<PAGE>
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
----------------------------
FORM 10-Q
----------------------------
- -----------------------------------------------------
(Mark One)
[ X ]QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
or
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarter ended June 30, 1999 Commission File Number 0-26788
THE GUARANTEE LIFE COMPANIES INC.
(Exact Name of the Registrant as Specified in its Charter)
Delaware 47-0785066
(State of Incorporation) (I.R.S. Employer Identification Number)
8801 Indian Hills Drive, Omaha, Nebraska 68114
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number: (402) 361-7300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days: Yes [X] No [_]
Shares of common stock outstanding as of: August 4, 1999: 9,263,954
================================================================================
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------ ----------------- --------------
Invested assets: (unaudited)
<S> <C> <C>
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $869,962 and $865,597)...... $861,075 $888,363
Held-to-maturity, at amortized cost (fair value: $140,890 and $158,341)........ 139,699 147,180
------------ -------------
1,000,774 1,035,543
Equity securities, at fair value (cost:$25,284 and $20,643)......................... 27,722 23,835
Mortgage loans, net................................................................. 108,310 103,736
Policy loans........................................................................ 32,270 31,767
Investment real estate, net......................................................... 3,178 3,211
Other invested assets, net.......................................................... 41,865 54,970
Closed Block invested assets........................................................ 303,967 314,108
------------ -------------
Total invested assets.................................................................... 1,518,086 1,567,170
Cash and cash equivalents................................................................ 31,969 23,794
Accrued investment income................................................................ 14,197 13,900
Recoverable from reinsurers.............................................................. 91,962 95,511
Accounts receivable, net................................................................. 23,817 19,641
Deferred policy acquisition costs........................................................ 146,375 144,844
Property, plant and equipment, net....................................................... 19,445 19,929
Other assets ............................................................................ 11,252 12,607
Closed Block other assets................................................................ 14,685 16,224
Separate account assets.................................................................. 101,685 78,629
------------ -------------
Total assets ............................................................................ $1,973,473 $1,992,249
============ =============
Liabilities and Shareholders' Equity
------------------------------------
Future policy benefits................................................................... $180,556 $178,133
Policyholder account balances............................................................ 793,281 795,820
Policy and contract claims............................................................... 74,315 68,701
Other policyholder funds................................................................. 47,035 43,751
Unearned premium revenue................................................................. 12,046 13,149
Payable to reinsurers.................................................................... 6,443 8,670
Notes payable............................................................................ 115,000 112,500
Other liabilities........................................................................ 30,241 54,846
Closed Block liabilities................................................................. 381,099 386,933
Discontinued operations, net............................................................. 19,453 21,075
Separate account liabilities............................................................. 101,685 78,629
------------ -------------
Total liabilities........................................................................ 1,761,154 1,762,207
------------ -------------
Shareholders' equity:
Common stock $0.01 par value; 30,000,000 shares authorized, 10,315,785 shares
issued .......................................................................... 103 103
Additional paid-in capital.......................................................... 200,890 201,255
Treasury stock, at cost (1,067,385 shares and 1,087,124 shares) .................... (24,450) (25,054)
Retained earnings................................................................... 40,925 33,962
Net unrealized investment gain (loss)............................................... (5,149) 19,776
------------ -------------
Total shareholders' equity............................................................... 212,319 230,042
Commitments and contingencies............................................................ - -
------------ -------------
Total liabilities and shareholders' equity............................................... $1,973,473 $1,992,249
============ =============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
2
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Direct and assumed premiums and policyholder assessments.............. $117,599 $96,445 $230,100 $184,650
Reinsurance premiums.................................................. (19,026) (20,468) (37,121) (38,093)
------------ ------------- ------------ ------------
Net premiums and policyholder assessments............................. 98,573 75,977 192,979 146,557
Investment income, net................................................ 20,841 17,351 42,291 33,491
Realized investment gains/(losses) ................................... (1,308) 409 (1,073) 528
Ceding commissions and other income................................... 6,406 5,772 13,246 10,813
Contribution from Closed Block........................................ 1,558 405 2,294 1,607
------------ ------------- ------------ ------------
Total revenues........................................................ 126,070 99,914 249,737 192,996
------------ ------------- ------------ ------------
Policyholder benefits:
Direct and assumed benefits........................................... 94,777 75,322 183,758 142,344
Reinsurance recoveries................................................ (16,799) (16,866) (31,168) (29,899)
------------ ------------- ------------ ------------
Net policyholder benefits............................................. 77,978 58,456 152,590 112,445
------------ ------------- ------------ ------------
Expenses:
Policy acquisition costs.............................................. 18,839 17,742 40,022 35,711
Other insurance operating expense..................................... 22,072 19,854 44,542 40,425
------------ ------------- ------------ ------------
Total expenses........................................................ 40,911 37,596 84,564 76,136
------------ ------------- ------------ ------------
Income from continuing operations before income taxes................. 7,181 3,862 12,583 4,415
------------ ------------- ------------ ------------
Income tax expense.................................................... 2,513 1,352 4,404 1,545
------------ ------------- ------------ ------------
Net income from continuing operations................................. 4,668 2,510 8,179 2,870
------------ ------------- ------------ ------------
Net income (loss) from discontinued operations........................ 28 (27) 79 (29)
------------ ------------- ------------ ------------
Net income............................................................ $4,696 $2,483 $8,258 $2,841
============ ============= ============ ============
Basic Earnings per share:
Weighted average shares outstanding.............................. 9,242,644 8,958,436 9,236,960 8,906,122
============ ============= ============ ============
Net income from continuing operations............................ $0.51 $0.28 $0.89 $0.32
============ ============= ============ ============
Net income from discontinued operations.......................... - - - -
============ ============= ============ ============
Net income....................................................... $0.51 $0.28 $0.89 $0.32
============ ============= ============ ============
Diluted Earnings per share:
Weighted average shares outstanding.............................. 9,361,073 9,259,900 9,333,209 9,204,097
============ ============= ============ ============
Net income from continuing operations............................ $0.50 $0.27 $0.88 $0.31
============ ============= ============ ============
Net income from discontinued operations.......................... - - - -
============ ============= ============ ============
Net income....................................................... $0.50 $0.27 $0.88 $0.31
============ ============= ============ ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
3
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Net income............................................................. $4,696 $2,483 $8,258 $2,841
Other comprehensive income, net of tax:
Unrealized appreciation (depreciation) of invested assets......... (14,612) 5,039 (25,136) 3,478
Less reclassification adjustment for gains (losses) included in
net income........................................................ (117) 409 (211) 528
------------- ------------ ----------- ------------
(14,495) 4,630 (24,925) 2,950
------------- ------------ ----------- ------------
Comprehensive income................................................... $(9,799) $7,113 $(16,667) $5,791
============= ============ =========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
4
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
----------- ------------
<S> <C> <C>
Net cash provided (used) by operating activities............................................... ($8,928) ($8,921)
----------- ------------
Cash flows from investing activities:
Purchase of fixed maturities................................................................ (153,159) (122,857)
Sales, maturities, calls and principal reductions of fixed maturities....................... 154,930 146,414
Sale of equity securities and short-term investments........................................ 13,692 1,843
Purchase of mortgage loans.................................................................. (7,225) (10,250)
Proceeds from repayment of mortgage loans................................................... 2,651 4,267
Change in Closed Block invested assets...................................................... 10,141 (1,253)
Payment for purchase of Westfield Life Insurance Company, net.............................. - (90,863)
Other, net.................................................................................. (4,715) 11,147
----------- ------------
Net cash provided (used) by investing activities.......................................... 16,315 (61,552)
----------- ------------
Cash flows from financing activities:
Deposits to policyholder account balances................................................... 40,772 32,620
Withdrawals from policyholder account balances.............................................. (41,792) (33,703)
Purchase of treasury stock.................................................................. - (3,150)
Options exercised........................................................................... 604 661
Proceeds from issuance of notes payable.................................................... 10,000 125,000
Principal payments on long term debt....................................................... (7,500) (40,000)
Shareholder dividends...................................................................... (1,296) (1,238)
----------- ------------
Net cash provided by financing activities................................................. 788 80,190
----------- ------------
Net increase in cash and cash equivalents...................................................... 8,175 9,717
Cash and cash equivalents at beginning of period............................................... 23,794 8,608
----------- ------------
Cash and cash equivalents at end of period..................................................... $31,969 $18,325
=========== ============
</TABLE>
See accompanying notes to condensed consolidated financial statements.
5
<PAGE>
THE GUARANTEE LIFE COMPANIES INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1999 and 1998
(1) Summary of Significant Accounting Policies
The accompanying unaudited condensed consolidated financial statements
include The Guarantee Life Companies Inc. and its direct and indirect
wholly-owned subsidiaries. These financial statements have been prepared in
conformity with generally accepted accounting principles for interim
financial information and reflect all adjustments (consisting only of
normal recurring items) which are, in the opinion of management, necessary
to present fairly the financial position and results of operations for the
periods presented.
Operating results for the three and six month periods ended June 30, 1999
are not necessarily indicative of the results that may be expected for the
year ending December 31, 1999. These financial statements and notes thereto
should be read in conjunction with the audited consolidated financial
statements for the fiscal year ended December 31, 1998, contained in
Guarantee Life's annual report on Form 10-K for the year ended December 31,
1998.
(2) Investments
Fixed maturities at June 30, 1999 (in thousands) are as follows:
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
-------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
Available-for-sale:
U.S. Treasury securities and obligations of U.S.
Government corporations and agencies............ $97,456 $211 $1,746 $95,921
Obligations of states and political subdivisions.. 15,027 927 - 15,954
Debt securities issued by foreign governments..... 8,433 10 216 8,227
Corporate securities.............................. 479,779 8,009 14,380 473,408
Mortgage-backed securities........................ 197,124 1,807 2,963 195,968
Other asset-backed securities..................... 72,143 272 818 71,597
-------------- -------------- --------------- --------------
869,962 11,236 20,123 861,075
Equity securities................................. 25,284 3,771 1,333 27,722
-------------- -------------- --------------- --------------
$895,246 $15,007 $21,456 $888,797
============== ============== =============== ==============
Held-to-maturity:
Corporate securities.............................. 114,974 4,887 1,102 118,759
Mortgage-backed securities........................ 14,206 - 2,020 12,186
Other asset-backed securities..................... 10,519 - 574 9,945
-------------- -------------- --------------- --------------
$139,699 $4,887 $3,696 $140,890
============== ============== =============== ==============
</TABLE>
(3) Closed Block
Summarized condensed financial information of the Closed Block (in thousands) is
as follows:
<TABLE>
<CAPTION>
June 30, December 31,
Assets 1999 1998
------ -------------- --------------
<S> <C> <C>
Invested assets:
Fixed maturities:
Available-for-sale, at fair value (amortized cost: $225,306 and $210,935) ..... $223,877 $220,603
Held-to-maturity, at amortized cost (fair value: $35,454 and $48,460).......... 35,283 44,595
-------------- --------------
259,160 265,198
Policy loans........................................................................ 44,807 46,217
Other invested assets, net.......................................................... - 2,693
-------------- --------------
Total invested assets.................................................................... 303,967 314,108
Cash and cash equivalents................................................................ 2,260 2,000
Accrued investment income................................................................ 1,949 2,367
Deferred policy acquisition costs........................................................ 9,475 10,476
Other assets............................................................................. 1,001 1,381
-------------- --------------
Total Closed Block assets................................................................ $318,652 $330,332
============== ==============
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
June 30, December 31,
Liabilities 1999 1998
----------- -------------- --------------
<S> <C> <C>
Life future policy benefits............................................................... $297,964 $300,254
Policyholder account balances for annuity contracts....................................... 905 885
Policy and contract claims................................................................ 448 839
Other policyholder funds.................................................................. 72,015 71,966
Dividends payable to policyholders........................................................ 7,126 7,052
Deferred income taxes..................................................................... (500) 3,384
Other liabilities......................................................................... 3,141 2,553
-------------- --------------
Total Closed Block liabilities............................................................ $381,099 $386,933
============== ==============
</TABLE>
Condensed statements of income for the Closed Block for the three and six months
ended June 30 (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums and policyholder assessments, net of reinsurance. $4,667 $4,962 $9,524 $10,198
Investment income, net.............................................. 5,210 5,328 10,904 10,961
Realized investment gains........................................... 888 620 888 631
Other income........................................................ 5 2 6 4
------------- ----------- ----------- ------------
Total revenues...................................................... 10,770 10,912 21,322 21,794
------------- ----------- ----------- ------------
Policyholder benefits and expenses:
Total policyholder benefits, net of reinsurance..................... 5,184 5,158 10,583 11,264
Policy acquisition costs............................................ 496 574 1,134 1,013
Other insurance operating expense................................... 1,024 2,007 2,044 2,114
------------- ----------- ----------- ------------
Total benefits and expenses......................................... 6,704 7,739 13,761 14,391
Dividends to policyholders.......................................... 2,508 2,768 5,267 5,796
------------- ----------- ----------- ------------
Contribution from the Closed Block.................................. $1,558 $405 $2,294 $1,607
============= =========== =========== ============
</TABLE>
The Closed Block includes only those revenues, benefits, expenses, and dividends
resulting from the policies which were included in the Closed Block on December
26, 1995, the effective date of Guarantee Life Insurance Company's conversion to
a stock life insurance company. The pre-tax income of the Closed Block is
reported as a single line item, Contribution from Closed Block, in Guarantee
Life's condensed consolidated statements of income. Income tax expense
applicable to the Closed Block is reflected as a component of income tax
expense.
The excess of Closed Block liabilities over Closed Block assets as of June 30,
1999 represents the estimated future contribution from Closed Block, which will
be recognized in Guarantee Life's statements of income over the period the
underlying policies and contracts remain in force.
If, over the period the Closed Block remains in existence, the actual cumulative
contribution is greater than the expected cumulative contribution, only such
expected contribution will be recognized in Guarantee Life's statements of
income. The excess will be paid to Closed Block policyholders as additional
policyholder dividends. Alternatively, if the actual cumulative contribution is
less than the expected cumulative contribution, only such actual contribution
will be recognized in Guarantee Life's statements of income. However, dividends
will be changed in the future, to increase actual contributions until the actual
cumulative contributions equal the expected cumulative contributions.
(4) Earnings per common share
Basic earnings per share of common stock have been computed on the basis of the
weighted average number of shares of common stock outstanding. Diluted earnings
per share is based on the weighted average number of shares and common stock
equivalents outstanding. The Company's common stock equivalents relate to common
stock options.
(5) Restricted common shares
Effective May 31, 1998, The Guarantee Life Companies Inc. acquired Westfield
Life Insurance Company (Westfield). As partial consideration, 371,402 shares of
previously authorized, but unissued, common stock were issued. These shares have
a restriction on transfer and are restricted from sale for a period of two
years. They are also restricted for five years from sale to any party who owns
two percent or more of Guarantee Life's issued and outstanding common stock at
the time of transfer or who would own two percent or more after transfer. These
shares also have restricted voting rights. For a period of five years all
restricted shares of common stock will be voted in concurrence with the
recommendation of the Board of Directors of Guarantee Life in matters submitted
to the shareholders of Guarantee Life for vote or consent.
7
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following analysis of the consolidated financial condition and results
of operations of Guarantee Life should be read in conjunction with the condensed
consolidated financial statements and the notes thereto included herein.
Forward-looking Statements
This Form 10-Q report contains certain forward-looking statements. All
forward-looking statements are inherently uncertain as they are based on various
management expectations and assumptions concerning future events and they are
subject to numerous known and unknown risks and uncertainties which could cause
actual results to differ materially from those projected. Such statements
reflect the current view of Guarantee Life with respect to future events and are
subject to certain risks, uncertainties and assumptions, including the business
factors described in Guarantee Life's annual report on Form 10-K for the year
ended December 31, 1998. Should one or more of such risks or uncertainties
materialize, or should underlying assumptions prove incorrect, actual results
may vary materially from those described herein as believed, estimated or
expected.
Operating Results for the Three and Six Months Ended June 30, 1999 and 1998
The following table presents the consolidated results of operations
combined with the results of operations of the Closed Block. As part of the
conversion to a stock life insurance company in 1995, Guarantee Life Insurance
established a Closed Block to provide for dividends on certain policies that
were in force on December 26, 1995 (the "Effective Date"). After the Effective
Date, the operating results from the Closed Block are reported on one line,
Contribution from Closed Block, in the consolidated statements of income.
Management's discussion and analysis addresses the combined results of
operations unless noted otherwise.
Combined Results of Operations(in thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
--------------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Premiums and policyholder assessments, net................... $103,240 $80,939 $202,503 $156,755
Investment income, net....................................... 26,051 22,679 53,195 44,452
Realized investment gains.................................... (420) 1,029 (185) 1,159
Ceding commissions and other income.......................... 6,411 5,774 13,252 10,817
--------------- ------------ ------------ -----------
Total revenues.................................................... 135,282 110,421 268,765 213,183
Benefits and expenses:
Policyholder benefits, net of reinsurance.................... 83,162 63,614 163,173 123,709
Expenses..................................................... 42,426 40,170 87,734 79,256
Dividends to policyholders................................... 2,513 2,775 5,275 5,803
--------------- ------------ ------------ -----------
Total policyholder benefits, expenses............................. 128,101 106,559 256,182 208,768
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. 7,181 3,862 12,583 4,415
Income taxes...................................................... 2,513 1,352 4,404 1,545
--------------- ------------ ------------ -----------
Net income from continuing operations............................. $4,668 $2,510 $8,179 $2,870
=============== ============ ============ ===========
Net income excluding realized gains............................... $4,941 $1,841 $8,299 $2,116
=============== ============ ============ ===========
</TABLE>
Investment Income, Net. Net investment income increased $3.3 million, or
14.9%, and $8.7 million, or 19.7%, for the three and six month periods ended
June 30, 1999 over 1998 due primarily to the acquisition of Westfield on May 31,
1998. The 1998 results reflect only one month of activity for Westfield while
the 1999 results reflect three and six months of activity for the quarter and
six months ended June 30, 1999, respectively.
8
<PAGE>
Insurance Operations--Employee Benefits Division(EBD)
The following table sets forth the results of operations for Guarantee
Life's Employee Benefits Division for the three and six months ended June 30,
1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $55,132 $50,728 $108,667 $99,921
Reinsurance premiums ........................................ (985) (1,359) (2,268) (2,489)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 54,147 49,369 106,399 97,432
Investment income, net....................................... 3,496 3,340 6,505 5,880
Realized investment gains(losses)............................ (406) 113 (317) 429
Ceding commissions .......................................... 26 66 72 104
--------------- ------------ ------------ -----------
Total revenues.................................................... 57,263 52,888 112,659 103,845
Benefits and expenses:
Gross policyholder benefits.................................. 40,462 38,257 76,667 72,781
Recoveries from reinsurers .................................. (1,772) (1,755) (1,746) (1,929)
--------------- ------------ ------------ -----------
Net benefits................................................. 38,690 36,502 74,921 70,852
Acquisition costs and operating expenses..................... 17,844 18,290 35,847 38,336
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 56,534 54,792 110,768 109,188
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $729 $(1,904) $1,891 $(5,343)
=============== ============ ============ ===========
</TABLE>
EBD provides group non-medical products including term life, accidental
death and dismemberment, short-term disability, long-term disability (LTD), and
dental; and voluntary (worksite marketed) products.
EBD net earned premiums increased $4.8 million, or 9.7%, for the second
quarter of 1999 over 1998 and $9.0 million, or 9.2%, for the six months ended
June 30, 1999 over 1998. The greatest increases in net earned premiums occurred
in the life, dental, and LTD product lines. Life net earned premiums increased
$1.4 million, or 9.4%, and $2.5 million, or 8.5%, for the three and six month
periods ended June 30, 1999 over 1998. Dental net earned premiums increased $1.4
million, or 8.7%, and $3.0 million, or 9.1%, for the three and six month periods
ended June 30, 1999 over 1998. LTD net earned premiums increased $1.7 million,
or 16.6%, and $3.1 million, or 15.1%, for the three and six month periods ended
June 30, 1999 over 1998. These increases were the result of continued new sales
growth in excess of policy terminations. The increase in LTD net earned premiums
is also attributable to a decrease in reinsurance premiums which changed from
5.9% to 2.5% of direct LTD earned premiums effective April 1, 1999, as Guarantee
Life Insurance increased its retention limits.
EBD net benefits increased $2.2 million, or 6.0%, for the second quarter of
1999 over 1998 and $4.1 million, or 5.7%, for the six months ended June 30, 1999
over 1998. This increase is caused by higher premium volumes, particularly in
the life and LTD lines of business, offset by more favorable dental and LTD loss
ratios. The life loss ratio has increased slightly for the six months ended June
30, 1999 over 1998 due particularly to a greater number of large claims in 1999;
however, management does not believe there are significant trends associated
with this increase. Life net benefits increased $1.7 million, or 17.3%, and $2.0
million, or 9.8%, for the three and six month periods ended June 30, 1999 over
1998. LTD net benefits increased $0.7 million, or 9.2%, and $1.6 million, or
11.1%, for the three and six month periods ended June 30, 1999 over 1998. These
increases for the quarter ended June 30, 1999 were partially offset by a
decrease in dental net benefits of $0.3 million, or 2.2%, over second quarter
1998; however, dental net benefits increased $0.6 million, or 2.1%, for the six
month period ended June 30, 1999 over 1998.
EBD expenses decreased $0.4 million, or 2.4%, and $2.5 million, or 6.5%,
for the three and six month periods ended June 30, 1999 over 1998. This decrease
was due to continued improvement of operating unit expenses as a result of
technology, improved training, internal efforts to reduce expenses and avoid
costs, and a higher deferral of costs associated with the acquisition of new
business which will be amortized over the estimated life of the associated new
policies.
9
<PAGE>
Insurance Operations--Group Special Markets Division(GSM)
The following table sets forth the results of operations for Guarantee
Life's Group Special Markets Division for the three and six months ended June
30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $39,282 $28,496 $76,195 $53,701
Reinsurance premiums ........................................ (13,922) (15,635) (26,831) (29,164)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 25,360 12,861 49,364 24,537
Investment income, net....................................... 693 411 1,297 1,051
Realized investment gains(losses)............................ (63) (3) (63) 76
Ceding commissions........................................... 5,056 4,952 9,177 9,460
--------------- ------------ ------------ -----------
Total revenues.................................................... 31,046 18,221 59,775 35,124
Benefits and expenses:
Gross policyholder benefits.................................. 33,570 19,609 64,240 37,600
Recoveries from reinsurers .................................. (12,092) (12,719) (22,638) (23,736)
--------------- ------------ ------------ -----------
Net benefits................................................. 21,478 6,890 41,602 13,864
Acquisition costs and operating expenses..................... 8,411 8,830 18,249 17,120
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 29,889 15,720 59,851 30,984
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $1,157 $2,501 $(76) $4,140
=============== ============ ============ ===========
</TABLE>
GSM provides specialty medical products including excess loss insurance,
medical reimbursement insurance for business executives, and group non-medical
products typically sold in conjunction with the excess loss insurance.
GSM net results from continuing operations decreased $1.3 million, or
53.7%, for the quarter ended June 30, 1999 over 1998 and $4.2 million, or
101.8%, for the six months ended June 30, 1999 over 1998. The primary cause of
the decrease for the quarter is the combination of the lower premium volume for
the GSM life product line and slightly higher benefits and expenses for the same
product line as compared to second quarter 1998. The decrease for the six months
ended June 30, 1999 over 1998 is primarily attributable to higher loss ratios
for the excess loss product line, combined with the lower life premium volume.
Net results for the medical reimbursement product were consistent for the three
and six month periods ended June 30, 1999 as compared to the same periods in
1998.
Insurance Operations--Individual Division
The following table sets forth the results of operations for Guarantee
Life's Individual Division for the three and six months ended June 30, 1999 and
1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Insurance premiums........................................... $27,894 $22,241 $54,867 $41,373
Reinsurance premiums ........................................ (4,161) (3,532) (8,127) (6,587)
--------------- ------------ ------------ -----------
Net earned premiums.......................................... 23,733 18,709 46,740 34,786
Investment income, net....................................... 21,581 19,160 44,673 36,952
Realized investment gains(losses)............................ 81 962 359 740
Ceding commissions .......................................... 1,316 756 3,968 1,253
--------------- ------------ ------------ -----------
Total revenues.................................................... 46,711 39,587 95,740 73,731
Benefits and expenses:
Gross policyholder benefits.................................. 25,979 22,648 53,747 43,261
Recoveries from reinsurers .................................. (2,985) (2,427) (7,098) (4,269)
--------------- ------------ ------------ -----------
Net benefits................................................. 22,994 20,221 46,649 38,992
Acquisition costs and operating expenses..................... 12,686 11,272 28,404 21,296
Dividends to policyholders................................... 2,513 2,775 5,275 5,803
--------------- ------------ ------------ -----------
Total policyholder benefits and expenses.......................... 38,193 34,268 80,328 66,091
--------------- ------------ ------------ -----------
Income from continuing operations before income taxes............. $8,518 $5,319 $15,412 $7,640
=============== ============ ============ ===========
</TABLE>
10
<PAGE>
Effective May 31, 1998, The Guarantee Life Companies Inc. acquired
Westfield from Ohio Farmers Insurance Company. Westfield's results of operations
are included in Guarantee Life's consolidated results beginning June 1, 1998.
Net premiums and policyholder assessments increased $5.0 million, or 26.9%,
for the quarter ended June 30, 1999 over 1998 and $12.0 million, or 34.4%, for
the six months ended June 30, 1999 over 1998. The three and six month periods
ended June 30, 1998 contain only one month of results for Westfield (as
indicated above) due to the acquisition effective May 31, 1998. Therefore,
Westfield accounts for $4.1 million and $10.7 million of the increases in net
premiums and policyholder assessments for the three and six month periods ended
June 30, 1999 over 1998. The remaining increases for both the quarter and the
six months ended June 30, 1999 are a result of increased premium volumes for
Guarantee Life Insurance products.
Ceding commissions and other income increased $0.6 million, or 74.1%, and
$2.7 million, or 216.7%, for the three and six month periods ended June 30, 1999
over 1998. The increase for the six months ended June 30, 1999 over 1998 relates
primarily to a $1.75 million death benefit on a director's policy for which PFG
was the beneficiary. The increase for the quarter and the remaining increase for
the six months is the result of increased sales volume of Guarantee Life
Insurance and AGL term life products.
Individual net policyholder benefits increased $2.8 million, or 13.7%, for
the quarter ended June 30, 1999 over 1998 and $7.7 million, or 19.6%, for the
six months ended June 30, 1999 over 1998. This increase is due to the Westfield
acquisition which accounts for $3.7 million and $10.3 million of the increase
for the quarter and six months ended June 30, 1999 over 1998. These increases
are partially offset by a decrease of $0.4 and $1.9 million in claims at
Guarantee Life Insurance and a decrease of $0.5 and $0.7 million in claims at
AGL for the three and six month periods ended June 30, 1999, respectively.
Individual expenses increased $1.4 million, or 12.5%, and $7.1 million, or
33.3%, for the three and six month periods ended June 30, 1999 over 1998. This
increase relates partially to the increase in operating expenses for Westfield
of $2.1 million in the second quarter and $4.3 million for the first six months
of 1999 as compared to the one month included in 1998 results. Guarantee Life
Insurance Individual Division expenses decreased $1.2 million for the quarter
and increased $0.2 million for the six months ended June 30, 1999 over 1998. The
decrease for the quarter relates almost entirely to the allocation of Guarantee
Life Insurance corporate expenses. PFG expenses increased $0.5 million for the
quarter and $2.6 million for the six months ended June 30, 1999 over 1998. The
increases at PFG for both the quarter-to-date and year-to-date June 30, 1999
expenses over the same periods in 1998 are attributable to a write-off of
goodwill and allocation of management expenses from Guarantee Life Insurance.
Policyholder dividends decreased $0.3 million, or 9.4%, and $0.5 million,
or 9.1%, for the three and six month periods ended June 30, 1999 over 1998,
reflecting a reduced dividend scale.
Corporate Administration
The three business segments of Guarantee Life share a common need for
various services such as finance and accounting, investment management, agent
licensing and commissions, legal and compliance, and marketing. In an effort to
operate efficiently, these functions are consolidated in the area of corporate
administration ("Corporate"). Corporate's operations include the cost of these
services provided to all of Guarantee Life, as well as those services provided
to its shareholders.
Virtually all costs associated with providing the above services are
allocated to the segments and are reflected in their operating results, with the
exception of debt costs and the costs associated with shareholder services.
Revenues for Corporate consist almost entirely of investment income and realized
gains or losses.
The following table sets forth the results of operations of Corporate for
the three and six months ended June 30, 1999 and 1998 (in thousands).
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ----------------------
1999 1998 1999 1998
------------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Total revenues.................................................... $262 $(275) $591 $483
Gross policyholder benefits....................................... 1 1 1
Total expenses.................................................... 3,485 1,778 5,234 2,504
--------------- ------------ ------------ -----------
Income before taxes............................................... $(3,223) $(2,054) $(4,644) $(2,022)
=============== ============ ============ ===========
</TABLE>
Total expenses increased $1.7 million, or 96.0%, for the quarter ended June
30, 1999 over 1998 and $2.7 million, or 109.0%, for the six months ended June
30, 1999 over 1998. These increases are attributable primarily to the interest
expense associated with the outstanding debt, as $90.0 million was issued in
conjunction with the Westfield acquisition.
11
<PAGE>
Regulatory Issues
On June 3, 1999 Guarantee Life received notice from the Kansas City office
of the U.S. Department of Labor (the "Department") that it was conducting an
investigation with respect to employee benefit plans of Guarantee Life and its
clients pursuant to Section 504(a)(1) of the Employee Retirement Income Security
Act of 1974 ("ERISA"), to determine whether any person has violated or is about
to violate any provision of Title I of ERISA. Guarantee Life and certain of its
employee benefit plan clients are subject to ERISA in connection with, among
other things, certain policies sold by Guarantee Life's Employee Benefits and
Group Special Markets Divisions. The notice included subpoenas requesting that
certain documents and records be provided to the Department. Guarantee Life
intends to cooperate fully with the Department.
No claims or charges have been asserted against Guarantee Life as a result
of the investigation and the Department states that its investigation should not
be construed as an indication that any violations of ERISA have occurred or as a
reflection upon any persons involved. Management believes that Guarantee Life's
business practices comply in all material respects with ERISA and that the
investigation will not have a material adverse effect on its business, financial
condition, or results of operations.
Liquidity and Capital Resources
The Guarantee Life Companies Inc.'s ability to pay dividends to its
stockholders and meet its obligations, including debt service and operating
expenses, depends primarily upon receiving sufficient funds from its
subsidiaries. The payment of dividends by Guarantee Life Insurance, AGL (a
wholly owned subsidiary of PFG, Inc.), and Westfield are subject to restrictions
set forth in the insurance laws and regulations of Nebraska and Pennsylvania.
Under state law, Guarantee Life Insurance, AGL, and Westfield may pay, within a
twelve-month period, dividends only from the earned surplus arising from its
business and must receive the prior approval of the state departments to pay a
dividend if such dividend would exceed the greater of (i) 10% of statutory
capital and surplus as of the preceding year end and (ii) the net statutory gain
from operations for the previous calendar year. State law gives the Department
of Insurance broad discretion to disapprove requests for dividends in excess of
these limits.
In December 1998, the Board of Directors of Westfield declared and paid a
$20 million extraordinary distribution of excess capital to the Holding Company.
The State of Nebraska approved this transaction. In September 1998, AGL's Board
of Directors declared and paid a $2.4 million dividend to PFG, Inc. In 1999,
Guarantee Life insurance can declare a dividend of up to $12.5 million without
permission from the Nebraska Department of Insurance. AGL can declare a dividend
of up to $1.9 million without permission from the Pennsylvania Department of
Insurance. Westfield cannot declare a dividend in 1999 without permission from
the Nebraska Department of Insurance.
Guarantee Life increased its outstanding debt obligations by $1.25 million
to $115.0 million during the three months ended June 30, 1999. The total
obligation consists of $75.0 million under the Company's Senior Secured Term
Loan ("Term Loan") and $40.0 million under the Company's Revolving Credit
Facility.
Management believes that the current amortization of the Term Loan ($3.75
million per quarter) and a lack of significant and sustained improvement in
earnings, particularly in EBD, could create a liquidity constraint at the
Holding Company beyond 1999 unless other actions are taken. Such actions could
include, but are not limited to, the issuance of long-term debt securities,
reinsurance, or other financing alternatives. Management believes these sources
will provide sufficient liquidity for the Holding Company to meet its future
obligations.
Year 2000 Issues
Guarantee Life recognizes the significance and technological impact that
the Year 2000 (Y2K) challenge will have on organizations world-wide and has
established a comprehensive plan to achieve compliance. Our overall goal is to
ensure that we continue to provide quality products and services with no
interruption to our customers. Overall Y2K renovation and certification efforts
are nearly complete across the company. Any remaining open items are reviewed on
a weekly basis with senior management. We also continue to focus not only on our
internal systems, but also whether or not our key business partners, vendors,
and suppliers will be compliant in the next millennium.
While Y2K-related work had been in process much earlier, formal project
organization and impact assessment activities began in November 1996. A
separate, dedicated corporate team was put in place in March 1997 to lead our
compliance efforts and provide guidance and support to our specific Y2K projects
across the company. Using standard project methodology and management processes,
Guarantee Life is taking a phased approach towards Y2K compliance. Five major
phases have been identified for this effort: Impact Assessment, Infrastructure &
Methods, Renovation, Certification and Implementation.
12
<PAGE>
Impact Assessment
During the assessment phase, mission critical applications impacted were
identified and a high-level budget was developed and approved. The total cost of
Y2K compliance is estimated at approximately $2.9 million through 2000. This
represents approximately 7% of the total Information Technology (IT) budget over
this time period. The Y2K-related expenses incurred by year are as follows:
1997 $ 800,000
1998 $ 1,062,000
1999 (through 6/30) $ 312,000
Correction of the Y2K issues is a high priority project and other
lower-priority IT projects have been deferred due to Y2K efforts. However, the
company does not believe the deferral of other IT projects has had a material
effect on financial condition or results of operations. The Company's IT staff
has continued to work on other high priority projects concurrent with the Y2K
project.
Infrastructure
Progress of Guarantee Life's core information technology infrastructure and
application areas is measured for the mainframe, midrange and client/server
environments. Over 250 third party application packages and over 130 custom
applications and external interfaces have been inventoried and are being tracked
for compliance.
Renovation
IT Systems - A renovation strategy was defined for each of our mission
----------
critical applications. In some cases, it was decided to upgrade vendor supplied
software with Y2K-compliant releases. In other cases, decisions were made to
replace software altogether taking advantage of new functionality. For most
in-house developed applications, modifications are being made to ensure
compliance.
Several of our policy administration and claims processing applications
have either been renovated through vendor-supplied upgrades or replaced with
packages that we believe, based on our testing, are Y2K-compliant. Most of the
system replacements had been planned and were merely accelerated due to the Y2K
issues. In the Individual Division significant model office testing has been
conducted to ensure compliance and the updated systems have been put into
production successfully. We believe that all Y2K issues have been addressed and
completed with respect to all mission critical applications in EBD and GSM. The
existing mainframe administration and claims systems were renovated in 1998 for
contingency purposes. We will continue to perform quality assurance testing of
our key systems throughout 1999.
Our existing general ledger and accounts payable applications were replaced
in 1997 with a new vendor-supplied package that we believe, based on our
testing, is Y2K-compliant. Human Resource administration and payroll systems
were successfully upgraded in 1998. These systems and our vendor-supplied
Investment systems have been tested and are believed to be Y2K-compliant. Other
smaller, non-critical applications will either be renovated or replaced in 1999.
Less than ten of these applications remain to be addressed.
Each of our major operating platforms has been upgraded. A complete
inventory of data center hardware and software has been completed and assessed.
Test environments are in place on each platform. A separate network lab is
available for testing business software and end user computing applications.
Over 98% of the applications have been tested to date. In addition, our imaging
and fax software were upgraded successfully in April 1998. Three final mainframe
system software upgrades remain and are planned for completion in early August
1999. All home office workstations have been upgraded. Less than ten workstation
upgrades remain, all of which will be completed in the third quarter 1999.
PFG's core administrative systems were developed to accommodate a
four-digit year. The operating system software was upgraded in 1998. Key
application systems and infrastructure will continue to undergo further
certification testing in 1999. To-date, no Year 2000-related issues have been
uncovered through this testing. Final verification of all tests is expected to
be completed by August 1999. Other software/hardware components and business
partners' compliance status are currently being validated. It was discovered
that an upgrade of the voice mail system is needed and will be completed by
September 1999. Existing Westfield Life business is administered through a third
party administrator, who has indicated their primary system is Y2K-compliant.
New business is administered on the Guarantee Life Individual administrative
system at the home office, which was renovated in June 1998.
Non-IT Systems - All of our major suppliers and vendors providing services
--------------
related to our facilities have been contacted. Our telephone switch has been
tested and appears to be Y2K-compliant. The voice mail system was upgraded and
tested for Y2K compliance in May 1998. Call accounting software was also
upgraded in October 1998. Our elevators are not impacted by the year 2000. Our
security and climate control software applications passed rollover tests in
March 1999. We have contacted our telecommunications, gas, water and electric
13
<PAGE>
utility companies regarding their Y2K compliance status. They have all
communicated that their renovation efforts are in progress and will be completed
by the year 2000.
Certification
Recognizing that over fifty percent of the effort on Y2K projects is spent
in the testing phases, Guarantee Life is committed to ensuring that our
remediation efforts go through thorough unit, integration, regression and
end-to-end testing. A testing tool was purchased specifically for this effort.
To-date, rollover tests (i.e. changed the CPU date past 2000) have been
performed on our network servers, AS/400, mainframe and HP UNIX platforms. A
Y2K-specific rollover test was successfully conducted at our Business Recovery
test site in December 1998. Plans have been established to continue testing
business cycles using significant dates (e.g. 12/31/1999, 2/29/2000) on all of
our platforms in 1999.
Completing our Internal Remediation
Our Impact Assessment and Infrastructure & Methods phases are completed.
Ninety percent of the Renovation and Certification phases are complete.
Additional certification testing (e.g. of third-party providers' systems), final
workstation upgrades and final business partner risk assessment and contingency
planning is ongoing duing 1999.
Guarantee Life is actively monitoring the compliance programs of its key
business partners, vendors and suppliers. Over 345 business partners have been
inventoried and are being tracked for compliance. Significant progress was made
this past quarter in testing with our key business partners. There are several
tests remaining due to partner test schedules. All critical interface testing is
scheduled to be complete in the third quarter.
The team is particularly focusing on assessing any Y2K risk associated with our
key administrative and marketing arrangements. In particular, we continue to
work with a major third-party administrator to ensure that they have appropriate
plans.
Risks and Business Contingency Planning
Guarantee Life believes that its most reasonably likely worst case Y2K
scenario will include these elements: (1) one or more of Guarantee Life's
third-party providers will be unable to provide the services expected, and (2)
one or more parts of Guarantee Life's processing software will operate
incorrectly. At this time, we are unable to estimate the potential loss of
revenue due to such a scenario. Guarantee Life believes that its testing of its
critical hardware and software will reveal any significant Y2K problems, that
such problems will be capable of remediation, and that Guarantee Life's software
and hardware will perform substantially as planned when Year 2000 processing
begins.
Guarantee Life will continue to evaluate situations where indicators point
to a potential risk of failure. In these cases, contingency plans are being
developed to identify alternative strategies. We have leveraged our existing
business recovery plan to develop a Y2K-specific contingency plan, identifying
proactive measures and specific contingencies for the transition to the Year
2000. A Y2K Event Team has been established and a Command Center will be put in
place at the end of the year. Specific policies have been communicated across
the company regarding availability of support resources during this period. Our
Y2K contingency plan is expected to be finalized in August 1999. A "mock" Y2K
test will be held in October 1999 to validate these plans.
The foregoing Y2K discussion contains "forward-looking statements" within
the meaning of the Private Securities Litigation Reform Act of 1995. Such
statements, including without limitation, anticipated costs, the dates by which
Guarantee Life expects to substantially complete programming changes,
remediation and testing of systems and the impact of the redeployment of
existing staff, are based on management's best current estimates, which were
derived utilizing numerous assumptions about future events, including the
continued availability of certain resources, representations received from third
party service providers and other factors. However, there can be no guarantee
that these estimates will be achieved, and actual results could differ
materially from those anticipated. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in this area, the ability to identify and cover all
relevant computer systems, results of Y2K testing, adequate resolution of Y2K
issues by businesses or other third parties who are service providers,
suppliers, customers of Guarantee Life, unanticipated system costs, the need to
replace hardware, the adequacy of and ability to implement contingency plans and
similar uncertainties. The "forward-looking statements" made in the foregoing
Y2K discussion speak only as of the date on which such statements are made, and
Guarantee Life undertakes no obligation to update any forward-looking statement
to reflect events or circumstances after the date on which such statement is
made or to reflect the occurrence of unanticipated events.
14
<PAGE>
New Accounting Pronouncements
In June 1998, the FASB issued SFAS 133, "Accounting for Derivative
Instruments and Hedging Activities," which will be implemented on January 1,
2000, and included in Guarantee Life's December 31, 2000 financial statements.
SFAS 133 establishes accounting and reporting standards for derivative
instruments and hedging activities. It requires an entity to recognize all
derivatives as either assets or liabilities and measure them at fair value. The
accounting for changes in the fair value of a derivative will be determined by
the intended use of the derivative. Early implementation of SFAS 133 would have
resulted in an insignificant change in net income. In June 1999, the FASB issued
SFAS 137, deferring SFAS 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES OF MARKET RISK
There have been no material changes in reported market risks faced by
Guarantee Life since the end of the most recent fiscal year end.
PART 11 - OTHER INFORMATION
ITEMS 1, 2, 3, and 5 are either inapplicable or are answered in the
negative and are omitted pursuant to the instructions to Part II.
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 13, 1999. One matter was voted upon at the Annual Meeting and the
results are shown below.
Election of Directors. The following directors were re-elected:
---------------------
Withhold Authority
Director For to Vote for Nominee Term
-------- --- ------------------- ----
C. R. Bob Bell 5,793,878 147,186 3 years
Thomas T. Hacking 5,795,628 145,436 3 years
A. J. Scribante 5,789,336 151,728 3 years
Directors whose terms of office continued after the Annual Meeting:
Robert D. Bates
Theodore C. Cooley
Lee M. Gammill, Jr.
James M. McClymond
Bernard W. Reznicek
Janice D. Stoney
William F. Welsh II
Further information regarding the election of directors is contained in the
Company's proxy statement dated April 12, 1999.
ITEM 6 - EXHIBITS AND REPORT ON FORM 8-K
(a) The following exhibits are being filed pursuant to Item 6(a) of Form 10-Q.
10(w) Amendment to Employment Agreement of Robert D. Bates
10(x) Guarantee Life Insurance Company Deferred Compensation Plan, as
amended and restated effective as of December 1, 1996
10(y) Amendment to the Guarantee Life Insurance Company Deferred
Compensation Plan
10(z) Amendment No. 2 to the Guarantee Life Insurance Company Deferred
Compensation Plan
10(aa) Guarantee Life Insurance Company Board of Directors Deferred
Compensation Plan, as amended and restated effective as of
December 1, 1996
10(bb) Amendment to the Guarantee Life Insurance Company Board of
Directors Deferred Compensation Plan
10(cc) Amendment No. 2 to the Guarantee Life Insurance Company Phantom
Stock Plan
15
<PAGE>
10(dd) Amendment No. 6 to The Guarantee Life Companies Inc. Long-Term
Incentive Plan
10(ee) Amendment to The Guarantee Life Companies Inc. Executive
Severance Plan
10(ff) Stock Option Early Exercise Incentive Program
10(gg) Third Revised Exhibit A to The Guarantee Life Companies Inc.
and Guarantee Life Insurance Company Executive Severance Plan
27 Financial Data Schedule
------------------------------------------------------------------------
(b) Guarantee Life did not file any reports on Form 8-K during the quarter
ended June 30, 1999.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
THE GUARANTEE LIFE COMPANIES INC.
Date: August 11, 1999 /s/ WILLIAM L. BAUHARD
----------------------
William L. Bauhard
Senior Vice President and Chief Financial Officer
(Principal Financial Officer)
16
<PAGE>
Exhibit 10(w)
AMENDMENT TO
EMPLOYMENT AGREEMENT OF
ROBERT D. BATES
This Amendment is made and entered into this 25th day of May, 1999, by and
---- ---
between GUARANTEE LIFE INSURANCE COMPANY (the "Company") and ROBERT D. BATES
(the "Executive").
The Employment Agreement originally effective as of March 1, 1995, and
amended as of January 1, 1997, between the Company and the Executive is amended
as follows:
1. The following new paragraph shall be added at the end of Section 4.1,
Base Salary:
- -----------
In the event of a Change in Control of the Parent, Executive's Base
Salary for the year in which the Change in Control occurs automatically
shall be increased retroactively to the beginning of such year to the
contingent Base Salary, if any, previously approved by the Compensation
Committee to be paid upon the achievement of the plan earnings for the
year. Any increased Base Salary attributable to periods prior to the date
of the Change in Control shall be paid in a lump sum on the date of the
Change in Control.
2. Section 7.5 shall be amended by adding the following subsections (v)
and (vi):
(v) The relocation of the Executive's principal place of employment by
more than 50 miles from the Executive's then current principal place
of employment.
(vi) The material breach of any provision of this Agreement, which breach
is not cured within ten (10) calendar days of notice thereof to the
Company by the Executive.
3. Section 7.8 shall be added to read as follows:
7.8(a) Acceleration of Vesting on Options. Notwithstanding the
----------------------------------
provisions of the following agreements: Incentive Stock Option Agreement
dated as of December 26, 1995; Nonqualified Stock Option Agreement dated as
of December 26, 1995; Incentive Stock Option Agreement dated as of February
20, 1997; and Nonqualified Stock Option Agreement dated as of April 18,
1997, unless the Compensation Committee shall otherwise determine in the
manner set forth in Section 7.8(b), in the event of a Change in Control,
each Option granted to Executive under any of the foregoing agreements
(regardless of whether such Options are at such time otherwise exercisable)
shall be cancelled in exchange for
<PAGE>
a payment of cash of an amount equal to the excess, if any, of the then
Fair Market Value over the Option Price (all as defined in the 1994 Long-
Term Incentive Plan and the agreements with the Executive thereunder).
(b) Alternative Options. Notwithstanding Section 7.8(a), no
-------------------
cancellation, acceleration of exercisability, vesting or cash settlement or
other payment shall occur with respect to any Option if the Committee
reasonably determines in good faith prior to the occurrence of a Change in
Control that such option shall be honored or assumed, or new rights
substituted thereunder (such honored, assumed or substituted Option being
hereinafter referred to as an "Alternative Option"), provided that any such
Alternative Option must:
(i) provide Executive with rights and entitlements
substantially equivalent to or better than the rights, terms and
conditions applicable under such Option, including, but not limited
to, an identical or better exercise and vesting schedule and identical
or better timing and methods of payment;
(ii) have substantially equivalent economic value to such
Option (determined at the time of the Change in Control and valuing
the Options at their Fair Market Value less Option price); and
(iii) not affect any of Executive's other rights under the terms
of this Agreement.
An Alternative Option for stock which is not publicly traded shall be
deemed to not be of equivalent economic value.
(c) Restricted Stock and Performance Shares. Upon a Change in Control
---------------------------------------
of the Company, all restricted shares and performance shares issued to
Executive, including, but not limited to, shares issued under the Early
Exercise Program, the Matching Share Restricted Stock Award Program, and
the 1994 Long-Term Incentive Plan, shall be fully vested. Any restricted
shares or performance shares not fully vested prior to the Change in
Control shall be transferable in the same manner as other shares of the
Company immediately prior to any Change in Control so that they shall be
exchanged for or converted into shares of the acquiring company on the same
ratio as the Parent's shares were exchanged for or converted into shares of
the acquiring company in the Change in Control transaction. In the event
Executive's nonvested restricted shares or nonvested performance shares are
to be exchanged or converted into nonpublicly traded shares or interests in
a Change in Control transaction, or in the event of a cash acquisition of
the Company or the Parent, Executive shall be entitled to receive the Fair
Market Value of said restricted and performance shares in a lump sum in
cash on the date of the Change in Control. "Fair Market Value" shall have
the same meaning as under the 1994 Long-Term Incentive Plan.
2
<PAGE>
(d) Deferred Compensation and Phantom Stock Plans. The parties
---------------------------------------------
acknowledge that Executive is a participant in the Guarantee Life Insurance
Company Deferred Compensation Plan and the Guarantee Life Insurance Company
Phantom Stock Plan, as amended. Notwithstanding the provisions of Section 8
of the Deferred Compensation Plan and Section 6.07 of the Phantom Stock
Plan upon a Change in Control, if the substituted shares of any continued
plan are not publicly traded shares of equal value to the Parent's shares,
Executive's notional shares under said Plans shall become immediately
payable in cash in a lump sum equal to the Fair Market Value of the
Parent's shares on the date of the Change in Control.
4. Section 8.2 shall be amended to read as follows:
8.2. Remedies. The Executive hereby acknowledges and agrees that, in
--------
the event of any breach or anticipated breach of the covenants contained in
this Section 8, the Company shall be authorized and entitled to obtain from
any court of competent jurisdiction, preliminary and permanent injunctive
relief, as well as an equitable accounting of all profits and benefits
arising out of such violation. These rights and remedies shall be
cumulative, and in addition to any other rights and remedies to which the
Company may be entitled, including the right to damages, directly or
indirectly, sustained by the Company due to the breach or the potential
irreparable injury to the Company as a result of such breach. The Company
shall have the right to offset amounts due Executive against any damages
due the Company.
In the event that the Board of Directors, acting in good faith,
determines that a material breach exists of any or all of the covenants
contained in this Section 8, and the Executive does not cure such breach,
if susceptible of cure, to the satisfaction of the Board of Directors
within 10 days of notice of such breach from the Company, the Executive
will immediately forfeit all unpaid awards and severance benefits otherwise
payable hereunder, and will be further subject to additional injunctive and
pecuniary judgments as described above. This second paragraph of Section
8.2 shall not be applicable from and after the date of a Change in Control
of the Company.
If any court determines that the foregoing covenant, or any part
thereof, is unenforceable for any reason, the duration or scope or other
element of such provision, as the case may be, shall be reduced so that
such provision becomes enforceable and, in its reduced form, such provision
shall then be enforceable and shall be enforced.
5. The Guarantee Life Companies Inc. agrees to and is a party to the
Employment Agreement, and any amendments thereto, insofar as may be necessary to
make the Agreement and amendments binding upon it.
3
<PAGE>
6. In all other respects, the Employment Agreement shall remain in full
force and effect.
DATED this 25th day of May, 1999.
---- ---
THE GUARANTEE LIFE COMPANIES INC.
By /s/ Richard A. Spellman
----------------------------------
GUARANTEE LIFE INSURANCE COMPANY
By /s/ Richard A. Spellman
----------------------------------
/s/ Robert D. Bates
-------------------------------------
ROBERT D. BATES
4
<PAGE>
Exhibit 10(x)
GUARANTEE LIFE INSURANCE COMPANY
DEFERRED COMPENSATION PLAN
(As amended and restated effective as of December 1, 1996)
1. Purpose
-------
The Guarantee Life Insurance Company Deferred Compensation Plan (the
"Plan") is an unfunded deferred compensation arrangement established by
Guarantee Life Insurance Company (the "Company") to attract, retain and motivate
the best qualified management team by providing them with the opportunity to
defer receipt of incentive compensation and a portion of salary to some later
period and by providing them with the opportunity to obtain the economic
benefits of stock ownership on a tax-deferred basis.
2. Definitions
-----------
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings set forth below, it being understood that
masculine, feminine and neuter pronouns are used interchangeably, and that each
comprehends the others.
(a) "Account" shall mean an Individual's Interest Account and Stock
Account.
(b) "Applicable Interest Rate" shall mean for any period the rate of
interest payable to employees of the Company on a Guarantee Life Insurance
Company Individual Retirement Annuity for the then current year, as determined
by the Plan Administrator in its discretion.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" shall mean the common stock of the Parent, par
value $0.01 per share.
(f) "Company" shall mean Guarantee Life Insurance Company.
(g) "Fair Market Value" shall mean, on any date, the closing price of
a Share of Common Stock as reported for such day on the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"). In the event that
there are no Commn Stock transactions reported on such date, Fair Market Value
shall mean
<PAGE>
the closing price on the immediately preceding date on which Common Stock
transactions were so reported.
(h) "Interest Account" shall mean a memorandum account established to
record the deferral of certain compensation otherwise payable to an Individual
which shall be credited with a fixed return during the period of deferral.
(i) "Individual" shall mean a key management employee of the Company
selected by the Plan Administrator as eligible to participate in the Plan.
(j) "Parent" shall mean The Guarantee Life Companies Inc.
(k) "Plan" shall mean the Guarantee Life Insurance Company Deferred
Compensation Plan.
(l) "Plan Administrator" shall mean the Board or a duly appointed
committee of the Board consisting of two or more members, each of whom is not an
employee of the Company, the Parent or any of their subsidiaries.
(m) "Share" shall mean a share of Common Stock.
(n) "Stock Account" shall mean a memorandum account established to
record the deferral of certain compensation otherwise payable to an Individual
which shall be invested in notional Shares.
3. Administration
--------------
(a) Administration. This Plan shall be administered by the Plan
--------------
Administrator. The Plan Administrator may from time to time establish rules for
the administration of this Plan that are not inconsistent with the provisions of
this Plan. The Plan Administrator shall have full authority to interpret and
administer the Plan, to establish, amend and rescind rules for carrying out the
Plan and to take all other actions that it deems necessary or desirable for
administering the Plan.
(b) Finality of Determination. Each determination, interpretation or
-------------------------
other action made or taken by the Plan Administrator as to any questions arising
under this Plan, including questions of construction and interpretation, shall
be final, binding and conclusive upon all persons.
(c) Agents and Expenses. The Plan Administrator may appoint agents
-------------------
or employ legal counsel or consultants to assist in the administration of the
Plan. The cost of payment from this Plan and the expenses of administering the
Plan including, without limitation, expenses for the engagement of any counsel,
consultant or agent, shall be borne by the Company.
2
<PAGE>
(d) Tax Withholding. To the extent required by the law in effect at
---------------
the time payments are made, the Plan Administrator shall withhold from payments
made hereunder any taxes required to be withheld from an employee's wages for
the federal or any state or local government.
(e) Indemnification. No member or former member of the Board or any
---------------
committee designated by the Board to act as the Plan Administrator or an agent
designated pursuant to Section 3(c) shall be liable for any action or
determination made in good faith with regard to the Plan. To the maximum extent
permitted by applicable law, each member or former member of the Board or any
committee acting as the Plan Administrator or any designated agent shall be
indemnified and held harmless by the Company against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of a
claim with the approval of the Company) arising out of any act or omission to
act in connection with the Plan, unless arising out of such person's willful
misconduct.
4. Shares; Adjustment Upon Certain Events
--------------------------------------
Shares to be issued under the Plan may consist, in whole or in part,
of treasury Shares or authorized but unissued Shares not reserved for any other
purpose. The aggregate number of Shares that may be issued under the Plan shall
not exceed 600,000 Shares, except as provided in this Section. In the event of
any Share dividend or Share split, recapitalization, merger, consolidation,
combination, spin-off, distribution of assets to stockholders (other than
ordinary cash dividends), exchange of Shares, or other similar corporate change,
the aggregate number of Shares available shall be appropriately adjusted by the
Board and the Board's determination shall be conclusive, provided that any
-------------
fractional Shares resulting from any such adjustment shall be disregarded.
5. Deferred Compensation Program
-----------------------------
(a) Deferral Election. On or before December 31 of any given
-----------------
calendar year (or such earlier or later date as the Plan Administrator shall
determine), an Individual may, by written notice to the Secretary of the
Company, elect to defer:
(i) all or any part of an incentive award expected to be payable to
such Individual under the Company's Incentive Compensation Plan
in respect of services to be performed in the immediately
following calendar year, and/or
(ii) up to 50 percent of the salary which would otherwise be payable
with respect to services to be performed in the immediately
following calendar year.
Any person who shall become an Individual during the calendar year may elect,
not later than the 30th day after his or her employment commences, to defer
payment of all or any part of an incentive award which would otherwise be
payable in respect of services to be
3
<PAGE>
performed in such year and up to 50 percent of his or her salary for the portion
of such calendar year following such election. Any amounts payment of which is
deferred hereunder shall be credited, in whole or in part, to an Interest
Account or a Stock Account, as elected by the Individual.
(b) Form and Duration of Deferral Election. A deferral election shall be
--------------------------------------
made by written notice filed with the Secretary of the Company. The election
shall apply to the calendar year for which it is made and for all subsequent
calendar years, unless and until the Individual revokes or modifies such
election by written notice filed with the Secretary of the Company. Any such
revocation or modification of a deferral election shall become effective as of
the end of the calendar year in which such notice is given and only with respect
to an incentive award payable thereafter and any salary payable for services
thereafter. Amounts credited to the Individual's Accounts prior to the
effective date of any such revocation or modification of a deferral election
shall not be affected by such revocation or modification and shall be
distributed only in accordance with the otherwise applicable terms of the Plan.
An Individual who has revoked an election to participate in the Plan may file a
new election to defer compensation in accordance with the provisions of Section
5(a).
(c) Investment Elections for Deferred Amounts. At the time an Individual
-----------------------------------------
elects to defer receipt of an incentive award and/or salary pursuant to Section
5(a), the Individual shall designate in writing the portion of such award and/or
salary, stated as a whole percentage, to be credited to the Interest Account and
the portion to be credited to the Stock Account. If an Individual fails to
notify the Secretary as to how to allocate any compensation between the two
Accounts, 100 percent of such compensation shall be credited to the Interest
Account. By written notice to the Secretary of the Company, an Individual may
change the manner in which an incentive award payable after the end of such
calendar year or any salary payable with respect to services to be rendered
after the end of such calendar year are allocated among the Accounts.
Notwithstanding the foregoing, all amounts credited under the Plan in respect of
periods prior to January 1, 1997, shall be credited to the Interest Account.
(d) Interest Account. Any compensation allocated to the Interest Account
----------------
pursuant to this Section 5 shall be credited to the Interest Account as of the
date such compensation would have been paid to the Individual. Any amounts
credited to the Interest Account shall be credited with interest on the last day
of each month in which there is an account balance. The amount to be credited
as interest shall be equal to the product of such amounts and the Applicable
Interest Rate.
(e) Stock Account. Any compensation allocated to the Stock Account
-------------
pursuant to this Section 5 shall be deemed to be invested in a number of
notional Shares of the Parent (the "Units") equal to the quotient of (i) such
compensation divided by (ii) the Fair Market Value on the date the compensation
then being allocated to the Stock Account would otherwise have been paid.
Fractional Units shall be credited, but shall be rounded to the nearest
hundredth percentile, with amounts equal to or greater than .005 rounded up and
amounts less than .005 rounded down. Whenever a dividend other than a
4
<PAGE>
dividend payable in the form of Shares is declared with respect to the Shares,
the number of Units in the Individual's Stock Account shall be increased by the
number of Units determined by dividing (i) the product of (A) the number of
Units in the Individual's Stock Account on the related dividend record date and
(B) the amount of any cash dividend declared on a Share (or, in the case of any
dividend distributable in property other than the Shares, the per share value of
such dividend, as determined for purposes of income tax reporting) by (ii) the
Fair Market Value on the related dividend payment date. In the case of any
dividend declared on Shares which is payable in Shares, the Individual's Stock
Account shall be increased by the number of Units equal to the product of (i)
the number of Units credited to the Individual's Stock Account on the related
dividend record date and (ii) the number of Shares (including any fraction
thereof) distributable as a dividend on a Share. In the event of any change in
the number or kind of outstanding Shares by reason of any recapitalization,
reorganization, merger, consolidation, stock split or any similar change
affecting the Shares, other than a stock dividend as provided above, the Plan
Administrator shall make an appropriate adjustment in the number of Units
credited to the Individual's Stock Account.
(f) Transfer Between Accounts. Notwithstanding anything else contained in
-------------------------
the Plan to the contrary, effective as of the first business day in January in
each calendar year after 1996, an Individual may, by an election filed with the
Secretary on or before the immediately preceding December 31, transfer all or
any portion of the amount credited as of the date of such transfer from the
Interest Account to the Stock Account. Any such transfer to the Stock Account
shall be effected based on the Fair Market Value of a Share on the effective
date of such transfer.
(g) Distribution from Accounts. At the time an Individual makes a
--------------------------
deferral election pursuant to Section 5(b), the Individual shall also file with
the Secretary of the Company a written election (a "Distribution Election") with
respect to whether such distribution shall be in one lump sum payment or in such
number of equal semi-annual or annual installments (not to exceed fifteen) as
the Individual may designate, provided that, any distribution made on account of
-------------
an Individual's termination of employment other than for Normal or Early
retirement (as defined in Section 5(h) below) shall be made in a lump sum, and
provided further that, if an Individual dies prior to the payment of all or a
- ---------------------
portion of any amount payable under the Plan, the balance of the amount shall be
payable in a lump sum to the beneficiaries designated under Section 6 hereof.
Subject to the limitations contained in the immediately preceding sentence, an
Individual may at any time, and from time to time, change any Distribution
Election applicable to his or her Accounts, provided that no election to change
-------------
the timing of any distribution shall be effective unless it is made in writing
and received by the Secretary of the Company at least one full calendar year
prior to the earliest occurrence of one of the events described in Section 5(h)
below. All distributions in respect of the amounts credited to the Individual's
Stock Account shall be made in Shares, except that any fractional Unit shall be
paid in cash. All distributions in respect of the Interest Account shall be paid
in cash.
5
<PAGE>
(h) Payment of Plan Distributions. Unless the Plan Administrator, in its
-----------------------------
sole discretion, determines that distributions shall commence at a later date,
any distribution to be made hereunder, whether in the form of a lump sum payment
or installments, shall commence within 90 days after the earliest to occur of
the following
6
<PAGE>
events: (i) the Individual's retirement at age 65 ("Normal Retirement"); (ii)
the Individual's retirement at age 55 with 10 years of service ("Early
Retirement"); (iii) the Individual's termination of employment; or (iv) the
Individual's death. If an Individual fails to specify in accordance with Section
5(g) that a distribution shall be made in a lump sum payment or a number of
installments, such distribution shall be made in a lump sum payment. In the
case of any distribution being made in annual installments, each installment
after the first installment shall be paid on the first business day of each
subsequent calendar year until the entire amount subject to such installment
Distribution Election shall have been paid. The amount of any such installment
payment shall be equal to the value of the Individual's Account immediately
prior to such installment payment, multiplied by a fraction, the numerator of
which is one (a) and the denominator of which is the number of installments
(including the current installment) remaining to be paid.
6. Beneficiary
-----------
(a) Designation of Beneficiary. The Individual shall designate a
--------------------------
beneficiary or beneficiaries who, upon the Individual's death, are to receive
the amounts that otherwise would have been paid to the Individual. The
designation shall be effective only if and when delivered to the Secretary of
the Company during the lifetime of the Individual. The Individual may also
change his or her beneficiary or beneficiaries by a signed, written instrument
delivered to the Secretary of the Company. The payment of deferred amounts
shall be in accordance with the last unrevoked written designation of
beneficiary that has been signed and received by the Secretary of the Company
prior to the Individual's death.
(b) Death of Beneficiary. In the event that all of the beneficiaries
--------------------
named in Section 6(a) predecease the Individual, the amounts that otherwise
would have been paid to the Individual shall be paid to the Individual's estate,
and in such event the term "beneficiary" shall include his or her estate.
(c) Ineffective Designation. In the event the Individual does not
-----------------------
designate a beneficiary, or if for any reason such designation is ineffective in
whole or in part, the amounts that otherwise would have been paid to the
Individual shall be paid to the Individual's estate, and in such event the term
"beneficiary" shall include his or her estate.
7. Nontransferability
------------------
In no event shall the Company make any payment under this Plan to any
assignee or creditor of the Individual or his or her beneficiary. Prior to the
time of a payment hereunder, the Individual or his or her beneficiary shall have
no right by way of anticipation or otherwise to assign or otherwise dispose of
any interest under this Plan, nor shall rights be assigned or transferred by
operation of law.
7
<PAGE>
8. Merger, Consolidations or Acquisition
-------------------------------------
In the event of a merger, consolidation or acquisition of the Company
or the Parent where the Company or the Parent is not the surviving corporation
after the reorganization, the Individual's Interest Account and Stock Account
shall become immediately payable in full in a lump sum, subject only to tax
withholding requirements, unless the surviving corporation shall elect to
continue and carry on the Plan.
9. Amendment and Termination
-------------------------
The Company expects the Plan to be permanent but does hereby reserve
the right to amend, modify or terminate the Plan at any time by action of the
Board; provided that no termination, amendment or modification of the Plan may,
-------------
without the consent of an Individual, alter or impair the rights and obligations
arising with respect to any amount then credited to an Individual's Accounts.
10. General Provisions
------------------
(a) No Right to Specific Assets. Nothing contained in the Plan and
---------------------------
no action taken pursuant to the Plan shall create or be construed to create a
trust of any kind or any fiduciary relationship between the Company and any
Participant, the executor, administrator or other personal representative or
designated beneficiary of such Individual, or any other persons. To the extent
that any Individual or his or her executor, administrator, or other personal
representative, as the case may be, acquires a right to receive any payment from
the Company pursuant to the Plan, such right shall be no greater than the right
of an unsecured creditor of the Company.
(b) Rights as a Shareholder. An Individual shall have no rights as a
-----------------------
shareholder with respect to any Shares until he or she shall have become the
holder of record of such Shares.
(c) Non-Exclusivity. The adoption of the Plan by the Board shall not
---------------
be construed as creating any limitations on the power of the Board to adopt such
other incentive arrangements as it may deem desirable, including, without
limitation, the granting or issuance of stock options, Shares and/or other
incentives otherwise than under the Plan, and such arrangements may be either
generally applicable or applicable only in specific instances.
(d) Issuance of Stock Certificates; Legends; Listing. Upon the
------------------------------------------------
issuance of Shares in accordance with the terms hereof, a certificate or
certificates for the Shares shall be issued in the name of the person or persons
receiving such Shares and shall be delivered to or upon the order of such person
or persons. Certificates for Shares shall bear such legend or legends as the
Board, in its discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the
8
<PAGE>
registration requirements of the Securities Act, or to implement the provisions
of any agreements between the Company and the Individual with respect to such
Shares. If at any time the Board shall determine in its discretion that the
listing, registration or qualification of the Shares covered by the Plan upon
any national securities exchange or under any state or federal law, or the
consent or approval of any governmental regulatory body, is necessary or
desirable as a condition of, or in connection with, the sale of Shares under the
Plan, no Shares will be delivered unless and until such listing, registration,
qualification, consent or approval shall have been effected or obtained, or
otherwise provided for, free of any conditions not acceptable to the Board.
(e) Severabililty of Provisions. If any provision of the Plan shall be
---------------------------
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provision had not been included.
(f) Headings and Captions. The headings and captions herein are provided
---------------------
for reference and convenience only, shall not be considered part of the Plan,
and shall not be employed in the construction of the Plan.
(g) Controlling Law. The Plan shall be construed and enforced according
---------------
to the laws of the State of Nebraska.
Executed at Omaha, Nebraska, this
12th day of December, 1996.
GUARANTEE LIFE INSURANCE COMPANY
By: Mary G. Rahal
-------------
Its: Senior Vice President
---------------------
9
<PAGE>
Exhibit 10(y)
AMENDMENT TO THE
GUARANTEE LIFE INSURANCE COMPANY
DEFERRED COMPENSATION PLAN
Section 2(n) of the Plan shall be amended effective January 1, 1997, to
read as follows:
"Stock Account" shall mean a memorandum account established to record
-------------
the deferral of certain compensation otherwise payable to an Individual,
including amounts transferred from the Guarantee Life Insurance Company
Phantom Stock Plan, which shall be invested in notional shares.
Dated this 13th day of October, 1997.
----
GUARANTEE LIFE INSURANCE COMPANY
By /s/ Mary G. Rahal
------------------------------
Approved by the Compensation Committee October 13, 1997.
<PAGE>
Exhibit 10(z)
AMENDMENT NO. 2 TO THE
GUARANTEE LIFE INSURANCE COMPANY
DEFERRED COMPENSATION PLAN
The Plan, as amended and restated, shall be amended as follows:
1. Section 2(g) shall be amended to read as follows:
(g) "Fair Market Value" shall mean, on any date, the closing price of
a Share of Common Stock as reported for such day on the National
Association of Securities Dealers Automation Quotation System (NASDAQ") or
the national securities exchange on which the shares of Common Stock are
traded. In the event there are no Common Stock transactions on such date,
Fair Market Value shall mean the closing price on the immediately preceding
date on which the Common Stock transactions were reported. Notwithstanding
the foregoing, in the event the Parent or Company is required to cash out
an individual's Stock Account pursuant to Section 8 of the Plan, or the
terms of the Parent's Executive Severance Plan, Fair Market Value shall not
be less than the per share amount paid or exchanged for shares of the
Parent in the Change in Control transaction.
2. Section 5(f) shall be amended to read as follows:
(f) Transfer Between Accounts. Notwithstanding anything else contained
-------------------------
in the Plan to the contrary, effective as of the first business day in
January in each calendar year after 1996, an Individual may, by an election
filed with the Secretary on or before the immediately preceding December
31, transfer all or any portion of the amount credited as of the date of
such transfer from the Interest Account to the Stock Account. Any such
transfer to the Stock Account shall be effected based on the Fair Market
Value of a Share on the effective date of such transfer. In the event of
any Change in Control (as defined in the Parent's Executive Severance
Plan), an Individual may elect within thirty (30) days of such Change in
Control to transfer all or any portion of the amount credited as of the
date of such transfer from the Stock Account to the Interest Account. Any
such transfer from the Stock Account shall be effected based on the Fair
Market Value of a Share on the date of the Change in Control.
3. Section 8 shall be amended to read as follows:
8. Change in Control. In the event of a Change in Control (as defined
-----------------
in the Parent's Executive Severance Plan), the Individual's Stock Account
shall become immediately payable in full in a lump sum equal to the Fair
Market Value of the notional shares in the Individual's Stock Account on
the date of the Change in Control, subject only to the tax withholding
requirements, unless the
<PAGE>
corporation in control after the transaction ("New Parent") elects to
continue and carry on the Plan. If the New Parent elects to carry on the
Plan, notional publicly traded shares of Common Stock of the New Parent (or
equivalent shares if not publicly traded) shall be substituted for the
Shares of Common Stock of the Parent in the Individual's Stock Account.
4. In all other respects, the Plan shall remain in full force and effect.
This Amendment shall be effective May 1, 1999.
DATED this 13th day of May, 1999.
---- ---
GUARANTEE LIFE INSURANCE COMPANY
By /s/ R. D. Bates
------------------------------
President
2
<PAGE>
Exhibit 10(aa)
GUARANTEE LIFE INSURANCE COMPANY
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
(As amended and restated effective as of December 1, 1996)
1. Purpose
-------
The Guarantee Life Insurance Company Board of Directors Deferred
Compensation Plan (the "Plan") is an unfunded deferred compensation arrangement
established by Guarantee Life Insurance Company (the "Company") to attract,
retain and motivate the best qualified directors by providing them with the
opportunity to defer receipt of fees earned to some later period and by
providing them with the opportunity to obtain the benefits of stock ownership on
a tax-deferred basis.
2. Definitions
-----------
Unless the context requires otherwise, the following words as used in
the Plan shall have the meanings set forth below, it being understood that
masculine, feminine and neuter pronouns are used interchangeably, and that each
comprehends the others.
(a) "Account" shall mean an Individual's Stock Account.
(b) "Board" shall mean the Board of Directors of the Company.
(c) "Cash Fees" shall mean the amount of any fees that would, absent
an election pursuant to the Plan, be payable by the Company in cash to an
Individual for any services performed by the Individual as a director.
(d) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(e) "Common Stock" shall mean the common stock of the Parent, par
value $0.01 per share.
(f) "Company" shall mean Guarantee Life Insurance Company.
(g) "Fair Market Value" shall mean, on any date, the closing price of
a Share of Common Stock as reported for such day on the National Association of
Securities Dealers Automatic Quotation System ("NASDAQ"). In the event that
there are no Common Stock transactions reported on such date, Fair Market Value
shall mean
<PAGE>
the closing price on the immediately preceding date on which Common Stock
transactions were so reported.
(h) "Individual" shall mean a director of the Company who is not an
officer or employee of the Company or any of its affiliates.
(i) "Parent" shall mean The Guarantee Life Companies Inc.
(j) "Plan" shall mean the Guarantee Life Insurance Company Board of
Directors Deferred Compensation Plan.
(k) "Plan Administrator" shall mean the Board or a duly appointed
committee of the Board consisting of two or more members, each of whom is not an
employee of the Company, the Parent or any of their subsidiaries.
(l) "Share" shall mean a share of Common Stock.
(m) "Stock Account" shall mean a memorandum account established to
record the deferral of Cash Fees otherwise payable to an Individual which shall
be invested in notional Shares.
3. Administration
--------------
(a) Administration. This Plan shall be administered by the Plan
--------------
Administrator. The Plan Administrator may from time to time establish rules for
the administration of this Plan that are not inconsistent with the provisions of
this Plan. The Plan Administrator shall have full authority to interpret and
administer the Plan, to establish, amend and rescind rules for carrying out the
Plan and to take all other actions that it deems necessary or desirable for
administering the Plan.
(b) Finality of Determination. Each determination, interpretation or
-------------------------
other action made or taken by the Plan Administrator as to any questions arising
under this Plan, including questions of construction and interpretation, shall
be final, binding and conclusive upon all persons.
(c) Agents and Expenses. The Plan Administrator may appoint agents or
-------------------
employ legal counsel or consultants to assist in the administration of the Plan.
The cost of payment from this Plan and the expenses of administering the Plan
including, without limitation, expenses for the engagement of any counsel,
consultant or agent, shall be borne by the Company.
(d) Indemnification. No member or former member of the Board or any
---------------
committee designated by the Board to act as the Plan Administrator or an agent
designated pursuant to Section 3(c) shall be liable for any action or
determination made in good faith with regard to the Plan. To the maximum extent
permitted by applicable law, each member or former member of the Board or any
committee acting as the Plan
2
<PAGE>
Administrator or any designated agent shall be indemnified and held harmless by
the Company against any cost or expense (including counsel fees) or liability
(including any sum paid in settlement of a claim with the approval of the
Company) arising out of any act or omission to act in connection with the Plan,
unless arising out of such person's willful misconduct.
4. Shares; Adjustment Upon Certain Events
--------------------------------------
Shares to be issued under the Plan may consist, in whole or in part,
of treasury shares or authorized but unissued Shares not reserved for any other
purpose. The aggregate number of Shares that may be issued under the Plan shall
not exceed 200,000 Shares, except as provided in this Section. In the event of
any Share dividend or Share split, recapitalization, merger, consolidation,
combination, spin-off, distribution of assets to shareholders (other than
ordinary cash dividends), exchange of Shares, or other similar corporate change,
the aggregate number of Shares available shall be appropriately adjusted by the
Board and the Board's determination shall be conclusive, provided that any
-------------
fractional Shares resulting from any such adjustment shall be disregarded.
5. Deferred Compensation Program
-----------------------------
(a) Deferral Election. On or before December 31 of any given calendar
-----------------
year (or such earlier or later date as the Plan Administrator shall determine),
an Individual may, by written notice to the Secretary of the Company, elect to
defer all or any part of any Cash Fees payable in respect of the calendar year
following the year in which such election is made. Any person who shall become
an Individual during the calendar year may elect, not later than the 30th day
after his or her service as a director commences, to defer payment of all or any
part of his or her Cash Fees payable for the portion of such calendar year
following such election. Any amounts, payment of which is deferred hereunder,
shall be credited to a Stock Account.
(b) Form and Duration of Deferral Election. A deferral election shall
--------------------------------------
be made by written notice filed with the Secretary of the Company. The election
shall apply to the calendar year for which it is made and for all subsequent
calendar years, unless and until the Individual revokes or modifies such
election by written notice filed with the Secretary of the Company. Any such
revocation or modification of a deferral election shall become effective as of
the end of the calendar year in which such notice is given and only with respect
to Cash Fees payable for services rendered thereafter. Amounts credited to the
Individual's Account prior to the effective date of any such revocation or
modification of a deferral election shall not be affected by such revocation or
modification and shall be distributed only in accordance with the otherwise
applicable terms of the Plan. An Individual who has revoked an election to
participate in the Plan may file a new election to defer Cash Fees in accordance
with the provisions of Section 5(a).
3
<PAGE>
(c) Stock Account. Any Cash Fees deferred to a Stock Account pursuant
-------------
to this Section 5 shall be deemed to be invested in a number of notional Shares
(the "Units") equal to the quotient of (i) such Cash Fees divided by (ii) the
Fair Market Value on the date the compensation then being allocated to the Stock
Account would otherwise have been paid. Fractional Units shall be credited, but
shall be rounded to the nearest hundredth percentile, with amounts equal to or
greater than .005 rounded up and amounts less than .005 rounded down. Whenever a
dividend other than a dividend payable in the form of Shares is declared with
respect to the Shares, the number of Units in the Individual's Stock Account
shall be increased by the number of Units determined by dividing (i) the product
of (A) the number of Units in the Individual's Stock Account on the related
dividend record date and (B) the amount of any cash dividend declared on a Share
(or, in the case of any dividend distributable in property other than the
Shares, the per share value of such dividend, as determined for purposes of
income tax reporting) by (ii) the Fair Market Value on the related dividend
payment date. In the case of any dividend declared on Shares which is payable in
Shares, the Individual's Stock Account shall be increased by the number of Units
equal to the product of (i) the number of Units credited to the Individual's
Stock Account on the related dividend record date and (ii) the number of Shares
(including any fraction thereof) distributable as a dividend on a Share. In the
event of any change in the number or kind of outstanding Shares by reason of any
recapitalization, reorganization, merger, consolidation, stock split or any
similar change affecting the Shares, other than a stock dividend as provided
above, the Plan Administrator shall make an appropriate adjustment in the number
of Units credited to the Individual's Stock Account.
(d) Distribution from Stock Account. At the time an Individual makes
-------------------------------
a deferral election pursuant to Section 5(b), the Individual shall also file
with the Secretary of the Company a written election (a "Distribution Election")
with respect to whether such distribution shall be in one lump sum payment or in
such number of equal semi-annual or annual installments (not to exceed five) as
the Individual may designate, provided that, if an Individual dies prior to the
-------------
payment of all or a portion of any amount payable under the Plan, the balance of
the amount shall be payable in a lump sum to the beneficiaries designated under
Section 6 hereof. An Individual may at any time, and from time to time, change
any Distribution Election applicable to his or her Account, provided that, no
-------------
election to change the timing of any distribution shall be effective unless it
is made in writing and received by the Secretary of the Company at least one
full calendar year prior to the date the Individual ceases to be a director. All
distributions in respect of the amounts credited to the Individual's Stock
Account shall be made in Shares, except that a fractional Unit shall be paid in
cash.
(e) Payment of Plan Distributions. Any distribution to be made
-----------------------------
hereunder, whether in the form of a lump sum payment or installments, shall
commence within 90 days after the Individual ceases to be a director. If an
Individual fails to specify in accordance with Section 5(d) that a distribution
shall be made in a lump sum payment
4
<PAGE>
or a number of installments, such distribution shall be made in a lump sum
payment. In the case of any distribution being made in annual installments, each
installment after the first installment shall be paid on the first business day
of each subsequent calendar year until the entire amount subject to such
installment Distribution Election shall have been paid. The amount of any such
installment payment shall be equal to the value of the Individual's Account
immediately prior to such installment payment, multiplied by a fraction, the
numerator of which is one (1) and the denominator of which is the number of
installments (including the current installment) remaining to be paid.
6. Beneficiary
-----------
(a) Designation of Beneficiary. The Individual shall designate a
--------------------------
beneficiary or beneficiaries who, upon the Individual's death, are to receive
the amounts that otherwise would have been paid to the Individual. The
designation shall be effective only if and when delivered to the Secretary of
the Company during the lifetime of the Individual. The Individual may also
change his or her beneficiary or beneficiaries by a signed, written instrument
delivered to the Secretary of the Company. The payment of deferred amounts shall
be in accordance with the last unrevoked written designation of beneficiary that
has been signed and received by the Secretary of the Company prior to the
Individual's death.
(b) Death of Beneficiary. In the event that all of the beneficiaries
--------------------
named in Section 6(a) predecease the Individual, the amounts that otherwise
would have been paid to the Individual shall be paid to the Individual's estate,
and in such event the term "beneficiary" shall include his or her estate.
(c) Ineffective Designation. In the event the Individual does not
-----------------------
designate a beneficiary, or if for any reason such designation is ineffective in
whole or in part, the amounts that otherwise would have been paid to the
Individual shall be paid to the Individual's estate, and in such event the term
"beneficiary" shall include his or her estate.
7. Nontransferability
------------------
In no event shall the Company make any payment under this Plan to any
assignee or creditor of the Individual or his or her beneficiary. Prior to the
time of a payment hereunder, the Individual or his or her beneficiary shall have
no right by way of anticipation or otherwise to assign or otherwise dispose of
any interest under this Plan, nor shall rights be assigned or transferred by
operation of law.
8. Merger, Consolidations or Acquisition
-------------------------------------
In the event of a merger, consolidation or acquisition of the Company
or the Parent where the Company or the Parent is not the surviving corporation
after the reorganization, the Individual's Stock Account shall become
immediately payable in full
5
<PAGE>
in a lump sum, subject only to tax withholding requirements, unless the
surviving corporation shall elect to continue and carry on the Plan.
9. Amendment and Termination
-------------------------
The Company expects the Plan to be permanent but does hereby reserve
the right to amend, modify or terminate the Plan at any time by action of the
Board provided that no termination, amendment or modification of the Plan may,
-------------
without the consent of an Individual, alter or impair the rights and obligations
arising with respect to any amount then credited to an Individual's Account.
10. General Provisions
------------------
(a) No Right to Specific Assets. Nothing contained in the Plan and no
---------------------------
action taken pursuant to the Plan shall create or be construed to create a trust
of any kind or any fiduciary relationship between the Company and any
Participant, the executor, administrator or other personal representative or
designated beneficiary of such Individual, or any other persons. To the extent
that any Individual or his or her executor, administrator, or other personal
representative, as the case may be, acquires a right to receive any payment from
the Company pursuant to the Plan, such right shall be no greater than the right
of an unsecured general creditor of the Company.
(b) Rights as a Shareholder. An Individual shall have no rights as a
-----------------------
shareholder with respect to any Shares until he or she shall have become the
holder of record of such Shares.
(c) Issuance of Stock Certificates; Legends; Listing. Upon the
------------------------------------------------
issuance of Shares in accordance with the terms hereof, a certificate or
certificates for the Shares shall be issued in the name of the person or persons
receiving such Shares and shall be delivered to or upon the order of such person
or persons. Certificates for Shares shall bear such legend or legends as the
Board, in its discretion, determines to be necessary or appropriate to prevent a
violation of, or to perfect an exemption from, the registration requirements of
the Securities Act, or to implement the provisions of any agreements between the
Company and the Individual with respect to such Shares. If at any time the Board
shall determine in its discretion that the listing, registration or
qualification of the Shares covered by the Plan upon any national securities
exchange or under any state or federal law, or the consent or approval of any
governmental regulatory body, is necessary or desirable as a condition of, or in
connection with, the sale of Shares under the Plan, no Shares will be delivered
unless and until such listing, registration, qualification, consent or approval
shall have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board.
(d) Severabililty of Provisions. If any provision of the Plan shall
---------------------------
be held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions hereof, and the Plan shall be construed and enforced
as if such provision had not been included.
6
<PAGE>
(e) Headings and Captions. The headings and captions herein are
---------------------
provided for reference and convenience only, shall not be considered part of the
Plan, and shall not be employed in the construction of the Plan.
(f) Controlling Law. The Plan shall be construed and enforced
---------------
according to the laws of the State of Nebraska.
Executed at Omaha, Nebraska, this
12th day of December, 1996.
- ---- --------
GUARANTEE LIFE INSURANCE COMPANY
By: /s/ Mary G. Rahal
-----------------
Its: Senior Vice President
---------------------
7
<PAGE>
Exhibit 10(bb)
AMENDMENT TO THE
GUARANTEE LIFE INSURANCE COMPANY
BOARD OF DIRECTORS
DEFERRED COMPENSATION PLAN
The Plan, as amended and restated, shall be amended as follows:
1. Section 2(g) shall be amended to read as follows:
(g) "Fair Market Value" shall mean, on any date, the closing price of
a Share of Common Stock as reported for such day on the National
Association of Securities Dealers Automation Quotation System (NASDAQ") or
the national securities exchange on which the shares of Common Stock are
traded. In the event there are no Common Stock transactions on such date,
Fair Market Value shall mean the closing price on the immediately preceding
date on which the Common Stock transactions were reported. Notwithstanding
the foregoing, in the event the Parent or Company is required to cash out
an individual's Stock Account pursuant to Section 8 of the Plan, Fair
Market Value shall not be less than the per share amount paid or exchanged
for shares of the Parent in the Change in Control transaction.
2. Section 8 shall be amended to read as follows:
8. Change in Control. In the event of a Change in Control (as
-----------------
defined in the Parent's Executive Severance Plan), the Individual's Stock
Account shall become immediately payable in full in a lump sum equal to the
Fair Market Value of the notional shares in the Individual's Stock Account
on the date of the Change in Control, subject only to the tax withholding
requirements, unless the corporation in control after the transaction ("New
Parent") elects to continue and carry on the Plan. If the New Parent elects
to carry on the Plan, notional publicly traded shares of Common Stock of
the New Parent (or equivalent shares if not publicly traded) shall be
substituted for the Shares of Common Stock of the Parent in the
Individual's Stock Account.
3. In all other respects, the Plan shall remain in full force and effect.
This Amendment shall be effective May 1, 1999.
DATED this 13th day of May, 1999.
---- ---
GUARANTEE LIFE INSURANCE COMPANY
By /s/ R. D. Bates
---------------------------------
President
<PAGE>
Exhibit 10(cc)
AMENDMENT NO. 2 TO THE
GUARANTEE LIFE INSURANCE COMPANY
PHANTOM STOCK PLAN
The Plan, as amended and restated, shall be amended as follows:
1. Section 6.04 shall be amended to read as follows:
Section 6.04. Valuation. The value of a Participant's Phantom Shares
------------
as of any date shall equal the closing price of a Share of Common Stock as
reported for such day on the National Association of Securities Dealers
Automation Quotation System (NASDAQ") or the national securities exchange
on which the shares of Common Stock are traded. In the event there are no
Common Stock transactions on such date, Fair Market Value shall mean the
closing price on the immediately preceding date on which the Common Stock
transactions were reported. Notwithstanding the foregoing, in the event the
Company is required to cash out an individual's Stock Account pursuant to
Section 6.06 of the Plan upon a Change in Control, or the terms of the
Parent's Executive Severance Plan, the value of a Participant's Phantom
Shares shall not be less than the per share amount paid or exchanged for
shares of the Company's parent in the Change in Control transaction.
2. Section 6.07 shall be added to the Plan to read as follows:
6.07. Cash-out Upon Change in Control. In the event of a Change in
-------------------------------
Control (as defined in the Company's parent's Executive Severance Plan),
the Participant's vested Phantom Shares shall become immediately payable in
cash in a lump sum equal to the Fair Market Value of the Participant's
Phantom Shares on the date of the Change in Control, subject only to the
tax withholding requirements, unless the corporation in control after the
transaction ("New Parent") elects to continue and carry on the Plan. If
the New Parent elects to carry on the Plan, notional publicly traded shares
of Common Stock of the New Parent (or equivalent shares if not publicly
traded) shall be substituted for the Shares of Common Stock of the Parent
in the Individual's Stock Account.
3. In all other respects, the Plan shall remain in full force and effect.
This Amendment shall be effective May 1, 1999.
DATED this 13th day of May, 1999.
---- ---
GUARANTEE LIFE INSURANCE COMPANY
By /s/ Robert D. Bates
---------------------------------
President
<PAGE>
Exhibit 10(dd)
AMENDMENT NO. 6 TO
THE GUARANTEE LIFE COMPANIES INC.
LONG-TERM INCENTIVE PLAN
The Plan shall be amended as follows:
1. The following shall be added to the definition of "Fair Market Value"
in Section 2.1 of the Plan:
Notwithstanding the foregoing, in the event the Company is required to cash
out any Options by reason of a Change in Control (as defined in the
Company's Executive Severance Plan), Fair Market Value shall not be less
than the per share amount paid for shares of the Company in the transaction
resulting in the Change in Control.
This Amendment is effective May 1, 1999.
DATED this 13th day of May, 1999.
---- ---
THE GUARANTEE LIFE COMPANIES INC.
By /s/ Mary G. Rahal
---------------------------------
<PAGE>
Exhibit 10(ee)
AMENDMENT TO
THE GUARANTEE LIFE COMPANIES INC.
EXECUTIVE SEVERANCE PLAN
The Plan is hereby amended effective May 1, 1999, as follows:
1. Section 4.3 shall be amended by adding the following subsections (v)
and (vi):
(v) The relocation of the Participant's principal place of employment
by more than 50 miles from the Participant's then current principal place
of employment.
(vi) The material breach of any provision of this Plan, which breach is
not cured within ten (10) calendar days of notice thereof to Company by the
Participant.
2. Subsection (i) of Section 5 shall be amended to read as follows:
(i) The Participant's base salary multiplied:
I. in the case of a Tier I Participant, by three;
II. in the case of a Tier II Participant, by two; and
III. in the case of a Tier III Participant, by one.
For purposes of this subsection and the computation of incentive
compensation under Section 5(ii), "base salary" shall mean the greater of
(a) the base salary of the Participant on the date of the Qualifying
Termination, or (b) the contingent base salary previously approved by the
Compensation Committee to be paid upon the achievement of the plan earnings
for the year. Such contingent base salary shall be payable from the date
of the Change in Control and any increased base salary attributable to
periods prior to the date of the Change in Control shall be increased
retroactively and paid in a lump sum on the date of the Change in Control.
3. Subsection (ii) of Section 5 shall be amended to read as follows:
(ii) any other items of deferred or incentive compensation shall become
fully vested and treated as fully earned; provided, the amount of incentive
compensation deemed earned under the Guarantee Life Insurance Company Total
Rewards Incentive Compensation Plan shall be the greater of (A) or (B):
<PAGE>
(A) The amount the Participant would have received under the Plan
for the calendar year between his Par and Max Incentive Opportunity if
no Change in Control had occurred but adjusted as follows: (i) the sole
performance measure shall be pre-tax earnings; (ii) pre-tax earnings
shall be weighted by comparing plan earnings projected for calendar
quarters to actual earnings for such quarters; and (iii) the incentive
shall be prorated based on the number of whole and partial months
worked during the year of termination; or
(B) The amount the Participant would have received for the
calendar year under the Total Rewards Incentive Compensation Plan in
effect on the date of the Change in Control, assuming the Participant
earned the Par Incentive Opportunity, but prorated based on the number
of whole and partial months worked during the year of termination.
A participant will not be required to be employed on the final day of
a calendar year to receive incentive compensation under this subsection
(ii).
4. Subsection (iv) shall be added to Section 5 to read as follows:
(iv) The Company will pay the full cost of a Participant's COBRA
continuation health coverage for the period such coverage is required to be
provided under federal law, or if the Participant is a Tier III Participant
one year, whichever period is the lesser.
5. In all other respects, the Plan shall remain in full force and effect.
DATED this 13th day of May, 1999.
THE GUARANTEE LIFE COMPANIES INC.
By /s/ R. D. Bates
-------------------------------
President
2
<PAGE>
Exhibit 10(ff)
Stock Option Early Exercise Incentive Program
The Stock Option Early Exercise Incentive Program ("Program"), effective
November 14, 1996 provides as follows:
. eligibility in the Program is restricted to officers holding the position of
senior vice presidents and above;
. for every five option shares exercised, the participant will receive one
restricted share of The Guarantee Life Companies Inc. stock;
. the Program shall terminate on January 31, 2000;
. each participant may elect the early exercise incentive three times during
the life of the Progam;
. each participant is entitled to receive a maximum of 5,000 restricted shares
over the life of the Program;
. the restricted shares shall vest three years from the date they were granted,
provided the participant remains employed by Guarantee Life Insurance Company
upon the vesting date, and further provided that the participant has not sold
any stock of The Guarantee Life Companies Inc. during the three year
restriction period;
. the cash out of a stock option granted pursuant to the Program shall be
deemed to be exercised if such option is cashed out upon a Change in Control
(as defined under the Executive Severance Plan); and
. all restricted shares shall be fully vested upon a Change in Control.
<PAGE>
Exhibit 10(gg)
The Guarantee Life Companies Inc. and
Guarantee Life Insurance Company
Executive Severance Plan
Third Revised
Exhibit A
Participants
Tier I
Chief Executive Officer
Tier II
Senior Vice President - Strategic Planning
Senior Vice President, Chief Financial Officer and Treasurer
Senior Vice President and Actuary - Employee Benefits Division
Senior Vice President - Information Systems and Services
Senior Vice President - Employee Benefits Division Operations
Executive Vice President - Individual Division
Senior Vice President - Employee Benefits Division Marketing
Senior Vice President - Employee Benefits Division - Finance
Senior Vice President - Human Resources and Corporate Services
Senior Vice President - Strategic Initiative and Group Special Markets
Senior Vice President - Individual Insurance Services
Senior Vice President, General Counsel and Secretary
Tier III
Vice President and Corporate Actuary
Vice President and Controller
Vice President Investment Management
Vice President Sales - Individual Division
Vice President - Group Special Markets
Vice President - Law
Underwriting Vice President - Employee Benefits Division
Human Resources Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 7
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEET AS OF JUNE 30, 1999 (UNAUDITED) AND THE
CONDENSED CONSOLIDATED STATEMENT OF INCOME FOR THE THREE AND SIX MONTHS ENDED
JUNE 30, 1999 (UNAUDITED) AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<DEBT-HELD-FOR-SALE> 861,075
<DEBT-CARRYING-VALUE> 139,699
<DEBT-MARKET-VALUE> 140,890
<EQUITIES> 27,722
<MORTGAGE> 108,310
<REAL-ESTATE> 3,178
<TOTAL-INVEST> 1,518,086
<CASH> 31,969
<RECOVER-REINSURE> 91,962
<DEFERRED-ACQUISITION> 146,375
<TOTAL-ASSETS> 1,973,473
<POLICY-LOSSES> 254,871
<UNEARNED-PREMIUMS> 12,046
<POLICY-OTHER> 793,281
<POLICY-HOLDER-FUNDS> 47,035
<NOTES-PAYABLE> 115,000
0
0
<COMMON> 103
<OTHER-SE> 212,216
<TOTAL-LIABILITY-AND-EQUITY> 1,973,473
192,979
<INVESTMENT-INCOME> 42,291
<INVESTMENT-GAINS> (1,073)
<OTHER-INCOME> 15,540
<BENEFITS> 152,590
<UNDERWRITING-AMORTIZATION> 40,022
<UNDERWRITING-OTHER> 44,542
<INCOME-PRETAX> 12,583
<INCOME-TAX> 4,404
<INCOME-CONTINUING> 8,179
<DISCONTINUED> 79
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,258
<EPS-BASIC> .89
<EPS-DILUTED> .88
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
