control Termination of
this Agreement, Executive shall be paid a lump sum severance allowance (the
"Termination Amount") in an amount which is equal to salary payments for 24
calendar months at the higher of (x) the rate of base salary that was in
effect at the date of such Control Termination; or (y) the rate of base salary
that was in effect for the calendar year preceding the year in which the
change of control resulting in such Control Termination occurred.
The Company shall be entitled to withhold all such taxes or other amounts
as may be required in accordance with applicable law from the payment provided
for in this Section.
4. Tax Indemnity Payments. To the extent that any payments made to
Executive pursuant to Sections 11 or 13 constitute an "excess parachute
payment", as such term is defined in Section 280G(b)(1) of the Internal
Revenue Code, as amended (the "Code"), or any successor Code section providing
for analogous treatment, the Company shall pay to Executive an amount equal to
(x) divided by (y), where (x) is the aggregate dollar amount of excise taxes
Executive becomes obligated to pay on such "excess parachute payments"
pursuant to Section 4999 of the Code or any successor Code section providing
for analogous treatment, and (y) is 1-[.2 + the maximum federal income tax
rate for single individuals applicable for the year in which Executive
receives the payment provided under this Section]; it being the intent of this
Section that if Executive incurs any such excise tax, the payments to him
shall be grossed up in full for such excise tax, so that the amount he retains
after paying all federal income taxes due with respect to payments to him
under this Agreement is the same as what he would have retained if Section
280G of the Code had not been applicable.
5. Option Vesting. In the event of a Control Termination of this
Agreement, all outstanding options held by Executive immediately prior to such
Control Termination to purchase shares of Company common stock under the
Company Stock Option Plan shall thereupon become 100% vested in Executive.
-3-
<PAGE>
6. Character of Termination Payments. All amounts payable to
Executive upon any Control Termination shall be considered severance pay in
consideration of past services rendered on behalf of the Company and his
continued service from the date hereof to the date he becomes entitled to such
payments. Executive shall have no duty to mitigate his damages by seeking
other employment and, should Executive actually receive compensation from any
such other employment, the payments required hereunder shall not be reduced or
offset by any such other compensation.
7. Arbitration of Disputes. Any controversy or claim arising out
of or relating to this Agreement or the breach thereof shall be settled by
arbitration in the state and country where the principal executive offices of
the Company are then located, by three arbitrators, one of whom shall be
appointed by the first two arbitrators. If the first two arbitrators cannot
agree on the appointment of a third arbitrator, then the third arbitrator
shall be appointed by the Chief Judge of the United States District Court for
the District which includes such county where the Company's principal
executive offices are located. The arbitration shall be conducted in
accordance with the rules of the American Arbitration Association, except with
respect to the selection of arbitrators which shall be as provided in this
Section. Judgment upon the award rendered by the arbitrators may be entered
in any court having jurisdiction thereof.
8. Notices. Any notice required or permitted to be given under
this Agreement shall be sufficient if in writing and if sent by telephone
facsimile transmission, personal or overnight couriers, or registered mail,
with confirmation or receipt, to his principal residence as shown in the
Company's employment records, in the case of Executive, or to its principal
executive offices to the attention of its chief legal officer, in the case of
the Company.
9. Waiver of Breach and Severability. The waiver by either party
of a breach of any provision of this Agreement by the other party shall not
operate or be construed as a waiver of any subsequent breach by either party.
In the event any provision of this Agreement is found to be invalid or
unenforceable, it may be severed from the Agreement and the remaining
provisions of the Agreement shall continue to be binding and effective.
10. Entire Agreement. This instrument contains the entire
agreement of the parties and supersedes all prior agreements, whether written
or oral, between them. This agreement may not be changed orally, but only by
an instrument in writing signed by the party against whom enforcement of any
waiver, change, modification, extension or discharge is sought.
11. Binding Agreement; Governing Law. This Agreement shall be
binding upon and shall inure to the benefit of the parties and their lawful
successors in interest and shall be construed in accordance with and governed
by the laws of the State of Texas.
12. Assignment. This Agreement is a personal services contract of
Executive and he may not assign or delegate any of his rights or obligations
hereunder without the prior written consent of the Company.
-4-
<PAGE>
13. Headings. The headings in this Agreement are for convenience
only and shall not be used to interpret or construe its provisions.
14. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
15. No Contract of Employment. This Agreement does not and shall
not be construed as a contract of employment, or as obligating the Company to
employ Executive for any period of time. Executive acknowledges that he is an
employee at will of the Company and that the Company retains the unilateral
right to terminate Executive's employment at any time, with or without cause.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
WESTERN NATIONAL CORPORATION
By:
Michael J. Poulos
Chairman, President and
Chief Executive Officer
BRUCE R. ABRAMS
"Executive"
-5-
<PAGE>
EXHIBIT 10.2
July 10, 1996
Mr. Alan Richards
P.O. Box 675760
Rancho Santa Fe, CA 92067
Dear Mr. Richards:
This letter is to confirm our agreement that you will serve as a consultant to
Western National Corporation ("WNC") and its subsidiary, Western National Life
Insurance Company ("WNL"). Your services will be engaged on a
project-by-project basis, at the request of the undersigned.
For your services, you shall receive a consulting fee of $1800 per day ($900
per half day), payable in arrears upon submission of your invoice for services
rendered. You will also be reimbursed for such reasonable out-of-pocket
expenses as you may incur in connection with the rendering of services
hereunder, upon submission of appropriate documentation and receipts therefor
to WNC or WNL.
If the foregoing accurately reflects your understanding with respect to the
foregoing matters, please so indicate in the space provided below.
Very truly yours,
WESTERN NATIONAL CORPORATION Agreed and Accepted as of the date above:
ALAN RICHARDS CONSULTING, INC.
By:/s/Michael J. Poulos By:/s/Alan Richards
Michael J. Poulos, Alan Richards, President
President
<PAGE>
WESTERN NATIONAL CORPORATION AND SUBSIDIARIES EXHIBIT 11.1
COMPUTATION OF EARNINGS PER SHARE
(IN MILLIONS - EXCEPT PER SHARE DATA))
<TABLE>
<CAPTION>
Six Months Ended June 30,
1996
<S> <C> <C> <C>
PRIMARY:
Weighted average shares outstanding 62.4
Common equivalent shares related to:
Stock options at average market price
(as determined by application of the
treasury stock method) 0.4
-----
Weighted average shares and common
stock equivalents 62.8
=====
Net income $45.4
=====
Net income per common share $0.72
=====
Six Months Ended June 30,
--------------------------------------
1996
--------------------------------------
FULLY DILUTED
Weighted average shares outstanding 62.4
Common equivalent shares related to:
Stock options at end of period price
(as determined by application of the
treasury stock method) 0.4
-----
Weighted average shares and common stock
equivalents 62.8
=====
Net income $45.4
=====
Net income per common share $0.72
=====
</TABLE>
-23-
<TABLE> <S> <C>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF THE COMPANY'S FORM 10-Q FOR THE
YEAR-TO-DATE, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 7,978
<DEBT-CARRYING-VALUE> 1
<DEBT-MARKET-VALUE> 2
<EQUITIES> 17
<MORTGAGE> 127
<REAL-ESTATE> 0
<TOTAL-INVEST> 8,649
<CASH> 232
<RECOVER-REINSURE> 2
<DEFERRED-ACQUISITION> 379
<TOTAL-ASSETS> 9,299
<POLICY-LOSSES> 7,982
<UNEARNED-PREMIUMS> 0
<POLICY-OTHER> 2
<POLICY-HOLDER-FUNDS> 132
<NOTES-PAYABLE> 148
0
0
<COMMON> 3
<OTHER-SE> 683
<TOTAL-LIABILITY-AND-EQUITY> 9,299
8
<INVESTMENT-INCOME> 344
<INVESTMENT-GAINS> (3)
<OTHER-INCOME> 1
<BENEFITS> 238
<UNDERWRITING-AMORTIZATION> 20
<UNDERWRITING-OTHER> 11
<INCOME-PRETAX> 74
<INCOME-TAX> 26
<INCOME-CONTINUING> 48
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 45
<EPS-PRIMARY> .72
<EPS-DILUTED> .72
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
