-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, OSHedk3YzwOtLeC5uatqrn8C6+N+6aKhpyi5806OyVF8u2h+XtMttWdu7ojnwz9j V004g+22MlSMEECL1FbGpA== 0000950144-96-001352.txt : 19960401 0000950144-96-001352.hdr.sgml : 19960401 ACCESSION NUMBER: 0000950144-96-001352 CONFORMED SUBMISSION TYPE: 10-K405 PUBLIC DOCUMENT COUNT: 11 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960329 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: AMERICAN BANKERS INSURANCE GROUP INC CENTRAL INDEX KEY: 0000350571 STANDARD INDUSTRIAL CLASSIFICATION: LIFE INSURANCE [6311] IRS NUMBER: 591985922 STATE OF INCORPORATION: FL FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K405 SEC ACT: 1934 Act SEC FILE NUMBER: 000-09633 FILM NUMBER: 96541346 BUSINESS ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 BUSINESS PHONE: 3052532244 MAIL ADDRESS: STREET 1: 11222 QUAIL ROOST DR CITY: MIAMI STATE: FL ZIP: 33157 10-K405 1 AMERICAN BANKERS INSURANCE FORM 10-K405 12-31-95 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-K ( X ) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED] For the fiscal year ended December 31, 1995 ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED) For the transition period from _______________________ to ________________________ COMMISSION FILE NUMBER 0-9633 AMERICAN BANKERS INSURANCE GROUP, INC. (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) FLORIDA 59-1985922 (STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.) 11222 QUAIL ROOST DRIVE, MIAMI, FL 33157 (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (305) 253-2244 SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: TITLE OF CLASS COMMON STOCK, $1 PAR VALUE 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 PERIODS THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS), AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS. YES X NO --- ---- INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM 405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE BEST OF REGISTRANT'S KNOWLEDGE, IN DEFINITIVE PROXY OR INFORMATION STATEMENTS INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS FORM 10-K.[ X ] THE AGGREGATE MARKET VALUE ON FEBRUARY 7, 1996, OF THE VOTING STOCK HELD BY NON-AFFILIATES OF THE REGISTRANT WAS APPROXIMATELY $ 551,661,000. SHARES OF COMMON STOCK HELD BY EXECUTIVE OFFICERS AND DIRECTORS WHO INDIVIDUALLY OWN 5% OR MORE OF THE OUTSTANDING COMMON STOCK HAVE BEEN EXCLUDED IN THAT SUCH PERSONS MAY BE DEEMED TO BE AFFILIATES; HOWEVER, THIS DETERMINATION OF AFFILIATE STATUS IS NOT NECESSARILY DETERMINATIVE FOR OTHER PURPOSES. THERE WERE 20,334,000 SHARES OUTSTANDING (EXCLUDING 88,000 SHARES HELD IN TREASURY) OF THE REGISTRANT'S COMMON STOCK, $1 PAR VALUE, AS OF FEBRUARY 7, 1996. DOCUMENTS INCORPORATED BY REFERENCE (1) PORTIONS OF THE DEFINITIVE PROXY STATEMENT FOR THE ANNUAL SHAREHOLDERS MEETING TO BE HELD MAY 22, 1996 TO BE FILED WITHIN 120 DAYS OF THE REGISTRANT'S FISCAL YEAR-END ARE INCORPORATED BY REFERENCE IN PART III. PORTIONS OF THE FORM S-3 REGISTRATION STATEMENT NUMBER 2-94359; THE REGISTRANT'S ANNUAL REPORT ON FORM 10-K FOR THE YEARS ENDED 1988, 1990, 1991, 1993, AND 1994; THE REGISTRATION STATEMENT ON FORM 8-A FILED MARCH 11, 1988; THE REGISTRANT'S CURRENT REPORT ON FORM 10-Q DATED MARCH 31, 1994 AND JUNE 30,1995; THE 1987 ANNUAL MEETING PROXY STATEMENT; THE REGISTRANT'S CURRENT REPORT ON FORM 8-K DATED NOVEMBER 14, 1990, ARE ALSO INCORPORATED BY REFERENCE. 2 AMERICAN BANKERS INSURANCE GROUP, INC. AND SUBSIDIARIES Table of Contents PART I
Item 1 Business . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 Item 2 Properties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 3 Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Item 4 Submission of Matters to a Vote of Security Holders . . . . . . . . . . . . . . . . . . . 22 PART II Item 5 Market for the Registrant's Common Stock and Related Stockholder Matters . . . . . . . . 25 Item 6 Selected Financial Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 Item 8 Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . . . . . . . . 36 Item 9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosures . . . . . . . . . . . . . . . . . . . . . . . . . 72 PART III Item 10 Directors and Executive Officers of the Registrant . . . . . . . . . . . . . . . . . . . 73 Item 11 Executive Compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73 Item 12 Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . 73 Item 13 Certain Relationships and Related Transactions . . . . . . . . . . . . . . . . . . . . . 73 PART IV Item 14 Exhibits, Financial Statement Schedules and Reports on Form 8-K . . . . . . . . . . . . . 74
3 PART I ITEM 1 BUSINESS a. DEVELOPMENT OF BUSINESS American Bankers Insurance Group, Inc. ("American Bankers" or the "Company") was incorporated in Florida on July 24, 1978. ABIG became the holding company of American Bankers Insurance Company of Florida ("ABIC") and American Bankers Life Assurance Company of Florida ("ABLAC") as a result of their merger with wholly-owned subsidiaries of ABIG after approval by their respective stockholders on October 31, 1980. In addition to ABIC and ABLAC, the Company's subsidiaries include Caribbean American Life Assurance Company ("CALAC"), Caribbean American Property Insurance Company ("CAPIC"), American Reliable Insurance Company ("ARIC"), Bankers American Life Assurance Company ("BALAC"), Bankers Insurance Company Limited ("BICL"), Bankers Atlantic Reinsurance Company ("BARC"), and five insurance companies referred to collectively as the Voyager Insurance Companies. ABIC was incorporated in the state of Florida on October 29, 1947 and ABLAC, a legal reserve life insurance company, was incorporated in the state of Florida on February 6, 1952. CALAC and CAPIC, wholly owned subsidiaries in Puerto Rico, began operations in 1988 and 1992 respectively. ARIC, a wholly owned subsidiary in Arizona, was acquired by the Company in 1984. BALAC, a wholly owned subsidiary in New York, began operations in 1991. BICL, a wholly owned subsidiary in the United Kingdom, began operations in 1990. BARC, a wholly owned subsidiary in the Turks & Caicos islands, began operations in 1995. The Voyager Insurance Companies were acquired by the Company in 1993 and consist of five companies incorporated in Florida, Georgia and South Carolina. The Company's credit-related insurance products consist primarily of life, accidental death and dismemberment ("AD&D"), credit unemployment, disability and property insurance issued in connection with the financing of consumer purchases. The Company also sells extended service contracts in connection with consumer purchases. American Bankers also writes non credit-related insurance in markets where it believes it has less competition from other insurers. For example, the Company sells group life and disability products through Blue Cross Blue Shield plans. For information on the growth of the Company's business for the years ended December 31, 1995, 1994, 1993, 1992 and 1991, see the Gross Collected Premium table set forth below in "Narrative Description of Business." b. BUSINESS SEGMENT DATA See Note 12 to the Consolidated Financial Statements on page 61 in Part II Item 8 of this report. -2- 4 c. NARRATIVE DESCRIPTION OF BUSINESS GENERAL The Company is a specialty insurer providing primarily credit-related insurance products in the U.S. and Canada as well as in Latin America, the Caribbean and the United Kingdom. During 1995, the Company incorporated a wholly owned insurance subsidiary in Mexico, purchased an insurance company in Argentina and opened branch operations in Jamaica and Bahrain. The majority of the Company's gross collected premiums are derived from credit-related insurance products sold through financial institutions and other entities which provide consumer financing as a regular part of their businesses. The Company's credit-related insurance products consist primarily of life, accidental death and dismemberment ("AD&D"), credit unemployment, disability and property insurance issued in connection with the financing of consumer purchases. Credit-related insurance products generally offer a consumer a convenient option to insure a credit card or loan balance so that the amount of coverage purchased equals the amount of outstanding debt. Coverage is generally available to all consumers with few of the underwriting conditions that apply to ordinary term insurance, such as medical examinations and medical history reports. The Company's life and AD&D insurance products generally provide payment in full of the outstanding debt balance in the event of the insured's death. The unemployment and disability products satisfy the minimum monthly loan payment for a specified duration in the event of unemployment or disability. The Company's property insurance products pay the loan balance or the cost of repairing or replacing the insured's merchandise in the event of a loss due to a covered event. The Company's extended service contracts products pay the cost of repairing or replacing the insured's merchandise in the event of damages due to a covered event. The Company avoids lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. The Company markets its products on a wholesale basis through a network of clients that consist primarily of major financial institutions, retailers and other entities which provide consumer financing as a regular part of their businesses. American Bankers enters into contracts, typically with terms of three to five years, with its corporate clients pursuant to which such clients market the Company's insurance products to their customers. In return, these clients receive expense reimbursements or commissions and are thus able to recover costs associated with the marketing of the insurance and generate incremental revenues. The Company's clients typically share in the profitability of business written through them. American Bankers also writes non credit-related insurance in markets where it believes it has less competition from other insurers. For example, the Company sells group life and disability products through Blue Cross Blue Shield plans. In addition, the Company acts as an administrator for the National Flood Insurance Program, for which it earns a fee for collecting premiums and processing claims. The Company does not assume any underwriting risk with respect to this program. The Company's business strategy is to continue developing distribution channels which provide access to large numbers of potential insureds in markets not traditionally served by other insurance companies. In pursuing this strategy, the Company emphasizes long-term relationships and the development of insurance programs designed to meet individual client needs. An essential part of the Company's strategy is to invest in technology which enables American Bankers to accommodate a large group of clients and their customers while simultaneously offering customized insurance programs. -3- 5 American Bankers has been able to develop a diverse client base. In 1995, no single client accounted for more than 6% of the Company's total premiums. The Company distributes its products through nine markets or distribution channels involving over one thousand clients. Its business is generally not concentrated and the ten largest unrelated clients represent 26% of the Company's gross collected premiums. ABIC and ABLAC jointly market products and programs within each distribution channel, and the Company believes that such cross-marketing achieves economies of scale thus lowering administrative costs. By combining its service and marketing activities, the Company centralizes the processing of its products and avoids duplication of administrative functions. The Company also provides management services and marketing support to its clients. Management services include administration of captive insurance companies and other participating programs for clients. American Bankers provides comprehensive administrative support in claims, accounting, tax, data processing and actuarial matters. The Company also packages credit-related insurance programs to meet a client's particular needs and provides the marketing assistance to implement these programs. Marketing support includes a full range of marketing materials, direct mail and telemarketing services and personnel training programs. The majority of the Company's business utilizes contracts which afford the Company's clients the opportunity to participate in the underwriting results of policies they market to their customers. The "Retro Plan" contract links a client's overall commission to the claims experience on policies marketed to its customers, so that low loss ratios result in higher commissions for the client and high loss ratios result in lower commissions. Another form of participation is a profit sharing contract under which the client participates in up to 50% of the profits generated from its insurance business. The Company also cedes premiums generated by clients to the clients' own captive insurance companies or to reinsurance subsidiaries in which clients have an equity interest. For the Company's remaining business, the client's commission is not linked to its claims experience. Business Segments and Products LIFE INSURANCE
(in thousands) NET TOTAL PREMIUMS TOTAL OPERATING ASSETS EARNED REVENUES INCOME* 1995 $ 1,333,100 $ 377,100 $ 417,500 $ 44,700 1994 $ 1,023,600 $ 360,100 $ 394,500 $ 32,000 1993 $ 1,035,000 $ 305,100 $ 350,000 $ 28,200
*Operating income consists of earnings before interest expense and taxes. Highlights - Gross collected premiums increased 30% to $702.5 million in 1995 from $542.1 million in 1994. - Five products (Credit Life, Mortgage Life, Credit A&H, Group A&H, and Mortgage A&H) contributed 91% of the segment's 1995 gross collected premiums. These products are sold through various distribution channels. - Operating income increased 40% to $44.7 million in 1995 from $32.0 million in 1994. -4- 6 Subsidiaries - American Bankers Life Assurance Company of Florida (ABLAC) - Bankers American Life Assurance Company (BALAC) - Caribbean American Life Assurance Company (CALAC) - Voyager Life Insurance Company (VLIC) - Voyager Life and Health Insurance Company (VLHIC) Major Products - Credit Life - Credit Accident & Health - Mortgage Accident & Health - Group Accident & Health - Mortgage Life Distribution Channels - Retailers - Financial Institutions Commercial Banks Consumer Finance Companies Mortgage Bankers Savings Institutions - Manufactured Housing, Travel Trailer and Equipment Manufacturers, Dealers and Lenders - Blue Cross Blue Shield Plans - Independent Agents PROPERTY AND CASUALTY INSURANCE
(in thousands) NET TOTAL PREMIUMS TOTAL OPERATING ASSETS EARNED REVENUES INCOME* 1995 $ 1,602,200 $ 863,600 $ 934,200 $ 87,400 1994 $ 1,347,300 $ 734,200 $ 775,300 $ 66,700 1993 $ 1,072,700 $ 576,900 $ 611,000 $ 58,700
*Operating income consists of earnings before interest expense and taxes. Highlights - Gross collected premiums increased 33% to $1.6 billion in 1995 from $1.2 billion in 1994. Credit Unemployment and Extended Service Contracts were the products representing the largest premium increases in 1995. - Operating income increased 31% to $87.4 million in 1995 from $66.7 million in 1994. -5- 7 Subsidiaries - American Bankers Insurance Company of Florida (ABIC) - American Reliable Insurance Company (ARIC) - Bankers Insurance Company, Ltd. (BICL) - Caribbean American Property Insurance Company (CAPIC) - Voyager Indemnity Insurance Company (VIIC) - Voyager Property and Casualty Insurance Company (VPCIC) Warranty Companies - Federal Warranty Service Corporation (FWSC) - Voyager Service Warranties, Inc. (VSW) Major Products - Credit Unemployment - Credit Property - Mobilehome Physical Damage - Extended Service Contracts - Homeowners Distribution Channels - Retailers - Financial Institutions Commercial Banks Consumer Finance Companies Mortgage Bankers Savings Institutions - Manufactured Housing, Travel Trailer and Equipment Manufacturers, Dealers and Lenders - Independent Agents For additional Business Segment Information see page 28 in Part II Item 6 of this report. -6- 8 Products The following table sets forth the gross collected premiums of the Company's major insurance products:
GROSS COLLECTED PREMIUMS MAJOR INSURANCE PRODUCTS YEARS ENDED DECEMBER 31 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- (IN MILLIONS) Credit Unemployment $ 410.8 $ 269.8 $ 172.9 $ 127.9 $ 110.3 Credit Property 367.7 354.2 268.6 187.2 174.2 Credit A & H 349.0 244.5 182.8 174.0 116.6 Credit Life 287.2 211.7 165.5 152.1 113.6 Mobilehome Physical Damage 137.3 121.4 100.1 41.6 47.5 Extended Service Contracts 129.5 19.3 12.0 10.7 10.9 Homeowners 101.1 87.0 85.6 91.5 91.8 Mortgage Disability 53.3 49.1 44.3 37.4 36.6 Livestock Mortality 40.8 48.6 51.9 29.6 22.9 Group A & H 39.6 26.4 27.7 22.4 22.7 All Other (1) 370.3 329.1 315.8 246.0 213.7 -------- -------- -------- -------- -------- Total $ 2,286.6 $ 1,761.1 $ 1,427.2 $ 1,120.4 $ 960.8 ========= ========= ========= ========= =======
____________ (1) "All Other" represents a large number of products, approximately 50 to 60 each year. The most significant in 1995 and 1994 are the flood and surety products. The Company's business can be divided into two principal types of products: (1) Financial Market Products, consisting primarily of credit-related insurance, and (2) Personal Insurance lines, consisting of non credit-related products and services. Financial Market Products Property Insurance. The Company's property insurance is written primarily by ABIC, ARIC, CAPIC and certain of the Voyager Companies. Through these subsidiaries, the Company writes a variety of property insurance which includes homeowners' and coverages for comprehensive physical damage of mobilehomes, autos, furniture, fixtures and other consumer goods. In the event of a loss due to a covered event, the Company will either pay off the loan balance or replace or repair the merchandise. The terms of the Company's property policies range from 30 days to multiple years. Multiple year policies generally coincide with the term of the financing for the insured property. For example, a consumer purchasing an automobile and financing the purchase over a three-year period can purchase a three-year physical damage policy at the inception of the loan for a single premium. An increasing proportion of gross collected premiums are monthly premiums received in connection with credit card purchases. Such premiums are based on the average outstanding credit card balance. -7- 9 Life and Disability Insurance. Through ABLAC, BALAC, CALAC and certain of the Voyager Companies, the Company writes life, AD&D and disability insurance primarily on consumer loans, mortgages and credit card balances. This life insurance is a form of decreasing term life insurance written generally without medical examination of the borrower. Premiums are received either in a single payment at the time the policy is written or monthly along with the borrower's regular payment. It is normally written for the term of the installment debt and retires all or a portion of the indebtedness in the event of the insured's death. Disability insurance covers a borrower for payments coming due on an installment loan, mortgage loan or revolving charge account while the borrower is disabled. Credit Unemployment Insurance. Through ABIC and CAPIC, the Company writes unemployment insurance on credit card balances in conjunction with life, disability and property coverages. This unemployment insurance provides for the payment of the minimum monthly loan payment for a specified duration while the insured is involuntarily out of work. Premiums for this coverage are based on the average outstanding credit card balance. Extended Service Contracts. The Company's extended service contract (ESC) business involves various arrangements including the administration for and the insuring of obligations for ESC's sold in conjunction with the sale of consumer products by retailers. The ESC's typically provide service guarantees through the retailers which go beyond any manufacturers' warranties underlying the products. Of the Company's "Premiums of Top Ten Products", eight are associated with the Financial Market Products. Personal Insurance Lines The Company also derives revenues from non credit-related insurance products and services. These products and services principally consist of: (i) group life and group disability sold through Blue Cross Blue Shield plans, (ii) individual life and disability products sold through employer-sponsored payroll deduction programs, (iii) administration fees earned in connection with the National Flood Insurance Program, (iv) livestock mortality insurance, (v) individual life insurance and annuity products sold principally in Latin America and the Caribbean, and (vi) surety coverages. Underwriting The Company has over 40 years of experience in providing credit life and credit property insurance and therefore maintains an extensive actuarial database for its major lines of business. This database enables the Company to better identify and quantify the expected loss experience and is employed in the design of coverage and the establishment of premium rates. American Bankers uses this information in monitoring the loss experience of individual clients. A distinct characteristic of the Company's credit-related insurance products is that the majority of these products represent relatively low policy values since policy size is equal to the size of the installment purchase or credit card balance. Thus, loss severity for most of the Company's business is low relative to other insurance companies writing more traditional lines of business. For those product lines where exposure to catastrophe loss is higher (Homeowners and Mobilehome Physical Damage) the Company closely monitors and manages its aggregate risk by geographic area and has entered into reinsurance treaties to control its exposure to catastrophe losses. With respect to the Company's non credit-related products, the Company utilizes traditional underwriting techniques. The Company seeks to ensure the quality of its business by -8- 10 maintaining strict underwriting standards. In underwriting individual life policies, the Company employs medical questionnaires, medical examinations, and current reports from the Medical Information Bureau. Group underwriting takes into account demographic factors such as age, gender and occupation of members of the groups. The Company also seeks to reduce its risk exposure by avoiding lines of insurance characterized by long loss payout periods, such as workers' compensation and most general liability coverages. The Company previously furnished a letter of credit (outstanding balance at December 31, 1995 - $50,800,000) to a customer pursuant to an acquisition of a block of extended services contracts, which the Company underwrites. The letter was furnished to secure the Company's obligations under the agreement and should continue to decrease as the underlying business expires over an expected three year run-off period. Marketing American Bankers markets its credit-related insurance programs as a wholesale distributor through several defined distribution channels: Consumer Finance Companies, Mortgage Bankers and Savings Institutions, Commercial Banks, Manufactured Housing, Travel Trailer and Equipment Manufacturers, Dealers, Lenders, and Retailers. These distribution channels constitute the Company's Financial Market distribution channel. The distribution channels for the Company's Personal Insurance Lines include Blue Cross Blue Shield Plans, and Independent Agents. The Company continually seeks to develop new distribution channels for its products. It has recently established relationships with several utility clients, and continues to pursue opportunities with electric, gas and telephone utilities. At December 31, 1995, the Company had 88 salaried sales representatives and 16 sales managers located in 15 regional sales centers throughout the U.S., Canada, Puerto Rico and the United Kingdom. Employees in the regional sales offices solicit potential new clients and service existing clients. These sales personnel typically have work experience in the client's industry and have received extensive sales and product training from the Company. The Company's sales personnel provide ongoing service and advice to clients to assist them in marketing the Company's insurance products and attempt to gain new clients by illustrating how the client can provide a value-added service to its customers and at the same time enhance their profitability by marketing the Company's products. Specifically, the Company's sales personnel approach each potential client with a structured four-call process: (i) initial contact, (ii) gathering information and analyzing the prospect's needs, (iii) presenting a program tailored to those needs, and (iv) agreeing to and implementing a program that is satisfactory to both the client and the Company. Products are individual programs underwritten by ABIC, ABLAC, or any of the insurance subsidiaries or "packages" which are a combination of products from various subsidiaries. These products can also be sold through more than one distribution channel. Product cross-over is commonplace within the Company's system, which facilitates streamlined administration and processing, as well as product development. For example, the Company's "Chargegard" product is a combination of life, accident and disability, unemployment and property insurance coverage and is marketed through the Consumer Finance Companies, Mortgage Bankers and Savings Institutions, Commercial Banks and Retailers distribution channels. -9- 11 DISTRIBUTION CHANNELS The following is a discussion of the distribution channels for the Financial Market Products: Consumer Finance Companies The customer base consists of consumer and commercial finance companies, leasing and second mortgage institutions, and mortgage brokers. Because many major consumer finance companies have their own captive insurance companies, approximately half of the premiums written historically have been ceded to these captive insurance companies. Therefore, a substantial portion of the income in this area is derived from the management fees paid by clients' captive companies for processing and servicing this insurance. Mortgage Bankers and Savings Institutions The client base consists of mortgage bankers, savings institutions and home builders. Through these clients, the Company markets life, AD&D, disability and property insurance products to residential and consumer borrowers as well as to depositors. Commercial Banks The Company markets its installment loan and credit card related insurance products through commercial banks, bank holding companies and their non-bank subsidiaries and other issuers of general purpose credit cards. Increases in gross collected premiums have resulted primarily from the marketing of insurance programs in connection with credit cards. American Bankers tries to expand the business written by its clients in this area by assisting them in implementing direct mail and telemarketing programs. Manufactured Housing and Travel Trailer Manufacturers and Lenders The Company provides property insurance to purchasers of mobilehomes and travel trailers. Products are distributed primarily through manufactured housing, motor home and travel trailer manufacturers, dealers and lenders. Retailers The Company is a major provider of credit-related insurance products to the retail industry. This client base includes department and specialty stores, home furnishings and home improvement stores, appliance and electronic stores, general merchandise and automotive chains, jewelry stores, catalogs and rental companies. To further enhance its market position in this area, the Company develops customized direct mail and telemarketing programs for these clients. Premiums are generated from mailings included in monthly credit card statements or are generated at the point of sale. Equipment Manufacturers and Dealers Dealers and Manufacturers revenues are derived from credit life, disability, physical damage and warranty insurance products sold through agricultural and other equipment manufacturers. The Company's policy is to deal exclusively with large dealers and manufacturers. -10- 12 The following is a discussion of the distribution channels for the Personal Insurance Lines: Blue Cross Blue Shield Plans American Bankers utilizes the sales representatives of these organizations to offer the Company's group life, AD&D, short-term and long-term disability, and dependent life coverages to employers that are providing group health benefits to their employees. These organizations share in the profitability of these product sales with the Company. Independent Agents The Company markets individual life insurance and annuity policies to the public through a network of independent agents. In the agency market, the Company competes with many large nationwide companies. As a result, the Company has made the decision to control the growth of this segment by de-emphasizing the U.S. market and focusing on the Caribbean and Latin American markets where loss experience has been favorable and the competition is less vigorous. Another product sold through agents is livestock insurance which primarily covers animal mortality. Agents also produce the flood premium that the Company administers on behalf of the National Flood Insurance Program. The Company acts as administrator and does not assume any underwriting risk with respect to this program. Investments The functions of the investment department are an integral part of any insurance company's operations. The Company's investment department is guided by strategic objectives established by the Finance Committee of the Board of Directors. The major investment objectives are: - To ensure adequate safety of investments and to protect and enhance capital. - To maximize risk-adjusted, after-tax return on investments. - To make prudent investment decisions based on the current market environment. - To provide sufficient liquidity to meet cash requirements with minimum sacrifice of investment returns. In seeking to achieve these objectives, the Company invests predominantly in fixed income securities of the U.S. Government or its agencies, collateralized mortgage obligations and investment grade corporate bonds. Protection against default risk is a primary consideration. Interest rate risk is controlled by matching the average duration of invested assets with the average duration of the policy liabilities. Investment department personnel work closely with the Company's actuaries to ensure that this balance is maintained. Private investments are made selectively to support the insurance business. These investments comprise about 3% of the fixed maturities portfolio. While these Company underwritten investments are non-rated, a careful evaluation of creditworthiness is performed before an investment is made. This analysis helps to ensure that prudent investment standards are maintained, even in the non-rated portfolio holdings. -11- 13 The Company's equity portfolio is managed by outside investment advisors who are monitored on a regular basis against established performance benchmarks.
Quality of Fixed Maturities Maturity of Fixed Maturities ----------------------------------- ------------------------------------ AAA 68% 0-1 Years 10% AA 5% 1-5 Years 69% A 14% 5-10 Years 17% BBB 9% 10-20 Years 3% BB/NR 1% Over 20 Years 1% ---- Private Placement 3% 100% ---- 100%
At December 31 (in thousands):
AT CARRYING VALUE: 1995 1994 1993 1992 1991 --------------------------------------------------------------------------------------------------------------- Fixed Maturities ---------------- Corporate - Fixed Rate $346,000 $229,900 $169,200 $195,400 $212,800 Corporate - Adjustable Rate 15,000 14,400 4,900 10,800 11,500 Corporate - Convertible 6,000 1,400 5,500 5,300 State and Municipal 123,500 109,800 79,800 60,600 48,200 U.S. Government 817,900 631,400 567,800 455,100 419,400 Foreign Government and Jurisdiction 61,900 36,200 30,100 26,700 27,700 Installment Loans 17,300 22,200 22,200 24,900 20,800 ------------------------------------------------------------------------------------------------------------ 1,387,600 1,043,900 875,400 779,000 745,700 ------------------------------------------------------------------------------------------------------------ Equity Securities ----------------- Preferred - Fixed Rate 38,400 16,600 15,000 11,000 10,000 Preferred - Convertible 700 600 5,900 5,800 5,500 Common 73,900 48,200 52,600 42,800 37,900 ------------------------------------------------------------------------------------------------------------ 113,000 65,400 73,500 59,600 53,400 ------------------------------------------------------------------------------------------------------------ Mortgage Loans 11,800 13,800 15,500 17,600 21,100 Policy Loans 7,800 6,800 6,700 5,900 5,600 Real Estate 3,100 3,800 4,200 5,800 8,400 Short-Term and Other Investments (principally invested cash) 165,100 131,200 135,600 114,200 78,400 ------------------------------------------------------------------------------------------------------------ 187,800 155,600 162,000 143,500 113,500 ------------------------------------------------------------------------------------------------------------ TOTAL INVESTMENTS $1,688,400 $1,264,900 $1,110,900 $982,100 $912,600 ===============================================================================================================
The amounts for 1994 and forward are reported in accordance with FASB Statement 115.
Net Investment Income (in millions of dollars) 1991 1991 $ 69 1992 68 1993 70 1994 74 1995 99
Other information with respect to investments is included in Note 3 to the Consolidated Financial Statements on page 45 in Part II Item 8 of this report. -12- 14 Reinsurance The Company's insurance subsidiaries reinsure that portion of risk in excess of $250,000 under an ordinary life policy, $150,000 on a group life policy and $500,000 under a property policy. In addition, excess of loss coverage is obtained for the Company's property business as protection against catastrophic losses. This coverage is mainly related to the Company's homeowner, mobilehome physical damage and credit property products. Following Hurricane Andrew in 1992, there has been a significant increase in the cost of catastrophe reinsurance. As a result, the Company restructured its catastrophe coverage, into three parts. First, the Company reinsures 50% of most of its homeowners coverage on a proportional basis. In addition, the Company has excess of loss catastrophe reinsurance providing coverage per catastrophe on property losses of $20 million excess of a $20 million retention exclusive of any recoveries from the proportional reinsurance described above. Finally, additional coverage is provided through excess of loss coverage if the net loss ratio (after deducting all other reinsurance) exceeds 36.1%. The Company believes that its catastrophe reinsurance coverage continues to be adequate. The reinsurance market showed signs of stabilization in 1995. The Company's reinsurance receivable and prepaid reinsurance premiums at December 31, 1995 totalled $670.4 million. The Company's reinsurance was placed with numerous reinsurers including the following significant reinsurers: (i) Triton Insurance Company, (ii) Caterpillar Insurance Company, Limited, and (iii) ITT Lyndon Life & Property Insurance Company. The Company historically has not experienced any material losses in collection of reinsurance receivables. Certain Factors Common to the Operations of Insurance Companies Government Regulation The Company and its insurance subsidiaries are subject to regulation and supervision by the states in which the Company's insurance subsidiaries transact business. The laws of the various states establish regulatory agencies with broad administrative powers to grant and revoke licenses to transact business, regulate trade practices, establish guaranty associations, license agents, require approval of policy forms and premium rates on certain business prior to use, establish reserve requirements, determine the form and content of required financial statements, determine reasonableness and adequacy of capital and surplus and prescribe the types of permitted investments and the maximum concentrations of certain classes of investments. As part of their routine regulatory oversight process, approximately once every three to five years state insurance departments conduct periodic detailed examinations of the books, records and accounts of insurance companies domiciled in their states. This state regulation and supervision is designed primarily to ensure the financial stability of insurance companies and to protect policyholders, rather than stockholders or creditors. A substantial portion of the business written by the Company's insurance subsidiaries is credit-related insurance. Most states have enacted laws which regulate credit-related insurance to a greater extent than they regulate other forms of insurance including maximum premiums which may be charged and commissions which may be paid. In addition, certain states have enacted or are considering regulations which similarly attempt to limit profitability based upon underwriting experience. The NAIC is currently developing a model law and regulation relating to creditor placed property insurance which is insurance purchased by a creditor in the event that a borrower fails to provide the insurance required under the loan agreement. The Company does issue this type of insurance coverage on mobile homes and residential real property. -13- 15 The NAIC also took action in 1995 on credit life insurance by adopting an alternative approach to strict loss ratio based ratemaking which allows state regulators to take into account factors other than losses in determining the reasonableness of credit insurance rates. The investments of the insurance subsidiaries are limited as to type and amount by the insurance laws of the state of domicile however, the NAIC is developing a Model Investment Law which would standardize these limitations. Additionally, investment policies are reviewed by the Board of Directors. In the property insurance industry, large catastrophe losses in recent years have led to federal initiatives that could affect purchasers of catastrophe insurance and reinsurance, such as the Company. The federal government, commercial companies, and the insurance industry continue to work together toward Superfund reform and dealing with the cleanup of pollution sites. Among issues pending are the determination of retroactive liability and a proposed insurer specific tax. Other federal initiatives may also affect various segments of the insurance industry. No prediction can be made as to whether any such initiative's will ultimately result in legislation, or the form that any such legislation might take. Insurance companies are required to file detailed annual and quarterly statements with the state insurance regulators in each of the states in which they do business, and their business and accounts are subject to examination by such agencies at any time. Applicable state insurance laws, rather than federal bankruptcy laws, apply to the liquidation or the reorganization of insurance companies. Financial Regulation The Company's insurance subsidiaries are required to comply with a minimum risk-based capital (RBC Standards), developed by the NAIC. Under the RBC standards - risk specific for each company - areas such as asset risk, insurance risk, interest risk, and business risk are evaluated and compared to the Company's capital and surplus to determine relative solvency margins. Standards for the RBC formula were approved by regulators and effective for 1993 statutory financial statements for life companies and in 1994 for property and casualty companies. The industry is still gaining experience in the use of the RBC standards, which have experienced formula adjustments each year since adoption. All of the Company's insurance subsidiaries meet the minimum risk-based capital requirements and requires no action based on the criteria described above. Dividend Regulation The Company is a legal entity separate and distinct from its subsidiaries. As a holding company with no other business operations, its primary sources of cash needed to meet its obligations are dividends and other payments from its insurance subsidiaries. The Company's insurance subsidiaries are subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances, that they may make to the Company without obtaining prior regulatory approval. As Florida domiciled insurance companies, ABIC and ABLAC are subject to Florida requirements that insurance company dividends must receive prior regulatory approval unless, either (i) such dividends do not exceed the larger of: (a) the lesser of 10% of surplus or net gain from operations (ABLAC) or net income (ABIC), not including realized capital gains, plus a 2-year carryforward for ABIC; (b) 10% of surplus, with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; or (c) the lesser of 10% of surplus or net investment income (net gain before capital gains for ABLAC) plus a 3-year carryforward (2-year carryforward for ABLAC) with dividends payable constrained to unassigned funds minus 25% of unrealized capital gains; -14- 16 or (ii) the dividend is equal to or less than the greater of: (a) 10% of the insurer's surplus as to policyholders derived from realized net operating profits on its business and net realized capital gains; or the insurer's entire net operating profits and realized net capital gains derived during the immediately preceding calendar year; and (b) the insurer will have surplus as to policyholders equal to or exceeding 115% of the minimum required statutory surplus as to policyholders after the dividend is made. As an Arizona domiciled insurance company, ARIC must receive prior regulatory approval unless, such dividends do not exceed the lesser of either 10% of surplus as regards policyholders or the net investment income. As Puerto Rico domiciled companies, CALAC and CAPIC shall not pay any cash dividend to stockholders except out of that part of its unassigned surplus funds which is derived from any realized net profits on its business. BALAC, a New York domiciled company, requires that notice of its intention to declare dividends and the amount of the dividend be filed with the superintendent. The Voyager Insurance Companies are domiciled in Georgia and South Carolina. Georgia and South Carolina require prior regulatory approval for dividends in excess of the greater of (i) 10% of a company's surplus as regards policyholders or (ii) net gain from operations for life companies, or net income, not including realized capital gains, for non-life companies, as of the preceding year end. In 1986, the NAIC adopted a Model Insurance Holding Company Systems Regulatory Act which contains dividend payment restrictions like those currently in place in Georgia and South Carolina, except that the NAIC model statute only allows an insurer to pay dividends without prior regulatory approval up to the "lesser of", instead of the "greater of", the two benchmarks. In connection with its accreditation of states to conduct periodic company examinations, the NAIC has encouraged states to adopt the model NAIC law on the payment of dividends. No prediction can be made as to whether any legislative proposals relating to a change in dividend limits will be enacted in the future. If insurance regulators determine that payment of a dividend or any other payment to an affiliate (such as a payment under a tax allocation agreement or for employee or other services or pursuant to a surplus debenture) would, because of the financial condition of the paying insurance company or otherwise, be hazardous to such insurance company's policyholders or creditors, the regulators may block payment of such dividends or such other payment to the affiliates that would otherwise be permitted without prior approval. See other information with respect to dividend regulation in Note 8 to the Consolidated Financial Statements on page 55 in Part II Item 8 of this report. Change of Control Regulation The states in which the Company's insurance subsidiaries are domiciled have enacted legislation or adopted administrative regulations affecting the acquisition of control of insurance companies as well as transactions between insurance companies and persons controlling them. Most states require administrative approval of the acquisition of control of an insurance company incorporated in the state or the acquisition of control of an insurance holding company whose insurance subsidiary is incorporated in the state. In Florida, the acquisition of 5% of such shares is generally deemed to be the acquisition of "control" for the purpose of the holding company statutes and requires not only the filing of detailed information concerning the acquiring parties and the plan of acquisition, but also administrative approval prior to the acquisition. In the other states in which the Company's insurance subsidiaries are domiciled, however, an acquisition of 10% of such shares is generally deemed to be the acquisition of control. In many states, the insurance authority may find that "control" in fact does or does not exist in circumstances in which a person owns or controls either a lesser or a greater amount of securities. -15- 17 Competition The competitors of the Company consist of both stock and mutual insurance companies. Some competing companies, both stock and mutual, have been in business for a longer time, are more widely known by reason of such factors as age and size, and have greater financial resources than the Company. However, due to the specialized nature of the markets served and products offered, the Company's competitors differ among the different geographic locations and market segments in which the Company conducts business. The Company's strategy is to establish profitable insurance underwriting and to service business in distribution channels that are relatively free of competition. In keeping with this strategy, the Company markets non-traditional insurance products through non-traditional distribution channels. Reserves Life insurance companies are required to establish and maintain policy liabilities to meet their obligations on life policies. These liabilities are amounts which, with additions from premiums to be received on outstanding policies and with interest on such benefits compounded annually at certain assumed rates, are calculated to be sufficient to meet policy obligations at death or maturity in accordance with the mortality tables employed when the policies were issued. Liabilities for losses and loss adjustment expenses for property and casualty insurance represent estimates of unpaid claims related to known losses and of claims which have been incurred but not reported. These liabilities are based upon past experience of ultimate claim settlements and of unreported losses and loss adjustment expenses. The length of time for which such costs must be estimated varies depending upon the coverage involved. Since actual claim costs are dependent upon such complex factors as inflation, changes in doctrines of legal liability and damage awards, the process used in computing reserves cannot be exact, particularly for liability coverages. The majority of the Company's property and casualty insurance business is represented by property coverage in which the ultimate loss experience develops relatively quicker than that for insurers concentrated more heavily in liability coverages. In the ordinary course of business, the Company reinsures risks with other insurance companies; nonetheless, the Company is contingently liable with respect to risks reinsured, should the reinsuring companies fail to meet the obligations assumed in the reinsurance agreements. Information on the Company's Reserves appears in Note 4 to the Consolidated Financial Statements on page 49 in Part II Item 8 of this report. Property and Casualty Losses and Loss Adjustment Expenses The consolidated financial statements include estimated provisions for unpaid losses and loss adjustment expenses (LAE) applicable to the Company's property and casualty insurance subsidiaries. Currently, these subsidiaries write principally credit property, unemployment, extended service contracts, homeowners, mobilehome physical damage and livestock lines of business throughout the United States, Canada, the Caribbean, and the United Kingdom. Such liabilities are established using a combination of case basis estimates and statistical projections and include provisions for claims incurred but not yet reported as of the balance sheet date. Overall claims experience is principally dependent on the frequency and severity of claims. With the exception of discontinued lines, the Company writes primarily property coverages which are characterized by relatively short settlement periods and quick development of -16- 18 ultimate losses. The discontinued reinsurance assumed pools involve liability coverages where development of the ultimate loss is more difficult to predict because of the settlement duration and the relative absence of homogeneity of claims as compared to the Company's property coverages. The Company's estimating and reserving practices are reviewed continuously. Subsequent adjustments to the original estimates are made when determinable and are reflected in current year operations. The following table shows the development of the estimated liability for the ten years prior to 1995. -17- 19 AMERICAN BANKERS INSURANCE GROUP, INC. DOMESTIC PROPERTY AND CASUALTY SUBSIDIARIES ANALYSIS OF REPORTED BALANCE SHEET LOSS AND LAE DEVELOPMENT GAAP BASIS (IN THOUSANDS)
1985 1986 1987 1988 1989 Liability for Unpaid Losses & LAE $49,506 $63,804 $79,915 $83,873 $83,328 Liability Re-estimated as of: ---------------------------- 1 Year Later 56,024 75,086 89,495 79,857* 88,054* 2 Years Later 62,659 80,793 87,088* 84,156* 84,112* 3 Years Later 68,121 81,023* 92,783* 83,415* 88,843* 4 Years Later 70,433* 86,138* 93,414* 87,017* 90,476* 5 Years Later 75,954* 88,035* 96,420* 89,180* 96,419* 6 Years Later 78,038* 90,248* 99,029* 94,541* 111,122* 7 Years Later 79,915* 93,079* 104,150* 109,473* 8 Years Later 82,713* 98,186* 119,273* 9 Years Later 86,723* 113,338* 10 Years Later 94,089* Cumulative (Deficiency) Redundancy ($44,583) ($49,534) ($39,358) ($25,600) ($27,794) 1990 1991 1992 1993 1994 1995 Liability for Unpaid Losses & LAE $87,262 $89,626 $94,531 $117,080 $137,936 $163,918 Liability Re-estimated as of: ---------------------------- 1 Year Later 79,291* 83,107* 106,007* 119,810* 144,123* 2 Years Later 83,882* 85,203* 110,226* 136,905* 3 Years Later 86,954* 89,697* 122,481* 4 Years Later 91,670* 104,249* 5 Years Later 106,458* 6 Years Later 7 Years Later 8 Years Later 9 Years Later 10 Years Later Cumulative (Deficiency) Redundancy ($19,196) ($14,623) ($27,950) ($19,825) ($6,187)
Cumulative Amount of Liability Paid Through: --------------------------------------------
1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 ------ ------ ------ ------ ------ ------ ------ ------- ------ ------ 1 Year Later 34,870 44,862 53,374 45,460* 52,144* 49,983* 48,399* 63,922* 65,901* 71,654* 2 Years Later 44,198 57,549 63,779* 59,865* 64,778* 61,736* 60,540* 85,500* 92,249* 3 Years Later 50,631 61,867* 72,704* 67,232* 71,287* 68,174* 68,190* 101,603* 4 Years Later 53,634* 68,841* 78,370* 71,444* 74,210* 73,273* 80,932* 5 Years Later 59,378* 73,678* 81,840* 73,394* 78,292* 84,642* 6 Years Later 63,781* 76,208* 83,604* 76,938* 89,410* 7 Years Later 65,972* 77,862* 86,856* 87,886* 8 Years Later 67,563* 80,973* 97,766* 9 Years Later 69,554* 91,870* 10 Years Later 72,636*
1993 1994 1995 --------- ------- -------- Gross Liability - end of year ** $158,359 $187,999 239,357 Reinsurance Recoverable (41,279) (50,063) (75,439) --------- -------- --------- Net Liability - end of year ** $117,080 $137,936 163,918 Gross Re-estimated Liability ** $183,022 $193,506 Re-estimated Reinsurance Recoverable (46,117) (49,383) ------- --------- Net Re-estimated Liability ** $136,905 $144,123 Gross Cumulative (Deficiency) (24,663) (5,507)
*Indicates amounts are net of collected salvage and subrogation to conform with the presentation of Schedule P in the 1995 Statutory Reports filed with the state regulatory authorities. **Amounts do not include issued but unpresented claim drafts as of December 31; $1,546 (1992), $2,411 (1993), $1,322 (1994), and $1,576 (1995). -18- 20 The table in the preceding page presents the development of balance sheet liabilities for 1985 through 1995. The top line of the table shows the estimated liability for unpaid losses and LAE recorded at the balance sheet date for each of the indicated years. This liability represents the estimated amount of losses and LAE for claims arising in all prior years that are unpaid at the balance sheet date, including losses that had been incurred but not yet reported to the Company. The upper portion of the table shows the re-estimated amount of the previously recorded liability based on the experience as of the end of each succeeding year. The estimate is increased or decreased as more information becomes known about the frequency and severity of claims. The lower section of the table shows the cumulative amount paid with respect to the previously recorded liability as of the end of each succeeding year. Note that each amount includes the effects of all changes in amounts for prior periods. Conditions and trends that have affected development of the liabilities in the past may not necessarily occur in the future. Accordingly, it may not be appropriate to extrapolate future redundancies or deficiencies based on this table. In the most recent years, actual loss development of the estimated liabilities for unpaid claims and LAE amounts demonstrated that the original estimates have generally been adequate except for those relating to the line "financial guarantees" (1985-1986), reinsurance pools, and for 1992 due to Hurricane Andrew. For the Company, the Financial Guarantee line is represented by its credit bond insurance where litigation and certain related legal issues have historically served to complicate the reserving process. Effective with 1995 settlements, Credit Bond insurance is not expected to produce any future impact. The "cumulative (deficiency) redundancy" represents the aggregate change in the estimates over all prior years. Such amounts have been reflected in income over the years indicated. The effect on income of the past three years of changes in estimates of the liabilities for losses and LAE is shown in Note 4 to the Consolidated Financial Statements on page 49 in Part II Item 8 of this report. The Company's reserve development includes the effects from losses experienced from reinsurance pools in which the Company discontinued participation effective on or prior to 1981. The Company reported pre-tax losses in its discontinued reinsurance pools of $7.3 million in 1995, $4.2 million in 1994 and $3.0 million in 1993. The business is long tail in nature, and losses have exceeded both Company and industry expectations, primarily as a result of evolving legal theory and application which exceeded the intended scope of coverage when the policies were written. The Company's insurance liability, which is secondary and excess in nature, does not surface until the underlying primary coverages and other reinsurance coverages if any, are exhausted. Loss experience has developed in excess of historical experience because of the legal development of cases, including asbestos, environmental and pollution cases. The Company's experience can differ significantly from that of other insurers which wrote the primary coverages directly. The reserves are reviewed, at a minimum annually, by both the reinsurance intermediaries, where the claim liabilities are initially established, and by the Company's actuaries. Lack of historical development indicative of ultimate claim cost and a changing legal definition of what the ultimate liability will be, has created significant uncertainty and has consequently led to underreserving. The Company continues to evaluate and review reserve adequacy in this area using, among other analyses, studies supplied by the Reinsurance Association of America and any adjustments made are reflected in current year results. Federal government Superfund proposals which would change or define the liability for pollution claims add to the uncertainty. Given the inconsistencies of court coverage decisions, plaintiffs' expanded theories of liability, the risks inherent in major litigation and other uncertainties, it is not presently possible to quantify the ultimate exposure. As a result, the Company expects that future earnings may be adversely affected by environmental and asbestos claims, although the amounts cannot be reasonably estimated. However, based on its actuarial studies and analysis, the Company believes it is not likely these claims will have a material adverse effect on the Company's financial condition. At December 31, 1995, the Company holds $21.1 million of reserves related to the reinsurance pools. No specific formula adjustment is made to the reserves in connection with anticipated inflation; however, most coverages relate to property settlements which occur relatively quickly. The Company establishes full reserves on all lines (net of anticipated salvage and subrogation) and does not employ discounting in its reserving process. -19- 21 The differences between the December 31, 1995 liability for losses and LAE reported in the accompanying consolidated financial statements in accordance with generally accepted accounting principles (GAAP) and that reported in the annual statement filed with state insurance departments in accordance with statutory accounting practices (SAP) are as follows: Liability reported on a SAP basis, net of intercompany elimination for reinsured claim liabilities with affiliated life and health companies $174,901,000 Reverse reserves in SAP that are not recognized for GAAP purposes (7,535,000) Deduct estimated salvage and subrogation recoveries recorded on a cash basis for SAP purposes and on an accrual basis for GAAP purposes (3,448,000) ---------- Liability reported on a GAAP basis for the domestic Property and Casualty subsidiaries before unpresented claim drafts and translation of foreign branch operations 163,918,000 Deduct unpresented claim drafts reported as other liabilities for SAP purposes, but reported as claim liabilities for GAAP purposes, and translation of foreign branch operations (1,576,000) ---------- Liability reported on a GAAP basis - domestic Property and Casualty subsidiaries only 162,342,000 Add reserves of foreign subsidiaries not included in consolidated statutory liability 3,403,000 ------------ Liability reported on a GAAP basis (net) 165,745,000 Add Reinsurance Recoverable for ceded unpaid losses (domestic of $75,439,000 and foreign of $1,635,000) 77,074,000 ---------- Liability reported on a GAAP basis (gross) $242,819,000 ============
Employees As of December 31, 1995, the Company employed 2,498 people. d. FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS For financial information about foreign and domestic operations see Note 12 to the Consolidated Financial Statements on page 61 in Part II Item 8 of this report. -20- 22 ITEM 2 PROPERTIES The headquarters building is located at 11222 Quail Roost Drive, Miami, Florida 33157-6596, and is approximately 415,000 square feet in size. The building is used exclusively for general office use, except for a portion which functions as the Company's warehouse. The building's book value is approximately $34.2 million, which includes the cost of acquiring titles and all permanent improvements through December 31, 1995, net of accumulated depreciation. Certain other properties are infrequently acquired through foreclosures of mortgage loans in which ABLAC has invested. ABLAC holds and operates such properties until sale can be effected. ITEM 3 LEGAL PROCEEDINGS Except as discussed in the following paragraph, there are no material legal proceedings, other than ordinary routine litigation incidental to the business, to which the Registrant or any of its subsidiaries is a party or of which any of their property is the subject. LITIGATION Following is a description of material legal proceedings: Other: Alabama litigation: The Company and certain of its insurance subsidiaries are presently parties to a number of individual consumer and class action lawsuits pending in Alabama involving premium, rate and policy coverage issues. As has been widely reported in the news media, the insurance and finance industries have been targeted in Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The Company typically has been named as a co-defendant with one or several retailer or finance companies who have sold the Company's product to a consumer. A number of other credit insurers are named as co-defendants in many of the suits. Although these lawsuits generally involve relatively small amounts of actual or compensatory damages, they typically assert claims requesting substantial punitive awards. The Company denies any wrongdoing in any of these suits and believes that it has not engaged in any conduct that would warrant an award of punitive damages. The Company has been advised by legal counsel that it has meritorious defenses to all claims being asserted against it. While no one case is necessarily significant in terms of financial risk to the Company, the judicial climate in Alabama is such that the outcome of these cases is extremely unpredictable. Without admitting any wrongdoing, the Company has settled a number of these suits, but there are still a significant number of cases pending, and it is expected that more suits alleging essentially the same causes of action are likely to continue to be filed during 1996. The Company intends to continue to defend itself vigorously against all such suits and believes, based on information currently available, that any liabilities that could result are not expected to have a material effect on the Company's financial position. The Company is involved with a number of cases in the ordinary course of business relating to insurance matters or, more infrequently, certain corporate matters. Generally, the Company's liability is limited to specific amounts relating to insurance or policy coverage for which provision has been made in the financial statements. Other cases involve general corporate matters which generally do not represent significant contingencies for the Company. -21- 23 ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of the year ended December 31, 1995. -22- 24 EXECUTIVE OFFICERS OF THE REGISTRANT Set forth below is information concerning each of the Executive Officers of the Company and the Executive Officers of the Company's subsidiaries:
POSITION AND OFFICES WITH THE COMPANY; PRINCIPAL OCCUPATION FOR PAST FIVE YEARS NAME AGE AND OTHER DIRECTORSHIPS, IF ANY ---- --- ------------------------------- R. Kirk Landon 66 Chairman of the Board (1990-Present); Chief International Marketing Officer (1996-Present); Chief Executive Officer of the Company (1990-1995); Chief International Marketing Officer (1996-Present) of ABIC and ABLAC; Chief Executive Officer (1990-1995) of ABIC and ABLAC; Director of BALAC (1990-1995); Director of BICL (1990- Present); Director of CALAC and CAPIC (1992-Present); Director of VGI, VLIC, and VLHIC (1993-1995); Director of Mayor's Jewelers (1987-Present). Gerald N. Gaston 63 Chief Executive Officer (1996-Present); President and Vice Chairman of the Board (1990-Present); Chief Operating Officer of the Company (1990-1995); Chief Executive Officer (1996-Present) of ABIC & ABLAC; Chairman of the Board (1991-Present); Vice Chairman of the Board (1990-1991) and Chief Operating Officer (1990-1995) of ABIC and ABLAC; Chairman of the Board, ARIC (1990-present); Director of BALAC (1990-Present); Chairman of the Board and President of BARC (1995- Present); Chairman of the Board and Chief Executive Officer of VGI, VLHIC, and VLIC (1993-present); Director of InterContinental Bank (1993-1995). Eugene E. Becker 46 Executive Vice President (1991-Present) and Chief Marketing Officer of the Company (1991-1995); President of ABIC (1990-Present); Executive Vice President of ABLAC (1996-Present); Director, Financial Markets of ABIC and ABLAC (1990-1995); President, ARIC (1992-Present); Chairman of the Board (1991-Present) of BALAC; Director of BARC (1995-Present); President (1993-Present) and Chief Operating Officer (1993-1995) of VGI, VLHIC, and VLIC. Floyd G. Denison 52 Executive Vice President and Director, Corporate Asset Management of the Company (1991-Present); Treasurer of the Company (1990-1991); Senior Vice President, Investments, of ABIC and ABLAC (1990- Present); Vice President of BALAC (1991-Present); Chairman of the Board of BARC (1996-Present); Director of BICL (1995-Present); Director of VLHIC (1996-Present)
-23- 25
POSITION AND OFFICES WITH THE COMPANY; PRINCIPAL OCCUPATION FOR PAST FIVE YEARS NAME AGE AND OTHER DIRECTORSHIPS, IF ANY ---- --- ------------------------------- Jay R. Fuchs 40 President of ABLAC (1991-Present); Executive Vice President of ABIC (1996-Present); Director, Personal Markets and Financial Sales of ABIC and ABLAC (1991-1995); Executive Vice President, Financial Markets of ABIC and ABLAC (1990-1991); Director (1991-1994 and 1995- Present) and President (1996-Present) of BALAC; Director of VLIC and VLHIC (1993-Present). Leonardo F.Garcia 44 Secretary of the Company (1994-Present); Senior Vice President and Secretary, Corporate Planning and Acquisitions of ABIC and ABLAC (1994-present); Vice President of Investments (1990-1995); Secretary of VGI (1994-present). Assistant Secretary of ARIC (1995-Present); Director (1995-Present) and Secretary (1994-Present) of BALAC; Secretary of CALAC and CAPIC (1994-Present); Director and Secretary of BARC (1995-Present); Assistant Secretary of VLIC and VLHIC (1994- Present). Arthur W. Heggen 50 Vice President and Treasurer of the Company (1991-Present); Vice President and Principal Accounting Officer of the Company (1990- 1991); Senior Vice President (1990-Present) and Treasurer (1990) of ABIC and ABLAC; Vice President of BALAC (1995-Present) Jason Israel 43 Executive Vice President, Administration (1996-Present); Executive Vice President, Operations, of ABIC and ABLAC (1993-1995); Senior Vice President, Financial Operations, of ABIC and ABLAC (1992); Senior Vice President, Profits, of ABIC and ABLAC (1990-1992); Vice President of BALAC (1995-Present); Executive Vice President of CALAC and CAPIC (1995-Present) Michael T. Ray 42 Executive Vice President, Information Services, of ABIC and ABLAC (1996-Present); First Senior Vice President, Personal and Financial Sales, of ABIC and ABLAC (1994-1995); First Senior Vice President, Marketing Director, of ABIC and ABLAC (1992-1994); Senior Vice President, Financial Insurance Processing, of ABIC and ABLAC (1990- 1992). Stephen T. Williams 44 Executive Vice President, Marketing Director, of ABIC and ABLAC (1996-Present); First Senior Vice President, Marketing Director of ABIC and ABLAC (1994-1995); Senior Vice President, Regional Sales, of ABIC and ABLAC (1988-1993). Director of BALAC (1990-Present); President (1991-1995) and Executive Vice President of BALAC (1996- Present).
None of the Executive Officers named above are involved in legal proceedings as defined in Regulation S-K, Item 401(f). Information with respect to promoters and control persons is not applicable. -24- 26 PART II ITEM 5 MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS a. MARKET FOR COMMON STOCK Common Share Prices and Dividend Data
FIRST SECOND THIRD FOURTH QUARTER QUARTER QUARTER QUARTER ------- ------- ------- ------- 1995 ---- High $30.63 $32.25 $37.25 $39.00 Low $23.50 $26.63 $30.88 $34.88 Dividend $.18 $.19 $.19 $.19 1994 ---- High $26.75 $23.75 $24.50 $25.38 Low $22.25 $21.13 $20.38 $19.00 Dividend $.17 $.18 $.18 $.18
The last sale price per share of the Company's stock on the last trading day of 1995, as reported by NASDAQ, was $39.00. COMMON SHARES American Bankers Insurance Group, Inc. is traded over-the-counter under the NASDAQ symbol ABIG. The stock appears in the NASDAQ National Market stock table. This table presents the high, low and closing sales prices for the stock under the abbreviation AmBkrsIns. The ending market price as of March 22, 1996 was $33-7/8. b. APPROXIMATE NUMBER OF EQUITY SECURITY HOLDERS At December 31, 1995, there were 1,915 registered shareholders. c. DIVIDENDS PER SHARE OF COMMON STOCK For information of the dividends paid per common share see the Table of data in Item 5 a. above. The Company expects to continue its policy of paying regular cash dividends; however, future dividends are dependent on future earnings, capital requirements and financial condition. For more information regarding liquidity and capital resources see page Part II Item 7 page 34. -25- 27 ITEM 6 SELECTED FINANCIAL DATA At December 31 (in thousands except book value per common share):
MAJOR BALANCE SHEET ITEMS 1995 1994 1993 1992 1991 Assets ------ Investments $1,688,400 $1,264,900 $1,110,900 $982,100 $912,600 Cash 23,300 89,500 39,800 10,400 11,600 Reinsurance receivable 168,100 130,900 174,200 Deferred policy acquisition costs 310,900 229,600 198,800 174,900 156,400 Prepaid reinsurance premiums 502,300 396,800 310,600 Other assets 294,700 320,800 326,200 236,900 216,800 --------------------------------------------------------------------------------------------------------- Total assets $2,987,700 $2,432,500 $2,160,500 $1,404,300 $1,297,400 --------------------------------------------------------------------------------------------------------- Liabilities ----------- Policy and claim liabilities $1,858,900 $1,502,600 $1,395,900 $802,800 $732,100 Notes payable 236,000 197,800 158,900 139,600 177,000 Deferred income taxes 29,500 5,000 10,800 12,200 Accrued expenses 136,200 98,800 87,000 77,200 68,700 Other liabilities 214,100 227,400 114,400 105,500 91,300 --------------------------------------------------------------------------------------------------------- Total liabilities 2,474,700 2,026,600 1,761,200 1,135,900 1,081,300 --------------------------------------------------------------------------------------------------------- Stockholders' equity -------------------- Common stock 20,400 20,200 20,100 16,400 14,900 Additional paid-in capital 215,100 212,100 210,900 128,400 109,000 Net unrealized investment and foreign exchange gains (losses) 7,300 (38,500) 400 (2,600) 500 Retained earnings 282,700 225,400 183,000 143,100 110,700 Treasury stock at cost (2,500) (1,600) (400) (400) (400) Unamortized restricted stock (3,600) (3,200) (4,100) (3,800) (3,700) Collateralization of loan to Leveraged Employee Stock Ownership Plan (6,400) (8,500) (10,600) (12,700) (14,900) --------------------------------------------------------------------------------------------------------- Total stockholders' equity 513,000 405,900 399,300 268,400 216,100 --------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $2,987,700 $2,432,500 $2,160,500 $1,404,300 $1,297,400 --------------------------------------------------------------------------------------------------------- Book value per common share $25.34 $20.15 $19.87 $16.38 $14.50 =========================================================================================================
The amounts for 1993 and forward are reported in accordance with FASB Statement 113. -26- 28 For the Years ended December 31 (in thousands except per common share data):
CONSOLIDATED STATEMENTS OF INCOME 1995 1994 1993 1992 1991 ---- ---- ---- ---- ---- Revenues Net premiums earned $1,240,700 $1,094,300 $882,000 $733,000 $691,400 Net investment income 99,400 74,400 70,400 67,500 68,900 Realized investment gains (losses) 700 2,700 5,400 2,800 (900) Gain on insurance settlement 5,400 Other income 20,100 15,400 10,100 8,800 9,000 ------------------------------------------------------------------------------------------------------- Total revenues 1,360,900 1,186,800 973,300 812,100 768,400 ---------------------------------------------------------------------------------------------------------- Benefits and expenses Benefits, claims, losses, and settlement expenses 454,800 434,400 349,500 296,200 277,200 Credit bond losses and expenses 11,500 6,600 3,000 7,400 11,700 Commissions 526,400 437,600 357,900 289,300 279,000 Operating expenses 248,400 217,200 179,100 150,100 137,900 Interest expense 15,600 11,200 8,100 9,600 10,400 ------------------------------------------------------------------------------------------------------- Total benefits and expenses 1,256,700 1,107,000 897,600 752,600 716,200 ---------------------------------------------------------------------------------------------------------- Pre-tax income from operations 104,200 79,800 75,700 59,500 52,200 Income tax (expense) benefit Current (25,200) (14,800) (24,400) (19,000) (21,600) Deferred (6,700) (8,500) 2,000 1,800 6,800 ------------------------------------------------------------------------------------------------------- (31,900) (23,300) (22,400) (17,200) (14,800) ---------------------------------------------------------------------------------------------------------- Net income before cumulative effect of change in accounting 72,300 56,500 53,300 42,300 37,400 Cumulative effect of change in accounting for income taxes (1,000) -------------------------------------------------------------------------------------------------------- Net income $72,300 $56,500 $52,300 $42,300 $37,400 ---------------------------------------------------------------------------------------------------------- PER COMMON SHARE DATA Primary Net income before cumulative effect of change in accounting $3.48 $2.74 $2.85 $2.57 $2.55 Cumulative effect of change in accounting for income taxes (.05) ------------------------------------------------------------------------------------------------------- Net income $3.48 $2.74 $2.80 $2.57 $2.55 ---------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 20,746 20,596 18,670 16,432 14,693 ---------------------------------------------------------------------------------------------------------- Fully diluted Net income before cumulative effect of change in accounting $3.48 $2.74 $2.78 $2.39 $2.22 Cumulative effect of change in accounting for income taxes (.05) ------------------------------------------------------------------------------------------------------- Net income $3.48 $2.74 $2.73 $2.39 $2.22 ---------------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 20,823 20,613 19,317 18,433 18,629 ---------------------------------------------------------------------------------------------------------- Dividends per common share $.75 $.71 $.68 $.60 $.60 ==========================================================================================================
-27- 29 For the Years ended December 31 (in thousands):
GROSS GROSS PREMIUMS CEDED PREMIUMS NET PREMIUMS COLLECTED PREMIUMS EARNED EARNED EARNED 1995 1994 1995 1994 1995 1994 1995 1994 ----------------------------------------------------------------------------------------------------------- Unemployment $410,800 $269,800 $367,500 $263,100 $125,300 $76,300 $242,200 $186,800 Credit Property 367,700 354,200 320,800 296,500 157,000 124,000 163,800 172,500 Credit A&H 349,000 244,500 320,200 247,800 136,600 101,700 183,600 146,100 Credit Life 287,200 211,700 242,700 204,300 105,800 86,000 136,900 118,300 Mobilehome Physical Damage 137,300 121,400 109,600 105,100 27,800 31,600 81,800 73,500 Extended Svc. Contracts 129,500 19,300 31,000 27,700 1,000 5,500 30,000 22,200 Homeowners 101,100 87,000 100,300 83,000 40,900 34,600 59,400 48,400 Mortgage A&H 53,300 49,100 52,900 47,200 5,000 4,600 47,900 42,600 Livestock Mortality 40,800 48,600 41,300 53,500 12,500 19,000 28,800 34,500 Group A&H 39,600 26,400 38,800 34,200 9,500 5,200 29,300 29,000 ----------------------------------------------------------------------------------------------------------------- Subtotal 1,916,300 1,432,000 1,625,100 1,362,400 621,400 488,500 1,003,700 873,900 ----------------------------------------------------------------------------------------------------------------- All Other 370,300 329,100 383,000 313,700 146,000 93,300 237,000 220,400 ----------------------------------------------------------------------------------------------------------------- Total $2,286,600 $1,761,100 $2,008,100 $1,676,100 $767,400 $581,800 $1,240,700 $1,094,300 =================================================================================================================
Five-Year Selected Financial Data At December 31:
LIFE INSURANCE SUBSIDIARIES 1995 1994 1993 1992 1991 --------------------------------------------------------------------------------------------------------- Statutory capital and surplus (in thousands)* $188,900 $174,100 $175,900 $116,400 $111,000 Ratio of statutory capital and surplus to liabilities 28.6% 32.2% 35.5% 24.8% 24.4% Ratio of net investment income to average invested assets (statutory basis) 7.6% 7.1% 7.7% 7.8% 9.0% PROPERTY AND CASUALTY SUBSIDIARIES Statutory capital and surplus (in thousands)* $271,500 $224,900 $215,900 $156,200 $150,800 Ratio of net premiums written to statutory capital and surplus 3.1 2.6 2.3 2.6 2.2 Ratio of loss and loss expense reserves to statutory capital and surplus 65.5% 58.2% 55.6% 65.7% 55.0% Combined loss and expense ratio (statutory basis) 93.8% 96.0% 94.1% 95.7% 99.9% ----------------------------------------------------------------------------------------------------------
*See Note 8 to Consolidated Financial Statements. -28- 30 For the Years ended December 31:
OPERATING RATIOS 1995 1994 1993 1992 1991 ---------------------------------------------------------------------------------------------------------- As a percent of net premiums earned: Benefits, claims, losses, and settlement expenses 37.6% 40.3% 40.0% 41.4% 41.8% Commissions 42.4 40.0 40.6 39.5 40.3 Operating expenses 20.0 19.8 20.3 20.5 20.0 -------------------------------------------------------------------------------------------------------- Total benefits and expenses as a percent of total revenues 92.3 93.3 92.2 92.7 93.2 Net income as a percent of total revenues (profit margin) 5.3 4.8 5.4 5.2 4.9 Net income as a percent of average assets (return on assets) 2.7 2.5 3.4 3.1 2.9 Net income as a percent of average stockholders equity (return on equity) 15.7 14.1 15.7 17.4 19.0 ------------------------------------------------------------------------------------------------------------ At December 31: Debt as a percent of total capitalization 31.5 32.8 28.5 34.2 45.0 Price/Earnings Ratio 11.2 8.8 9.4 9.3 8.0 Price/Book Value Ratio 1.5 1.2 1.3 1.5 1.4 ----------------------------------------------------------------------------------------------------------
Gross Life Insurance in Force Gross Collected Premiums (in millions of dollars) (in millions of dollars) 1991 $29,168 $ 961 1992 27,878 1,120 1993 30,848 1,427 1994 32,129 1,761 1995 42,708 2,287
ITEM 7 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OVERVIEW Industry The property and casualty industry is expected to reflect higher earnings in 1995, as a result of fewer major catastrophes, reductions in loss costs and an increase in investment income. Standard & Poor's is projecting a 5.3% return on operating revenue compared with 4.3% in 1994. The reinsurance market has witnessed some softening in prices, so insurance companies can expect to renew their coverages at prior year levels without incurring additional cost. Unprecedented catastrophe losses in recent years have prompted insurers to more aggressively limit their exposures to catastrophes. Such actions have in turn created insurance availability problems in certain areas. In response to this environment, some activity at the state level has occurred. During 1995, the California legislature authorized the establishment of the California Earthquake Authority, which will -29- 31 provide an alternative facility to California consumers for obtaining insurance to cover the earthquake peril. A similar situation exists in Florida where a state-sponsored insurance facility has accepted a significant number of insureds as insurance companies have continued to limit the amount of their Florida business. Litigation concerns continue to lead the industry's list of concerns. In Alabama, the insurance industry has been targeted in litigation. The legal environment in Alabama has received national news coverage and the Alabama legislature is considering tort reform. Changes, if any, in the current environment cannot be predicted. In the meantime, Alabama litigation represents a significant issue to the industry. The federal government, commercial companies and the insurance industry continue to work together toward Superfund reform and dealing with the cleanup of pollution sites. Among issues pending are the determination of retroactive liability and a proposed insurer-specific tax. American Bankers Net income for 1995 increased to $72.3 million from $56.5 million in 1994, representing an increase of 28%. The Company's largest financial distribution channels continue to produce strong overall premium growth contributing to the increase in net income. The 1995 results include, on an after-tax basis, an increase of $16.2 million in net investment income, net investment gains of $.5 million and a $3.8 million charge on the settlement of the final portion of the credit bond litigation. The 1994 results included, on an after-tax basis, $1.7 million in net investment gains and a $2.9 million charge on the final settlement of the credit bond litigation initiated by bondholders. The 1993 results included, on an after-tax basis, $4.6 million in net losses attributable to adverse development of claims from Hurricane Andrew and losses incurred from a March winter storm which affected the Northeastern United States. Pre-tax operating income before realized gains (losses) by industry segment was as follows:
(in thousands) INCOME REALIZED INCOME EXCLUDING GAINS BEFORE GAINS (LOSSES) (LOSSES) TAXES Life ---- 1995 $43,469 $1,262 $44,731 1994 $30,434 $1,586 $32,020 1993 $21,767 $6,397 $28,164 Property and Casualty --------------------- 1995 $83,971 $3,386 $87,357 1994 $66,023 $670 $66,693 1993 $60,531 $(1,839) $58,692
These segment results exclude interest and other corporate activity. The 1993 winter storm and credit bond losses are included in the property and casualty segment. (See Note 12 to the Consolidated Financial Statements on page 61 in Part II Item 8 of this report.) -30- 32 REVENUES The Company's total revenues in 1995 increased by 15%, primarily due to the increases in net earned premiums of $146.4 million and investment income of $25.0 million. The Company continues to show its biggest growth in the property and casualty segment where revenues increased by $158.9 million compared to the life segment increase of $23.0 million. A significant portion of the increase in the property and casualty segment is from net earned premiums on the credit unemployment product. Gross collected premiums increased more than $500 million or approximately 30% from $1.8 billion in 1994 to $2.3 billion in 1995. The majority of the increase was generated from three of the Company's products. Gross collected premiums for the selected three products were:
(in thousands) PRODUCT 1995 1994 INCREASE Credit Unemployment $410,800 $269,800 $141,000 Credit A&H 349,000 244,500 104,500 Extended Service 129,500 19,300 110,200 ---------------------------------------------------------------------------- Total $889,300 $533,600 $355,700
The Company expects its premium growth to continue at recent historic rates depending on the acquisition of new clients, introduction of new products to its existing accounts and pursuit of opportunities as other insurance companies withdraw from the credit insurance market. The cost of reinsurance to cover catastrophe losses increased by $3.1 million to $9.5 million in 1995. The Company continuously reviews its exposure to catastrophe losses and, in 1995, increased its coverage which accounted for the majority of the increase in cost. The cost had remained relatively flat from 1993 to 1994 at $6.7 million and $6.4 million, respectively. The unusually large number of major catastrophe losses recently experienced by the industry had caused the reinsurance market capacity to be limited and more costly; however, the reinsurance market showed signs of stabilizing in 1995, and, consequently, costs for similar coverages are expected to remain at current levels in the foreseeable future. Investment income increased significantly to $99.4 million in 1995 from $74.4 million in 1994, representing a 34% increase. The increase is mainly due to the higher interest rate environment experienced during the early part of 1995 and the overall increase in invested assets of $423.5 million due primarily to premium growth. The increase in 1994 from 1993 was 6%. The Company's investment yield was 6.7% in 1995, 6.3% in 1994 and 6.7% in 1993. The Company's tax strategy of investing in tax-favored investments, such as low-income housing tax credit investments, also affects the overall pre-tax investment returns. Gross collected premiums increased 23% in 1994 and 27% in 1993. Net earned premiums increased 24% in 1994 and 20% in 1993. Total net premiums earned by industry segment were as follows:
(in millions) 1995 1994 1993 Life $377.1 $360.1 $305.1 Property and Casualty 863.6 734.2 576.9 ----------------------------------------------------------------------------- Total $1,240.7 $1,094.3 $882.0
-31- 33 CLAIMS AND COMMISSIONS The Company enjoyed continuing improvement of its underwriting results in 1995. Through our extensive use of adjustable commission arrangements based on claims experience, we have been able to generate business with improved underwriting results. The overall loss ratio for the Company (excluding credit bond losses) was 36.7% in 1995 compared to 39.7% in 1994 and 39.6% in 1993. The commission expense ratios for the same periods were 42.4% for 1995, 40.0% for 1994 and 40.6% for 1993, resulting in combined claims and commissions ratio of 79.1%, 79.7% and 80.2% for 1995, 1994 and 1993, respectively. The net retained underwriting profit (premiums less benefits, claims including credit bond and commissions) was 20% in 1995, 19.7% in 1994 and 19.5% in 1993. A few of the Company's products such as Mobilehome Physical Damage and Homeowners are affected by seasonal changes during the year, causing the profitability in those lines and for the Company to fluctuate throughout the year. The Company's experience in the property and casualty segment has been better than industry experience for the last three years, as demonstrated by the following combined statutory ratios:
1995 1994 1993 ABIG 94 96 94 Industry 105* 108 107 *A.M. Best estimates
The Company completed a settlement of the only remaining lawsuit related to its discontinued credit bond insurance product line which resulted in an after-tax charge of $3.8 million. Credit bond pre-tax losses and expenses amounted to $11.5, $6.6 and $3.0 million in 1995, 1994 and 1993, respectively. The losses include reserves and partial litigation settlements of $5.8 million in 1995 and $4.5 million in 1994. There were no credit bond settlements in 1993. The Company anticipates no significant future expenses or losses associated with the remaining policies in force. The Company's adverse loss reserve development includes the effects from losses experienced from excess casualty reinsurance pools in which the Company discontinued participation effective in or prior to 1981. The Company reported pre-tax losses from these pools of $7.3 million in 1995, $4.2 million in 1994 and $3.0 million in 1993. 1995 results include reserve additions of $3.0 million, made throughout the year to existing claims. The business is long-tail in nature and losses continue to exceed both Company and industry expectations. Most of these losses result from asbestos related and environmental pollution claims. The Company's exposure is only through participation in excess casualty pools. These pools typically involve high layer coverages that are applicable only after primary insurance coverage and, in many cases, reinsurance coverages have been exhausted. Its experience can differ significantly from that of other insurers which wrote the primary coverages directly. The Company establishes loss reserves on known claims as recommended by the various pool managers. Additional reserves to compensate for those claims that have not yet been reported are established which, when added to reported claim reserves, produce a total survival ratio of approximately 8.5 years. Management expects that reinsurance pool losses will continue in the current environment but will not have a material adverse effect on the Company's operations. It is difficult, however, to make a reasonable estimate of the Company's ultimate liability due to a general absence of reliable predictive data and of a generally accepted actuarial methodology for these exposures, significant unresolved legal issues including coverage issues, policy definitions and evolving theories and arguments. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties is complex and uncertain. -32- 34 OPERATING AND INTEREST EXPENSES Operating expenses (excluding interest expense) were $248.4 million in 1995, $217.2 million in 1994 and $179.2 million in 1993. Operating expenses as a percentage of net earned premiums have remained constant at 20%. Included in the expense is the cost of a new processing system being implemented for the property and casualty segment, which totaled $4.9 million in 1995 and $3.6 million in 1994. Similar expense levels are expected to continue through 1997. New processing systems are also being implemented for certain products in the life segment; however, the costs are not significant. Interest expense was $15.6 million, $11.2 million and $8.1 million in 1995, 1994 and 1993, respectively. The increase in interest expense is due in part to an increase in interest rates and increases in debt ($38.2 million in 1995 and $38.9 million in 1994). The increase in the interest rate environment, which benefits the Company in additional investment income, is partly offset by the increase in interest expense. Debt financing was utilized principally to support the continued growth of the Company's insurance subsidiaries. Interest expense in 1993 included $.6 million for the 5 3/4% convertible subordinated debentures, which were converted into the Company s common stock during the year. TAXES AND OTHER The effective tax rate was 31% in 1995, 29% in 1994 and 31% in 1993. The majority of the increase in 1995 from 1994 was caused by operating losses from our United Kingdom insurance subsidiary, which did not provide any current tax benefit to the Company. In 1993, adoption of Financial Accounting Standards Board (FASB) Statement 109 - Accounting for Income Taxes - resulted in an additional tax charge of $1 million. The Company continues to take advantage of investing in tax exempt securities and tax credit investments to minimize its income tax expense. The Company is subject to various consumer initiatives including Proposition 103, passed in California in 1988, which are directed toward companies writing certain insurance coverages in that state. Proposition 103 required the Company to refund or roll back premiums to California policyholders if favorable underwriting experience exceeded certain guidelines. In 1995, the Company reached an agreement with the California Insurance Department whereby the Company rebated $4.1 million to affected policyholders. Previously established reserves satisfied this settlement. The Company is not aware of any other consumer initiatives which will have a material effect on results. FINANCIAL CONDITION Total assets at December 31, 1995, 1994 and 1993 were $3.0 billion, $2.4 billion and $2.2 billion, respectively. The 23% increase from 1994 to 1995 resulted from strong cash flows, the assumption of a block of business and additional debt financing. Invested assets at the same dates were $1.7 billion, $1.3 billion and $1.1 billion, respectively. At December 31, 1995, investments in fixed maturities represented 82% of the total investment portfolio while short-term and other investments (principally invested cash) represented another 10%. The Company does not hold significant investments in equity securities. Cash balances decreased to $23.3 million at December 31, 1995 from $89.5 million at December 31, 1994, which included $70.7 million received in late 1994 from an assumption of Extended Service Contract obligations. Non-invested assets, including policy acquisition costs, were $1.3 billion in 1995, $1.2 billion in 1994 and $1.0 billion in 1993. The Company does not have a large concentration of investments in mortgage loans or real estate. At December 31, 1995, there were $10.3 million in such investments pertaining to Florida properties. Liabilities were $2.5, $2.0 and $1.8 billion at December 31, 1995, 1994 and 1993, respectively. The increase came mainly from policy and claims liabilities plus unearned premium reserves consistent -33- 35 with the overall growth in certain lines of business and assumption of certain blocks of business in 1995 and 1994. Notes payable were $236.0 million at December 31, 1995, $197.8 million at December 31, 1994 and $158.9 million at December 31, 1993. In 1994, the Company registered $200 million of medium-term notes with the Securities and Exchange Commission. During 1995 and 1994, the Company issued $50.0 million and $75.0 million of these notes, respectively. The debt issuance proceeds were used to refinance outstanding debt and to support the Company's continued growth and expansion into new markets. In 1995, the Company replaced its short-term financing facility and borrowed $87 million, mainly used to pay off its former facility. Although the debt related to the Leveraged Employees Stock Ownership Plan (LESOP) ($6.4 million at December 31, 1995) is not a direct obligation of the Company, it is nevertheless reported as part of the Company's debt with an offsetting balance reflected as a reduction of stockholders equity. As contributions to the LESOP are made by the Company, the debt is repaid to the bank by the LESOP, and the balances on the Company's balance sheet are reduced accordingly. (See Note 9 to the Consolidated Financial Statements.) Stockholder's equity increased by $113.7 million to $513.0 million in 1995 from $399.3 million in 1993. In 1994, the Company adopted FASB Statement 115 - Accounting for Certain Investments in Debt ad Equity Securities - which requires certain investments in debt and equity securities to be carried in the balance sheet at fair value. The difference between amortized cost and fair value of securities available-for-sale (unrealized gain or loss, net of tax) is included as a component of equity. At December 31, 1995, the fixed maturity portfolio reflects an unrealized gain of $22.9 million, net of tax, reflecting a decrease in interest rates during the last half of 1995. Stockholders' equity grew approximately $244.6 million from January 1, 1993 to December 31, 1995, primarily from accumulated earnings of $181.1 million reduced by $41.8 million in dividends paid on the Company's common stock. During 1993, conversion of debentures added $32.4 million to total equity, and the issuance of an additional two million shares of the Company's common stock added $51.8 million. Under the 1990 authority to repurchase up to one million shares of the Company's stock granted by the Board of Directors, approximately 136,400 shares have been purchased to date (30,000 in 1995) as treasury stock. In February 1996, the Board of Directors revoked the 1990 authority and authorized a repurchase of up to one million shares of the Company's stock in the open market from time to time subject to certain conditions. LIQUIDITY AND CAPITAL RESOURCES The interest rate for U.S. Treasury Bonds closed at 5.21% at December 31, 1995 compared to 7.75% at December 31, 1994. The lower interest rates improved the market value of the Company's fixed maturity portfolio which had been depressed in 1994. Unrealized gains or losses on fixed maturity investments changed from a $60.9 million loss at December 31, 1994 to a $35.2 million gain at December 31, 1995. At December 31, 1995, $1.6 billion or 55% of the Company's total assets were comprised of securities, short-term investments and cash. The securities were principally readily marketable, and none of the securities were part of highly leveraged transactions. In the bond portfolio, 79% of bonds have maturities of under five years and 87% have a rating of "A" or better. Liabilities representing current cash requirements include claim liabilities, accrued commissions and other liabilities totaling $748.0 million at December 31, 1995, an increase of $101.9 million. In addition, the Company's other significant cash commitments in 1996 include shareholder dividends ($15.5 million under the current capital structure). The Company's investment portfolio has been structured to match cash requirements. Also, cash flow from operations which generated $266.0 million in 1995, $235.2 million in 1994 and $61.0 million in 1993, is expected to help meet operating requirements, as well as anticipated debt service. Cash provided by operating activities in excess of such needs is, in turn, used in investing activities. -34- 36 Capital expenditures planned for 1996 are not expected to be significant compared to the Company's overall liquidity and cash flow. The headquarters will be expanded at a cost of approximately $4.5 million. The one million share stock buyback program is not expected to significantly impact the Company's liquidity or cash flow in any one financial reporting period. While the impact, if any, from the resolution of pending litigation cannot presently be identified, the Company does not expect any unfavorable outcome to have a material effect on liquidity or financial condition. In 1995, the Company executed a $250 million financing program with a group of banks, which features a bid loan and revolving line of credit facility to replace the $130 million financing program. In 1994, the Company registered $200 million of medium-term notes with maturities ranging from nine months to thirty years, with the Securities and Exchange Commission. In 1994 and 1995, the Company issued a $75 million fixed rate note and a $50 million floating rate note, respectively. The interest rat on the floating rate note is determined quarterly and interest under the short-term facility is determined at the time amounts are borrowed. Accordingly, interest rate changes may impact the Company's interest expense. Under these arrangements, approximately $238 million is available for short-term liquidity needs as of year end. The Company does not commit a significant portion of its investment portfolio to equity securities, which were 7% of total invested assets at December 31, 1995; consequently, liquidity is not significantly affected by changes in the equity securities markets. The Company's preferred stock portfolio is exposed to market value fluctuations which result primarily, but not exclusively, from the sensitivity of the preferred stocks to interest rate changes. To mitigate the interest rate sensitivity of this portfolio, the Company has established a limited cross-hedging program utilizing U.S. Treasury futures contracts. Realized losses totaling $3.5 million in 1995 resulted from terminated and expired option contracts. The net fair value of the preferred stock portfolio being managed is $23.8 million ($24.4 million book value less $.6 million unrealized loss). There were no open futures positions existing at December 31, 1995. The Company does not concentrate in policy coverages under which policyholders may control, on a discretionary basis, access to cash benefits through policy surrender and withdrawals. The Company expects to continue its policy of paying regular cash dividends; however, future dividends are dependent on the Company's future earnings, capital requirements and financial condition. Additionally, based on the current dividend-paying abilities of the insurance subsidiaries, the Company does not foresee any difficulty in servicing its outstanding indebtedness or its dividend-paying abilities. Payment of dividends to ABIG by its insurance subsidiaries is dependent on regulations dictated by statutory authorities in each state in which they are domiciled. The National Association of Insurance Commissioners has introduced standards which would treat dividends in excess of the lesser of 10% of surplus or net income as extraordinary dividends requiring insurance department approval. While some states have adopted the standards, others have not. The payment of dividends by the subsidiaries is discussed further in Note 8 to the Consolidated Financial Statements on page 55. PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 - SAFE HARBOR CAUTIONARY STATEMENT Except for historical information provided in this Annual Report, statements made throughout this document, including in this Management's Discussion and Analysis, are forward-looking and, as such, actual results could differ materially from those expected by the Company. The actual results of the Company may be affected by (i) adverse catastrophe experience in certain of the Company's property and casualty products; (ii) significant changes in interest rates; (iii) increased competition causing reduction in product margin or loss of a significant client; (iv) adverse loss development on property and casualty prior years claims or the excess casualty reinsurance pools; (v) premium growth expectation not met because of the loss of a significant client; (vi) outcome of litigation and other state regulatory issues; and (vii) general economic conditions. In addition, the actual results of forward-looking statements are also subject to the specific factors which may be included with a particular forward-looking statement. -35- 37 ITEM 8 FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA AMERICAN BANKERS INSURANCE GROUP, INC. AND SUBSIDIARIES INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page ---- Report of Independent Certified Public Accountants 37 Consolidated Balance Sheets at December 31, 1995 and 1994 38 Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993 39 Consolidated Statements of Common Stock and Other Stockholders' Equity for the years ended December 31, 1995 1994 and 1993 40 Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993 41 Notes to Consolidated Financial Statements for the year ended December 31, 1995 42 SCHEDULES: * I - Summary of Investments - Other Than Investments in Related Parties 63 II - Condensed Financial Information of Registrant 64 - 68 III - Supplementary Insurance Information 69 IV - Reinsurance 70 VI - Supplemental Information Concerning Property - Casualty Insurance Operations 71
* Note : All other schedules are omitted because they are not applicable or the required information is shown in the financial statements or notes thereto. -36- 38 REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS To the Board of Director and Stockholders of American Bankers Insurance Group, Inc. In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of American Bankers Insurance Group, Inc. and its subsidiaries at December 31, 1995 and 1994, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1995, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Miami, Florida March 8, 1996 -37- 39 CONSOLIDATED BALANCE SHEETS At December 31 (in thousands except par value of common stock):
1995 1994 ---- ---- ASSETS Investments Held-to-maturity securities, at amortized cost (fair value: $613,749 in 1995 and $537,227 in 1994) $594,277 $555,576 Available-for-sale securities, at fair value (amortized cost: $777,540 in 1995 and $530,827 in 1994) 793,277 488,266 Equity securities, at approximate market value (cost: $98,612 in 1995 and $64,028 in 1994) 113,028 65,432 Mortgage loans on real estate 11,793 13,787 Policy loans 7,819 6,841 Short-term and other investments 168,216 134,968 ---------------------------------------------------------------------------------------------------- Total investments 1,688,410 1,264,870 ------------------------------------------------------------------------------------------------------- Cash 23,257 89,536 Accounts receivable, net of allowance for doubtful accounts of $5,024 in 1995 and $5,861 in 1994 130,970 105,556 Reinsurance receivable 168,128 130,938 Accrued investment income 20,943 16,062 Deferred policy acquisition costs 310,879 229,581 Prepaid reinsurance premiums 502,312 396,796 Other assets 142,835 199,160 ---------------------------------------------------------------------------------------------------- Total assets $2,987,734 $2,432,499 ======================================================================================================= LIABILITIES, COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY Policy liabilities $275,250 $266,221 Unearned premiums 1,178,867 903,279 Claim liabilities 404,745 333,113 ---------------------------------------------------------------------------------------------------- 1,858,862 1,502,613 ---------------------------------------------------------------------------------------------------- Other policyholders' funds 7,113 13,221 Notes payable 235,981 197,789 Deferred income taxes 29,549 Accrued commissions and other expenses 136,174 98,819 Other liabilities 207,058 214,182 ---------------------------------------------------------------------------------------------------- Total liabilities 2,474,737 2,026,624 ------------------------------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENCIES (NOTE 11) Common Stock and Other Stockholders' Equity Common stock of $1 par value. Authorized 35,000 shares; issued and outstanding 20,384 shares in 1995 and 20,244 shares in 1994 20,384 20,244 Additional paid-in capital 215,121 212,139 Net unrealized investment and foreign exchange gains (losses) 7,255 (38,554) Retained earnings 282,748 225,374 Treasury stock at cost - 136 shares in 1995 and 106 shares in 1994 (2,516) (1,623) Unamortized restricted stock (3,620) (3,205) Collateralization of loan to Leveraged Employee Stock Ownership Plan (6,375) (8,500) ---------------------------------------------------------------------------------------------------- Total common stock and other stockholders' equity 512,997 405,875 ------------------------------------------------------------------------------------------------------- Total liabilities, common stock and other stockholders' equity $2,987,734 $2,432,499 =======================================================================================================
See accompanying notes to consolidated financial statements. -38- 40 CONSOLIDATED STATEMENTS OF INCOME For the Years ended December 31 (in thousands except per common share data):
1995 1994 1993 ---- ---- ---- Gross collected premiums $2,286,573 $1,761,080 $1,427,235 ====================================================================================================== PREMIUMS AND OTHER REVENUES Net premiums earned $1,240,713 $1,094,317 $881,994 Net investment income 99,400 74,442 70,353 Realized investment gains 721 2,679 5,454 Gain on insurance settlement 5,412 Other income 20,014 15,397 10,111 ---------------------------------------------------------------------------------------------------- Total revenues 1,360,848 1,186,835 973,324 -------------------------------------------------------------------------------------------------- BENEFITS AND EXPENSES Benefits, claims, losses, and settlement expenses 454,797 434,408 349,505 Credit bond losses and expenses 11,467 6,599 2,974 Commissions 526,400 437,642 357,894 Operating expenses 248,410 217,202 179,162 Interest expense 15,579 11,168 8,109 ---------------------------------------------------------------------------------------------------- Total benefits and expenses 1,256,653 1,107,019 897,644 -------------------------------------------------------------------------------------------------- Income before income taxes and cumulative effect of change in accounting 104,195 79,816 75,680 ------------------------------------------------------------------------------------------------------ Income tax (expense) benefit Current (25,205) (14,830) (24,420) Deferred (6,730) (8,442) 2,040 ---------------------------------------------------------------------------------------------------- (31,935) (23,272) (22,380) ---------------------------------------------------------------------------------------------------- Net income before cumulative effect of change in accounting 72,260 56,544 53,300 Cumulative effect of change in accounting for income taxes (1,005) ---------------------------------------------------------------------------------------------------- Net income $72,260 $56,544 $52,295 ================================================================================================== PER COMMON SHARE DATA Primary: Net income before cumulative effect of change in accounting $3.48 $2.74 $2.85 Cumulative effect of change in accounting for income taxes (.05) -------------------------------------------------------------------------------------------------- Net income $3.48 $2.74 $2.80 -------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 20,746 20,596 18,670 ------------------------------------------------------------------------------------------------------ Fully diluted: Net income before cumulative effect of change in accounting $3.48 $2.74 $2.78 Cumulative effect of change in accounting for income taxes (.05) -------------------------------------------------------------------------------------------------- Net income $3.48 $2.74 $2.73 -------------------------------------------------------------------------------------------------- Weighted average number of shares outstanding 20,823 20,613 19,317 ------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -39- 41 CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER STOCKHOLDERS' EQUITY For the Years ended December 31 (in thousands except per common share data):
1995 1994 1993 ---- ---- ---- COMMON STOCK: Balance at beginning of year $20,244 $20,140 $16,432 Exercise/forfeitures of options 140 104 118 Conversion of debentures 1,590 Proceeds from sale of stock 2,000 Balance at end of year $20,384 $20,244 $20,140 ------------------------------------------------------------------------------------------------------ ADDITIONAL PAID-IN CAPITAL: Balance at beginning of year $212,139 $210,878 $128,382 Exercise/forfeitures of options 2,982 1,261 1,869 Expiration of put and conversion of debentures 30,794 Proceeds from sale of stock 49,833 Balance at end of year $215,121 $212,139 $210,878 ------------------------------------------------------------------------------------------------------ NET UNREALIZED INVESTMENT AND FOREIGN EXCHANGE GAINS (LOSSES): Balance at beginning of year $(38,554) $356 $(2,554) Change in net unrealized investment gains (losses) 71,310 (52,588) 6,272 Taxes on net unrealized investments gains (losses) (23,628) 17,094 (1,912) Equity adjustment from foreign currency translation (1,873) (3,416) (1,450) Balance at end of year $7,255 $(38,554) $356 ------------------------------------------------------------------------------------------------------ RETAINED EARNINGS: Balance at beginning of year $225,374 $182,975 $143,115 Net income 72,260 56,544 52,295 Cash dividends ($.75, $.71 and $.68 per share), net of tax benefit on unallocated LESOP shares (14,886) (14,145) (12,435) Balance at end of year $282,748 $225,374 $182,975 ------------------------------------------------------------------------------------------------------ TREASURY STOCK: Balance at beginning of year $(1,623) $(416) $(416) Purchase of treasury stock (893) (1,207) Balance at end of year $(2,516) $(1,623) $(416) ------------------------------------------------------------------------------------------------------- UNAMORTIZED RESTRICTED STOCK: Balance at beginning of year $(3,205) $(4,053) $(3,795) Exercise/forfeitures of options (1,822) (116) (1,412) Amortization expense 1,407 964 1,154 Balance at end of year $(3,620) $(3,205) $(4,053) ------------------------------------------------------------------------------------------------------ COLLATERALIZATION OF LOAN TO LESOP: Balance at beginning of year $(8,500) $(10,625) $(12,750) Reduction of LESOP loan 2,125 2,125 2,125 Balance at end of year $(6,375) $(8,500) $(10,625) -------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements. -40- 42 CONSOLIDATED STATEMENTS OF CASH FLOWS For the Years ended December 31 (in thousands):
1995 1994 1993 ---- ---- ---- OPERATING ACTIVITIES: Net income $72,260 $56,544 $52,295 Adjustments to reconcile net income to net cash provided by operating activities: Increase in policy liabilities, unearned premiums and claim liabilities (net of reinsurance) 213,544 66,219 23,304 Change in other assets and other liabilities 39,170 76,031 8,220 (Increase) decrease in accounts receivable (25,414) 26,895 (28,139) (Increase) decrease in accrued investment income (4,881) (2,264) 2,430 Increase in accrued commission and expenses 37,355 11,862 36 (Decrease) increase in other policyholders' funds (6,108) 6,855 (101) Increase in policy loans (978) (119) (816) Amortization of deferred policy acquisition costs 449,749 345,505 266,845 Amortization of cost of insurance acquired 2,447 6,109 14,233 Policy acquisition costs deferred (531,048) (376,327) (274,442) Provision for amortization and depreciation 16,521 13,089 8,113 Deferred income taxes 6,730 8,442 (1,035) Net gain on sale of investments and debt repurchases (721) (2,679) (5,454) Compensation on option plans shares exercised 1,407 965 1,094 Gain on insurance settlement (5,412) Net cash flow from purchases and sales of trading securities (4,019) (1,887) ------------------------------------------------------------------------------------------------------------------ Net cash provided by operating activities 266,014 235,240 61,171 ------------------------------------------------------------------------------------------------------------------ INVESTING ACTIVITIES: Purchase of investments Held-to-maturity securities (159,185) (164,825) Available-for-sale securities (346,237) (430,475) Fixed maturities (759,741) Equity securities (80,224) Mortgage loans (263) (1,517) (1,822) Real estate (563) (460) Payment for acquisition, net of cash acquired (107,679) Proceeds from sale of investments Held-to-maturity securities 158 Available-for-sale securities 94,267 218,914 Fixed maturities 528,491 Equity securities 79,833 Mortgage loans 2,654 3,286 3,926 Real estate 87 2,992 Proceeds from maturities of investments Held-to-maturity securities 71,395 104,226 Available-for-sale securities 27,244 57,535 Fixed maturities 220,017 (Increase) decrease in short-term investments (38,345) 5,919 6,264 Transactions related to capital assets Capital expenditures (9,770) (5,784) (30,158) Sales of capital assets 302 282 321 Proceeds from insurance claims 11,712 ------------------------------------------------------------------------------------------------------------------ Net cash used in investing activities (358,414) (212,281) (126,528) --------------------------------------------------------------------------------------------------------------- FINANCING ACTIVITIES: Proceeds from issuance of notes payable 131,000 96,723 182,250 Repayment of notes payable (90,683) (55,683) (127,257) Dividends paid to shareholders (14,824) (14,304) (12,639) Proceeds from sale of stock 1,248 1,238 52,539 Purchase of treasury stock (893) (1,208) ---------------------------------------------------------------------------------------------------------------------- Net cash provided by financing activities 25,848 26,766 94,893 ---------------------------------------------------------------------------------------------------------------------- Effect of exchange rate changes on cash 273 (15) (150) ----------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash (66,279) 49,710 29,386 Cash at beginning of year 89,536 39,826 10,440 ---------------------------------------------------------------------------------------------------------------------- Cash at end of year $23,257 $89,536 $39,826 ======================================================================================================================
See accompanying notes to consolidated financial statements. -41- 43 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (1) Description of Business American Bankers Insurance Group, Inc. provides credit-related insurance programs in the United States, Canada and the Caribbean. The Company also conducts business in Latin America and the United Kingdom. ABIG, as an international wholesaler and marketer of insurance products, services and programs, concentrates on marketing through financial institutions, retailers and other entities which provide consumer financing as a regular part of their business. (2) Summary of Significant Accounting Policies The consolidated financial statements have been prepared in conformity with generally accepted accounting principles which vary in certain respects from reporting practices prescribed or permitted by state insurance departments and include the following significant accounting policies: (a) Consolidation Policy The accompanying consolidated financial statements include the accounts of American Bankers Insurance Group, Inc. (ABIG) and its subsidiaries (the Company): - American Bankers Insurance Company of Florida (ABIC) and subsidiaries - American Bankers Life Assurance Company of Florida (ABLAC) and subsidiaries, including Caribbean American Life Assurance Company (CALAC) - American Reliable Insurance Company (ARIC) - Bankers American Life Assurance Company (BALAC) - Bankers Insurance Company, Ltd. (BICL) - Caribbean American Property Insurance Company (CAPIC) - Voyager Insurance Companies All significant intercompany transactions and accounts have been eliminated in consolidation. (b) Investments In 1994, the Company adopted FASB Statement 115 - Accounting for Certain Investments in Debt and Equity Securities (FASB Statement 115). Under the Statement, investments in debt and equity securities are classified as either held-to-maturity, available-for-sale or trading. Investments in debt securities are classified as held-to-maturity and measured at amortized cost if the Company has the positive intent and ability to hold these securities to maturity. Investments in debt securities not classified as held-to-maturity and equity securities with readily determinable fair values are classified as either available-for-sale or trading securities and measured at fair value. Securities that are purchased and held principally for the purpose of selling them in the near term shall be classified as trading securities and reported at fair value with subsequent changes in value reflected as unrealized investment gains and losses in the Consolidated Statements of Income. Investments not classified as either trading securities or held-to-maturity securities are classified as available-for-sale securities and reported at fair value with subsequent changes -42- 44 in value reflected as unrealized investment gains and losses in the Consolidated Statements of Common Stock and Other Stockholders' Equity. Prior to 1994, fixed maturities, including preferred stocks with sinking fund provisions, were carried at amortized cost. Equity securities are carried at market value. Mortgage loans and policy loans are stated at the unpaid principal balance of such loans net of unamortized discount. Investments with impairment in value, which is other than temporary, are written down to estimated realizable value. The writedowns are included in realized investment gains in the Consolidated Statements of Income. Premiums and discounts on mortgage-backed securities are amortized using the simple interest method over the expected life of each security - generally 2 to 7 years. In addition, a pro rata portion of premiums and discounts is recognized when principal payments are received and is included in net investment income in the Consolidated Statements of Income. Unrealized gains and losses on equity securities are reflected in Stockholders' Equity. The cost of securities sold is based on the specific identification method. (c) Premium Revenues Life insurance and annuity premiums, including single premiums for accidental death and dismemberment policies, are reported as earned when due. Credit life insurance premiums and accident and health premiums are earned over the terms of the contracts in relation to anticipated benefits to the policyholders. Property insurance premiums are recognized as income principally on a pro rata basis over the life of the policies. (d) Policy Acquisition Costs For life business, the costs of acquiring new business (principally commissions and certain variable underwriting, agency and policy issue expenses) are deferred and amortized over the term of the contracts as follows: Acquisition costs relating to ordinary life contracts are amortized over the estimated term of the contracts in proportion to the ratio of the annual premium revenue to total premium revenue expected. Acquisition costs for universal life and annuities are amortized over the lives of the policies in relation to the present value of estimated gross profits from surrender charges and investment, mortality, and expense margins. The assumptions used for the estimates are consistent with those used in computing the policy liabilities. Acquisition costs relating to credit life and accident and health insurance are amortized over the term of the contracts in relation to premiums earned. The method of computing the deferred policy acquisition costs for property business (commissions and other acquisition expenses) limits the amount deferred to the lower of (1) unearned premiums which remain after deducting the expected amount of losses, loss adjustment expenses, and servicing costs estimated to be incurred as the premiums are earned; or (2) the costs applicable to the unearned premiums. Deferred acquisition costs are reviewed quarterly to assure their recoverability. The recoverability of the deferral is calculated without considering investment income. (e) Policy Liabilities and Unearned Premiums Policy liabilities on life and annuity business are computed principally by the net level premium method based upon assumptions as to future investment yield, mortality, morbidity, and withdrawals consistent with those used to develop the gross premiums on the policies in force. Universal life and annuity policyholders' liabilities are based on full -43- 45 account values. Unearned premiums for credit insurance and property business represent the unexpired portion of the premiums. (f) Claim Liabilities Claim liabilities net of salvage and subrogation are based primarily upon past experience and may be more or less than the amounts ultimately paid or recovered when the claims are settled. Changes in the estimated liability are charged or credited to operations as the estimates are revised. (g) Income Taxes Deferred taxes are provided for temporary differences in the bases of assets and liabilities for financial reporting and tax purposes. (h) Property and Equipment Depreciation of property and equipment is provided primarily on the accelerated method. Buildings are depreciated on the straight-line method. Depreciation expense for the years ended December 31, 1995, 1994 and 1993 was $8,607,000, $8,550,000 and $5,956,000, respectively, and is a component of operating expenses. Estimated useful lives range from 10 to 40 years for buildings and 3 to 10 years for furniture and equipment. (i) Earnings Per Common Share Primary earnings per common share are based on net income using the weighted average number of such shares outstanding during the year after giving effect to common stock equivalents and treasury shares. Fully diluted earnings per share also assume conversion, if dilutive, of the Company's convertible debt and options into common shares after appropriate adjustments for interest. (j) Pension Plan Pension costs are comprised of service costs applicable to benefits earned during the year, net interest cost or credit applicable to interest on plan liabilities and plan assets, and amortization of certain charges and credits including prior service costs. (k) Translation of Foreign Currencies For those foreign affiliates where the foreign currency is the functional currency, unrealized foreign exchange losses net of taxes have been reflected in Common Stock and Other Stockholders' Equity under the caption Net unrealized investment and foreign exchange gains (losses). (l) Fair Values of Financial Instruments The Company has used the following methods and assumptions in estimating its fair value disclosures: - Investment securities: Fair values for fixed maturity securities are based on quoted market prices when available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments or values obtained from -44- 46 independent pricing services. The fair values for equity securities are based on quoted market prices. - Mortgage loans and policy loans: The fair values for mortgage loans are estimated using discounted cash flow analysis, using interest rates currently being offered for loans with similar terms. The carrying amounts for policy loans approximate their fair values at the reporting date. - Cash and short-term investments: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. - Trade receivables and payables: The carrying amounts reported in the balance sheet for these instruments approximate their fair values. - Notes payable: The carrying amount of the Company's short-term financing program approximates its fair value. The carrying amount of the Company's convertible subordinated debentures approximates their fair values. Fair values for the Company's promissory notes and the note payable guaranteed by the Company for the LESOP are based on a discounted cash flow calculation using the Company's current borrowing rate for similar debts. Fair values for the Company's medium-term notes are based on a discounted cash flow calculation using the current market rate for notes with a similar term. (m) Reinsurance The Company recognizes the income (ceding fees) on reinsurance contracts principally on a pro rata basis over the life of the policies covered under the reinsurance agreements. (n) Segment Information Operating results and other financial data for each segment are presented in Note 12. Industry segments are primarily composed of the companies business in the life and property and casualty insurance industries. The geographic segments include the companies or branches located in the United States and its possessions as domestic and all other as foreign. Included in the domestic segments, is one foreign insurance subsidiary which writes no direct business, reinsures only affiliated U.S. risks transacted in U.S. dollars and has elected to be taxed as a U.S. corporation. (o) Estimates Generally accepted accounting principles require management to make estimates and assumptions that affect the reported amounts. Certain significant estimates, including those used in determining property and casualty loss reserves, life insurance policy liabilities, valuation allowances for investment assets, and unrecoverable reinsurance, are discussed throughout the notes to consolidated financial statements. (3) Investments and Fair Values Investments The cumulative effect as of January 1, 1994 of adopting FASB Statement 115 on the opening balance of Stockholders' Equity was an increase of $1,471,000 (net of $792,000 in deferred income taxes) to reflect the net unrealized holding gains on securities classified as available-for-sale previously carried at amortized cost. The Company periodically purchases securities for trading purposes generally not to exceed $30,000,000. At December 31, 1995 and 1994, there were no securities in the trading portfolio. -45- 47 At December 31, 1995 and 1994, the fair value, amortized cost, and gross unrealized gains and losses of investments in held-to-maturity and available-for-sale securities consisted of the following: December 31, 1995 (in thousands)
FAIR AMORTIZED GROSS UNREALIZED HELD-TO-MATURITY VALUE COST GAINS LOSSES -------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $189,138 $184,463 $4,799 $(124) Obligations of states and political subdivisions 111,219 108,793 2,573 (147) Debt securities issued by foreign governments 17,748 17,373 825 (450) Corporate securities 267,514 255,518 12,087 (91) Other debt securities 28,130 28,130 -------------------------------------------------------------------------------------------------------- Subtotal 613,749 594,277 20,284 (812) Collateralized mortgage obligations -------------------------------------------------------------------------------------------------------- Total $613,749 $594,277 $20,284 $(812) --------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. Government corporations and agencies $51,917 $52,199 $8 $(290) Obligations of states and political subdivisions 14,676 14,364 613 (301) Debt securities issued by foreign governments 44,514 41,260 3,305 (51) Corporate securities 64,555 62,593 3,587 (1,625) Other debt securities 12,637 12,607 329 (299) --------------------------------------------------------------------------------------------------------- Subtotal 188,299 183,023 7,842 (2,566) Collateralized mortgage obligations 604,978 594,517 12,343 (1,882) --------------------------------------------------------------------------------------------------------- Total $793,277 $777,540 $20,185 $(4,448) ========================================================================================================= December 31, 1994 (in thousands) FAIR AMORTIZED GROSS UNREALIZED HELD-TO-MATURITY VALUE COST GAINS LOSSES ------------------------------------------------------------------------------------------------------- U.S. Treasury securities and obligations of U.S. Government corporations and agencies $199,699 $208,224 $169 $(8,694) Obligations of states and political subdivisions 104,472 108,519 306 (4,353) Debt securities issued by foreign governments 10,572 11,202 33 (663) Corporate securities 188,561 193,508 979 (5,926) Other debt securities 32,113 32,113 -------------------------------------------------------------------------------------------------------- Subtotal 535,417 553,566 1,487 (19,636) Collateralized mortgage obligations 1,810 2,010 (200) -------------------------------------------------------------------------------------------------------- Total $537,227 $555,576 $1,487 $(19,836) -------------------------------------------------------------------------------------------------------- AVAILABLE-FOR-SALE U.S. Treasury securities and obligations of U.S. Government corporations and agencies $50,645 $55,729 $(5,084) Obligations of states and political subdivisions 1,275 1,500 (225) Debt securities issued by foreign governments 25,011 25,907 $403 (1,299) Corporate securities 10,170 10,289 87 (206) Other debt securities 19,049 19,554 225 (730) -------------------------------------------------------------------------------------------------------- Subtotal 106,150 112,979 715 (7,544) Collateralized mortgage obligations 382,116 417,848 45 (35,777) -------------------------------------------------------------------------------------------------------- Total $488,266 $530,827 $760 $(43,321) ========================================================================================================
-46- 48 At December 31, 1995 and 1994, fixed maturities with an amortized cost of $58,356,000 and $57,141,000, respectively, were on deposit with insurance regulatory authorities to meet statutory requirements. In addition, fixed maturities with an amortized cost of $46,325,000 and $48,655,000 were being held in trust under reinsurance agreements at December 31, 1995 and 1994, respectively. The approximate market value and amortized cost of fixed maturity investments at December 31, 1995, are shown below by contractual or expected maturity periods. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. During 1995, the Company transferred securities from the held-to maturity category to the available-for-sale category, as allowed under the FASB 115 Guide to Implementation. The amortized cost of the transferred securities was $61,193,000 and the related unrealized gain was $2,678,000.
HELD TO MATURITY AVAILABLE-FOR-SALE FAIR AMORTIZED FAIR AMORTIZED (IN THOUSANDS): VALUE COST VALUE COST ---------------------------------------------------------------------------------------------------------- Due in one year or less $ 89,626 $89,098 $7,295 $7,508 Due after one year through five years 348,066 338,320 69,333 68,149 Due after five years through ten years 140,543 132,978 94,720 90,961 Due after ten years 35,514 33,881 16,951 16,405 ---------------------------------------------------------------------------------------------------------- Subtotal 613,749 594,277 188,299 183,023 Collateralized mortgage obligations 604,978 594,517 ---------------------------------------------------------------------------------------------------------- Balance at December 31, 1995 $613,749 $594,277 $793,277 $777,540 ==========================================================================================================
Foreign exchange gains and losses due to the translation of foreign currency are combined with net unrealized investment gains and losses in the Stockholders' Equity section of the Balance Sheet. Following is a reconciliation of the "Net unrealized investment and foreign exchange gains (losses) account:
CHANGE CHANGE DECEMBER 31 (IN THOUSANDS): 1995 FOR 1995 1994 FOR 1994 1993 ----------------------------------------------------------------------------------------------------- Fixed Maturities Available-for-Sale: Gross unrealized gains $20,185 $19,425 $760 $760 Gross unrealized losses (4,448) 38,873 (43,321) (43,321) Equity Securities: Gross unrealized gains 17,764 11,782 5,982 (7,545) $13,527 Gross unrealized losses (3,348) 1,230 (4,578) (2,482) (2,096) ------------------------------------------------------------------------------------------------------- Subtotal 30,153 71,310 (41,157) (52,588) 11,431 Taxes (10,230) (23,628) 13,398 17,094 (3,696) Foreign Exchange Translation (12,668) (1,873) (10,795) (3,416) (7,379) ------------------------------------------------------------------------------------------------------- Total $7,255 $45,809 $(38,554) $(38,910) $356 =======================================================================================================
Investments by the Company in investment grade corporate debt securities may be affected by a rating decline subsequent to acquisition. However, the percentage of the portfolio affected by such developments is generally not significant due to the diversification of the aggregate portfolio. The Company has no significant investment concentration of credit risk by issuer, industry or geographic region. The Company engages in a limited hedging program. A cross hedge has been established using U.S.Treasury Securities futures contracts to minimize the effects of interest rate fluctuations on a certain portion of the Company's preferred stock portfolio. Realized losses totaling $3.5 million in 1995 resulted from terminated and expired option contracts. These contracts were hedged against preferred stock which generated $1.3 million in realized gains. There were no open futures positions existing at December 31,1995. -47- 49 An analysis of net realized gains and losses applicable to investments is as follows:
FOR THE YEARS ENDED DECEMBER 31 (IN THOUSANDS): 1995 1994 1993 --------------------------------------------------------------------------------------------------- Fixed Maturities Held-to-Maturity: Gross realized gains $ 2 Gross realized losses (168) $ (234) Fixed Maturities Available-for-Sale: Gross realized gains 712 828 Gross realized losses (266) (512) Fixed Maturities Trading: Gross realized gains 218 272 Gross realized losses (282) (2,159) Fixed Maturities: Gross realized gains $ 4,734 Gross realized losses (3,825) Equity Securities: Gross realized gains 6,734 6,086 5,245 Gross realized losses (1,653) (1,783) (1,257) Other Invested Assets: Gross realized gains 1,285 2,393 2,524 Gross realized losses (5,861) (2,212) (1,967) ----------------------------------------------------------------------------------------------------- Total $ 721 $ 2,679 $ 5,454 =====================================================================================================
The Company disposed of certain held-to-maturity securities due to deteriorating credit or mandatory redemption. The components of investment income for the years ended December 31 are as follows:
(in thousands): 1995 1994 1993 ------------------------------------------------------------------------------------------------------ Interest on fixed maturities $ 83,724 $ 63,347 $ 62,612 Dividends on preferred stocks 3,169 2,365 2,254 Dividends on common stocks 1,509 1,326 2,764 Interest on mortgage loans 1,228 1,293 1,697 Interest on policy loans 475 305 401 Short-term and other investment income 14,777 11,085 5,712 ------------------------------------------------------------------------------------------------------ Total 104,882 79,721 75,440 Less: Investment expenses (5,482) (5,279) (5,087) ------------------------------------------------------------------------------------------------------ Net investment income $ 99,400 $ 74,442 $ 70,353 ======================================================================================================
FAIR VALUES The fair value of the Company's financial instruments other than investments and those where fair values approximate carrying value (See Note 2(l)) are as follows:
1995 1994 (IN THOUSANDS): FAIR CARRYING FAIR CARRYING VALUE AMOUNT VALUE AMOUNT ------------------------------------------------------------------------------------------------- Mortgage Loans $ 12,200 $ 11,800 $ 13,500 $ 13,800 Notes Payable $ 238,800 $ 236,000 $ 193,700 $ 197,800 ==================================================================================================
-48- 50 (4) Policy Liabilities, Unearned Premiums and Liabilities for Losses and Loss Adjustment Expenses The composition of the liability at December 31, 1995 and 1994, and related significant assumptions used are as follows.
BASES OF ASSUMPTIONS (B) --------------------------------- LINE OF BUSINESS LIFE INSURANCE IN AMOUNT OF FUTURE INTEREST RATES MORTALITY FORCE (A) POLICY BENEFITS (A) AND METHODS (IN MILLIONS) (IN THOUSANDS) - --------------------------------------------------------------------------------------------------------- 1995 1994 1995 1994 - --------------------------------------------------------------------------------------------------------- Life: Ordinary $ 279 $ 328 $ 30,425 $32,074 Rates range from 8% 110% 55-60 graded to 4% for most Select and recent issues and 4% Ultimate graded to 3% for earliest issues. Annuity Fixed Premium 12,241 13,310 Same as above. Same as above. Flexible Premium 35,243 36,597 Full Account Value. Single and Other 19,248 20,096 Full Account Value Paid Up Credit 19,601 10,224 109,432 88,930 Unearned premiums based principally on the "Rule of 78's" method. Group 8,697 9,451 1,603 184 130% 60 CSG 7 1/2% Net Lev. Universal Life 2,635 2,175 85,846 70,817 Full Account Value All Other 973 1,265 7,048 9,462 2.5%-6% Net Lev. Various Accident and Health: Group 7,939 1,789 Unearned premiums based on the pro rata method. Credit 98,021 84,117 Unearned premiums based on the average of the pro rata and "Rule of 78's" methods. Individual 50,046 55,237 3% 105% 1959 ADB Table Property: 457,969 324,763 Unearned premiums based on pro rata method. - --------------------------------------------------------------------------------------------------------- Totals - Net 32,185 23,443 915,061 737,376 Reinsurance Ceded 10,523 8,686 539,056 432,124 Totals - Gross 42,708 32,129 1,454,117 1,169,500 =========================================================================================================
(A) Life insurance in force and future policy benefits are stated individually net of reinsurance ceded to other companies. Reinsurance ceded to other companies has been added back to policy liabilities and unearned premiums for balance sheet presentation. (B) All withdrawal assumptions are based on the Company's experience. -49- 51 PROPERTY AND CASUALTY LOSSES AND LOSS ADJUSTMENT EXPENSES The consolidated financial statements include estimated provisions for unpaid losses and loss adjustment expenses (LAE) applicable to the Company's property and casualty insurance subsidiaries. These subsidiaries write principally credit property, unemployment, homeowners, mobilehome physical damage and livestock lines of business throughout the United States, Canada, the Caribbean and the United Kingdom. Such liabilities are established using a combination of case basis estimates and actuarial projections and include provisions for claims incurred but not yet reported as of the balance sheet date. Overall claims experience is principally dependent on the frequency and severity of claims as well as trends in litigation and loss cost inflation. With the exception of discontinued lines, the Company writes primarily property coverages which are characterized by relatively short settlement periods and quick development of ultimate losses. Discontinued business includes the Company's participation in excess casualty reinsurance assumed pools. The business is long-tail in nature and losses continue to exceed both Company and industry expectations. Most of these losses result from asbestos-related and environmental pollution claims. Management is unable to make a reasonable estimate of the Company's ultimate liability from these pools due to a general absence of reliable predictive data and of a generally accepted actuarial methodology for these exposures, significant unresolved legal issues including coverage issues, policy definitions and evolving theories and arguments. Additionally, the determination of ultimate damages and the final allocation of such damages to financially responsible parties is complex and uncertain. The Company establishes loss reserves on known claims as recommended by the various pool managers and additional reserves to compensate for those claims that have not yet been reported. Losses from its discontinued reinsurance pools included in the accompanying table are $7.3 million, $4.2 million and $3.0 million in 1995, 1994 and 1993, respectively. Reinsurance pool reserves represent approximately 11.4% o the gross liability for property and casualty losses and LAE at December 31, 1995. The Company's estimating and reserving practices are reviewed continuously. Subsequent adjustments to the original estimates are made when determinable and are reflected in current year operations. The accompanying tables present an analysis of losses and LAE for the Company's property and casualty domestic subsidiaries. The following table provides a reconciliation of beginning and ending liability balances for 1995, 1994 and 1993. Reconciliation of Liability for Losses and Loss Adjustment Expenses for Domestic Property and Casualty Subsidiaries
(in thousands): 1995 1994 1993 Liability for losses and LAE at beginning of year (net) $137,978 $119,491 $96,077 Beginning liability of subsidiaries purchased during 1993 10,282 ------------------------------------------------------------------------------------------ Losses and LAE incurred related to: Current year 269,623 235,857 182,129 Prior years 332 2,612 10,905 ------------------------------------------------------------------------------------------ Total incurred 269,955 238,469 193,034 ------------------------------------------------------------------------------------------ Losses and LAE paid related to: Current year (173,937) (154,498) (107,779) Prior years (71,654) (65,484) (72,123) ------------------------------------------------------------------------------------------ Total paid (245,591) (219,982) (179,902) ------------------------------------------------------------------------------------------ Liability for losses and LAE at end of year (net) 162,342 137,978 119,491 Reinsurance receivable for unpaid losses 75,439 50,063 41,279 Liability for losses and LAE at end of year (gross) $237,781 $188,041 $160,770 ==========================================================================================
Accident and health net claim liabilities reported in the Company's life subsidiaries were $57,049,000, $55,875,000 and $57,789,000 at December 31, 1995, 1994 and 1993, respectively. There was no significant development during the past three years. -50- 52 (5) Reinsurance The Company's insurance subsidiaries follow the policy of reinsuring risk in excess of $250,000 under an ordinary life policy, $150,000 on a group life policy, and $500,000 under a property policy. In addition, aggregate excess of loss coverage is obtained for the Company's property and casualty business as protection against catastrophic losses. Ceded claim and policy liabilities are recorded as assets on the balance sheet under the caption Reinsurance Receivable. The Company's insurance subsidiaries are liable for these amounts in the event reinsurers are unable to pay their portion of the claims. The Company evaluates the financial condition of its reinsurers and monitors concentration of credit risk arising from similar geographic regions, activities or economic attributes of the reinsurers to lessen its exposure to significant losses from reinsurer insolvencies. Reinsurance ceded incurred losses for 1995 and 1994 were $268,820,000 and $203,667,000, respectively. Liabilities for ceded claim reserves and recoverables on paid losses at December 31, 1995 and 1994 are shown below.
At December 31 (in thousands): 1995 1994 --------------------------------------------------------------------------------- Ceded Claim Liabilities: Life and health business $51,169 $45,393 Property and casualty business $80,215 $50,216 --------------------------------------------------------------------------------- Reinsurance Recoverable on Paid Losses: Life and health business $12,784 $10,254 Property and casualty business $16,435 $16,612 ---------------------------------------------------------------------------------
The effect of reinsurance on premiums written and earned for the years ended December 31 is as follows:
1995 1994 1993 (IN THOUSANDS): WRITTEN EARNED WRITTEN EARNED WRITTEN EARNED ----------------------------------------------------------------------------------------------------------- Life and Health: Direct premiums $653,256 $562,360 $499,140 $495,066 $410,816 $420,587 Assumed premiums $49,209 $57,058 $42,998 $41,146 $39,365 $39,591 Ceded premiums $277,893 $242,311 $188,568 $176,112 $168,862 $155,035 -------------------------------------------------------------------------------------------------------- Property and Casualty: Direct premiums $1,474,399 $1,309,557 $1,136,660 $1,060,463 $909,776 $791,663 Assumed premiums $109,709 $79,158 $82,276 $79,450 $67,278 $82,234 Ceded premiums $601,123 $525,109 $482,525 $405,696 $353,132 $297,046 --------------------------------------------------------------------------------------------------------
(6) Income Taxes Prior to 1984, ABLAC was taxed at regular corporate rates in accordance with the Life Insurance Company Income Tax Act of 1959, whereby a portion of its statutory income was not subject to current income taxation, but was accumulated in an account designated "policyholders' surplus." The aggregate balance in this account ($17,000,000, at December 31, 1995) would be taxed at applicable current rates only if distributed to stockholders or if the account exceeded a prescribed maximum. The Deficit Reduction Act of 1984 eliminated additions to the account for 1984 and thereafter. ABLAC does not anticipate any transactions that would cause any part of this amount to become taxable. Deferred taxes in the amount of $5,950,000 have not been provided since the Company does not anticipate any transactions that would cause any part of the account balance to become taxable. As of December 31, 1995, ABLAC has a shareholders' surplus account balance (on a tax basis) of approximately $105,800,000 from which it could pay dividends to stockholders without incurring any federal income tax liability, subject to regulatory requirements and the availability of funds. The other life insurance subsidiaries do not have policyholders' surplus account balances. -51- 53 Under current Internal Revenue Code provisions, the life insurance subsidiaries are taxed under a single-phase structure incorporating tax rules comparable to other corporate taxpayers. The life insurance subsidiaries are included in the Company's consolidated tax return. ABIG and all other subsidiaries are taxed at regular corporate rates applied to taxable income as determined in accordance with the Internal Revenue Code. Pre-tax income is derived from the following sources:
(in thousands): 1995 1994 1993 ------------------------------------------------------------------------------------------------------- Domestic (including U.S. possessions) $107,772 $78,459 $74,939 Foreign (3,577) 1,357 741 ---------------------------------------------------------------------------------------------------- Total $104,195 $79,816 $75,680 ====================================================================================================
Pre-tax income from foreign sources excludes the results of Canadian branches of domestic companies. Effective January 1, 1993, the Company changed its method of accounting for income taxes from the deferred method to the liability method as required by FASB Statement 109 - Accounting for Income Taxes. The cumulative effect of adopting FASB Statement 109 as of January 1, 1993, was to decrease net income for the year by $1,005,000. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. The net deferred tax asset at December 31, 1994 is included under the caption "Other Assets." Significant components of the Company's net deferred tax liabilities and assets are as follows:
At December 31, (in thousands): 1995 1994 ---------------------------------------------------------------------------------------- Deferred tax liabilities: Deferred policy acquisition costs $87,519 $72,021 Net unrealized investment gains 10,230 Depreciation and amortization 5,442 5,725 Prepaid pension costs 913 1,774 Others - net 5,298 2,280 -------------------------------------------------------------------------------------- Total deferred tax liabilities 109,402 81,800 -------------------------------------------------------------------------------------- Deferred tax assets: Insurance policy liabilities (53,138) (44,716) Difference between book and tax bases of investments (5,195) (5,316) Accrued expenses and other amounts not currently deductible for tax purposes (15,583) (14,496) Net unrealized investment losses (13,398) Others - net (5,937) (4,960) --------------------------------------------------------------------------------------- Total deferred tax assets (79,853) (82,886) --------------------------------------------------------------------------------------- Net deferred tax liability (asset) $29,549 $(1,086) =======================================================================================
-52- 54 Significant components of the provision for income taxes attributable to continuing operations are as follows:
For the Years ended December 31 (in thousands): 1995 1994 1993 ------------------------------------------------------------------------------------------------ Current: Federal $19,608 $12,480 $19,508 Foreign 5,597 2,350 4,912 ----------------------------------------------------------------------------------------------- Total current 25,205 14,830 24,420 ----------------------------------------------------------------------------------------------- Deferred: Federal 6,773 7,901 (1,276) Foreign (43) 541 (764) ----------------------------------------------------------------------------------------------- Total deferred 6,730 8,442 (2,040) ----------------------------------------------------------------------------------------------- Total provision for income taxes $31,935 $23,272 $22,380 ===============================================================================================
The provision for foreign taxes includes amounts attributable to income from U.S. possessions which are considered foreign under U.S. tax laws. Total income tax expense (benefit) varies from amounts computed by applying current federal income tax rates to income before income taxes. The reasons for these differences and the approximate tax effects thereon for each year ended December 31 are as follows:
1995 1994 1993 ----------------------------------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% Rate differential - U.S. possessions (3.4) (1.1) (1.3) Tax exempt investment income and dividends (2.4) (2.6) (2.2) Tax settlement, refunds and other taxes ( .4) ( .8) (.6) Tax credits, other - net 1.9 (1.3) (1.3) ----------------------------------------------------------------------------------------------------- Effective tax rate 30.7% 29.2% 29.6% =====================================================================================================
Deferred income taxes (benefits) of $10,230,000, ($13,398,000) and $3,695,000 in 1995, 1994 and 1993, respectively, have been provided on net unrealized investment gains (losses). The Company intends to indefinitely reinvest the undistributed earnings of its wholly owned foreign subsidiaries. The cumulative amount of undistributed earnings for which the Company has not provided deferred income taxes is approximately $45,048,000 as of December 31, 1995. Upon distribution of such earnings in a taxable transaction, the Company would incur additional U.S. income taxes in the amount of approximately $8,881,000 net of anticipated foreign tax credits. The Company made federal income tax payments (net of refunds) of $13,448,000, $16,550,000 and $20,450,000 for the years 1995, 1994 and 1993, respectively. The Company has a consolidated net capital loss carryforward of $2,471,000 for tax purposes expiring in 1998. -53- 55 (7) Notes Payable Following is a summary of outstanding debt at December 31:
(in thousands): 1995 1994 ------------------------------------------------------------------------------------------------------- Short-term credit facility $87,000 $92,000 $200,000,000 medium-term note program 125,000 75,000 10.2% promissory notes due September 12, 1998, annual prepayments of $4.6 million commenced September 12, 1995. Interest is payable quarterly. 13,800 18,400 Note payable guaranteed by the Company for LESOP. (See Note 9.) 6,375 8,500 Convertible debenture bonds due to officers on May 24, 1999 (convertible into 150,000 shares of the Company's Common Stock). Interest is payable quarterly at 1% above prime. 3,723 3,723 Other notes payable. 83 166 ------------------------------------------------------------------------------------------------------- Total $235,981 $197,789 =======================================================================================================
On December 1, 1995, the Company replaced its short-term credit facility with a $250,000,000 five year competitive advance and revolving credit agreement with a group of banks. The agreement features a revolving line of credit, commercial paper and/or bid loan facilities. Interest rates vary according to the credit instrument exercised and the market rates then prevailing. Quarterly fees payable under this credit facility are: (a) fees payable to each lender, based upon the Company's Moody's and Standard & Poor's ratings at every quarter end; (b) utilization fees; and (c) administrative fee. The fees incurred in 1995 were $1,482,000 for these facilities. Fees were $906,000 and $1,355,000 for 1994 and 1993 respectively. The credit agreement contains various covenants pertaining to minimum stockholders equity, maximum funded debt ratio and insurance statutory surplus and other ratios. On April 11, 1994, the Company filed with the Securities and Exchange Commission a shelf registration statement for $200,000,000 medium-term notes which provides for maturities ranging from nine months to thirty years. Under this shelf registration, the Company issued a $75,000,000 fixed rate note in May 1994 at 7.6% that is due May 1999 and interest is payable semi-annually. In addition, the Company issued a five year $50,000,000 floating rate note in April 1995. Interest is payable and the rate is established on a quarterly basis. At December 31, 1995, the interest rate was 6.5875%. Interest paid was $14,328,000 in 1995, $10,719,000 in 1994 and $8,748,000 in 1993. An interest rate swap agreement which expired in June 1994 increased interest expense by $608,000 in 1994 and $1,405,000 in 1993. The following information is furnished with respect to the Company's short-term borrowings (commercial paper and revolving line of credit):
At December 31 (in thousands): 1995 1994 ------------------------------------------------------------------------------------------------------- Amount outstanding $87,000 $92,000 Weighted average interest rate on outstanding debt 6.15% 6.26% ------------------------------------------------------------------------------------------------------- For the year ended December 31 (in thousands): 1995 1994 ------------------------------------------------------------------------------------------------------- Average amount outstanding $83,417 $102,917 Maximum amount outstanding $97,000 $133,000 Average interest rate 6.23% 4.30% -------------------------------------------------------------------------------------------------------
-54- 56 (8) Common Stock and Other Stockholders' Equity The Company has authorized 3,500,000 shares of no par preferred stock. At December 31, 1995, no shares had been issued. On February 24, 1988, the Board of Directors adopted a "Rights Plan" (amended November 14, 1990) creating certain rights which attach to and trade with each share of common stock outstanding on or after March 11, 1988. Upon the acquisition of, or the announcement of a tender offer for, specified amounts of the Company's common stock, the rights will separate from the common stock, at which time holders of the rights will be entitled to purchase units of the Company's Series A Participating Preferred Stock. Thereafter, under certain circumstances (including acquisitions of specified amounts of the Company's common stock, mergers involving the Company, and certain self-dealing transactions by an acquisitor), holders of the rights will be entitled to purchase common stock (or other property) of the Company (or of the acquiring entity) at prescribed levels. The rights are redeemable at the Company s option and expire on March 10, 1998. Stock insurance companies are subject to various states insurance laws and regulations whereby amounts available for dividends are restricted. Net consolidated assets restricted as to distribution to the Company are $444,800,000. The maximum statutory allowed dividends in 1996 are $68,200,000. A summary of statutory financial information for the domestic insurance companies is presented below:
For the Years ended December 31 (in thousands) 1995 1994 1993 --------------------------------------------------------------------------------------------------------- Statutory Net Income (including net realized capital gains/losses) Life insurance subsidiaries $21,000 $15,700 $29,300 Property and casualty insurance subsidiaries $29,400 $40,400 $31,200 ======================================================================================================== At December 31 (in thousands) 1995 1994 ---------------------------------------------------------------------------------------------------------- Statutory Capital and Surplus Life insurance subsidiaries $188,900 $174,100 Property and casualty insurance subsidiaries $271,500 $224,900 =======================================================================================================
Statutory capital and surplus at December 31, 1995, included $34,730,000 for life insurance subsidiaries of undistributed earnings from downstream insurance subsidiaries, which are also included in the surplus of the parent insurance companies. Statutory Permitted Practices The Company's insurance subsidiaries prepare their statutory financial statements in accordance with accounting principles and practices prescribed or permitted by the insurance department of their state of domicile. Prescribed statutory accounting practices include state laws, regulations and general administrative rules as well as a variety of publications of the National Association of Insurance Commissioners (NAIC). Permitted statutory accounting practices encompass all accounting practices that are not prescribed; such practices differ from state to state and may change in the future. The NAIC has a project to codify statutory accounting practices, the result of which is expected to constitute the only source of prescribed statutory accounting practices. The codification, when completed, will likely change the definitions of what comprises prescribed as opposed to -55- 57 permitted statutory accounting practices, and may result in changes to the accounting policies that insurance companies use to prepare their statutory financial statements. (9) Compensation and Other Plans Stock Option Plans Senior Management Plan On May 25, 1994, stockholders approved the adoption of the 1994 Senior Management Stock Option Plan (Senior Plan). Under the terms of the Senior Plan, certain key employees may be granted options at prices equivalent to the fair market value of ABIG's common stock on the grant date. Each option further entitles the employee to be awarded two additional shares of restricted common stock. Options are not exercisable before the six-month anniversary nor after the third anniversary from the date of grant. During a three-year vesting period, the restricted shares are subject to forfeiture in the event the related primary shares are disposed, or if employment with the Company is terminated except by death, disability or retirement. Dividends and voting rights on the restricted shares remain with the employee during the vesting period. Full vesting occurs on the third anniversary after the date the options are exercised. Grants may be made under this plan until February 18, 2004. Non-Employee Directors' Stock Option Plan On May 25, 1994, stockholders approved the adoption of the 1994 Non-Employee Directors' Stock Option Plan (Director's Plan). Under the terms of the plan, each non-employee director will receive 1,000 options annually at prices equivalent to the fair market value of ABIG's common stock on the grant date. Options granted are not exercisable before the six-month anniversary nor after the fifth anniversary from the date of the grant. As of December 31, 1995 there were 50,000 shares authorized, 26,000 issued and 2,000 were exercised. Grants may be made under this plan until March 24, 2004. Award and Incentive Plans On May 22, 1991, stockholders approved two stock option plans: (1) 1991 Stock Option/Restricted Stock Award Plan (Award Plan) and (2) 1991 Stock Incentive Compensation Plan (Incentive Plan). Under the terms of the Award Plan, certain key employees may be granted options at prices equivalent to the fair market value of ABIG's common stock on the grant date. Each option further entitles the employee to be awarded three additional shares of restricted common stock. Options are not exercisable before the six-month anniversary nor after the third annual anniversary from the date of grant. During the vesting period, the restricted shares are subject to forfeiture in the event the related primary shares are disposed, or if employment with the Company's terminated except by death, disability or retirement. Dividends and voting rights on the restricted shares remain with the employee during the vesting period. Full vesting occurs on the fifth annual anniversary after the date the options are exercised. The Company amended the Plan's vesting period provision, originally five years, to allow certain restricted shareholders to elect an additional one, two or three year vesting period for their shares. In 1994, the stockholders approved the Senior Management Stock Option Plan, and as a result, no new grants will be made under the Award Plan. Under the terms of the Incentive Plan, certain other management employees may be granted options at prices equivalent to fifty percent of the fair market value of the Company's common stock on the grant date. Shares obtained by exercise are subject to restrictions. Non-vested shares are subject to forfeiture if employment is terminated except by death, disability or retirement. Vesting occurs ratably over a five-year period. Grants may be made under the Incentive Plan until November 14, 2000. -56- 58 A summary of the status and activity for options and shares granted and exercised under the Plans at December 31, 1995, is as follows:
AWARD/SENIOR PLAN INCENTIVE PLAN AUTHORIZED GRANTED EXERCISED AUTHORIZED GRANTED EXERCISED ------------------------------------------------------------------------------------------------------------- As of December 31, 1992 109,000 76,800 414,200 242,041 47,545 1993 Grants (33,000) 33,000 (25,150) 25,150 Exercises (principally $18.13 Award Plan and $13.25 Incentive Plan) (66,400) 66,400 (16,300) 16,300 Forfeitures/Reacquisitions 10,122 (10,122) 3,380 (3,380) Lapses 5,000 (5,000) 8,850 (8,850) 1994 Authorized Grants 608,878 Grants (89,500) 89,500 (75,100) 75,100 Exercises (Award Plan $14.63 - $23.13, Senior Plan $22.13, and principally $11.06 Incentive Plan) (49,400) 49,400 (51,100) 51,100 Forfeitures/Reacquisitions 56,400 (56,400) 4,360 (4,360) Lapses 3,900 (3,900) 24,000 (24,000) 1995 Grants (74,400) 74,400 (65,500) 65,500 Exercises (Award Plan $18.13 - $26.50, Senior Plan $23.13 - $30.25, and $15.13 - $17.00 Incentive Plan) (66,500) 66,500 (41,200) 41,200 Forfeitures/Reacquisitions 7,500 (7,500) 5,390 (5,390) Lapses 19,500 (19,500) 24,300 (24,300) -------------------------------------------------------------------------------------------------------- Authorized - Remaining at December 31 623,400 146,571 ======================================================================================================== Grants Outstanding (ranging from $22.13 to $30.25) 63,000 ======================================================================================================== Exercised -Net 522,478 143,015 ========================================================================================================
Shares issued under the plans are recorded at fair market value at the effective date of the grant. The unamortized difference ($3,620,000 as of December 31, 1995, and $3,204,000 as of December 31, 1994) between the fair market value and option price on shares which are restricted is reported as part of stockholders' equity. Amortization of the restricted stock is recorded as compensation expense ratably over the vesting period ($1,407,000 in 1995, $965,000 in 1994 and $1,110,000 in 1993). Furthermore, any difference between the fair market value and the option price on the unrestricted shares in the Award Plan and Senior Plan is recorded as compensation expense. Forfeitures are included as credits in the income statement during the period in which the forfeiting event occurs. ESODAP The Executive Stock Option/Dividend Accrual Plan (ESODAP) authorizes stock options for key management employees of the Company. As of December 31, 1995, options representing 710,414 shares had been issued under the plan, of which 211,052 had been exercised and 65,938 had been terminated. A key feature of the plan is the Dividend Accrual Account which allows for the crediting of dividends in order to assist the executive in the exercise of the options. The Company discontinued making grants under this plan effective with the approval and adoption of the 1991 Incentive and Award plans. -57- 59 Other Plans KEDP Under the 1994 Key Executive Debenture Plan (KEDP), the Board may select certain Company officers to be eligible to purchase convertible debentures. As of December 31, 1995, two debentures in the aggregate amount of $3.7 million had been issued which are convertible into all the 150,000 shares as currently reserved under the plan. LESOP The Leveraged Employee Stock Ownership Plan (LESOP) through its trust was funded by a loan from a bank which was collateralized with newly issued shares of the Company's stock purchased by the LESOP at market price. Although the debt is not a direct obligation of the Company, it is nevertheless reported as part of the Company's debt with an offsetting balance reflected as a reduction of stockholders' equity. As contributions to the LESOP are made by the Company, the debt is repaid to the bank by the LESOP and the balances on the Company's balance sheet are reduced accordingly. The Company has guaranteed the Trust's loan obligation. It intends to make contributions to the LESOP in amounts sufficient to enable the Trust to repay the loan on a quarterly basis over ten years, including interest equal to 6%. The shares held by the bank as collateral are released proportionately as loan repayments are made. Upon such release, the shares are available for allocation to employees based upon years of service. Employees are entitled to vote the shares allocated to them. Unallocated shares are voted by the LESOP's Trustee. At December 31, 1995 and 1994, the loan balance was $6.4 million and $8.5 million respectively. The interest portion of the LESOP pension expense was $.6 million in 1995 and in 1994, and $.7 million in 1993. As a result of the promulgation of Statement of Position (SOP) 93-6 - Employers' Accounting for Employee Stock Ownership Plans - by the American Institute of Certified Public Accountants in late 1993, new reporting rules became effective in 1994. These changes are mandated for shares acquired in 1993 and later, and are optional for previously acquired shares. The Company has no shares subject to the mandated provisions and, as permitted by the SOP, is not electing to change its accounting for previously acquired shares. The following disclosures are made to supplement previously disclosed plan information: - Dividends paid on all shares held by the LESOP are used to service the existing debt of the LESOP. - Compensation expense for the years ended December 31, 1995, 1994 and 1993 was $1,430,000, $1,480,000 and $1,660,000, respectively. The compensation expense represents the Company's contributions to the LESOP necessary to meet its periodic debt service, after applying dividend payments received on the shares held by the LESOP. All dividends paid on such shares retain their character as distributions made from the Company's retained earnings. - All shares held by the LESOP are treated as issued and outstanding and, accordingly, are included in the Company's earnings per share calculations. - Shares held by the LESOP as of December 31, 1995 include the following: Allocated 1,065,515 Allocated in 1995 171,716 Suspense shares 515,156 Distribution (72) ------------- Total 1,752,315 ==========
-58- 60 Directors' Deferred Compensation Plan The 1994 Amended and Restated Directors' Deferred Compensation Plan (Deferred Plan) allows the directors to defer their fees in cash or in common stock equivalents. The fees that are deferred in common stock equivalents will accumulate and earn interest from the time the fees are deferred until the last day of each quarter when they are converted to common stock equivalents. Upon termination from the board, the director will receive, as elected, either cash or actual shares of the Company's common stock. The Deferred Plan provides for the issuance of up to 100,000 shares of the Company's common stock. At December 31, 1995 there were 68,133 shares allocated under this plan. (10) Pension Plan The Company has a non-contributory pension plan covering substantially all of its domestic employees. Benefits under the Plan are based on years of service and compensation levels near retirement. The Company's funding policy is to contribute amounts that meet minimum funding requirements but which do not exceed the maximum funding limits as currently determined under applicable tax regulations. The Plan previously reached the full funding limitation and, accordingly, no contributions were made. The pension plan expense included the following components for the years ended December 31:
(in thousands): 1995 1994 1993 ---------------------------------------------------------------------------------------------------- Service cost $1,903 $2,534 $1,917 Interest cost 1,988 1,924 1,659 Actual return on plan assets (9,228) 1,354 (3,701) Net amortization and deferral 6,862 (3,426) 571 ------------------------------------------------------------------------------------------------- Pension plan expense $1,525 $2,386 $446 =================================================================================================
The following sets forth the funded status of the Plan and the amount of prepaid pension cost included in the Company's balance sheet at December 31:
(in thousands) 1995 1994 --------------------------------------------------------------------------------------------- Actuarial present value of benefit obligations: A. Vested benefit obligation $(24,119) $(17,847) ========================== B. Accumulated benefit obligation $(27,648) $(18,169) ========================== C. Projected benefit obligation $(38,777) $(27,114) Plan assets at fair value, primarily listed stocks and bonds 37,747 28,983 ------------------------ (Deficit) excess of Plan assets over projected benefit obligation (1,030) 1,869 Unrecognized net loss from past experience different from that assumed 4,884 3,552 Prior service cost not yet recognized in net periodic pension costs (249) (291) ----------------------- Prepaid pension cost included in other assets $3,605 $5,130 =======================
Assumptions used were as follows: 1995 1994 --------------------- Plan discount rate for benefit obligation 6.5% 8% Rate of increase in compensation 6% 6% Expected long-term rate of return on assets 9% 9%
-59- 61 The Board of Directors previously approved a non-qualified supplemental benefit plan. This unfunded deferred compensation plan is intended to provide pension benefits which would otherwise be provided under the benefit accrual formula applicable to all employees in the Company's qualified Plan, but which are in excess of an annual amount permitted under current tax regulations. Expense ($.1 million in 1995, $.3 million in 1994 and $.9 million in 1993) is being recognized over the remaining service period for the officers presently covered. (11) Commitments and Contingencies A summary of the approximate future minimum rental payments required under operating leases that have initial or remaining non-cancelable lease terms in excess of one year at December 31, 1995, is as follows:
For the Years ending December 31 (in thousands): REAL PROPERTY EQUIPMENT TOTAL --------------------------------------------------------------------------------------------- 1996 $2,032 $4,288 $6,320 1997 1,963 4,123 6,086 1998 1,370 1,167 2,537 1999 1,013 265 1,278 2000 454 54 508 --------------------------------------------------------------------------------------- $6,832 $9,897 $16,729 =======================================================================================
Total rental expense for the years ended December 31, 1995, 1994 and 1993 was $7,661,000, $5,716,000 and $6,233,000 respectively. Financial Instruments with Off-balance-sheet Risk The Company has issued insurance contracts which constitute financial instruments with off-balance-sheet risk. These financial guarantee contracts extend credit insurance coverage to installment contracts originated by mobilehome dealers and lenders pursuant to retail sales of mobilehomes (credit bond insurance). The coverage extends for the duration of the loan, generally 12-15 years. The Company discontinued accepting any additional credit bond business in 1986. These financial instruments entail elements of credit risk in excess of the amount recognized in the financial statements. The Company's exposure to credit loss in the event of non-performance by the debtor under the financial guarantee is represented by the unamortized contract balance at the time of default. The Company currently has coverage outstanding on approximately 2,100 individual loans. Based on historical information, between 10% and 15% of the loans are expected to default during their existence. Losses could range from $2,000,000 to $3,000,000 but are expected to be matched by related insurance premiums collected during the same period. There are no cash requirements related to these instruments unless the mobilehome owner defaults on the loan, at which time the Company will be liable for the unamortized loan balance. Contingencies During 1995, the Company completed a settlement with the Federal Deposit Insurance Corporation (FDIC) of the only remaining lawsuit against the Company relating to its relationship with a former credit bond client. This settlement included the entry of orders by the Court dismissing all claims between the Company and the FDIC with prejudice. The settlement, net of previously established reserves, resulted in a charge of $5.8 million. Effective with this settlement, the Company concluded all litigation ever initiated against it in connection with its discontinued credit bond insurance business. -60- 62 The Company and certain of its insurance subsidiaries are presently parties to a number of individual consumer and class action lawsuits pending in Alabama involving premium, rate and policy coverage issues. As has been widely reported in the news media, the insurance and finance industries have been targeted in Alabama by plaintiffs' lawyers who enjoy a favorable judicial climate. The Company typically has been named as a co-defendant with one or several retail or finance companies who have sold the Company's product to a consumer. A number of other credit insurers are named as co-defendants in many of the suits. Although these lawsuits generally involve relatively small amounts of actual or compensatory damages, they typically assert claims requesting substantial punitive awards. The Company denies any wrongdoing in any of these suits and believes that it has not engaged in any conduct that would warrant an award of punitive damages. The Company has been advised by legal counsel that it has meritorious defenses to all claims being asserted against it. While no one case is necessarily significant in terms of financial risk to the Company, the judicial climate in Alabama is such that the outcome of these cases is extremely unpredictable. Without admitting any wrongdoing, the Company has settled a number of these suits, but there are still a significant number of cases pending, and it is expected that more suits alleging essentially the same causes of action are likely to continue to be filed during 1996. The Company intends to continue to defend itself vigorously against all such suits and believes, based on information currently available, that any liabilities that could result are not expected to have a material effect on the Company's financial position. The Company is involved with a number of cases in the ordinary course of business relating to insurance matters or, more infrequently, certain corporate matters. Generally, the Company's liability is limited to specific amounts relating to insurance or policy coverage for which provision has been made in the financial statements. Other cases involve general corporate matters which generally do not represent significant contingencies for the Company. (12) Segment Information
Industry Segments (in thousands): 1995 1994 1993 ------------------------------------------------------------------------------------------------ Net premiums earned: Life $377,108 $360,100 $305,143 Property and Casualty 863,605 734,217 576,851 --------------------------------------------------------------------------------------------- Total $1,240,713 $1,094,317 $881,994 ============================================================================================= Income before interest and income taxes: Life $44,731 $32,020 $28,164 Property and Casualty 87,357 66,693 58,692 Other (12,314) (7,729) (3,067) --------------------------------------------------------------------------------------------- Subtotal 119,774 90,984 83,789 Interest expense (15,579) (11,168) (8,109) --------------------------------------------------------------------------------------------- Total $104,195 $79,816 $75,680 ============================================================================================= Identifiable assets: Life $1,333,076 $1,023,634 $1,034,959 Property and Casualty 1,602,160 1,347,262 1,072,723 Other 52,498 61,603 52,793 --------------------------------------------------------------------------------------------- Total $2,987,734 $2,432,499 $2,160,475 =============================================================================================
-61- 63 Summarized data for the Company's foreign operations (principally in Canada and the United Kingdom) and domestic operations are as follows: Geographic Segments
For the Years ended December 31 (in thousands): 1995 1994 1993 ------------------------------------------------------------------------------------------------ Net premiums earned: Domestic (including U.S. possessions) $1,190,084 $1,048,603 $850,559 Foreign 50,629 45,714 31,435 --------------------------------------------------------------------------------------------- Total $1,240,713 $1,094,317 $881,994 ============================================================================================= Income before income taxes: Domestic (including U.S. possessions) $100,616 $76,305 $74,835 Foreign 3,579 3,511 845 --------------------------------------------------------------------------------------------- Total $104,195 $79,816 $75,680 ============================================================================================= Identifiable assets: Domestic (including U.S. possessions) $2,871,773 $2,326,076 $2,072,938 Foreign 115,961 106,423 87,537 --------------------------------------------------------------------------------------------- Total $2,987,734 $2,432,499 $2,160,475 =============================================================================================
The Company distributes its products through eight markets or distribution channels involving over one thousand clients. Its business is generally not concentrated, and no single customer accounted for 10% or more of the Company's consolidated revenue in 1995. (13) Quarterly Financial Information (Unaudited) Quarterly financial information for the years ended December 31, 1995 and 1994, is presented below:
(in thousands except per common share data): FIRST SECOND THIRD FOURTH 1995 QUARTER QUARTER QUARTER QUARTER ---------------------------------------------------------------------------------------------------- Total revenues $309,775 $326,207 $357,245 $367,621 Total benefits and expenses $288,143 $303,791 $332,158 $332,561 Net income $14,871 $16,048 $18,684 $22,657 Net income per common share - primary $.72 $.77 $.90 $1.09 ------------------------------------------------------------------------------------------------- 1994 ---------------------------------------------------------------------------------------------------- Total revenues $284,304 $298,079 $302,367 $302,085 Total benefits and expenses $271,883 $277,635 $284,430 $273,071 Net income $9,179 $14,150 $12,639 $20,576 Net income per common share - primary $.45 $.68 $.61 $1.00 -------------------------------------------------------------------------------------------------
The sum of the quarterly earnings per share amounts may not equal the comparable amounts for the full year because the computations are done independently. -62- 64 Schedule I AMERICAN BANKERS INSURANCE GROUP, INC. SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES DECEMBER 31, 1995 (IN THOUSANDS) Information on Summary of Investments - Other Than Investments in Related Parties is included on page 11 in Part I Item 1 c. of this report, and in Note 3 on page 45 in Part II Item 8 of this report, with the exception of the Information on Equity Securities which is included below.
AMOUNT AT WHICH MARKET SHOWN IN THE COST VALUE BALANCE SHEET ---- ----- ------------- Equity Securities: Common Stocks: Public Utilities $ 770 $ 732 $ 732 Banks, Trust and Insurance Companies 4,914 6,303 6,303 Industrial, Miscellaneous and All Other 54,902 66,881 66,881 Non-Redeemable Preferred Stock 38,026 39,112 39,112 ---------- ---------- ---------- Total Equity Securities $ 98,612 $ 113,028 $ 113,028 ========== ========== ==========
-63- 65 Schedule II AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT) CONDENSED FINANCIAL INFORMATION OF REGISTRANT BALANCE SHEETS AT DECEMBER 31, (IN THOUSANDS)
1995 1994 ---- ---- Assets ------ Investments in subsidiaries* $ 730,501 $ 582,224 Amounts due from subsidiaries* 19,988 11,655 Other investments 2,613 3,112 Cash 459 697 Other 9,310 12,531 ---------- ---------- Total assets $ 762,871 $ 610,219 ========== ========== Liabilities and Stockholders' Equity ------------------------------------ Short-term debt $ 87,000 $ 92,000 Long-term debt 148,981 105,789 Accrued expenses and other liabilities 13,893 6,555 ---------- ---------- Total liabilities 249,874 204,344 ---------- ---------- Stockholders' Equity -------------------- Common stock 20,384 20,244 Additional paid-in capital 215,121 212,139 Net unrealized investment and foreign exchange gains (losses) 7,255 (38,554) Retained earnings 282,748 225,374 Treasury stock, at cost (2,516) (1,623) Unamortized restricted stock (3,620) (3,205) Collaterization of loan to Leveraged Employee Stock Ownership Plan (6,375) (8,500) ---------- ---------- Total stockholders' equity 512,997 405,875 ---------- ---------- Total liabilities and stockholders' equity $ 762,871 $ 610,219 ========== ==========
*Eliminated in consolidated financial statements. See accompanying note to condensed financial statements. -64- 66 Schedule II AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1995 1994 1993 ---- ---- ---- Revenues: --------- Net investment income $ 2,744 $ 2,547 $ 624 Net realized investment (losses) gains (194) 891 106 Dividends from subsidiaries* 8,775 22,539 24,312 ---------- ---------- --------- Total revenues 11,325 25,977 25,042 ---------- ---------- --------- Expenses: --------- Credit bond losses and expenses 6 3,455 (143) Operating expenses 13,208 6,723 3,537 Interest 15,565 11,158 8,112 ---------- ---------- --------- Total expenses 28,779 21,336 11,506 ---------- ---------- --------- (Loss) income before income taxes and equity in undistributed income of subsidiaries (17,454) 4,641 13,536 Income tax (benefit) expense: ----------------------------- Current (8,853) (7,235) (3,785) Deferred 27 1,178 (5,066) ---------- ---------- --------- (8,826) (6,057) (8,851) ---------- ---------- --------- (Loss) income before equity in undistributed income of subsidiaries (8,628) 10,698 22,387 Equity in undistributed income of subsidiaries* 80,888 45,846 29,908 ---------- ---------- --------- Net income $ 72,260 $ 56,544 $ 52,295 ========== ========== =========
*Eliminated in consolidated financial statements. See accompanying note to condensed financial statements. -65- 67 Schedule II AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1995 1994 1993 ---- ---- ---- Operating Activities: Net income $ 72,260 $ 56,544 $ 52,295 Adjustments to reconcile net income to net cash provided by operating activities: Equity in undistributed earnings of subsidiaries (79,523) (47,926) (29,908) (Increase) in amounts due from subsidiaries (8,654) (13,544) (2,368) Decrease (increase) in other assets 2,289 12,912 4,894 Increase (decrease) in accrued liabilities 7,932 (1,000) (16,257) Amortization of convertible debentures 346 Other 1,397 1,066 145 Deferred income taxes 27 1,178 (5,066) ---------- --------- ---------- Net cash (used in) provided by operating activities (4,272) 9,230 4,081 ---------- --------- ---------- Investing activities: Increase in investment in subsidiaries (4,587) (565) (500) (Increase) decrease in other investments (193) (3,046) 6,769 Payment for purchase of subsidiaries, net of cash acquired (17,034) (32,284) (107,679) ---------- --------- ---------- Net cash used in investing activities (21,814) (35,895) (101,410) ---------- --------- ---------- Financing activities: Purchase of treasury stock (893) (1,208) Proceeds from issuance of common stock 1,248 1,238 53,633 Proceeds from issuance of short-term debt - other 50,000 18,000 182,250 Proceeds from issuance of long-term debt - other 81,000 78,723 Repayment of long-term debt - other (4,683) (4,683) Repayment of short-term debt - other (86,000) (51,000) (127,157) Cash dividends paid to stockholders (14,824) (14,304) (12,639) ---------- --------- ---------- Net cash provided by financing activities 25,848 26,766 96,087 ---------- --------- ---------- Net (decrease) increase in cash (238) 101 (1,242) Cash at beginning of year 697 596 1,838 ---------- --------- ---------- Cash at end of year $ 459 $ 697 $ 596 ========== ========= ==========
See accompanying note to condensed financial statements -66- 68 Schedule II AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT) CONDENSED FINANCIAL INFORMATION OF REGISTRANT STATEMENTS OF CASH FLOWS - CONTINUED FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS)
1995* 1994* 1993 ----- ----- ---- SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES: Conversion of 5 3/4% convertible subordinated debentures $ 31,513 Conversion of convertible subordinated debentures from officers $ 2,585 Detail of Acquisitions: Fair value of assets acquired $ 222,361 Liabilities assumed 111,872 ----------- Cash paid 110,489 Less cash acquired 2,810 ----------- Net cash paid for acquisitions $ 107,679 ============
* Note : No amounts applicable for 1995 and 1994. See accompanying note to condensed financial statements. -67- 69 Schedule II AMERICAN BANKERS INSURANCE GROUP, INC. (PARENT) CONDENSED FINANCIAL INFORMATION OF REGISTRANT DECEMBER 31, 1995 NOTE TO CONDENSED FINANCIAL STATEMENTS The accompanying condensed financial statements should be read in conjunction with the Consolidated Financial Statements and notes thereto of American Bankers Insurance Group, Inc. (Parent). The Company is scheduled to repay the LESOP note at a yearly amount of $2,125,000 plus interest. For a description of a short- term and long-term debt payable to others and related information see Note 7 to the Consolidated Financial Statements on page 54 in Part II Item 8 of this report. For a description of the Company's commitments and contingencies, see Note 11 to the Consolidated Financial Statements on page 60 in Part II Item 8 of this report. -68- 70 Schedule III AMERICAN BANKERS INSURANCE GROUP, INC. SUPPLEMENTARY INSURANCE INFORMATION FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
Deferred Other Benefits Policy Future Policy Net Claims Acquisition Policy Unearned Claim Premium Investment and Loss Amortization Costs Benefits Premiums Benefits Revenue Income* Expenses* of DAC ----------- --------- ----------- --------- ----------- ---------- --------- ------------ 1995 - ---- Life & Health $ 146,548 $ 275,250 $ 399,500 $ 161,926 $ 377,108 $ 40,249 $ 168,899 $ 91,953 Property & Casualty 164,331 779,367 242,819 863,605 58,415 285,898 357,796 Other 736 --------- --------- ----------- ---------- ----------- --------- --------- -------- Total $ 310,879 $ 275,250 $ 1,178,867 $ 404,745 $ 1,240,713 $ 99,400 $ 454,797 $449,749 ========= ========= =========== ========== =========== ========= ========= ======== 1994 - ---- Life & Health $ 128,606 $ 266,221 $ 330,986 $ 141,587 $ 360,100 $ 34,022 $ 180,513 $ 73,140 Property & Casualty 100,975 572,293 191,526 734,217 39,225 253,895 272,365 Other 1,195 --------- --------- ----------- ---------- ----------- --------- --------- -------- Total $ 229,581 $ 266,221 $ 903,279 $ 333,113 $ 1,094,317 $ 74,442 $ 434,408 $345,505 ========= ========= =========== ========== =========== ========= ========= ======== 1993 - ---- Life & Health $ 109,701 $ 266,057 $ 330,713 $ 144,385 $ 305,143 $ 33,335 $ 148,601 $ 71,080 Property & Casualty 89,058 490,875 163,885 576,851 34,481 200,904 195,765 Other 2,537 --------- --------- ----------- ---------- ----------- --------- --------- -------- Total $ 198,759 $ 266,057 $ 821,588 $ 308,270 $ 881,994 $ 70,353 $ 349,505 $266,845 ========= ========= =========== ========== =========== ========= ========= ========
Other Net Operating Premiums Expenses Written** --------- ----------- 1995 - ---- Life & Health $ 96,105 $ 196,596 Property & Casualty 203,056 982,985 Other 25,900 --------- ----------- Total $ 325,061 $ 1,179,581 ========= =========== 1994 - ---- Life & Health $ 106,225 $ 191,997 Property & Casualty 178,377 736,411 Other 24,737 --------- ----------- Total $ 309,339 $ 928,408 ========= =========== 1993 - ---- Life & Health $ 97,547 $ 123,058 Property & Casualty 157,219 623,922 Other 15,445 --------- ----------- Total $ 270,211 $ 746,980 ========= ===========
*Excluding net realized investment gains of $721, $2,679 and $5,454 for 1995, 1994 and 1993, respectively. **Excluding Credit Bond losses and expenses of $11,467, $6,599 and $2,974 for 1995, 1994 and 1993, respectively. ***Excluding Life and Annuity premiums. -69- 71 Schedule IV AMERICAN BANKERS INSURANCE GROUP, INC. REINSURANCE FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
Assumed Percentage Ceded to from of amount Gross other other Net assumed amount companies companies amount to net ------ --------- --------- ------ ------ 1995 ---- Life insurance in force $ 41,916,797 $ 10,522,839 $ 791,405 $ 32,185,363 2.4% ============== ============= ============= ============= ======= Premiums: Life insurance $ 285,100 $ 123,004 $ 40,329 $ 202,425 19.9% Accident & health insurance* 376,010 151,155 35,870 260,725 13.8% Property & liability insurance 1,169,333 493,268 101,498 777,563 13.1% -------------- ------------- ------------- ------------- ------- Total premiums $ 1,830,443 $ 767,427 $ 177,697 $ 1,240,713 14.3% ============== ============= ============= ============= ======= 1994 ---- Life insurance in force $ 30,685,770 $ 8,686,424 $ 1,443,472 $ 23,442,818 5.9% ============== ============= ============= ============= ======= Premiums: Life insurance $ 262,340 $ 83,411 $ 25,808 $ 204,737 12.6% Accident & health insurance* 313,839 111,634 15,415 217,620 7.1% Property & liability insurance 979,350 386,763 79,373 671,960 11.8% -------------- ------------- ------------- ------------- ------- Total premiums $ 1,555,529 $ 581,808 $ 120,596 $ 1,094,317 11.0% ============== ============= ============= ============= ======= 1993 ---- Life insurance in force $ 29,316,560 $ 10,665,242 $ 1,531,338 $ 20,182,656 7.6% ============== ============= ============= ============= ======= Premiums: Life insurance $ 219,654 $ 65,466 $ 21,446 $ 175,634 12.2% Accident & health insurance* 260,279 102,075 18,384 176,588 10.4% Property & liability insurance 732,317 284,540 81,995 529,772 15.5% -------------- ------------- ------------- ------------- ------- Total premiums $ 1,212,250 $ 452,081 $ 121,825 $ 881,994 13.8% ============== ============= ============= ============= =======
*Includes premiums from both the life and property and casualty segments. -70- 72 Schedule VI AMERICAN BANKERS INSURANCE GROUP, INC. SUPPLEMENTAL INFORMATION CONCERNING PROPERTY AND CASUALTY INSURANCE OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 1995, 1994 AND 1993 (IN THOUSANDS)
Claims and Claim Adjustment Expenses Incurred Related To Paid Claims and Claim Current Prior Adjustment Year Years Expenses ---------------------------------------------- 1995 ---- Consolidated Property and Casualty Entities $ 285,119 $ 779 $ 261,463 1994 ---- Consolidated Property and Casualty Entities $ 252,403 $ 1,492 $ 234,292 1993 ---- Consolidated Property and Casualty Entities $ 189,686 $ 11,218 $ 186,834
Information otherwise required in the Schedule is provided in Schedule III. -71- 73 ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES None. -72- 74 PART III ITEM 10 DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Information regarding the Directors of the Company is included in the Definitive Proxy Statement for the annual shareholders meeting, to be filed within 120 days of the registrant's fiscal year-end. Information regarding the Executive Officers of the Company is included in Part I of this report. There are no failures by directors, officers, beneficial owners of more than ten percent of the Company's stock or other persons subject to reporting under Section 16(a) of the Exchange Act of 1934 to timely file reports thereunder is included in the aforementioned Definitive Proxy Statements. ITEM 11 EXECUTIVE COMPENSATION Information regarding Executive Compensation is included in the Definitive Proxy Statement for the annual shareholders meeting, to be filed within 120 days of the registrant's fiscal year-end. ITEM 12 SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Information regarding Security Ownership of Certain Beneficial Owners and Management is included in the Definitive Proxy Statement for the annual shareholders meeting, to be filed within 120 days of the registrant's fiscal year-end. The registrant has no knowledge of any contractual arrangement that may result in a change of control at a subsequent date. ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Information regarding Certain Relationships and Related Transactions is included in the Definitive Proxy Statement for the annual shareholders meeting, to be filed within 120 days of the registrant's fiscal year-end. -73- 75 PART IV ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a.) (1) and (2) - The response to this portion of Item 14 is listed on page 36 of this report. (3) Exhibits 3(a)(4) - Second Amended and Restated Articles of Incorporation and Articles of Amendment filed July 8, 1986 with Certificate of the Designation, preferences and relative, participating, optional or other special rights of the Series A Participating Preferred Stock, and the qualifications, limitations, or restrictions thereof which have not been set forth in the Second Amended and Restated Articles of Incorporation of American Bankers Insurance Group, Inc., as amended. 3(b) - Corporate By-Laws, Amended and Restated November 11, 1995. 4(a)(2) - Rights to Purchase Series A Participating Preferred Stock. 4(b)(5) - Amendment to the Rights to Purchase Series A Participating Preferred Stock 10(a)(1) - Form of Executive Compensation Agreement. 10(b)(3) - 1987 Executive Stock Option/Dividend Accrual Plan. 10(c)(6) - Form of Executive Severance Benefits Agreement. 10(d) - 5 Year Competitive Advance and Revolving Credit Facility Agreement dated as of December 1, 1995 among the Company, certain banks and Barclays Bank PLC. 10(e) - Issuance and Paying Agent Agreement (For Commercial Paper) dated as of 21st day of November 1995 by and between the Company and Chemical Bank. 10(f)(7) - $23,000,000, 10.2% Promissory Notes. 10(g)(7) - Nonqualified Supplemental Benefit Plan. 10(h)(8) - Master License Agreement between Policy Management Systems Corporation ("PMSC"), a South Carolina Corporation and American Bankers Insurance Group, Inc. ("customer"). 10(i)(9) - Trust Indenture and Selling Agency Agreement for shelf filing of $200,000,000 medium-term notes. 10(j)(10) - 1991 Stock Incentive Compensation Plan, as amended February 18, 1994. 10(k)(10) - 1991 Stock Option/Restricted Stock Award Plan, as amended February 18, 1994. 10(l)(10) - Director's Deferred Compensation Plan, amended and restated May 25, 1994. -74- 76 10(m)(10) - Retirement Plan, as amended December 30, 1994. 10(n)(10) - Management Incentive Plan, as amended May 25, 1994. 10(o)(10) - 1994 Key Executive Convertible Subordinated Debenture Plan. 10(p)(10) - 1994 Non-Employee Directors' Stock Option Plan. 10(q)(10) - 1994 Senior Management Stock Option Plan. 10(r)(10) - $75,000,000, 7.60% Medium-term Note dated May 2,1994. 10(s)(10) - Irrevocable Stand-by Letter of Credit in favor of Tandy Corporation dated January 31, 1995; 10(t)(10) - Reimbursement Agreement with certain banks dated January 31, 1995. 10(u)(11) - $50,000,000, Floating Rate, Medium-term Note dated April 12, 1995. 10(v) - Form of Executive Compensation Agreement. 10(w) - Amendment to the 1991 Stock Option/Restricted Stock Award Plan. 11 - Statement regarding computation of earnings per share. 21 - Subsidiaries of the registrant. 23 - Consent of Independent Accountants. 27 - Financial Data Schedule 99 - Additional Exhibits - Information from Reports furnished to Insurance Regulatory Authorities. Documents relating to American Bankers Insurance Group, Inc. Leverage Employee Stock Ownership Plan (LESOP). 99(a)(4) Note 99(b)(4) Guaranty Agreement from American Bankers Insurance Group, Inc., American Bankers Insurance Company of Florida and American Bankers Life Assurance Company of Florida in favor of Sun Bank/Miami, N.A. 99(c)(6) Modified ESOP Note. 99(d)(7) Second Amendment to Trust Agreement among American Bankers Insurance Group and Barnett Banks Trust Company, N.A. (Successor to Southeast Bank, N.A., original trustee). 99(e)(10) American Bankers Insurance Group, Inc. Leveraged Employee Stock Ownership Plan, as amended December 30, 1994. -75- 77 Footnotes (1) Exhibit incorporated herein by reference from Form S-3 Registration Statement Number 2-94359. (2) Exhibit incorporated herein by reference from Registrant's Statement on Form 8-A filed on March 11, 1988. (3) Exhibit incorporated herein by reference from 1987 Annual Meeting Proxy Statement (Exhibit "A," pages 14 through 19). (4) Exhibit incorporated herein by reference from Registrant's Annual Report on Form 10-K for 1988. (5) Exhibit incorporated herein by reference from Registrant's Current Report on Form 8-K dated November 14, 1990. (6) Exhibit incorporated herein by reference from Registrant's Annual Report on Form 10-K for 1990. (7) Exhibit incorporated herein by reference from Registrant's Annual Report on Form 10-K for 1991. (8) Exhibit incorporated herein by reference from Registrant's Annual Report on Form 10-K for 1993. (9) Exhibit incorporated herein by reference from Registrant's Current Report on Form 10-Q for March 31, 1994. (10) Exhibit incorporated herein by reference from Registrant's Annual Report on Form 10-K for 1994. (11) Exhibit incorporated herein by reference from Registrant's Current Report on Form 10-Q for June 30, 1995. (b.) REPORTS ON FORM 8-K No report on Form 8-K was filed during the fourth quarter 1995. (c.) EXHIBITS The response to this portion of Item 14 is submitted as a separate section of this report. (d.) FINANCIAL STATEMENT SCHEDULES The response to this portion of Item 14 is submitted as part of Part II Item 8 of this report. -76- 78 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. American Bankers Insurance Group, Inc. By: /S/ Gerald N. Gaston Chief Executive Officer, March 29 , 1996 --------------------------------------- President, and ---- Gerald N. Gaston Vice Chairman of the Board By: /S/ Arthur W. Heggen Vice President and March 29 , 1996 --------------------------------------- Treasurer ---- Arthur W. Heggen
Pursuant to the requirements of the Securities Exchange Act of 1934, this report signed below by the following persons on behalf of the Registrant and in the capacities and on March 29, 1996. American Bankers Insurance Group, Inc. /S/ R. Kirk Landon Chairman of the Board, March 29 , 1996 -----------------------------------------------and Director ---- R. Kirk Landon /S/ Gerald N. Gaston Chief Executive Officer, March 29 , 1996 -----------------------------------------------President, ---- Gerald N. Gaston Vice Chairman of the Board and Director /S/ William H. Allen, Jr. Director March 29 , 1996 ----------------------------------------------- ---- William H. Allen, Jr. /S/ Nicholas A. Buoniconti Director March 29 , 1996 ----------------------------------------------- ---- Nicholas A. Buoniconti /S/ Armando M. Codina Director March 29 , 1996 ----------------------------------------------- ---- Armando M. Codina
-77- 79 /S/ Peter J. Dolara Director March 29 , 1996 ----------------------------------------------- ---- Peter J. Dolara /S/ Jack F. Kemp Director March 29 , 1996 ----------------------------------------------- ---- Jack F. Kemp /S/ James F. Jorden Director March 29 , 1996 ----------------------------------------------- ---- James F. Jorden /S/ Daryl L. Jones Director March 29 , 1996 ----------------------------------------------- ---- Daryl L. Jones /S/ Malcolm G. MacNeill Director March 29 , 1996 ----------------------------------------------- ---- Malcolm G. MacNeill /S/ Eugene M. Matalene, Jr. Director March 29 , 1996 ----------------------------------------------- ---- Eugene M. Matalene, Jr. /S/ Albert H. Nahmad Director March 29 , 1996 ----------------------------------------------- ---- Albert H. Nahmad /S/ Nicholas J. St. George Director March 29 , 1996 ----------------------------------------------- ---- Nicholas J. St. George /S/ Robert C. Strauss Director March 29 , 1996 ----------------------------------------------- ---- Robert C. Strauss /S/ George E. Williamson, II Director March 29 , 1996 ----------------------------------------------- ---- George E. Williamson, II
-78- 80 ITEM 14 (c) EXHIBIT INDEX
Pages ----- Exhibit 10 - Material contracts: E-2 3(b) - Corporate By-Laws, Amended and Restated November 11, 1995. 10(d) - 5 Year Competitive Advance and Revolving Credit Facility Agreement dated December 1, 1995. 10(e) - Issuance and Paying Agent Agreement (For Commercial Paper) dated as of November 21, 1995. 10(v) - Form of Executive Compensation Agreement. 10(w) - Amendment to the 1991 Stock Option/Restricted Stock Award Plan. Exhibit 11 - Statement regarding computation of earnings per share E-3 Exhibit 21 - Subsidiaries of the registrant E-4 Exhibit 23 - Consent of Independent Certified Public Accountants E-5 Exhibit 27 - Financial Data Schedule E-6 Exhibit 99 - Information from Reports furnished to Insurance Regulatory Authorities for American Bankers Insurance Group, Inc., Domestic Property and Casualty Subsidiaries. E-7
Other exhibits have been incorporated by reference. See Item 14, Part IV of this Annual Report on Form 10-K. E - 1 81 EXHIBIT 10 Material Contracts E - 2 EX-3.B 2 CORPORATE BY-LAWS 1 EXHIBIT 3(b) ARTICLE I MEETINGS SECTION 1. ANNUAL MEETINGS The Annual Meeting of the stockholders of the Corporation shall be held at the principal office of the Corporation in the state of Florida or at such other place within or without the state of Florida as may be determined by the Board of Directors and as may be designated in the notice of such meeting. The meeting shall be held during the month of May in each year on such date as the Board of Directors may designate at a meeting held not less than 60 days prior to the date so designated for the Annual Meeting. The business to be transacted at such meeting shall be the election of Directors and such other business as may be properly brought before the meeting. SECTION 2. SPECIAL MEETINGS Special Meetings of the stockholders may be held any place within or without the state of Florida upon call of the Board of Directors, the Executive Committee, the Chief Executive Officer, or when requested in writing by the holders of not less than 75% of all the Voting Shares, as defined in Article VII of the Articles of Incorporation of the Corporation entitled to vote at the meeting (such meeting, if requested by the stockholders, to be held at the office of the Corporation), at such time as may be fixed by the Board of Directors or the Executive Committee or the Chief Executive Officer or such stockholders, as may be stated in the call and notice. SECTION 3. NOTICE OF MEETINGS Written notice of the time, place and purpose, or purposes of every meeting of shareholders shall be delivered not less than ten (10) nor more than sixty (60) days before the meeting, either personally or by mail (the act of mailing being deemed completed service), by or at the direction of the President, the Secretary, or the officer or persons calling the meeting to each stockholder of record entitled to vote at such meeting, and upon any stockholder who, by reason of any action proposed at such meeting, would be entitled to have his shares of stock appraised if such action be taken. If mailed, such notice shall be directed to such stockholder at his last address as its appears on the stock books of the Corporation unless he shall have filed with the Secretary of Corporation a written request that notices intended for him be mailed to the address designated in such request. Such further notice shall be given by mail, publication or otherwise, as may be required by the Articles of Incorporation of the Corporation, by resolution of the Board of Directors or Executive Committee or by law. SECTION 4. QUORUM A majority of the shares entitled to vote represented in person or by proxy shall constitute a quorum at the meeting of stockholders. If a quorum is present, the affirmative vote of the majority of the shares represented at the meeting and entitled to vote on the subject matter shall be the act of all stockholders unless otherwise provided by statute or the Articles of Incorporation of the Corporation. If at any meeting of stockholders, there should be less than a full quorum present, the stockholders of the majority of the shares of stock entitled to vote so -1- 2 present or represented may adjourn the meeting from time to time without notice other than announcement at the meeting until a quorum shall have been obtained, when any business may be transacted which might have been transacted at the meeting as first convened had there been a full quorum. SECTION 5. VOTING At all meetings of the stockholders, each holder of record of outstanding shares of the stock of the Corporation entitled to vote thereat may so vote either in person or by proxy appointed by instrument in writing executed by such holder or his duly authorized attorney. No proxy shall be valid after the expiration of eleven (11) months from the date thereof, unless the stockholder executing it shall have specified therein a longer time during which it is to continue in force. SECTION 6. RECORD OF SHAREHOLDERS For the purpose of determining stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to receive payment of any dividend or in order to make a determination of stockholders for any other purpose, the Board of Directors may provide that the stock transfer books shall be closed for a stated period but not to exceed, in any case, sixty (60) days. if the stock transfer book shall be closed for the purpose of determining stockholders entitled to notice of or to vote at a meeting of stockholders, such books shall be closed for at least ten (10) days immediately preceding the meeting. In lieu of closing the stock transfer books, the Board of Directors may fix in advance a date as the record date for any determination of stockholders, such date in any case not more than sixty (60) days and, in case of a meeting, not less than ten (10) days prior to the date on which the particular action requiring such determination of stockholders is to be taken. If the stock transfer books are not closed and no record date is fixed for the determination of stockholders entitled to notice of or to vote at a meeting of stockholders, or stockholders entitled to receive payment of a dividend, the date on which notice of the meeting is mailed or the date on which the resolution of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date of such determination of stockholders. When the determination of stockholders entitled to vote at any meeting of stockholders has been made as provided in this section, such determination shall apply to any new record date for the adjourned meeting. -2- 3 ARTICLE II BOARD OF DIRECTORS SECTION 1. NUMBER AND QUALIFICATIONS The number of Directors constituting the entire Board of the Corporation shall be not less or more than as authorized by the Articles of Incorporation of the Corporation, and shall be fifteen (15) until otherwise determined by the resolution adopted by affirmative vote of a majority of the entire Board of Directors. SECTION 2. MEETINGS OF THE BOARD The Board of Directors shall hold its Annual Meeting as set forth in Section 3 hereafter. Special Meetings of the Board may be held at any time and at any place within or without the continental United States upon the call of the Chairman of the Board, the Chief Executive Officer of the Corporation, or any two Directors. Except with respect to the Annual Meeting of Directors, notice of all Directors' Meetings, whether regular or special, shall be given to each Director by either personal delivery, mail, facsimile, telegram or cablegram at least two (2) days before the meeting unless waived pursuant to Section 8 hereafter. SECTION 3. ANNUAL MEETING OF DIRECTORS The Annual Meeting of the Board of Directors shall be held on the same date and in the same place as the Annual Stockholders' meeting and shall convene immediately after the conclusion of the Annual Meeting of the Stockholders. No notice of such meeting shall be required. SECTION 4. QUORUM The attendance of not less than a majority of the number of Directors at the time constituting the full Board of Directors in accordance with the Articles of Incorporation of the Corporation and these By-Laws shall be necessary to constitute a regular quorum for the transaction of business; provided; however, that if the attendance at such meeting is less than that required for a regular quorum as aforesaid but is one-third (1/3) or more of the full Board of Directors, the number so present shall constitute a special quorum which may proceed to adopt resolutions or take other action which; however, shall not be binding upon the Corporation until such resolutions or actions respectively have been approved in writing by a sufficient number of Directors (in addition to those voting therefore at the meeting) to constitute a total of not less than a majority of the full Board. When such resolutions or other action has been presented in writing to any absent Director or Directors, such resolutions, or other actions shall be deemed approved by said absent Director unless his disapproval is received in writing by the Secretary within fifteen (15) days after receipt by such Director of such resolutions or other action. Any action taken at a meeting at which a quorum is present shall require consent and approval of at least a majority of the full Board. If at any meeting of the Board, there shall be less than a full quorum present, a majority of the Directors present may adjourn the meeting from time to time without notice other than -3- 4 announcement at the meeting until a quorum shall have been obtained, when any business may be transacted which might have been transacted at the meeting as first convened had there been a full quorum. SECTION 5. VACANCIES AND REMOVAL Vacancies in the Board of Directors shall be filled as prescribed by the Articles of Incorporation of the Corporation. The Directors so chosen shall hold office until the next election of the class for which such directors shall have been chosen and until their successors shall be elected and qualified. Directors may be removed and vacancies caused by their removal may be filled as prescribed by the Articles of Incorporation of the Corporation, and new Directors so chosen shall hold office until the next election of the class for which such Directors shall have been chosen and until their successors shall be elected and qualified. SECTION 6. COMPENSATION Each Director of the Corporation and each member of the Executive Committee, the Building Committee, the Compensation and Nominating Committee, the Audit Committee, the Planning Committee, the Audit Committee, or any special committee shall receive such compensation as the Board may by resolution determine to be proper and reasonable. Nothing herein shall preclude any Director from serving the Corporation in any other capacity and receiving compensation therefor. Directors residing outside the county in which any meeting of the Board of Directors is held shall be entitled to reimbursement for reasonable expenses of attending such meeting or meetings. SECTION 7. INDEMNITY The Corporation shall indemnify each Director and Officer and may, by action of the Board of Directors, indemnify other employees, and agents to the fullest extent permitted under Florida Statutes now or hereafter in force. SECTION 8. WAIVER OF NOTICE A Director may waive in writing notice of a special meeting of the Board either before or after the meeting; and his waiver shall be deemed the equivalent of his having been given notice. Attendance of a Director at a meeting shall constitute waiver of notice at that meeting unless he attends for the express purpose of objecting to the transaction of business because the meeting has not been lawfully called or convened. -4- 5 ARTICLE III OFFICER SECTION 1. OFFICERS AND AGENTS The Board of Directors, at its Annual Meeting, shall elect from its members a Chief Executive Officer of the Corporation, a President, a Chairman of the Board of Directors, and a chairman for each committee of the Board. The Board of Directors shall also elect at such meeting Vice Presidents, the Secretary, the Treasurer, and such other officers as it may deem appropriate. Any two or more offices may be held by the same person provided; however, that the office of President and Secretary or Assistant Secretary may not be held by the same person. SECTION 2. TERM OF OFFICE The term of office of all officers shall be one (1) year and until their respective successors are chosen and qualified, but any officer or agent elected or appointed by the Board of Directors may be removed, with or without cause, at any time by the affirmative vote of the majority of the full Board of Directors. SECTION 3. GENERAL POWERS AND DUTIES The officers, agents, and employees of the Corporation shall each have such powers and duties in the management of the property and affairs of the corporation, subject to the control of the Board of Directors, as generally pertain to their respective offices, as well as such powers and duties as from time to time may be prescribed by the Board of Directors. The Board of Directors may require any such officer, agent, or employee to give security for the faithful performance of his duties. SECTION 4. SPECIAL POWERS AND DUTIES OF OFFICERS Without modifying or limiting the general powers and the duties authorized and assigned by Section 3 above, the following named officers shall have the following special powers and duties, provided; however, that the Board of Directors or Executive Committee may, by resolution, shift, consolidate, change or eliminate any of said powers or duties, except where such duties or powers are set by the laws of the state of Florida. CHAIRMAN OF THE BOARD The Chairman of the Board shall preside as Chairman at all meetings of the Board of Directors and shall perform such other duties as may be assigned him by the Board of Directors, the Executive Committee, or the Chief Executive Officer of the Corporation. In the absence of the Chairman, the Vice Chairman, if there be one, shall preside over meetings of the Board of Directors, and shall have such other duties as may be assigned to him by the Board of Directors, the Executive Committee, or the Chief Executive Officer of the Corporation. -5- 6 CHIEF EXECUTIVE OFFICER The Chief Executive Officer shall preside at all meetings of the stockholders, shall be charged with supervision of the offices of the Corporation and of its personnel, shall have responsibility for the general and active management of the business of the Corporation, and shall see that all the orders and resolutions of the Board are carried into effect, subject; however, to the right of the Board to delegate any specific powers to any other officer or officers of the Corporation. PRESIDENT The President, in the absence or disability of the Chief Executive Officer, shall act in his stead and place and shall discharge the duties of Chief Executive Officer and possess his powers. At the direction of the Board of Directors or the Executive Committee, he may assume charge and supervision of the offices of the Corporation and of its personnel and may actively supervise and direct the conduct of its business. He shall also perform such other duties as may be assigned to him by the Board, the Executive Committee or the Chief Executive Officer. The President may also execute contracts in the name of the Corporation and appoint and discharge agents and employees. The President shall be responsible to the Chief Executive Officer. EXECUTIVE VICE PRESIDENT AND OTHER VICE PRESIDENTS. The Board may designate and appoint an Executive Vice President, who, in the absence or disability of the President, shall act in the stead and place, and shall discharge the duties of the President and possess his powers. At the direction of the Board of Directors or the Executive Committee, he may assume charge and supervision of the offices of the Corporation and of its personnel, and may actively supervise and direct the conduct of its business. He shall also perform such other duties as may be assigned to him by the Board, the Executive Committee, the Chief Executive Officer, or the President as shall any other Vice Presidents of the Corporation. The Board may designate and appoint such other Vice presidents as it may, in its discretion, choose to do. In the absence or disability of the Chief Executive Officer, the President and of the Executive Vice President, any other Vice President designated by the Board of Directors or the Executive Committee may discharge the duties of the Chief Executive Officer and shall possess his powers. TREASURER The Treasurer shall have custody of all funds and securities of the Corporation which may come into his hands; shall be charged with the maintenance and supervision of the accounts and financial records and reports; and shall be charged with the preparation and filing of all tax returns. When necessary or proper, he shall endorse on behalf of the corporation for collection, checks, notes and other obligations, and shall deposit same to the credit of the Corporation. He shall see that all balances due to the Corporation by its agents and brokers, or otherwise, are promptly paid and shall promptly report to the Chief Executive Officer any unusual delay in such payments, as well as any default in the payment of rent or of interest -6- 7 or principal on any and all investments belonging to the Corporation. He shall keep faithful and accurate account of all receipts and expenditures and of all other items which enter into the accounting requirements of the Corporation, and when requested, shall render, furnish and submit such financial statements, balance sheets, profit and loss statements or other accounting reports and schedules as the Board, the Executive Committee, or the Chief Executive Officer may direct. He shall also supervise the statistical work and records of the Corporation. He shall also perform such other duties as may be assigned to him by the Board or Executive Committee. In the absence or disability of the Treasurer or when specifically authorized by the Board of Directors of the Executive Committee, an Assistant Treasurer may perform all or any of the duties of the Treasurer herein set forth and such other duties as may be assigned by the Board or the Executive Committee. SECRETARY The Secretary shall have immediate charge of the minute books of the Corporation. He shall have charge of the stock certificate books, the transfer book and stock ledgers. He shall keep accurate minutes of all proceedings of the regular and special meetings of the shareholders and of Directors; he, shall attend to the giving and serving of all notices; and when so ordered, he shall affix the corporate seal to all documents requiring such seal and shall make the necessary attestation or certification; and shall have such other duties as may from time to time be assigned to him by the Board or the Executive Committee. In the absence or disability of the Secretary or when specifically authorized by the Board of Directors or the Executive Committee, an Assistant Secretary may perform all or any of the administrative duties of the Secretary herein set forth. SECTION 5. EXECUTION OF DOCUMENTS The Board of Directors or the Executive Committee may, by appropriate resolution, designate such officers of the Corporation, or of American Bankers Insurance Company of Florida or American Bankers Life Assurance Company of Florida as are authorized and empowered to make and execute all deeds, releases, leases, agreements, contracts, bills of sale, assignments, Power of Attorney or of substitution, and other instruments of writing which may be needful to sell, assign, transfer, convey, release and assure or lease to any party, whether purchaser, lessee or transferee, any estate or property, real or personal, stocks, bonds, loans, storage receipts, certificates of deposit, scrip or evidences of debt or demand standing in the name of the Corporation or any officer on behalf of the Corporation, or held or controlled by it; and to affix the corporate seal of the Corporation to any and all such instruments of writing and to acknowledge or prove the said instruments or any of them and the proper execution, sealing and delivery thereof. The Board of Directors or the Executive Committee from time to time may authorize other officers or agents of the Corporation or of American Bankers Insurance Company of Florida or American Bankers Life Assurance Company of Florida to perform any or all of said duties. -7- 8 ARTICLE IV COMMITTEES SECTION 1. EXECUTIVE COMMITTEE The Board of Directors shall designate an Executive Committee to consist of not less than three (3) Directors of the Corporation and by resolution shall designate the Chairman of said Committee. The Executive Committee shall have and exercise, when the Board is not in session, so far as the Board of Directors may lawfully delegate to it, all of the powers of the Board in the management of the business and affairs of the Corporation and any and all subsidiaries of the Corporation and shall have power to authorize the seal of the Corporation and any subsidiary of the Corporation to be affixed to all papers which may require it; but the Executive Committee shall not have power to fill vacancies in the Board, or to change the membership of, or to fill vacancies in the Executive Committee, the Compensation and Nominating Committee, the Audit Committee, the Building Committee or the Planning Committee, or to make or amend By-Laws of the Corporation, or any subsidiary thereof. The Board shall have the power at any time to fill vacancies in, to change the membership of, to change the number of members of, or to dissolve the Executive Committee. Such number of the members of the Executive Committee as the Board of Directors may by resolution determine shall constitute a quorum. All action taken by the Executive Committee shall be reported to the Board at its meeting next succeeding such action. SECTION 2. COMPENSATION AND NOMINATING COMMITTEE The Board of Directors shall designate a Compensation and Nominating Committee to consist of not less than three (3) directors of the Corporation, none of whom shall be inside directors, and by resolution shall designate the Chairman of said Committee. Subject to the control of the Board of Directors or the Executive Committee, the Compensation and Nominating Committee shall review and recommend to the Board of Directors the compensation package of the Chairman of the Board of Directors, the Chief Executive officer, and the President of the Corporation and its major subsidiaries; shall review and approve the compensation package suggested by Management for all other officers; shall be responsible for the control and administration of all perquisites offered officers of the Corporation and its major subsidiaries, including, but not necessarily limited to, pension, retirement or profit sharing plans, management incentive plans, restricted or qualified stock plans, and insurance benefits; shall assist the Chairman of the Board and the Chief Executive Officer in the development of a management succession plan for the corporation; and shall recommend and implement criteria regarding the composition of the Board, including but not limited to seeking out possible candidates to fill Board positions, determining the desirable balance of expertise and composition of the Board members, aiding in attracting such qualified candidates to the Board, reviewing the management slate of directors to be elected by the shareholders at the Annual Meeting and recommending to the Board the inclusion of the slate in the proxy statement, receiving and reviewing the qualifications of candidates for election to corporate officership and recommending the officers for approval by the Board, as well as evaluating performance of current directors in order to maintain the quality of the Board. The Compensation and Nominating Committee shall fix its own rules and procedures and shall meet, at least once quarterly, with its annual meeting prior to the annual Board of -8- 9 Directors meeting, and at any other time at the request of the Board of Directors, the Chairman of the Compensation and Nominating Committee or the Chief Executive Officer of the Corporation. The Chairman may request any members of management of the corporation or any of its subsidiaries to attend meetings as he deems necessary. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, to change the number of members of, or to dissolve, the Compensation and Nominating Committee. Such number of members of the Committee as the Board of Directors may by resolution determine shall constitute a quorum. All action taken by the Compensation and Nominating Committee shall be reported to the Board at its meeting next succeeding such action. SECTION 3. AUDIT COMMITTEE The Board of Directors shall designate an Audit Committee to consist of not less than three (3) Directors of the Corporation, none of whom shall be inside Directors, and by resolution shall designate the Chairman of said Committee. Subject to the control of the Board of Directors or the Executive Committee, the Audit Committee shall as to the Corporation and each of its subsidiaries: recommend the selection of the independent auditors to the Board of Directors and review the arrangements and scope of the independent audit; review all financial statements before publication, and review matters of concern to the Audit Committee, the auditors or management relating to these statements or the results of any audit thereof; consider the comments from the independent auditors with respect to any weakness in internal controls and the consideration given corrective action taken by management; review the internal accounting procedures and controls with the Corporation's and the respective subsidiary's financial and accounting staff; review the activities, reports and recommendations of the Corporation's and respective subsidiary's internal auditors and management's supervision and control of that department; and complete any other requests made by the Board of Directors. The Audit Committee shall fix its own rules and procedures and shall meet, at least once annually, on sufficient occasions to fulfill its duties, at the request of the Board of Directors, the Chairman of the Audit Committee, or the chief financial officer. During any meeting of the Committee at which financial statements are to be reviewed, the chief financial officer of the Corporation or the respective subsidiary or his representative shall be present. The internal auditor and/or a representative of the Corporation's or the respective subsidiary's auditors may be invited to any meeting of the Committee by the Chairman of the Committee. The Board of Directors shall have the power at any time to fill vacancies in, to change the number of members of, or to dissolve the Audit Committee. Such number of the members of the Committee as the Board of Directors may by resolution determine shall constitute a quorum. All action taken by the Audit Committee shall be reported to the Board at its meeting next succeeding such action. SECTION 4. BUILDING COMMITTEE The Board of Directors shall designate a Building Committee to consist of not less than three (3) directors and by resolution shall designate the Chairman of said Committee. Subject to the control of the Board of Directors or the Executive Committee, the Building Committee shall formulate the building plans of the Corporation to include liaison with architects, engineers, general contractors, governmental agencies, lending institutions, planners, and consultants as necessary. The Building Committee shall recommend to the Board of Directors comprehensive plans for construction, design, financing, decorating, furnishing, and equipping of office space necessary to accommodate the growth objectives of the Corporation and shall perform the same functions with respect to and shall oversee the -9- 10 management of the Corporation's real properties held for investment. The Building Committee shall fix its own rules and procedures and shall meet as frequently as necessary to fulfill its duties. The Board of Directors shall have the power at any time to fill vacancies in, to choose the number of members of, or to dissolve the Building Committee. Such number of the members of the Building Committee as the Board of Directors may by resolution determine shall constitute a quorum. All action taken by the Building Committee shall be reported to the Board at its meeting next succeeding such action. SECTION 5. PLANNING COMMITTEE The Board of Directors shall designate a Planning Committee to consist of not less than three (3) Directors of the Corporation and by resolution shall designate the Chairman of said Committee. Subject to the control of the Board of Directors or the Executive Committee, the Planning Committee shall periodically review and recommend to the Board of Directors the plans, goals, and objectives of the Corporation and its major subsidiaries; shall review the Consolidated Profit Plan, the Capital Plan and the Business Plans for each business segment of the Corporation annually; and shall monitor, throughout the year, the operating results of each such business segment and the consolidated profit results. The Planning Committee shall fix its own rules and procedures and shall meet at least once annually, or on sufficient occasions to fulfill its duties, and at any other time at the request of the Board of Directors, the Chairman of the Planning Committee or the Chief Executive Officer of the Corporation. The Chairman may request any members of management of the corporation or any of its subsidiaries to attend meetings as he deems necessary. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, to change the number of members of, or to dissolve, the Planning Committee. Such number of members of the Committee as the Board of Directors may by resolution determine shall constitute a quorum. All action taken by the Planning Committee shall be reported to the Board at its meeting next succeeding such action. SECTION 6. COMMITTEES The Board of Directors may, in its discretion, by resolution, appoint other committees which shall have and may exercise such powers as shall be conferred or authorized by the resolution appointing them. A majority of any such committee, composed of more than two members may determine its actions and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board shall have power at any time to change the members of such committee, to fill vacancies and to discharge any such committee. -10- 11 ARTICLE V COMMON STOCK SECTION 1. CERTIFICATE OF SHARES The interest of each stockholder shall be evidenced by certificates for shares of stock of the Corporation in such form as the Board of Directors may from time to time prescribe. The certificates of stock shall be signed by the President or a Vice President and the Secretary or an Assistant Secretary and sealed with the seal of the Corporation, and shall be countersigned and registered in such manner, if any, as the Board may by resolution prescribe; provided that, in case such certificates are required by such resolution to be signed by a Transfer Agent or Transfer Clerk or by a Registrar, the signatures of the President or a Vice President and the Secretary or any Assistant Secretary, and the seal of the Corporation upon such certificates may be facsimiles, engraved, or printed. In case such officer who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such before such certificate is issued, it may be issued by the corporation with the same effect as if such officer had not ceased to be such at the date of its issue. SECTION 2. TRANSFERS Shares in the capital stock of the Corporation shall be transferred only on the books of the Corporation by the holder thereof in person or by his attorney or in case of death by his personal representative, upon surrender for cancellation of certificates for the same number of shares with an assignment and power of transfer endorsed thereon or attached thereto, duly executed, with such proof of the authenticity of the signature as the Corporation or its agents may reasonably require. SECTION 3. LOST OR DESTROYED STOCK CERTIFICATE No certificate for shares of stock of the Corporation shall be issued in place of any certificates alleged to have been lost, stolen or destroyed, except upon production of such evidence of the loss, theft or destruction and upon indemnification of the Corporation and its agents, to such extent and in such manner as the Board of Directors may from time to time prescribe. SECTION 4. CONTROL-SHARE ACQUISITIONS STAT DOES NOT APPLY Florida Statutes Section 607.0902 (1990), and any amendments thereto (the "Statute"), does not apply to control-share acquisitions (as defined in the Statute) of shares of stock of the Corporation occurring on or after November 14, 1990. -11- 12 ARTICLE VI CHECKS, NOTES, ETC. All checks and drafts on the Corporation bank accounts and all bills of exchange, and promissory notes and all acceptances, obligations, and other instruments for payment of money shall be signed by such officers of the Corporation or such officers of American Bankers Insurance Company of Florida or American Bankers Life Assurance Company of Florida or such agents as shall be thereunto authorized from time to time by the Board of Directors or the Executive Committee. No bills or notes shall be signed by or on behalf of the Corporation unless the Board of Directors or the Executive Committee shall expressly authorize the same and shall designate the officers who shall execute same. -12- 13 ARTICLE VII INSPECTORS OF ELECTION In advance of any meeting of the shareholders, the Board of Directors may appoint Inspectors of Election who need not be shareholders to act at such meetings or any adjournment thereof. If Inspectors of Election are not so appointed by the Board of Directors, the Chairman of any such meeting may appoint such Inspectors of Election. If neither the Board of Directors or the Chairman of the meeting appoint Inspectors of Election, any shareholder or proxy thereof may request the election thereof and those individuals appointed shall be by majority vote of the shares present and entitled to vote. In no event shall there be more than three (3) Inspectors of Election and no person who is a candidate for office shall act as an Inspector. In case any person appointed an Inspector fails to appear or refuses to act, the vacancy may be filled by appointment made by the Board of Directors in advance of the convening of the meeting or at the meeting by the person or officer acting as Chairman. -13- 14 ARTICLE VIII AMENDMENTS The By-Laws of the Corporation may be repealed or amended and new By-Laws may be adopted by either the majority vote of the full Board of Directors or at any meeting of the shareholders of record of a majority of the outstanding stock entitled to vote thereat, provided notice of the meeting is given in accordance with these By-Laws and provided further that notice may be waived as provided by Section 3 of Article I hereof, but the Board of Directors may not amend or repeal any By-Law adopted by shareholders if the shareholders specifically provide such By-Law is not subject to amendment or repeal by the Directors. -14- EX-10.D 3 5 YEAR COMPETITIVE ADVANCE AGREEMENT 1 EXHIBIT 10(d) =============================================================================== 5-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT Dated as of December 1, 1995 among AMERICAN BANKERS INSURANCE GROUP, INC. THE LENDERS NAMED HEREIN, CHEMICAL BANK, as Administrative Agent and BARCLAYS BANK PLC, NEW YORK BRANCH, as Co-Agent =============================================================================== 2 TABLE OF CONTENTS ARTICLE I DEFINITIONS
Page 1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1 1.2 Terms Generally . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 ARTICLE II THE CREDITS 2.1 Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.2 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19 2.3 Competitive Bid Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 2.4 Standby Borrowing Procedure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 2.5 Conversion and Continuation of Standby Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 2.6 Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 2.7 Repayment of Loans; Evidence of Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.8 Interest on Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 2.9 Default Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.10 Alternate Rate of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 2.11 Termination and Reduction of Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.12 Prepayment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 2.13 Reserve Requirements; Change in Circumstances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 2.14 Change in Legality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 2.15 Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 2.16 Pro Rata Treatment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.17 Sharing of Setoffs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 2.18 Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.19 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33 2.20 Duty to Mitigate; Assignment of Commitments Under Certain Circumstances . . . . . . . . . . . . . . . . . . . . 36
3 ARTICLE III REPRESENTATIONS AND WARRANTIES 3.1 Organization; Powers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.2 Authorization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 3.3 Enforceability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.4 Governmental Approvals. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.5 Financial Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 3.6 Ownership of Properties; Possession under Leases. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.7 Subsidiaries. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.8 Litigation, Compliance with Laws, etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39 3.9 Federal Reserve Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.10 Investment Company Act; Public Utility Holding Company Act . . . . . . . . . . . . . . . . . . . . . . . . . . 40 3.11 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.12 No Material Misstatements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.13 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.14 Employee Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.15 Environmental Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 3.16 Absence of Certain Restrictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 3.17 Reinsurance Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.18 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 3.19 Obligations as Senior Indebtedness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE IV CONDITIONS OF LENDING 4.1 All Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 4.2 Closing Dat. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 ARTICLE V COVENANTS A. Affirmative Covenants 5.1 Existence. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.2 Business and Properties. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
ii 4 5.3 Financial Statements, Reports, etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 5.4 Insurance Licenses. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.5 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 5.6 Obligations and Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.7 Litigation and Other Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.8 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 5.9 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.10 Maintaining Records; Access to Properties and Inspections . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.11 Ownership of Subsidiaries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.12 Compliance with Environmental Laws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 5.13 Preparation of Environmental Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 B. Negative Covenants 5.14 Limitations on Liens . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.15 Prohibition of Fundamental Changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51 5.16 Dividends and Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.17 Nature of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.18 Stockholder's Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.19 Consolidated Total Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.20 Interest Charge Coverage . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.21 Statutory Surplus of ABIC and ABLAC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5.22 Risk-Based Capital Ratio . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 5.23 Limitations of Subsidiary Indebtedness. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 ARTICLE VI EVENTS OF DEFAULT ARTICLE VII THE ADMINISTRATIVE AGENT ARTICLE VIII MISCELLANEOUS 8.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 8.2 Survival of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59
iii 5 8.3 Binding Effect. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.4 Successors and Assigns. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 8.5 Expenses; Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.6 Applicable Law. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.7 Waivers; Amendment. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 8.8 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.9 Severability. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.10 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 8.11 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8.12 Right of Setoff . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8.13 Jurisdiction: Consent to Service of Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 8.14 WAIVER OF JURY TRIAL . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 * * * EXHIBITS AND SCHEDULES Exhibit A-1 Form of Competitive Bid Request Exhibit A-2 Form of Notice of Competitive Bid Request Exhibit A-3 Form of Competitive Bid Exhibit A-4 Form of Competitive Bid Accept/Reject Letter Exhibit A-5 Form of Standby Borrowing Request Exhibit B Administrative Questionnaire Exhibit C Form of Assignment and Acceptance Exhibit D Form of Opinion of Counsel for American Bankers Insurance Group, Inc. Schedule 2.1 Commitments Schedule 3.6 Capital Leases Schedule 3.7 Subsidiaries Schedule 3.8 Litigation Schedule 3.15 Environmental Matters Schedule 3.16 Certain Restrictions
iv 6 5-YEAR COMPETITIVE ADVANCE AND REVOLVING CREDIT FACILITY AGREEMENT (the "AGREEMENT") dated as of December 1, 1995, among AMERICAN BANKERS INSURANCE GROUP, INC., a Florida corporation (the "COMPANY"), the lenders listed in Schedule 2.1 (the "LENDERS"), CHEMICAL BANK, a New York banking corporation, as administrative agent for the Lenders (in such capacity, the "ADMINISTRATIVE AGENT"), and BARCLAYS BANK PLC, NEW YORK BRANCH, as Co-Agent. BACKGROUND A. The Lenders have been requested to extend credit to the Company to enable it to borrow on a standby revolving credit basis on and after the date hereof and at any time and from time to time prior to the Maturity Date (such term and each other capitalized term used but not defined shall have the meaning assigned to it in Article I) a principal amount not in excess of $250,000,000 at any time outstanding. B. The Lenders have also been requested to provide a procedure pursuant to which the Company may invite the Lenders to bid on an uncommitted basis on short-term borrowings by the Company. The proceeds of such borrowings are to be used for working capital and other general corporate purposes, including commercial paper back-up. C. The Lenders are willing to extend credit on the terms and subject to the conditions herein set forth. This Agreement will replace the Existing Credit Facility. Accordingly, the parties hereto agree as follows: ARTICLE I DEFINITIONS 1.1 DEFINED TERMS. As used in this Agreement, the following terms shall have the meanings specified below: ABR BORROWING: a Borrowing comprised of ABR Loans. ABR LOAN: any Standby Loan bearing interest at a rate determined by reference to the Alternate Base Rate in accordance with the provisions of Article II. 7 ADJUSTED LIBO RATE: with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the product of (a) the LIBO Rate in effect for such Interest Period and (b) Statutory Reserves. ADMINISTRATIVE FEES: as defined in Section 2.6(c). ADMINISTRATIVE QUESTIONNAIRE: an Administrative Questionnaire in the form of Exhibit B hereto. AFFILIATE: with respect to a specified person, another person that directly or indirectly controls or is controlled by or is under common control with the person specified. ABIC: American Bankers Insurance Company of Florida, a property and casualty insurance company and wholly-owned Subsidiary of the Company. ABLAC: American Bankers Life Assurance Company of Florida, a life insurance company and wholly-owned Subsidiary of the Company. ALTERNATE BASE RATE: for any day, a rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime Rate in effect on such day and (b) the Federal Funds Effective Rate in effect on such day plus 1/2 of 1%. For purposes hereof, "PRIME RATE" shall mean the rate of interest per annum publicly announced from time to time by the Administrative Agent as its prime rate in effect at its principal office in New York City; each change in the Prime Rate shall be effective on the date such change is publicly announced as effective. "FEDERAL FUNDS EFFECTIVE RATE" shall mean, for any day, the weighted average of the rates on overnight Federal funds transactions with members of the Federal Reserve System arranged by Federal funds brokers, as released on the next succeeding Business Day by the Federal Reserve Bank of New York, or, if such rate is not so released for any day which is a Business Day, the arithmetic average (rounded upwards to the next 1/100th of 1%), as determined by the Administrative Agent, of the quotations for the day of such transactions received by the Administrative Agent from three Federal funds brokers of recognized standing selected by it. If for any reason the Administrative Agent shall have determined (which determination shall be conclusive absent manifest error) that it is unable to ascertain the Federal Funds Effective Rate for any reason, including the inability or failure of the Administrative Agent to obtain sufficient quotations in accordance with the terms thereof, the Alternate Base Rate shall be determined without regard to clause (b) of the first sentence of this definition until the circumstances giving rise to such inability no longer exist. Any change in the Alternate Base Rate due to a change in the Prime Rate or the 2 8 Federal Funds Effective Rate shall be effective on the effective date of such change in the Prime Rate or the Federal Funds Effective Rate, respectively. APPLICABLE INSURANCE REGULATORY AUTHORITY: with respect to any Insurance Subsidiary, the insurance commissioner or similar Governmental Authority located in the state in which such Insurance Subsidiary is domiciled and any Federal insurance Governmental Authority and any successor to any of the foregoing. APPLICABLE MARGIN: on any date, with respect to Eurodollar Loans, the lowest applicable percentage set forth below based upon the Ratings in effect on such date: Category 1 - ---------- A3 or higher by Moody's; or 0.200% A- or higher by S&P Category 2 - ---------- Baa1 by Moody's; or 0.250% BBB+ by S&P Category 3 - ---------- Baa2 by Moody's; or 0.350% BBB by S&P Category 4 - ---------- Baa3 or lower by Moody's; or 0.625% BBB- or lower by S&P
For purposes of the foregoing, (i) if no Ratings exist, the Applicable Margin shall be based upon Category 4, and (ii) if any Rating shall be changed (other than as a result of a change in the rating system of the applicable Rating Agency), such change shall be effective as of the date on which it is first announced by the Rating Agency making such change. Each such change in the Applicable Margin shall apply to all outstanding Eurodollar Loans during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of any Rating Agency shall change, the parties hereto shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. 3 9 ASSIGNMENT AND ACCEPTANCE: an assignment and acceptance entered into by a Lender and an assignee in the form of Exhibit C. BOARD: the Board of Governors of the Federal Reserve System of the United States. BOARD OF DIRECTORS: the Board of Directors of the Company or any duly authorized committee thereof. BORROWING: a group of Loans of a single Type made by the Lenders (or, in the case of a Competitive Borrowing, by the Lender or Lenders whose Competitive Bids have been accepted pursuant to Section 2.3) on a single date and as to which a single Interest Period is in effect. BUSINESS DAY: any day (other than a day which is a Saturday, Sunday or legal holiday in the State of New York) on which banks are open for business in New York City, provided that, when used in connection with a Eurodollar Loan, the term "Business Day" shall also exclude any day on which banks are not open for dealings in dollar deposits in the London interbank market. CAPITAL LEASE: a lease which has been or should be, in accordance with GAAP, treated as a capital lease. CAPITAL LEASE OBLIGATIONS: with respect to any person, the obligations of such person and its consolidated subsidiaries to pay rent or other amounts under any lease of (or other arrangement conveying the right to use) real and/or personal property, which obligations are accounted for as a Capital Lease on the consolidated balance sheet of such person, and the amount of such obligations shall be the capitalized amount thereof determined in accordance with GAAP. CERCLA: the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. CHANGE IN CONTROL: shall be deemed to have occurred if either (a) any person or group of persons shall have acquired beneficial ownership of more than 30% of the outstanding Voting Shares of the Company (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended, and the applicable rules and regulations thereunder), or (b) during any period of 12 consecutive months, commencing before or after the date of this Agreement, individuals who on the first day of such period were directors of the Company (together with any replacement or additional 4 10 directors who were nominated or elected by a majority of directors then in office) cease to constitute a majority of the Board of Directors of the Company. CLOSING DATE: the date hereof. CODE: the Internal Revenue Code of 1986, as the same may be amended from time to time. COMMITMENT: with respect to each Lender, the commitment of such Lender hereunder as set forth as of the Closing Date in Schedule 2.1 hereto, or as set forth in the Register, as such Lender's Commitment may be permanently terminated or reduced from time to time pursuant to Section 2.11. The Commitment of each Lender shall automatically and permanently terminate on the Maturity Date if not terminated earlier pursuant to the terms hereof. COMPANY ACTION LEVEL RBC: the greater of the standard (i) as defined in the Risk-Based Capital (RBC) for Insurers Model Act adopted by the NAIC and (ii) as determined in accordance with the laws and regulations of the state of domicile of ABIC or ABLAC, as the case may be. COMPETITIVE BID: an offer by a Lender to make a Competitive Loan pursuant to Section 2.3. COMPETITIVE BID ACCEPT/REJECT LETTER: a notification made by the Company pursuant to Section 2.3(d) in the form of Exhibit A-4. COMPETITIVE BID RATE: as to any Competitive Bid, (i) in the case of a Eurodollar Loan, the Margin, and (ii) in the case of a Fixed Rate Loan, the fixed rate of interest offered by the Lender making such Competitive Bid. COMPETITIVE BID REQUEST: a request made pursuant to Section 2.3 in the form of Exhibit A-1. COMPETITIVE BORROWING: a Borrowing consisting of a Competitive Loan or concurrent Competitive Loans from the Lender or Lenders whose Competitive Bids for such Borrowing have been accepted under the bidding procedure described in Section 2.3. COMPETITIVE LOAN: a Loan made pursuant to the bidding procedure described in Section 2.3. Each Competitive Loan shall be a Eurodollar Competitive Loan or a Fixed Rate Loan. 5 11 CONSOLIDATED INCOME AVAILABLE FOR INTEREST CHARGES: with respect to any period, Consolidated Net Income for such period plus all amounts deducted in the computation thereof on account of (a) Interest Charges and (b) taxes imposed on or measured by income or excess profits. CONSOLIDATED NET INCOME: with reference to any period, the net income (or loss) of the Company and its Subsidiaries for such period (taken as a cumulative whole), as determined in accordance with GAAP, after eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP, provided that there shall be excluded: (a) the income (or loss) of any Person accrued prior to the date it becomes a Subsidiary or is merged into or consolidated with the Company or a Subsidiary, and the income (or loss) of any Person, substantially all of the assets of which have been acquired in any manner by the Company or a Subsidiary, realized by such other Person prior to the date of acquisition; (b) the income (or loss) of any Person (other than a Subsidiary) in which the Company or any Subsidiary has an ownership interest, except to the extent that any such income has been actually received by the Company or such Subsidiary in the form of cash dividends or similar cash distributions; (c) any restoration to income of any contingency reserve in excess of $2,000,000 as to any one item or in excess of $4,000,000 in the aggregate as to any two or more items, except to the extent that provision for such reserve was made out of income accrued during such period; (d) any aggregate net gain (but not any aggregate net loss) during such period arising from the sale, conversion, exchange or other disposition of capital assets other than securities (such capital assets to include, (i) all non-current assets and, without duplication, (ii) the following, whether or not current: all fixed assets, whether tangible or intangible, and all inventory sold in conjunction with the disposition of fixed assets); (e) any unrealized holding gains and losses on securities; (f) any gains resulting from any write-up of any assets, but not any loss resulting from any write-down of any assets; 6 12 (g) any net gain from the collection of the proceeds of life insurance policies; (h) any gain arising from the acquisition of any security, or the extinguishment, under GAAP, of any Indebtedness, of the Company or any Subsidiary; (i) any net income or gain (but not any net loss) during such period from (i) any change in accounting principles in accordance with GAAP, (ii) any prior period adjustments resulting from any change in accounting principles in accordance with GAAP, (iii) any extraordinary items, or (iv) any discontinued operations or the disposition thereof; (j) any deferred credit representing the excess of equity in any Subsidiary at the date of acquisition over the cost of the investment in such Subsidiary; (k) in the case of a successor to the Company by consolidation or merger or as a transferee of its assets, any earnings of the successor corporation prior to such consolidation, merger or transfer of assets; and (l) any portion of such net income that cannot be freely converted into United States Dollars, it being understood that the imposition of taxes by any foreign Governmental Authority on the repatriation of income shall not be deemed to be a restriction on convertibility. CONSOLIDATED NET WORTH: as at any date of determination, the consolidated stockholder's equity of the Company and its Subsidiaries, as determined on a consolidated basis in accordance with GAAP, provided that for purposes of computing Consolidated Net Worth, the ongoing effect of Statement of Financial Accounting Standards No. 115 (Accounting for Certain Investments in Debt and Equity Securities) ("FASB 115") will be excluded. CONSOLIDATED TANGIBLE NET WORTH: as at any date of determination, Consolidated Net Worth less the net book value of all assets, after deducting any reserves applicable thereto, which would be treated as intangible under GAAP, including, good will, trademarks, trade names, service marks, brand names, copyrights, patents and unamortized debt discount and expense, organizational expenses and the excess of the equity in any subsidiary over the cost of the investment in such Subsidiary. CONSOLIDATED TOTAL DEBT: as at any date of determination, all Indebtedness of the Company and its Subsidiaries determined on a consolidated basis in accordance with GAAP (excluding in the case of Subsidiaries, (i) any undrawn amount of a letter of credit issued in connection with insurance agreements entered into in the ordinary course of 7 13 business and (ii) any obligation to reimburse an amount drawn under any such letter of credit which is reimbursed within five Business Days immediately following the drawing thereunder). CONVENTION STATEMENT: with respect to any Insurance Subsidiary, any annual or quarterly statutory financial statement of such Insurance Subsidiary required to be filed with the Applicable Insurance Regulatory Authority in accordance with state law, together with all exhibits, schedules, certificates or actuarial opinions filed or delivered therewith. DEFAULT: any event or condition which upon notice, lapse of time or both would constitute an Event of Default. DOLLARS or $: lawful money of the United States of America. ENVIRONMENT: ambient air, surface water and groundwater (including potable water, navigable water and wetlands), the land surface or subsurface strata, the workplace or as otherwise defined in any Environmental Law. ENVIRONMENTAL CLAIM: any written accusation, allegation, notice of violation, claim, demand, order, directive, cost recovery action or other cause of action by, or on behalf of, any Governmental Authority or any person for damages, injunctive or equitable relief, personal injury (including sickness, disease or death), Remedial Action costs, tangible or intangible property damage, natural resource damages, nuisance, pollution, any adverse effect on the environment caused by any Hazardous Material, or for fines, penalties or restrictions, resulting from or based upon: (a) the existence, or the continuation of the existence, of a Release (including sudden or non-sudden, accidental or non-accidental Releases); (b) exposure to any Hazardous Material; (c) the presence, use, handling, transportation, storage, treatment or disposal of any Hazardous Material; or (d) the violation or alleged violation of any Environmental Law or Environmental Permit. ENVIRONMENTAL LAW: any and all applicable present and future treaties, laws, statutes, rules, regulations, codes, ordinances, orders, decrees, judgments, injunctions, notices or binding agreements issued, promulgated or entered into by any Governmental Authority, relating in any way to the environment, preservation or reclamation of natural resources, the management, Release or threatened Release of any Hazardous Material or to health and safety matters. 8 14 ENVIRONMENTAL PERMIT: any permit, approval, authorization, certificate, license, variance, filing or permission required by or from any Governmental Authority pursuant to any Environmental Law. ERISA: the Employee Retirement Income Security Act of 1974, as the same may be amended from time to time. ERISA AFFILIATE: any trade or business (whether or not incorporated) that, together with the Company is treated as a single employer under Section 414 of the Code. ERISA EVENT: (a) any "reportable event", as defined in Section 4043 of ERISA or the regulations issued thereunder, with respect to a Plan; (b) the adoption of any amendment to a Plan that would require the provision of security pursuant to Section 401(a)(29) of the Code or Section 307 of ERISA; (c) the existence with respect to any Plan of an "accumulated funding deficiency" (as defined in Section 412 of the Code or Section 302 of ERISA), whether or not waived; (d) the filing pursuant to Section 412(d) of the Code or Section 303(d) of ERISA of an application for a waiver of the minimum funding standard with respect to any Plan; (e) the incurrence of any liability under Title IV of ERISA with respect to the termination of any Plan or the withdrawal or partial withdrawal of the Company or any of its ERISA Affiliates from any Plan or Multiemployer Plan; (f) the receipt by the Company or any ERISA Affiliate from the PBGC or a plan administrator of any notice relating to the intention to terminate any Plan or Plans or to appoint a trustee to administer any Plan; (g) the receipt by the Company or any ERISA Affiliate of any notice that Withdrawal Liability is being imposed or a determination that a Multiemployer Plan is, or is expected to be, insolvent or in reorganization, within the meaning of Title IV of ERISA; and (h) the occurrence of a "prohibited transaction" with respect to which the Company or any of its Subsidiaries is a "disqualified person" (within the meaning of Section 4975 of the Code), or with respect to which the Company or any such Subsidiary could otherwise be liable. EURODOLLAR BORROWING: a Borrowing comprised of Eurodollar Loans. EURODOLLAR COMPETITIVE LOAN: any Competitive Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. EURODOLLAR LOAN: any Eurodollar Competitive Loan or Eurodollar Standby Loan. 9 15 EURODOLLAR STANDBY LOAN: any Standby Loan bearing interest at a rate determined by reference to the Adjusted LIBO Rate in accordance with the provisions of Article II. EVENT OF DEFAULT: as defined in Article VI. EXCHANGE ACT: the Securities Exchange Act of 1934, as amended. EXISTING CREDIT FACILITY: Amended and Restated Revolving Credit and Reimbursement Agreement, dated as of March 20, 1990, as amended and restated as of February 10, 1993 and as amended as of April 4, 1994, among the Company, Barclays Bank PLC, New York Branch, as issuing bank and agent and the lenders party thereto. FACILITY FEE: as defined in Section 2.6(a). FACILITY FEE PERCENTAGE: on any date the lowest applicable percentage set forth below based upon the Ratings in effect on such date:
Facility Fee Percentage ------------ Category 1 - ---------- A3 or higher by Moody's; or 0.100% A- or higher by S&P Category 2 - ---------- Baal by Moody's; or 0.125% BBB+ by S&P Category 3 - ---------- Baa2 by Moody's; or 0.150% BBB by S&P Category 4 - ---------- Baa3 or lower by Moody's; or 0.250% BBB- or lower by S&P
10 16 For purposes of the foregoing, (i) if no Ratings exist, the Facility Fee Percentage shall be based upon Category 4, and (ii) if any Rating shall be changed (other than as a result of a change in the rating system of the applicable Rating Agency), such change shall be effective as of the date on which it is first announced by the Rating Agency making such change. Each such change with respect to the Company shall apply at any time during the period commencing on the effective date of such change and ending on the date immediately preceding the effective date of the next such change. If the rating system of any Rating Agency shall change, the parties hereto shall negotiate in good faith to amend the references to specific ratings in this definition to reflect such changed rating system. FAIR VALUE: when used with respect to property, the fair value as determined in good faith by the board of directors of the Company. FEES: the Facility Fee, the Utilization Fee and the Administrative Fees. FINANCIAL OFFICER: with respect to any corporation, the chief financial officer, principal accounting officer, treasurer, associate or assistant treasurer or director of treasury services of such corporation. FIXED RATE BORROWING: a Borrowing comprised of Fixed Rate Loans. FIXED RATE LOAN: any Competitive Loan bearing interest at a fixed percentage rate per annum (the "FIXED RATE") (expressed in the form of a decimal to no more than four decimal places) specified by the Lender making such Loan in its Competitive Bid. GAAP: generally accepted accounting principles, applied on a consistent basis. GOVERNMENTAL AUTHORITY: any Federal, state, local or foreign court or governmental agency, authority, instrumentality or regulatory body. HAZARDOUS MATERIALS: all explosive or radioactive substances or wastes, hazardous or toxic substances or wastes, pollutants, solid, liquid or gaseous wastes, including petroleum or petroleum distillates, asbestos or asbestos containing materials, polychlorinated biphenyls ("PCBS") or PCB-containing materials or equipment, radon gas, infectious or medical wastes and all other substances or wastes of any nature regulated pursuant to any Environmental Law. INDEBTEDNESS: with respect to any person, without duplication, (i) all liabilities for money borrowed or for the deferred purchase price of property or services, (ii) all liabilities in respect of letters of credit issued for the account of such person and all 11 17 drafts drawn thereunder (whether or not representing borrowed money); (iii) Swaps and (iv) Capital Lease Obligations, which, in each case, are created, assumed, incurred or guaranteed in any manner by such person or for which such person is responsible or liable (whether by agreement to purchase indebtedness of, or to supply funds to or invest in, others or otherwise). INSURANCE BUSINESS: one or more aspects of the business of selling, issuing, underwriting, reinsuring, producing, administering, managing or servicing life and health insurance and property and casualty insurance and activities reasonably incidental thereto. INSURANCE REGULATORY INFORMATION SYSTEM: the Insurance Regulatory Information System promulgated by the NAIC, or any successor system promulgated by the NAIC. INSURANCE SUBSIDIARIES: ABIC, ABLAC and any other Subsidiary, whether now owned or hereafter acquired, that is regulated, in accordance with applicable state law or any Federal law, as an insurer by an insurance commission or similar Governmental Authority located in the state in which such Subsidiary is domiciled or by any Federal insurance Governmental Authority. INTEREST CHARGES: with respect to any period, the sum (without duplication) of the following (in each case, eliminating all offsetting debits and credits between the Company and its Subsidiaries and all other items required to be eliminated in the course of the preparation of consolidated financial statements of the Company and its Subsidiaries in accordance with GAAP): (a) all interest in respect of Indebtedness of the Company and its Subsidiaries (including imputed interest on Capital Lease Obligations) deducted in determining Consolidated Net Income for such period, and (b) all debt discount and expense amortized or required to be amortized in the determination of Consolidated Net Income for such period. INTEREST PAYMENT DATE: with respect to any Loan, the last day of each Interest Period applicable thereto and, in the case of a Eurodollar Loan with an Interest Period of more than three months' duration or a Fixed Rate Loan with an Interest Period of more than 90 days' duration, each day that would have been an Interest Payment Date for such Loan had successive Interest Periods of three months' duration or 90 days' duration, as the case may be, been applicable to such Loan and, in addition, the date of any prepayment of each Loan or conversion of such Loan to a Loan of a different Type. INTEREST PERIOD: (a) as to any Eurodollar Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the numerically 12 18 corresponding day (or, if there is no numerically corresponding day, on the last day) in the calendar month that is 1, 2, 3 or 6 months thereafter, as the Company may elect, (b) as to any ABR Borrowing, the period commencing on the date of such Borrowing or on the last day of the immediately preceding Interest Period applicable to such Borrowing, as the case may be, and ending on the earliest of (i) the next succeeding March 31, June 30, September 30 or December 31, (ii) the Maturity Date, and (iii) the date such Borrowing is converted to a Borrowing of a different Type in accordance with Section 2.5 or repaid or prepaid in accordance with Section 2.7 or Section 2.12 and (c) as to any Fixed Rate Borrowing, the period commencing on the date of such Borrowing and ending on the date specified in the Competitive Bids in which the offer to make the Fixed Rate Loans comprising such Borrowing were extended, which shall not be earlier than seven days after the date of such Borrowing or later than 360 days after the date of such Borrowing, provided that if any Interest Period would end on a day other than a Business Day, such Interest Period shall be extended to the next succeeding Business Day unless, in the case of Eurodollar Loans only, such next succeeding Business Day would fall in the next calendar month, in which case such Interest Period shall end on the next preceding Business Day. Interest shall accrue from and including the first day of an Interest Period to but excluding the last day of such Interest Period. LIBO RATE: with respect to any Eurodollar Borrowing for any Interest Period, an interest rate per annum (rounded upwards, if necessary, to the next 1/16 of 1%) equal to the rate at which dollar deposits approximately equal in principal amount to (i) in the case of a Standby Borrowing, the Administrative Agent's portion of such Eurodollar Borrowing and (ii) in the case of a Competitive Borrowing, a principal amount that would have been the Administrative Agent's portion of such Competitive Borrowing had such Competitive Borrowing been a Standby Borrowing, and for a maturity comparable to such Interest Period as are offered to the principal London offices of the Administrative Agent in immediately available funds in the London interbank market at approximately 11:00 a.m., London time, two Business Days prior to the commencement of such Interest Period. LICENSE: as defined in Section 3.8(d). LIEN: with respect to any asset of any person, (a) any mortgage, deed of trust, lien, pledge, encumbrance, charge or security interest in or on such asset, (b) the interest of a vendor or a lessor under any conditional sale agreement, Capital Lease or title retention agreement (or any financing lease having substantially the same economic effect as any of the foregoing) relating to such asset and (c) in the case of securities that constitute assets of such person, any purchase option, call or similar right of a third party with respect to such securities. 13 19 LOAN: a Competitive Loan or a Standby Loan, whether made as a Eurodollar Loan, an ABR Loan or a Fixed Rate Loan, as permitted hereby. MARGIN: as to any Eurodollar Competitive Loan, the margin (expressed as a percentage rate per annum in the form of a decimal to no more than four decimal places) to be added to or subtracted from the Adjusted LIBO Rate in order to determine the interest rate applicable to such Loan, as specified in the Competitive Bid relating to such Loan. MARGIN REGULATIONS: Regulations G, T, U and X of the Board as from time to time in effect, and all official rulings and interpretations thereunder or thereof. MARGIN STOCK: as defined under Regulation U of the Board. MATERIAL ADVERSE EFFECT: (a) material impairment of the ability of the Company or any Subsidiary to perform any of its obligations under the Agreement or (b) material impairment of the rights of or benefits available to the Lenders under this Agreement. MATERIAL SUBSIDIARY: any Subsidiary representing 5% or more of the Consolidated Net Worth or the Consolidated Net Income. MATURITY DATE: December 1, 2000. MOODY'S: Moody's Investors Service, Inc., or any successor thereto. MULTIEMPLOYER PLAN: a multiemployer plan as defined in Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of Code Section 414) is making or accruing an obligation to make contributions, or has within any of the preceding five plan years made or accrued an obligation to make contributions. NAIC: the National Association of Insurance Commissioners or any successor thereto, or in lieu thereof, any other association, agency or other organization performing advisory, coordination or other like functions among insurance departments, insurance commissions and similar Governmental Authorities of the various states of the United States of America toward the promotion of uniformity in the practices of such Governmental Authorities. NOTICE OF COMPETITIVE BID REQUEST: a notification made pursuant to Section 2.3 in the form of Exhibit A-2. 14 20 PBGC: the Pension Benefit Guaranty Corporation referred to and defined in ERISA. PERSON: any natural person, corporation, business trust, joint venture, association, company, partnership or government, or any agency or political subdivision thereof. PLAN: any employee pension benefit plan (other than a Multiemployer Plan) subject to the provisions of Title IV of ERISA or Section 412 of the Code that is maintained for current or former employees, or any beneficiary thereof, of the Company or any ERISA Affiliate. RATING AGENCIES: Moody's and S&P. RATINGS: the ratings from time to time established by the Rating Agencies for senior, unsecured, non-credit-enhanced long-term debt of the Company. REGISTER: as defined in Section 8.4(d). REINSURANCE AGREEMENTS: all agreements, contracts, treaties, certificates and other arrangements whereby an insurance company agrees to transfer or cede to another insurer all or part of the liability assumed by such insurance company under a policy or policies of insurance reinsured by such insurance company. RELEASE: any spilling, leaking, pumping, pouring, emitting, emptying, discharging, injecting, escaping, leaching, dumping, disposing, depositing, dispersing, emanating or migrating of any Hazardous Material in, into, onto or through the environment. REMEDIAL ACTION: (a) "remedial action" as such term is defined in CERCLA, and (b) all other actions required by any Governmental Authority or voluntarily undertaken to: (i) cleanup, remove, treat, abate or in any other way address any Hazardous Material in the environment; (ii) prevent the Release or threat of Release, or minimize the further Release of any Hazardous Material so it does not migrate or endanger or threaten to endanger public health, welfare or the environment; or (iii) perform studies and investigations in connection with, or as a precondition to, (i) or (ii) above. 15 21 REQUIRED LENDERS: at any time, Lenders having Commitments representing at least 51% of the Total Commitment or, for purposes of acceleration pursuant to clause (ii) of Article VI, Lenders holding Loans representing at least 51% of the aggregate principal amount of the Loans outstanding. RESERVE LIABILITIES: shall have the meaning assigned to such term in Section 3.18. RESPONSIBLE OFFICER: of any corporation, any executive officer or Financial Officer of such corporation and any other officer or similar official thereof responsible for the administration or the obligations of such corporation in respect of this Agreement. S&P: Standard and Poor's Ratings Group, a division of McGraw Hill, Inc., or any successor thereto. SAP: as to any Insurance Subsidiary, the statutory accounting practices prescribed or permitted by the Applicable Insurance Regulatory Authority, applied on a basis consistent with Section 1.2. SEC: the Securities and Exchange Commission. SIGNIFICANT INSURANCE SUBSIDIARIES: ABIC and ABLAC, including any successor or successors to such Subsidiaries. STANDBY BORROWING: a Borrowing consisting of simultaneous Standby Loans from each of the Lenders. STANDBY BORROWING REQUEST: a request made pursuant to Section 2.4 in the form of Exhibit A-5. STANDBY LOANS: the revolving loans made pursuant to Section 2.4. Each Standby Loan shall be a Eurodollar Standby Loan or an ABR Loan. STATEMENT OF ACTUARIAL OPINION: with respect to any Insurance Subsidiary, the Statement of Actuarial Opinion required to be filed with the Applicable Insurance Regulatory Authority in accordance with state law or, if such Applicable Insurance Regulatory Authority shall no longer require such a statement, information equivalent to that required to be included in the Statement of Actuarial Opinion that was filed immediately prior to the time such statement was no longer required. 16 22 STATUTORY RESERVES: a fraction (expressed as a decimal), the numerator of which is the number one and the denominator of which is the number one minus the aggregate of the maximum reserve percentages (including any marginal, special, emergency or supplemental reserves) expressed as a decimal established by the Board and any other banking authority, domestic or foreign, to which the Administrative Agent or any Lender (including any branch, Affiliate or other fronting office making or holding a Loan) is subject for Eurocurrency Liabilities (as defined in Regulation D of the Board). Such reserve percentages shall include those imposed pursuant to such Regulation D. Eurodollar Loans shall be deemed to constitute Eurocurrency Liabilities and to be subject to such reserve requirements without benefit of or credit for proration, exemptions or offsets that may be available from time to time to any Lender under such Regulation D. Statutory Reserves shall be adjusted automatically on and as of the effective date of any change in any reserve percentage. STATUTORY SURPLUS: In the case of ABIC, "surplus as regards policyholders" included in the Convention Statement of ABIC, and in the case of ABLAC, the sum of surplus, common capital stock and preferred capital stock included in the Convention Statement of ABLAC. SUBSIDIARY: with respect to any person (the "PARENT"), any corporation, association or other business entity of which securities or other ownership interests representing more than 50% of the ordinary voting power are, at the time as of which any determination is being made, owned or controlled by the parent or one or more subsidiaries of the parent or by the parent and one or more subsidiaries of the parent. SUBSIDIARY: a subsidiary of the Company. SWAPS: with respect to any person, payment obligations with respect to interest rate swaps, currency swaps and similar obligations designed to protect such person against fluctuations in interest rates or currency exchange rates (other than any such agreement entered into by an Insurance Subsidiary in the ordinary course of business for the purpose of asset liability management) obligating such person to make payments, whether periodically or upon the happening of a contingency. For purposes of this Agreement, the amount of the obligation under any Swap as of any date of determination shall be the amount payable, if any, in respect thereof assuming that such Swap had terminated on such date of determination, provided that if any agreement relating to such Swap provides for the netting of amounts payable by and to such person thereunder or if any such agreement provides for the simultaneous payment of amounts by and to such person, then, in each case, the amount of such obligations shall be the net amount so determined. 17 23 TOTAL ADJUSTED CAPITAL: the lesser of the standard as defined (i) in the Risk-Based Capital ("RBC") for Insurers Model Act adopted by the NAIC and (ii) as determined in accordance with the laws and regulations of the state of domicile of ABIC or ABLAC, as the case may be. TOTAL COMMITMENT: at any time, the aggregate amount of Commitments of all the Lenders, as in effect at such time. TRANSACTIONS: as defined in Section 3.2. TYPE: with respect of any Loan or Borrowing, the Rate by reference to which interest on such Loan or on the Loans comprising such Borrowing is determined. For purposes hereof, "Rate" shall include the Adjusted LIBO Rate, the Alternate Base Rate and the Fixed Rate. UTILIZATION FEE: as defined in Section 2.6(b). VOTING SHARES: as to shares of a particular corporation, outstanding shares of stock of any class of such corporation entitled to vote in the election of directors, excluding shares entitled so to vote only upon the happening of some contingency. WITHDRAWAL LIABILITY: liability to a Multiemployer Plan as a result of a complete or partial withdrawal from such Multiemployer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. 1.2 TERMS GENERALLY. The definitions in Section 1.1 shall apply equally to both the singular and plural forms of the terms defined. Whenever the context may require, any pronoun shall include the corresponding masculine, feminine and neuter forms. The words "include," "includes" and "including" shall be deemed to be followed by the phrase "without limitation." All references herein to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement unless the context shall otherwise require. Except as otherwise expressly provided herein, (a) any reference to this Agreement shall mean such document as amended, restated, supplemented or otherwise modified from time to time and (b) all terms of an accounting or financial nature shall be construed in accordance with GAAP or SAP, as the case may be, as in effect from time to time applied on a basis consistent with those used in preparing the financial statements referred to in Section 5.3 (including only such changes thereto as are approved or concurred in from time to time by the Company's independent public accountants); provided, however, that for purposes of determining compliance with the covenants contained in Article V, all accounting terms herein shall be interpreted and all accounting determinations hereunder shall be 18 24 made in accordance with GAAP or SAP, as the case may be, as in effect on the date of this Agreement and applied on a basis consistent with the application used in the financial statements referred to in Section 3.5. ARTICLE II THE CREDITS 2.1 COMMITMENTS. Subject to the terms and conditions and relying upon the representations and warranties herein set forth, each Lender agrees, severally and not jointly, to make Standby Loans to the Company, at any time and from time to time on and after the date hereof and until the earlier of the Maturity Date and the termination of the Commitment of such Lender, in an aggregate principal amount at any time outstanding not to exceed such Lender's Commitment minus the amount by which the Competitive Loans outstanding at such time shall be deemed to have used such Commitment pursuant to Section 2.16, subject, however, to the conditions that (i) at no time shall (A) the sum of (x) the outstanding aggregate principal amount of all Standby Loans made by all Lenders plus (y) the outstanding aggregate principal amount of all Competitive Loans made by all Lenders exceed (B) the Total Commitment and (ii) at all times, the outstanding aggregate principal amount of all Standby Loans made by each Lender shall equal the product of (A) the percentage which its Commitment represents of the Total Commitment times (B) the outstanding aggregate principal amount of all Standby Loans. Each Lender's Commitment is set forth opposite its name in Schedule 2.1 under the heading "Commitment". Such Commitments may be terminated or reduced from time to time pursuant to Section 2.11. Within the foregoing limits, the Company may borrow, pay or prepay and reborrow Standby Loans hereunder, on and after the Closing Date and prior to the Maturity Date, subject to the terms, conditions and limitations set forth herein. 2.2 LOANS. (a) Each Standby Loan shall be made as part of a Borrowing consisting of Loans made by the Lenders ratably in accordance with their respective Commitments, provided that the failure of any Lender to make any Standby Loan shall not in itself relieve any other Lender of its obligation to lend hereunder (it being understood, however, that no Lender shall be responsible for the failure of any other Lender to make any Loan required to be made by such other Lender). Each Competitive Loan shall be made in accordance with the procedures set forth in Section 2.3. The Standby Loans or Competitive Loans comprising any Borrowing shall be (i) in the case of Competitive Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than $5,000,000 and (ii) in the case of Standby Loans, in an aggregate principal amount which is an integral multiple of $1,000,000 and not less than 19 25 $5,000,000 (or an aggregate principal amount equal to the remaining balance of the available Commitments). (b) Each Competitive Borrowing shall be comprised entirely of Eurodollar Competitive Loans or Fixed Rate Loans, and each Standby Borrowing shall be comprised entirely of Eurodollar Standby Loans or ABR Loans, as the Company may request pursuant to Section 2.3 or 2.4, as applicable. Each Lender may at its option make any Eurodollar Loan by causing any domestic or foreign branch or Affiliate of such Lender to make such Loan, provided that any exercise of such option shall not affect the obligation of the Company to repay such Loan in accordance with the terms of this Agreement. Borrowings of more than one Type may be outstanding at the same time. For purposes of the foregoing, Loans having different Interest Periods, regardless of whether they commence on the same date, shall be considered separate Loans. (c) Subject to Section 2.5, each Lender shall make each Loan to be made by it hereunder on the proposed date thereof by wire transfer of immediately available funds to the Administrative Agent in New York, New York, not later than 12:00 noon, New York City time, and the Administrative Agent shall by 3:00 p.m., New York City time, credit the amounts so received to the account or accounts specified from time to time in one or more notices delivered by the Company to the Administrative Agent or, if a Borrowing shall not occur on such date because any condition precedent herein specified shall not have been met, return the amounts so received to the respective Lenders. Competitive Loans shall be made by the Lender or Lenders whose Competitive Bids therefor are accepted pursuant to Section 2.3 in the amounts so accepted. Standby Loans shall be made by the Lenders pro rata in accordance with Section 2.16. Unless the Administrative Agent shall have received notice from a Lender prior to the date of any Borrowing that such Lender will not make available to the Administrative Agent such Lender's portion of such Borrowing, the Administrative Agent may assume that such Lender has made such portion available to the Administrative Agent on the date of such Borrowing in accordance with this paragraph (c) and the Administrative Agent may, in reliance upon such assumption, make available to the Company on such date a corresponding amount. If and to the extent that such Lender shall not have made such portion available to the Administrative Agent, such Lender and the Company severally agree to repay to the Administrative Agent forthwith on demand such corresponding amount together with interest thereon, for each day from the date such amount is made available to the Company until the date such amount is repaid to the Administrative Agent at (i) in the case of the Company, the interest rate applicable at the time to the Loans comprising such Borrowing and (ii) in the case of such Lender, the Federal Funds Effective Rate. If such Lender shall repay to the Administrative Agent such corresponding amount, such amount shall constitute such Lender's Loan as part of such Borrowing for purposes of this Agreement. 20 26 2.3 COMPETITIVE BID PROCEDURE. (a) In order to request Competitive Bids, the Company shall hand deliver or telecopy to the Administrative Agent a duly completed Competitive Bid Request in the form of Exhibit A-1 hereto, to be received by the Administrative Agent (i) in the case of a Eurodollar Competitive Borrowing, not later than 10:00 a.m., New York City time, four Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 10:00 a.m., New York City time, one Business Day before a proposed Competitive Borrowing. No ABR Loan shall be requested in, or made pursuant to, a Competitive Bid Request. A Competitive Bid Request that does not conform substantially to the format of Exhibit A-1 may be rejected in the Administrative Agent's sole discretion, and the Administrative Agent shall promptly notify the Company of such rejection by telecopy. Each Competitive Bid Request shall refer to this Agreement and specify (w) whether the Borrowing then being requested is to be a Eurodollar Borrowing or a Fixed Rate Borrowing, (x) the date of such Borrowing (which shall be a Business Day) and the aggregate principal amount thereof which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000, and (y) the Interest Period with respect thereto (which may not end after the Maturity Date). Promptly after its receipt of a Competitive Bid Request that is not rejected as aforesaid, the Administrative Agent shall telecopy to the Lenders a Notice of Competitive Bid Request in the form of Exhibit A-2 inviting the Lenders to bid, on the terms and conditions of this Agreement, to make Competitive Loans. (b) Each Lender invited to bid may, in its sole discretion, make one or more Competitive Bids to the Company responsive to such Competitive Bid Request. Each Competitive Bid by a Lender must be received by the Administrative Agent by telecopy, in the form of Exhibit A-3 hereto, (i) in the case of a Eurodollar Competitive Borrowing, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing and (ii) in the case of a Fixed Rate Borrowing, not later than 9:30 a.m., New York City time, on the day of a proposed Competitive Borrowing. Multiple bids will be accepted by the Administrative Agent. Competitive Bids that do not conform substantially to the format of Exhibit A-3 may be rejected by the Administrative Agent, and the Administrative Agent shall notify the Lender making such nonconforming bid of such rejection as soon as practicable. Each Competitive Bid shall refer to this Agreement and specify (x) the principal amount (which shall be in a minimum principal amount of $5,000,000 and in an integral multiple of $1,000,000 and which may equal the entire principal amount of the Competitive Borrowing requested) of the Competitive Loan or Loans that the Lender is willing to make, (y) the Competitive Bid Rate or Rates at which the Lender is prepared to make the Competitive Loan or Loans and (z) the Interest Period and the last day thereof. If any Lender invited to bid shall elect not to make a Competitive Bid, such Lender shall so notify the Administrative Agent by telecopy (I) in the case of Eurodollar Competitive Loans, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (II) in the case of Fixed Rate Loans, not later than 9:30 21 27 a.m., New York City time, on the day of a proposed Competitive Borrowing, provided that failure by any Lender to give such notice shall not cause such Lender to be obligated to make any Competitive Loan as part of such Competitive Borrowing. A Competitive Bid submitted by a Lender pursuant to this paragraph (b) shall be irrevocable. (c) The Administrative Agent shall as promptly as practicable notify the Company, by telecopy, of all the Competitive Bids made, the Competitive Bid Rate and the principal amount of each Competitive Loan in respect of which a Competitive Bid was made and the identity of the Lender that made each bid. The Administrative Agent shall send a copy of all Competitive Bids to the Company for its records as soon as practicable after completion of the bidding process set forth in this Section 2.3. (d) The Company may in its sole and absolute discretion, subject only to the provisions of this paragraph (d), accept or reject any Competitive Bid referred to in paragraph (c) above. The Company shall notify the Administrative Agent by telephone, confirmed by telecopy in the form of a Competitive Bid Accept/Reject Letter in the form of Exhibit A-4, whether and to what extent it has decided to accept or reject any of or all the bids referred to in paragraph (c) above not more than one hour after it shall have been notified of such bids by the Administrative Agent pursuant to such paragraph (c) provided that (i) the failure of the Company to give such notice shall be deemed to be a rejection of all the bids referred to in paragraph (c) above, (ii) the Company shall not accept a bid made at a particular Competitive Bid Rate if it has decided to reject a bid made at a lower Competitive Bid Rate, (iii) the aggregate amount of the Competitive Bids accepted by the Company shall not exceed the principal amount specified in the Competitive Bid Request, (iv) if the Company shall accept a bid or bids made at a particular Competitive Bid Rate but the amount of such bid or bids shall cause the total amount of bids to be accepted to exceed the amount specified in the Competitive Bid Request, then the Company shall accept a portion of such bid or bids in an amount equal to the amount specified in the Competitive Bid Request less the amount of all other Competitive Bids accepted with respect to such Competitive Bid Request, which acceptance, in the case of multiple bids at such Competitive Bid Rate, shall be made pro rata in accordance with the amount of each such bid at such Competitive Bid Rate, and (v) except pursuant to clause (iv) above, no bid shall be accepted for a Competitive Loan unless such Competitive Loan is in a minimum principal amount of $5,000,000 and an integral multiple of $1,000,000, provided further that if a Competitive Loan must be in an amount less than $5,000,000 because of the provisions of clause (iv) above, such Competitive Loan may be for a minimum of $1,000,000 or any integral multiple thereof, and in calculating the pro rata allocation of acceptances of portions of multiple bids at a particular Competitive Bid Rate pursuant to clause (iv) the amounts shall be rounded 22 28 to integral multiples of $1,000,000 in a manner which shall be in the discretion of the Company. A notice given pursuant to this paragraph (d) shall be irrevocable. (e) The Administrative Agent shall promptly notify each bidding Lender whether or not its Competitive Bid has been accepted (and if so, in what amount and at what Competitive Bid Rate) by telecopy, and each successful bidder will thereupon become bound, subject to the other applicable conditions hereof, to make the Competitive Loan in respect of which its bid has been accepted. (f) No Competitive Borrowing shall be requested or made hereunder if after giving effect thereto any of the conditions set forth in paragraph (i) or (ii) of Section 2.1 would not be met. (g) If the Administrative Agent shall elect to submit a Competitive Bid in its capacity as a Lender, it shall submit such bid directly to the Company one quarter of an hour earlier than the latest time at which the other Lenders are required to submit their bids to the Administrative Agent pursuant to paragraph (b) above. (h) All notices required by this Section 2.3 shall be given in accordance with Section 8.1. 2.4 STANDBY BORROWING PROCEDURE. In order to request a Standby Borrowing, the Company shall hand deliver or telecopy to the Administrative Agent a duly completed Standby Borrowing Request in the form of Exhibit A-5 (a) in the case of a Eurodollar Standby Borrowing, not later than 10:30 a.m., New York City time, three Business Days before such Borrowing, and (b) in the case of an ABR Borrowing, not later than 10:30 a.m., New York City time, on the day of such Borrowing. No Fixed Rate Loan shall be requested or made pursuant to a Standby Borrowing Request. Such notice shall be irrevocable and shall in each case specify (i) whether the Borrowing then being requested is to be a Eurodollar Standby Borrowing or an ABR Borrowing; (ii) the date of such Standby Borrowing (which shall be a Business Day) and the amount thereof; and (iii) if such Borrowing is to be a Eurodollar Standby Borrowing, the Interest Period with respect thereto, which shall not end after the Maturity Date. If no election as to the Type of Standby Borrowing is specified in any such notice, then the requested Standby Borrowing shall be an ABR Borrowing. If no Interest Period with respect to any Eurodollar Standby Borrowing is specified in any such notice, then the Company shall be deemed to have selected an Interest Period of one month's duration, in the case of a Eurodollar Borrowing. Notwithstanding any other provision of this Agreement to the contrary, no Standby Borrowing shall be requested if the Interest Period with respect thereto would end after the Maturity Date. The Administrative Agent shall promptly advise the 23 29 Lenders of any notice given pursuant to this Section 2.4 and of each Lender's portion of the requested Borrowing. 2.5 CONVERSION AND CONTINUATION OF STANDBY LOANS. The Company shall have the right at any time upon prior irrevocable notice to the Administrative Agent (i) not later than 10:30 a.m., New York City time, on the day of the conversion, to convert all or any part of any Eurodollar Standby Borrowing into an ABR Borrowing, and (ii) not later than 10:30 a.m., New York City time, three Business Days prior to conversion or continuation, to convert any ABR Borrowing into a Eurodollar Standby Borrowing or to continue any Eurodollar Standby Borrowing as a Eurodollar Standby Borrowing for an additional Interest Period, subject in each case to the following: (a) if less than all the outstanding principal amount of any Standby Borrowing shall be converted or continued, the aggregate principal amount of the Standby Borrowing converted or continued shall be an integral multiple of $1,000,000 and not less than $5,000,000; (b) accrued interest on a Standby Borrowing (or portion thereof) being converted shall be paid by the Company at the time of conversion; (c) if any Eurodollar Standby Borrowing is converted at a time other than the end of the Interest Period applicable thereto, the Company shall pay, upon demand, any amounts due to the Lenders pursuant to Section 2.15; (d) any portion of a Standby Borrowing maturing or required to be repaid in less than one month may not be converted into or continued as a Eurodollar Standby Borrowing; (e) any portion of a Eurodollar Standby Borrowing which cannot be continued as a Eurodollar Standby Borrowing by reason of clause (d) above shall be automatically converted at the end of the Interest Period in effect for such Eurodollar Standby Borrowing into an ABR Borrowing; and (f) no Interest Period may be selected for any Eurodollar Standby Borrowing that would end later than the Maturity Date. Each notice pursuant to this Section 2.5 shall be irrevocable and shall refer to this Agreement and specify (i) the identity and amount of the Standby Borrowing to be converted or continued, (ii) whether such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing or an ABR Borrowing, (iii) if such notice requests a conversion, the date of such conversion (which shall be a Business Day) and 24 30 (iv) if such Standby Borrowing is to be converted to or continued as a Eurodollar Standby Borrowing, the Interest Period with respect thereto. If no Interest Period is specified in any such notice with respect to any conversion to or continuation as a Eurodollar Standby Borrowing, the Company shall be deemed to have selected an Interest Period of one month's duration. If no notice shall have been given in accordance with this Section 2.5 to convert or continue any Standby Borrowing, such Standby Borrowing shall, at the end of the Interest Period applicable thereto (unless repaid pursuant to the terms hereof), automatically be continued into a new Interest Period as an ABR Borrowing. 2.6 FEES. (a) The Company agrees to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31 (with the first payment being due on December 31, 1995) and on each date on which the Commitment of such Lender shall be terminated as provided herein, a facility fee (a "FACILITY FEE"), at a rate per annum equal to the Facility Fee Percentage from time to time in effect on the amount of the Commitment of such Lender, whether used or unused, during the preceding quarter (or other period commencing on the date of this Agreement, or ending with the Maturity Date or any date on which the Commitment of such Lender shall be terminated). All Facility Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. The Facility Fee due to each Lender shall commence to accrue on the date of this Agreement, and shall cease to accrue on the earlier of the Maturity Date and the termination of the Commitment of such Lender as provided herein. (b) The Company agrees to pay to each Lender, through the Administrative Agent, on each March 31, June 30, September 30 and December 31 and on each date on which the Commitment of such Lender shall be terminated or reduced as provided herein, a utilization fee (a "UTILIZATION FEE") at a rate per annum of 0.0625% on the aggregate outstanding Loans of such Lender for each day on which the aggregate outstanding Loans of all Lenders exceed 50% of the Total Commitment. All Utilization Fees shall be computed on the basis of the actual number of days elapsed in a year of 360 days. (c) The Company agrees to pay the Administrative Agent, for its own account, the administrative and other fees separately agreed to by the Company and the Administrative Agent (the "ADMINISTRATIVE FEES"). (d) All Fees shall be paid on the dates due, in immediately available funds, to the Administrative Agent for distribution, if and as appropriate, among the Lenders. Once paid, none of the Fees shall be refundable under any circumstances. 25 31 2.7 REPAYMENT OF LOANS; EVIDENCE OF DEBT. (a) The Company hereby agrees that the outstanding principal balance of each Standby Loan shall be payable on the Maturity Date and that the outstanding principal balance of each Competitive Loan shall be payable on the last day of the Interest Period applicable thereto. Each Loan shall bear interest on the outstanding principal balance thereof as set forth in Section 2.8. (b) Each Lender shall maintain in accordance with its usual practice an account or accounts evidencing the indebtedness to such Lender resulting from each Loan made by such Lender from time to time, including the amounts of principal and interest payable and paid such Lender from time to time under this Agreement. (c) The Administrative Agent shall maintain accounts in which it will record (i) the amount of each Loan made hereunder, the Type of each Loan made and the Interest Period applicable thereto, (ii) the amount of any principal or interest due and payable or to become due and payable from the Company to each Lender hereunder and (iii) the amount of any sum received by the Administrative Agent hereunder from the Company and each Lender's share thereof. (d) The entries made in the accounts maintained pursuant to paragraphs (b) and (c) of this Section 2.7 shall, to the extent permitted by applicable law, be prima facie evidence of the existence and amounts of the obligations therein recorded, provided that the failure of any Lender or the Administrative Agent to maintain such accounts or any error therein shall not in any manner affect the obligations of the Company to repay the Loans in accordance with their terms. 2.8 INTEREST ON LOANS. (a) Subject to the provisions of Section 2.9, the Loans comprising each Eurodollar Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 360 days) at a rate per annum equal to (i) in the case of each Eurodollar Standby Loan, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Applicable Margin from time to time in effect and (ii) in the case of each Eurodollar Competitive Loan, the Adjusted LIBO Rate for the Interest Period in effect for such Borrowing plus the Margin offered by the Lender making such Loan and accepted by the Company pursuant to Section 2.3. (b) Subject to the provisions of Section 2.9, the Loans comprising each ABR Borrowing shall bear interest (computed on the basis of the actual number of days elapsed over a year of 365 or 366 days, as the case may be, for periods during which the Alternate Base Rate is determined by reference to the Prime Rate and 360 days for other periods) at a rate per annum equal to the Alternate Base Rate. 26 32 (c) Subject to the provisions of Section 2.9, each Fixed Rate Loan shall bear interest at a rate per annum (computed on the basis of the actual number of days elapsed over a year of 360 days) equal to the fixed rate of interest offered by the Lender making such Loan and accepted by the Company pursuant to Section 2.3. (d) Interest on each Loan shall be payable on each Interest Payment Date applicable to such Loan except as otherwise provided in this Agreement. The applicable Adjusted LIBO Rate or Alternate Base Rate for each Interest Period or day within an Interest Period, as the case may be, shall be determined by the Administrative Agent, and such determination shall be conclusive absent manifest error. 2.9 DEFAULT INTEREST. If the Company shall default in the payment of the principal of or interest on any Loan or any other amount becoming due hereunder, whether by scheduled maturity, notice of prepayment, acceleration or otherwise, the Company shall on demand from time to time from the Administrative Agent pay interest, to the extent permitted by law, on such defaulted amount up to (but not including) the date of actual payment (after as well as before judgment) at a rate per annum (computed as provided in Section 2.8(b)) equal to the Alternate Base Rate plus 2%. 2.10 ALTERNATE RATE OF INTEREST. In the event, and on each occasion, that on the day two Business Days prior to the commencement of any Interest Period for a Eurodollar Borrowing the Administrative Agent shall have determined (i) that dollar deposits in the principal amounts of the Eurodollar Loans comprising such Borrowing are not generally available in the London interbank market or (ii) that reasonable means do not exist for ascertaining the LIBO Rate, the Administrative Agent shall, as soon as practicable thereafter, give telecopy notice of such determination to the Company and the Lenders. In the event of any such determination under clause (i) or (ii) above, until the Administrative Agent shall have advised the Company and the Lenders that the circumstances giving rise to such notice no longer exist, (x) any request by the Company for a Eurodollar Competitive Borrowing pursuant to Section 2.3 shall be of no force and effect and shall be denied by the Administrative Agent and (y) any request by the Company for a Eurodollar Standby Borrowing pursuant to Section 2.4 shall be deemed to be a request for an ABR Borrowing. In the event the Required Lenders notify the Administrative Agent that the rates at which dollar deposits are being offered will not adequately and fairly reflect the cost to such Lenders of making or maintaining Eurodollar Loans during such Interest Period, the Administrative Agent shall notify the Company of such notice and until the Required Lenders shall have advised the Administrative Agent that the circumstances giving rise to such notice no longer exist, any request by the Company for a Eurodollar Standby Borrowing shall be deemed a request for an ABR Borrowing. Each determination by the Administrative Agent hereunder shall be made in good faith and shall be conclusive absent manifest error. 27 33 2.11 TERMINATION AND REDUCTION OF COMMITMENTS. (a) The Commitments shall be automatically terminated on the Maturity Date. (b) Upon at least three Business Days' prior irrevocable telecopy notice to the Administrative Agent, the Company may at any time in whole permanently terminate, or from time to time in part permanently reduce, the Total Commitment, provided that (i) each partial reduction of the Total Commitment shall be in an integral multiple of $1,000,000 and in a minimum principal amount of $5,000,000 and (ii) no such termination or reduction shall be made which would reduce the Total Commitment to an amount less than the aggregate outstanding principal amount of the Competitive Loans. (c) Each reduction in the Total Commitment hereunder shall be made ratably among the Lenders in accordance with their respective Commitments. The Company shall pay to the Administrative Agent for the account of the Lenders, on the date of each termination of the Total Commitment, the Facility Fees on the amount of the Commitments so terminated accrued through the date of such termination or reduction. 2.12 PREPAYMENT. (a) The Company shall have the right at any time and from time to time to prepay any Standby Borrowing, in whole or in part, upon giving telecopy notice (or telephone notice promptly confirmed by telecopy) to the Administrative Agent: (i) before 10:00 a.m., New York City time, three Business Days prior to prepayment, in the case of Eurodollar Loans, and (ii) before 10:00 a.m., New York City time, one Business Day prior to prepayment, in the case of ABR Loans, provided that each partial prepayment shall be in an amount which is an integral multiple of $1,000,000 and not less than $5,000,000. No prepayment may be made in respect of any Competitive Borrowing. (b) On the date of any termination or reduction of the Commitments pursuant to Section 2.11, the Company shall pay or prepay so much of the Standby Borrowings as shall be necessary in order that the aggregate principal amount of the Competitive Loans and Standby Loans outstanding will not exceed the Total Commitment, after giving effect to such termination or reduction. (c) Each notice of prepayment shall specify the prepayment date and the principal amount of each Borrowing (or portion thereof) to be prepaid, shall be irrevocable and shall commit the Company to prepay such Borrowing (or portion thereof) by the amount stated therein on the date stated therein. All prepayments under this Section 2.12 shall be subject to Section 2.15 but otherwise without premium or penalty. All prepayments under this Section 2.12 shall be accompanied by accrued interest on the principal amount being prepaid to the date of payment. 28 34 2.13 RESERVE REQUIREMENTS; CHANGE IN CIRCUMSTANCES. (a) Notwithstanding any other provision herein, if after the date of this Agreement any change in applicable law or regulation or in the interpretation or administration thereof by any Governmental Authority charged with the interpretation or administration thereof (whether or not having the force of law) shall change the basis of taxation of payments to any Lender or the principal of or interest on any Eurodollar Loan made by such Lender, Fees or other amounts payable hereunder (other than changes in respect of taxes imposed on the overall net income of such lender by the jurisdiction in which such Lender has its principal office or by any political subdivision or taxing authority therein) or shall result in the imposition, modification or applicability of any reserve, special deposit or similar requirement against assets of, deposits with or for the account of or credit extended by any Lender (except any such reserve requirement which is reflected in the Adjusted LIBO Rate), or shall result in the imposition on any Lender or the London interbank market of any other condition affecting this Agreement, such Lender's Commitment or any Eurodollar Loan or Fixed Rate Loan made by such Lender, and the result of any of the foregoing shall be to increase the cost to such Lender of making or maintaining any Eurodollar Loan or Fixed Rate Loan or to reduce the amount of any sum received or receivable by such Lender hereunder (whether of principal, interest or otherwise) by an amount deemed by such Lender to be material, then such additional amount or amounts as will compensate such Lender for such additional costs or reduction will be paid by the Company to such Lender upon demand. Notwithstanding the foregoing, no Lender shall be entitled to request compensation under this paragraph with respect to any Competitive Loan if the change giving rise to such request was applicable to such Lender at the time of submission of the Competitive Bid pursuant to which such Competitive Loan was made. (b) If any Lender shall have determined that the adoption after the date hereof of any law, rule, regulation, agreement or guideline regarding capital adequacy, or any change in any of the foregoing or in the interpretation or administration of any of the foregoing by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by any Lender (or any lending office of such Lender) or any Lender's holding company with any request or directive regarding capital adequacy (whether or not having the force of law) of any such Governmental Authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on such Lender's capital or on the capital of such Lender's holding company, if any, as a consequence of this Agreement, such Lender's Commitment or the Loans made by such Lender pursuant hereto to a level below that which such Lender or such Lender's holding company could have achieved but for such adoption, change or compliance (taking into consideration such Lender's policies and the policies of such Lender's holding company with respect to capital adequacy) by an amount deemed by such Lender to be material, then from time to time such additional 29 35 amount or amounts as will compensate such Lender for such reduction will be paid by the Company to such Lender. (c) A certificate of each Lender setting forth such amount or amounts as shall be necessary to compensate such Lender or its holding company as specified in paragraph (a) or (b) above, as the case may be, shall be delivered to the Company and shall be conclusive absent manifest error. The Company shall pay each Lender the amount shown as due on any such certificate delivered by it within 10 days after its receipt of the same. (d) Failure on the part of any Lender to demand compensation for any increased costs or reduction in amounts received or receivable or reduction in return on capital with respect to any period shall not constitute a waiver of such Lender's right to demand compensation with respect to such period or any other period, provided that no Lender shall be entitled to compensation under this Section 2.13 for any costs incurred or reductions suffered with respect to any date unless it shall have notified the Company that it will demand compensation for such costs or reductions under paragraph (c) above not more than 90 days after the later of (i) such date and (ii) the date on which it shall have become aware of such costs or reductions. The protection of this Section 2.13 shall be available to each Lender regardless of any possible contention of the invalidity or inapplicability of the law, rule, regulation, guideline or other change or condition which shall have occurred or been imposed. (e) The agreements in this Section 2.13 shall survive termination of this Agreement. 2.14 CHANGE IN LEGALITY. (a) Notwithstanding any other provision herein, if any change in any law or regulation or in the interpretation thereof by any Governmental Authority charged with the administration or interpretation thereof shall make it unlawful for any Lender to make or maintain any Eurodollar Loan or to give effect to its obligations as contemplated hereby with respect to any Eurodollar Loan, then, by written notice to the Company and to the Administrative Agent, such Lender may: (i) declare that Eurodollar Loans will not thereafter be made by such Lender hereunder, whereupon such Lender shall not submit a Competitive Bid in response to a request for Eurodollar Competitive Loans and any request for a Eurodollar Standby Borrowing shall, as to such Lender only, be deemed a request for an ABR Loan unless such declaration shall be subsequently withdrawn; and (ii) require that all outstanding Eurodollar Loans made by it be converted to ABR Loans, in which event all such Eurodollar Loans shall be automatically 30 36 converted to ABR Loans as of the effective date of such notice as provided in paragraph (b) below. In the event any Lender shall exercise its rights under (i) or (ii) above, all payments and prepayments of principal which would otherwise have been applied to repay the Eurodollar Loans that would have been made by such Lender or the converted Eurodollar Loans of such Lender shall instead be applied to repay the ABR Loans made by such Lender in lieu of, or resulting from the conversion of, such Eurodollar Loans. (b) For purposes of this Section 2.14, a notice by any Lender shall be effective as to each Eurodollar Loan, if lawful, on the last day of the Interest Period currently applicable to such Eurodollar Loan; in all other cases such notice shall be effective on the date of receipt. 2.15 INDEMNITY. The Company shall indemnify each Lender against any out-of-pocket loss or expense which such Lender may sustain or incur as a consequence of (a) any failure to borrow or to refinance, convert or continue any Loan hereunder after irrevocable notice of such borrowing, refinancing, conversion or continuation has been given pursuant to Section 2.3, 2.4 or 2.5, (b) any payment, prepayment or conversion, or assignment required under Section 2.20, of a Eurodollar Loan required by any other provision of this Agreement or otherwise made or deemed made on a date other than the last day of the Interest Period, if any, applicable thereto, (c) any default in payment or prepayment of the principal amount of any Loan or any part thereof or interest accrued thereon, as and when due and payable (at the due date thereof, whether by scheduled maturity, acceleration, irrevocable notice of prepayment or otherwise) or (d) the occurrence of any Event of Default, including, in each such case, any loss or reasonable expense sustained or incurred or to be sustained or incurred in liquidating or employing deposits from third parties acquired to effect or maintain such Loan or any part thereof as a Eurodollar Loan. Such loss or reasonable expense shall include an amount equal to the excess, if any, as reasonably determined by such Lender, of (i) its cost of obtaining the funds for the Loan being paid, prepaid, refinanced or not borrowed (assumed to be the Adjusted LIBO Rate applicable thereto) for the period from the date of such payment, prepayment, refinancing or failure to borrow or refinance to the last day of the Interest Period for such Loan (or, in the case of a failure to borrow or refinance the Interest Period for such Loan which would have commenced on the date of such failure) over (ii) the amount of interest (as reasonably determined by such Lender) that would be realized by such Lender in reemploying the funds so paid, prepaid or not borrowed or refinanced for such period or Interest Period, as the case may be. A certificate of any Lender setting forth any amount or amounts which such Lender is entitled to receive pursuant to this Section shall be delivered to the Company and shall be conclusive absent manifest error. 31 37 2.16 PRO RATA TREATMENT. Except as required under Sections 2.14 and 2.20, each payment or prepayment of principal of any Standby Borrowing, each payment of interest on the Standby Loans, each payment of the Facility Fees and Utilization Fees, each reduction of the Commitments and each refinancing or conversion of any Borrowing with a Standby Borrowing of any Type, shall be allocated pro rata among the Lenders in accordance with their respective Commitments (or, if such Commitments shall have expired or been terminated, in accordance with the respective principal amounts of their outstanding Standby Loans). Each payment of principal of any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective principal amounts of their outstanding Competitive Loans comprising such Borrowing. Each payment of interest on any Competitive Borrowing shall be allocated pro rata among the Lenders participating in such Borrowing in accordance with the respective amounts of accrued and unpaid interest on their outstanding Competitive Loans comprising such Borrowing. For purposes of determining the available Commitments of the Lenders at any time, each outstanding Competitive Borrowing shall be deemed to have utilized the Commitments of the Lenders (including those Lenders which shall not have made Loans as part of such Competitive Borrowing) pro rata in accordance with such respective Commitments. Each Lender agrees that in computing such Lender's portion of any Borrowing to be made hereunder, the Administrative Agent may, in its discretion, round each Lender's percentage of such Borrowing to the next higher or lower whole dollar amount. 2.17 SHARING OF SETOFFS. Each Lender agrees that if it shall, through the exercise of a right of banker's lien, setoff or counterclaim, or pursuant to a secured claim under Section 506 of Title 11 of the United States Code or other security or interest arising from, or in lieu of, such secured claim, received by such Lender under any applicable bankruptcy, insolvency or other similar law or otherwise, or by any other means, obtain payment (voluntary or involuntary) in respect of any Standby Loan or Loans as a result of which the unpaid principal portion of its Standby Loans shall be proportionately less than the unpaid principal portion of the Standby Loans of any other Lender, it shall be deemed simultaneously to have purchased from such other Lender at face value, and shall promptly pay to such other Lender the purchase price for, a participation in the Standby Loans of such other Lender, so that the aggregate unpaid principal amount of the Standby Loans and participations in the Standby Loans held by each Lender shall be in the same proportion to the aggregate unpaid principal amount of all Standby Loans then outstanding as the principal amount of its Standby Loans prior to such exercise of banker's lien, setoff or counterclaim or other event was to the principal amount of all Standby Loans outstanding prior to such exercise of banker's lien, setoff or counterclaim or other event, provided that, if any such purchase or purchases or adjustments shall be made pursuant to this Section 2.17 and the payment giving rise thereto shall thereafter be recovered, such purchase or purchases or adjustments shall be 32 38 rescinded to the extent of such recovery and the purchase price or prices or adjustment restored without interest. Any Lender holding a participation in a Standby Loan deemed to have been so purchased may exercise any and all rights of banker's lien, setoff or counterclaim with respect to any and all moneys owing to such Lender by reason thereof as fully as if such Lender had made a Standby Loan in the amount of such participation. 2.18 PAYMENTS. (a) The Company shall make each payment (including principal of or interest on any Borrowing and any Fees or other amounts) hereunder from an account in the United States not later than 12:00 noon, New York City time, on the date when due in dollars to the Administrative Agent at its offices at 270 Park Avenue, New York, New York, in immediately available funds. (b) Whenever any payment (including principal of or interest on any Borrowing or any Fees or other amounts) hereunder shall become due, or otherwise would occur, on a day that is not a Business Day, such payment may be made on the next succeeding Business Day, and such extension of time shall in such case be included in the computation of interest or Fees, if applicable. 2.19 TAXES. (a) Any and all payments to the Lenders hereunder shall be made, in accordance with Section 2.18, free and clear of and without deduction for any and all current or future taxes, levies, imposts, deductions, charges or withholdings, and all liabilities with respect thereto, excluding (i) income taxes imposed on the income of the Administrative Agent or any Lender (or any transferee or assignee thereof, including a participation holder (any such entity a "TRANSFEREE")) and (ii) franchise taxes imposed on the income, assets or net worth of the Administrative Agent or any Lender (or Transferee), in each case by the jurisdiction under the laws of which the Administrative Agent or such Lender (or Transferee) is organized or doing business (other than as a result of entering into this Agreement, performing any obligations hereunder, receiving any payments hereunder or enforcing any rights hereunder), or any political subdivision thereof (all such nonexcluded taxes, levies, imposts, deductions, charges, withholdings and liabilities, collectively or individually, "TAXES"). If the Company shall be required to deduct any Taxes from or in respect of any sum payable hereunder to any Lender (or any Transferee) or the Administrative Agent, (i) the sum payable shall be increased by the amount (an "ADDITIONAL AMOUNT") necessary so that after making all required deductions (including deductions applicable to additional sums payable under this Section 2.19) such Lender (or Transferee) or the Administrative Agent (as the case may be) shall receive an amount equal to the sum it would have received had no such deductions been made, (ii) the Company shall make such deductions and (iii) the Company shall pay the full amount deducted to the relevant Governmental Authority in accordance with applicable law. 33 39 (b) In addition, the Company shall pay to the relevant Governmental Authority in accordance with applicable law any current or future stamp or documentary taxes or any other excise or property taxes, charges or similar levies that arise from any payment made hereunder or from the execution, delivery or registration of, or otherwise with respect to, this Agreement or any other document contemplated by this Agreement ("OTHER TAXES"). (c) The Company shall indemnify each Lender (or Transferee) and the Administrative Agent for the full amount of Taxes and Other Taxes paid by such Lender (or Transferee) or the Administrative Agent, as the case may be, and any liability (including penalties, interest and expenses (including reasonable attorney's fees and expenses)) arising therefrom or with respect thereto, whether or not such Taxes or Other Taxes were correctly or legally asserted by the relevant Governmental Authority. A certificate as to the amount of such payment or liability prepared by a Lender or the Administrative Agent on its behalf, absent manifest error, shall be final, conclusive and binding for all purposes. Such indemnification shall be made within 30 days after the date the Lender (or Transferee) or the Administrative Agent, as the case may be, makes written demand therefor, which written demand shall be made within 60 days of the date such Lender (or Transferee) or Administrative Agent receives written demand for payment of such Taxes or Other Taxes from the relevant Governmental Authority. (d) If a Lender (or Transferee) or the Administrative Agent shall become aware that it is entitled to claim a refund from a Governmental Authority in respect of Taxes or Other Taxes as to which it has been indemnified by the Company, or with respect to which the Company has paid additional amounts, pursuant to this Section 2.19, it shall promptly notify the Company of the availability of such refund claim and shall, within 30 days after receipt of a request by the Company, make a claim to such Governmental Authority for such refund at the Company' expense. If a Lender (or Transferee) or the Administrative Agent receives a refund (including pursuant to a claim for refund made pursuant to the preceding sentence) in respect of any Taxes or Other Taxes as to which it has been indemnified by the Company or with respect to which the Company has paid additional amounts pursuant to this Section 2.19, it shall within 30 days from the date of such receipt pay over such refund to the Company (but only to the extent of indemnity payments made, or additional amounts paid, by the Company under this Section 2.19 with respect to the Taxes or Other Taxes giving rise to such refund), net of all out-of-pocket expenses of such Lender (or Transferee) or the Administrative Agent and without interest (other than interest paid by the relevant Governmental Authority with respect to such refund), provided that the Company, upon the request of such Lender (or Transferee) or the Administrative Agent, agree to repay the amount paid over to the Company (plus penalties, interest or other charges) to such Lender (or Transferee) or the Administrative Agent in the event such Lender (or Transferee) or the 34 40 Administrative Agent is required to repay such refund to such Governmental Authority. (e) As soon as practicable after the date of any payment of Taxes or Other Taxes by the Company to the relevant Governmental Authority, the Company will deliver to the Administrative Agent, at its address referred to in Section 8.1, the original or a certified copy of a receipt issued by such Governmental Authority evidencing payment thereof. (f) Without prejudice to the survival of any other agreement contained herein, the agreements and obligations contained in this Section 2.19 shall survive the payment in full of the principal of and interest on all Loans made hereunder. (g) Each Lender (or Transferee) that is organized under the laws of a jurisdiction other than the United States, any State thereof or the District of Columbia (a "NON-U.S. LENDER") shall deliver to the Company and the Administrative Agent two copies of either United States Internal Revenue Service Form 1001 or Form 4224, or, in the case of a Non-U.S. Lender claiming exemption from U.S. Federal withholding tax under Section 871(h) or 881(c) of the Code with respect to payments of "portfolio interest", a Form W-8, or any subsequent versions thereof or successors thereto (and, if such Non-U.S. Lender delivers a Form W-8, a certificate representing that such Non-U.S. Lender is not a bank for purposes of Section 881(c) of the Code, is not a 10 percent shareholder (within the meaning of Section 871(h)(3)(B) of the Code) of the Company and is not a controlled foreign corporation related to the Company (within the meaning of Section 864(d)(4) of the Code)), properly completed and duly executed by such Non-U.S. Lender claiming complete exemption from, or reduced rate of, U.S. Federal withholding tax on payments by the Company under this Agreement. Such forms shall be delivered by each Non-U.S. Lender on or before the date it becomes a party to this Agreement (or, in the case of a Transferee that is a participation holder, on or before the date such participation holder becomes a Transferee hereunder) and on or before the date, if any, such Non-U.S. Lender changes its applicable lending office by designating a different lending office (a "NEW LENDING OFFICE"). In addition, each Non-U.S. Lender shall deliver such forms promptly upon the obsolescence or invalidity of any form previously delivered by such Non-U.S. Lender. Notwithstanding any other provision of this Section 2.19(g), a Non-U.S. Lender shall not be required to deliver any form pursuant to this Section 2.19(g) that such Non-U.S. Lender is not legally able to deliver. (h) The Company shall not be required to indemnify any Non-U.S. Lender, or to pay any additional amounts to any Non-U.S. Lender, in respect of United States Federal withholding tax pursuant to paragraph (a) or (c) above to the extent that (i) the obligation to withhold amounts with respect to United States Federal withholding tax 35 41 existed on the date such Non-U.S. Lender became a party to this Agreement (or, in the case of a Transferee that is a participation holder, on the date such participation holder became a Transferee hereunder) or, with respect to payments to a New Lending Office, the date such Non-U.S. Lender designated such New Lending Office with respect to a Loan, provided that this clause (i) shall not apply to any Transferee or New Lending Office that becomes a Transferee or New Lending Office as a result of an assignment, participation, transfer or designation made at the request of the Company; and provided further that this clause (i) shall not apply to the extent the indemnity payment or additional amounts any Transferee, or Lender (or Transferee) through a New Lending Office, would be entitled to receive (without regard to this clause (i)) do not exceed the indemnity payment or additional amounts that the person making the assignment, participation or transfer to such Transferee, or Lender (or Transferee) making the designation of such New Lending Office, would have been entitled to receive in the absence of such assignment, participation, transfer or designation or (ii) the obligation to pay such additional amounts would not have arisen but for a failure by such Non-U.S. Lender to comply with the provisions of paragraph (g) above. (i) Any Lender (or Transferee) claiming any indemnity payment or additional amounts payable pursuant to this Section 2.19 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document reasonably requested in writing by the Company or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such indemnity payment or additional amounts that may thereafter accrue and would not, in the sole determination of such Lender (or Transferee), be otherwise disadvantageous to such Lender (or Transferee). (j) Nothing contained in this Section 2.19 shall require any Lender (or Transferee) or the Administrative Agent to make available any of its tax returns (or any other information that it deems to be confidential or proprietary). 2.20 DUTY TO MITIGATE; ASSIGNMENT OF COMMITMENTS UNDER CERTAIN CIRCUMSTANCES. (a) Any Lender (or Transferee) claiming any additional amounts payable pursuant to Section 2.13 or Section 2.19 or exercising its rights under Section 2.14 shall use reasonable efforts (consistent with legal and regulatory restrictions) to file any certificate or document requested by the Company or to change the jurisdiction of its applicable lending office if the making of such a filing or change would avoid the need for or reduce the amount of any such additional amounts which may thereafter accrue or avoid the circumstances giving rise to such exercise and would not, in the sole determination of such Lender (or Transferee), be otherwise disadvantageous to such Lender (or Transferee). 36 42 (b) In the event that any Lender shall have delivered a notice or certificate pursuant to Section 2.13 or 2.14, or the Company shall be required to make additional payments to any Lender under Section 2.19, the Company shall have the right, at its own expense, upon notice to such Lender and the Administrative Agent, to require such Lender to transfer and assign without recourse (in accordance with and subject to the restrictions contained in Section 8.4) all interests, rights and obligations contained hereunder to another financial institution approved by the Administrative Agent (which approval shall not be unreasonably withheld) which shall assume such obligations, provided that (i) no such assignment shall conflict with any law, rule or regulation or order of any Governmental Authority and (ii) the assignee or the Company, as the case may be, shall pay to the affected Lender in immediately available funds on the date of such assignment the principal of and interest accrued to the date of payment on the Loans made by it hereunder and all other amounts accrued for its account or owed to it hereunder (including any payments owed to it pursuant to Section 2.15). ARTICLE III REPRESENTATIONS AND WARRANTIES The Company represents and warrants to each of the Lenders that: 3.1 ORGANIZATION; POWERS. The Company and each of the Subsidiaries (a) is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction of its organization, (b) has all requisite power and authority to own its property and assets and to carry on its business as now conducted and as proposed to be conducted, (c) is qualified to do business in every jurisdiction where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect, and (d) in the case of the Company, has the corporate power and authority to execute, deliver and perform its obligations under this Agreement and to borrow hereunder. 3.2 AUTHORIZATION. The execution, delivery and performance by the Company of this Agreement, and the Borrowings hereunder (collectively, the "TRANSACTIONS") (a) have been duly authorized by all requisite corporate action and (b) will not (i) violate (A) any provision of any law, statute, rule or regulation (including the Margin Regulations) or of the certificate of incorporation or other constitutive documents or by-laws of the Company or any Subsidiary, (B) any judgment, writ, injunction, decree or order of any Governmental Authority or (C) any provision of any indenture, agreement or other instrument to which the Company or any Subsidiary is a party or by which any of them or any of their property is or may be bound, (ii) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such 37 43 indenture, agreement or other instrument or (iii) result in the creation or imposition of any Lien upon any property or assets of the Company or any Subsidiary. 3.3 ENFORCEABILITY. This Agreement constitutes a legal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, rehabilitation, reorganization, moratorium or similar laws affecting creditors generally and by general equity principles. 3.4 GOVERNMENTAL APPROVALS. No action, consent or approval of, registration or filing with or other action by any Governmental Authority is or will be required with respect to the Company in connection with the Transactions. 3.5 FINANCIAL STATEMENTS. (a) The Company has heretofore furnished to the Administrative Agent and the Lenders copies of (i) its consolidated financial statements for the year ended December 31, 1994, which were included in its annual report on Form 10-K dated , March 31, 1995, filed with the SEC under the Exchange Act and (ii) its consolidated financial statements for the six months ended June 30, 1995, which were included in its Quarterly Report on Form 10-Q dated August 14, 1995 filed with the SEC under the Exchange Act. Such financial statements present fairly, in all material respects, the financial condition and the results of operations of the Company and its Subsidiaries as of such dates in accordance with GAAP. All of the foregoing financial statements disclose all material liabilities, direct or contingent, of the Company and its Subsidiaries as of the dates thereof. (b) As of the date hereof, there has been no material adverse change in the business, assets, operations, prospects or conditions, financial or otherwise, of the Company and the Subsidiaries taken as a whole from December 31, 1994. (c) The Company has heretofore furnished to the Administrative Agent and the Lenders copies of the (i) annual and (ii) quarterly Convention Statements of each Insurance Subsidiary, as filed with their respective Applicable Insurance Regulatory Authority, as of and for the years ended December 31, 1992, 1993 and 1994 and as of and for the periods ending March 31, June 30, and September 30, 1995 (collectively, the "STATUTORY FINANCIAL STATEMENTS"). Each such Statutory Financial Statement is complete and correct and fairly present the statutory assets, liabilities, capital and surplus, results of operations and cash flows of the Insurance Subsidiary presented therein as of and for the respective dates and periods indicated therein in conformity with SAP and was in compliance with applicable law when filed. Each such Statutory Financial Statement discloses all material liabilities, direct or contingent, of the related Insurance Subsidiary as of the dates thereof. 38 44 (d) As of the date hereof, there has been no material adverse change in the financial condition of the Insurance Subsidiaries from the financial condition reported in the Statutory Financial Statements referenced in paragraph (c) of this Section 3.5. 3.6 OWNERSHIP OF PROPERTIES; POSSESSION UNDER LEASES. The Company and the Subsidiaries have good and sufficient title to their respective properties and assets, including the properties and assets reflected in the Company's consolidated financial statements referred to in Section 3.5(a) free and clear of any Lien, except (i) such properties and assets disposed of since such date in the ordinary course of business, (ii) such properties and assets held under Capital Leases referred to in Schedule 3.6, and (iii) such properties and assets the failure to have good and sufficient title to would not, individually or in the aggregate, result in a Material Adverse Effect. The Company and the Subsidiaries enjoy peaceful and undisturbed possession under all leases necessary in any material respect for the operation of their respective properties and assets, and all such leases are valid and subsisting and are in full force and effect. The Company and the Subsidiaries own, or are licensed to use, all patents, trademarks, service marks, trade names, copyrights, licenses, technology, know-how and processes, permits and authorizations, and all rights with respect to the foregoing, necessary for the conduct of their respective businesses as now conducted (the "INTELLECTUAL PROPERTY"), without any known material conflict with the rights of others, except such Intellectual Property the failure so to own, possess or be licensed to use would not, individually or in the aggregate, result in a Material Adverse Effect. 3.7 SUBSIDIARIES. Schedule 3.7 sets forth as of the date hereof a list of all Subsidiaries of the Company and the percentage ownership interest of the Company therein. 3.8 LITIGATION, COMPLIANCE WITH LAWS, ETC. (a) Except as set forth in Schedule 3.8, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the knowledge of the Company, threatened against or affecting the Company or any Subsidiary or any business, property or rights of any such person (i) which involve this Agreement or the Transactions or (ii) as to which there is a reasonable probability of an adverse determination and which, if adversely determined, could, individually or in the aggregate, result in a Material Adverse Effect. (b) Neither the Company nor any Subsidiary is (i) in violation of, nor will the continued operation of their material properties and assets as currently operated violate, (A) any law, statute, rule or regulation (including the Margin Regulations and Environmental Laws) or of their respective certificates of incorporation or other constitutive documents or by-laws, (B) any judgment, writ, injunction, decree or order of any 39 45 Governmental Authority, including any Applicable Insurance Regulatory Authority of any Insurance Subsidiary, or (C) any provision of any indenture, agreement or other instrument to which it is a party or any of its property is or may be bound or (ii) in conflict with, breach of, or in default under, any provision of any such indenture, agreement or other instrument, where such violation, conflict, breach or default, individually or in the aggregate, would be reasonably likely to result in a Material Adverse Effect. (c) No Insurance Subsidiary is subject to (i) any order of liquidation, rehabilitation, conservation, supervision or any other order of like effect issued by any Applicable Insurance Regulatory Authority with respect to any Insurance Subsidiary or (ii) any plan of action of any Applicable Insurance Regulatory Authority which would result in the control or direction by such Applicable Insurance Regulatory Authority of the management, policies or ongoing business activities of such Insurance Subsidiary. (d) No license (including, without limitation, any license or certificate of authority from any Applicable Insurance Regulatory Authority of an Insurance Subsidiary), permit or authorization to engage in the business of insurance or reinsurance of any Insurance Subsidiary, other than licenses, permits or authorizations to perform services as an agent or broker (individually, a "LICENSE" and collectively, the "LICENSES") is the subject of, or threatened to be the subject of, a proceeding for suspension, revocation, restriction on License authority or limitation on premiums written or any similar proceedings, and to the best of the Company's knowledge there exists no sustainable basis for any such suspension, revocation, restriction on License authority or limitation on premiums written, except where such suspension, revocation, restriction, or limitation would not individually or in the aggregate result in a Material Adverse Effect. 3.9 FEDERAL RESERVE REGULATIONS. (d) Neither the Company nor any Subsidiary that will receive proceeds of the Loans hereunder is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock. (b) No part of the proceeds of any Loan will be used, whether directly or indirectly, and whether immediately, incidentally or ultimately, to purchase or carry Margin Stock or to refund indebtedness originally incurred for such purpose, or for any other purpose which entails a violation of, or which is inconsistent with, the provisions of the Margin Regulations. 3.10 INVESTMENT COMPANY ACT; PUBLIC UTILITY HOLDING COMPANY ACT. Neither the Company nor any Subsidiary is (a) an "investment company" or a company 40 46 "controlled" by an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. 3.11 USE OF PROCEEDS. All proceeds of the Loans shall be used for the purposes referred to in the recitals to this Agreement or, in the case of the first Borrowing hereunder, to pay in full the principal of and accrued and unpaid interest on any outstanding loans under, and all other amounts in respect of, the Existing Credit Facility. 3.12 NO MATERIAL MISSTATEMENTS. No report, financial statement or other information furnished by or on behalf of the Company or any Subsidiary to the Administrative Agent or any Lender pursuant to or in connection with this Agreement or the credit facilities established hereby contains or will contain any material misstatement of fact or omits or will omit to state any material fact necessary to make the statements therein, in the light of the circumstances under which they were or will be made, not misleading. 3.13 TAXES. The Company and each of the Subsidiaries have filed or caused to be filed all Federal, state andlocal tax returns which are required to be filed by them, and have paid or caused to be paid all taxes shown to be due and payable on such returns or on any assessments received by any of them, other than any taxes or assessments the validity of which is being contested in good faith by appropriate proceedings, and with respect to which appropriate accounting reserves have to the extent required by GAAP been set aside. 3.14 EMPLOYEE BENEFIT PLANS. Each of the Company and its ERISA Affiliates is in compliance in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations thereunder. No ERISA Event has occurred or is reasonably expected to occur that, when taken together with all other such ERISA Events, could reasonably be expected to result in a Material Adverse Effect. The present value of all benefit liabilities under each Plan (based on those assumptions used to fund such Plan) did not, as of the last annual valuation date applicable thereto before the Closing Date, exceed by more than $1,000,000 the fair market value of the assets of such Plan, and the present value of all benefit liabilities of all underfunded Plans (based on those assumptions used to fund each such Plan) did not, as of the last annual valuation dates applicable thereto, exceed by more than $2,000,000 the fair market value of the assets of all such underfunded Plans. 3.15 ENVIRONMENTAL MATTERS. Except as set forth in Schedule 3.15: 41 47 (a) To the best of the Company's or any Subsidiary's knowledge after reasonable investigation, the properties owned or operated by the Company and the Subsidiaries (the "PROPERTIES") do not contain any Hazardous Materials in amounts or concentrations which (i) constitute, or constituted a violation of, or (ii) could give rise to liability under, Environmental Laws, which violations and liabilities, in the aggregate, could result in a Material Adverse Effect; (b) The Properties and all operations of the Company and the Subsidiaries are in compliance, and in the last three years have been in compliance, with all Environmental Laws and all necessary Environmental Permits have been obtained and are in effect, except to the extent that such non-compliance or failure to obtain any necessary Environmental Permits, in the aggregate, could not result in a Material Adverse Effect; (c) To the best of the Company's or any Subsidiary's knowledge after reasonable investigation, there have been no Releases or threatened Releases at, from, under or proximate to the Properties or otherwise in connection with the operations of the Company or the Subsidiaries, which Releases or threatened Releases, in the aggregate, could result in a Material Adverse Effect; (d) Neither the Company nor any of the Subsidiaries has received any notice of an Environmental Claim in connection with the Properties or the operations of the Company or the Subsidiaries or with regard to any person whose liabilities for environmental matters the Company or the Subsidiaries has retained or assumed, in whole or in part, contractually, by operation of law or otherwise, which, in the aggregate, could result in a Material Adverse Effect, nor do the Company or the Subsidiaries have reason to believe that any such notice will be received or is being threatened; (e) To the best of the Company's or any Subsidiary's knowledge after reasonable investigation, Hazardous Materials have not been transported from the Properties, nor have Hazardous Materials been generated, treated, stored or disposed of at, on or under any of the Properties in a manner that could give rise to liability under any Environmental Law, nor have the Company or the Subsidiaries retained or assumed any liability, contractually, by operation of law or otherwise, with respect to the generation, treatment, storage or disposal of Hazardous Materials, which transportation, generation, treatment, storage or disposal, or retained or assumed liabilities, in the aggregate, could result in a Material Adverse Effect. 3.16 ABSENCE OF CERTAIN RESTRICTIONS. Except as set forth in Schedule 3.16 and as required by law, rule or regulation or by any Governmental Authority, including any Applicable Insurance Regulatory Authority, no indenture, certificate of designation 42 48 for preferred stock, agreement or instrument to which any Subsidiary is a party will, directly or indirectly, prohibit or restrain the payment of dividends by such Subsidiary. As of the Closing Date, no such indenture, certificate, agreement or instrument to which the Company or any Subsidiary is a party will require the repayment of any amounts owed by the Company or such Subsidiary as a result of the consummation of the Transactions. 3.17 REINSURANCE AGREEMENTS. The Company has delivered to the Administrative Agent copies of each Reinsurance Agreement with respect to which the Administrative Agent has requested copies. On the Closing Date, each such Reinsurance Agreement is in full force and effect and none of the Company, any Subsidiary or, to the best of the knowledge of the Company, any other person party thereto is in default in respect of any material provision thereof. 3.18 RESERVES. All reserves and other liabilities with respect to insurance contracts reflected in each annual or quarterly Convention Statement of each Insurance Subsidiary filed with an Applicable Insurance Regulatory Authority since December 31, 1994 or September 30, 1995 or delivered to any Lender or the Administrative Agent ("RESERVE LIABILITIES"), (a) were determined in accordance with generally accepted actuarial standards consistently applied, or in the absence of a generally accepted actuarial standard for determining reserves and other liabilities with respect to a particular type of insurance contract, in accordance with an actuarial standard consistently applied that has been deemed reasonable in a Statement of Actuarial Opinion from a member of the American Academy of Actuaries, (b) were fairly stated in accordance with sound actuarial principles, (c) were based on actuarial assumptions that were in accordance with or more conservative than those appropriate (in the reasonable determination of the applicable Insurance Subsidiary) for the related insurance policies, (d) met the requirements of the applicable insurance laws, rules and regulations of their respective states of domicile and met in all material respects the requirements of the applicable insurance laws, rules and regulations of each other jurisdiction in which they are licensed to write insurance contracts and (e) reflected (on a net basis) the related reinsurance, coinsurance and other similar agreements of such Insurance Subsidiary. Adequate provision for all such Reserve Liabilities has been made (under generally accepted actuarial principles consistently applied) to cover the total amount of matured and unmatured benefits, claims and other liabilities of such Insurance Subsidiary under all insurance policies under which such Insurance Subsidiary has any liability (including any liability arising under or as a result of any reinsurance, coinsurance or other similar agreement) on the respective dates of the annual or quarterly Convention Statements based on commonly accepted actuarial assumptions as to future contingencies that are reasonable and appropriate under the circumstances. 43 49 3.19 OBLIGATIONS AS SENIOR INDEBTEDNESS. The obligations created hereby will constitute direct, unconditional and general obligations of the Company and rank not less than pari passu with all other loans, indebtedness, guarantees and other obligations of the Company for borrowed money and will constitute "senior indebtedness" as that or any similar term is or may be defined in any instrument or agreement evidencing or relating to any subordinated debt or obligations of the Company now or hereafter existing, and the Administrative Agent and the Lenders will be entitled to the benefits of any such subordination provisions. ARTICLE IV CONDITIONS OF LENDING The obligations of the Lenders to make Loans hereunder are subject to the satisfaction of the following conditions: 4.1 ALL BORROWINGS. On the date of each Borrowing: (a) The Administrative Agent shall have received a notice of such Borrowing as required by Section 2.3 or Section 2.4, as applicable. (b) The representations and warranties set forth in Article III hereof shall be true and correct in all material respects on and as of the date of such Borrowing with the same effect as though made on and as of such date, except to the extent such representations and warranties expressly relate to an earlier date. (c) The Company shall be in compliance with all of the terms and provisions set forth herein, and at the time of and immediately after such Borrowing no Event of Default or Default shall have occurred and be continuing. Each Borrowing shall be deemed to constitute a representation and warranty by the Company on the date of such Borrowing as to the matters specified in paragraphs (b) and (c) of this Section 4.1. 4.2 CLOSING DATE. On the Closing Date: (a) The Administrative Agent shall have received a favorable written opinion of Jorden Burt Berenson & Johnson LLP, dated the Closing Date and addressed to the Lenders and satisfactory to Debevoise & Plimpton, counsel for the Administrative Agent, to the effect set forth in Exhibit D hereto. 44 50 (b) All legal matters incident to this Agreement, the Borrowings and extensions of credit hereunder shall be satisfactory to the Lenders and to Debevoise & Plimpton, counsel for the Administrative Agent. (c) The Administrative Agent shall have received (i) a copy of the certificate of incorporation, including all amendments thereto, of the Company, certified as of a recent date by the Secretary of State of its state of incorporation, and a certificate as to the good standing of the Company as of a recent date from such Secretary of State; (ii) a certificate of the Secretary or an Assistant Secretary of the Company dated the Closing Date and certifying (A) that attached thereto is a true and complete copy of the by-laws of the Company as in effect on the Closing Date and at all times since a date prior to the date of the resolutions described in clause (B) below, (B) that attached thereto is a true and complete copy of resolutions duly adopted by the Board of Directors of the Company authorizing the execution, delivery and performance of this Agreement and the Borrowings hereunder, and that such resolutions have not been modified, rescinded or amended and are in full force and effect, (C) that the certificate of incorporation referred to in clause (i) above has not been amended since the date of the last amendment thereto shown on the certificate of good standing furnished pursuant to such clause (i) and (D) as to the incumbency and specimen signature of each officer executing this Agreement or any other document delivered in connection herewith on behalf of the Company; (iii) a certificate of another officer of the Company as to the incumbency and specimen signature of the Secretary or Assistant Secretary executing the certificate pursuant to (ii) above; and (iv) such other documents as the Lenders or Debevoise & Plimpton, counsel for the Administrative Agent, may reasonably request. (d) The Administrative Agent shall have received a certificate, dated the Closing Date and signed by a Responsible Officer of the Company, confirming compliance with the conditions precedent set forth in paragraphs (b) and (c) of Section 4.1. (e) On or before the Closing Date, (i) the principal of and accrued and unpaid interest on any loans outstanding under the Existing Credit Facility shall have been paid in full, (ii) all other amounts due in respect of the Existing Credit Facility shall have been paid in full and (iii) the commitments to lend under the Existing Credit Facility shall have been permanently terminated. (f) The Administrative Agent shall have received any Fees or other amounts due and payable on or prior to the Closing Date, including, to the extent invoiced, reimbursement or payment of all out-of-pocket expenses required to be reimbursed or paid by the Company hereunder. 45 51 ARTICLE V COVENANTS A. AFFIRMATIVE COVENANTS. The Company covenants and agrees with each Lender and the Administrative Agent that so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other amounts payable hereunder shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will, and will cause each of the Subsidiaries to: 5.1 EXISTENCE. Do or cause to be done all things necessary to preserve and keep in full force and effect its corporate existence, Licenses, rights, franchises, patents, copyrights, trademarks and trade names, except as expressly permitted under Section 5.15, provided that nothing in this Section shall prevent the abandonment or termination of the existence, in the case of any Subsidiary, or rights, franchises, patents, copyrights, trademarks or trade names of any Subsidiary or the Company if such abandonment or termination is in the best interests of the Company and is not disadvantageous in any material respect to the Lenders. 5.2 BUSINESS AND PROPERTIES. Comply in all material respects with all applicable laws, statutes, rules, regulations (including Margin Regulations and Environmental Laws) and orders of any Governmental Authority, whether now in effect or hereafter enacted; and at all times maintain and preserve all property material to the conduct of its business and keep such property in good repair, working order and condition and from time to time make, or cause to be made, all needful and proper repairs, renewals, additions, improvements and replacements thereto necessary in order that the business carried on in connection therewith may be properly conducted at all times. 5.3 FINANCIAL STATEMENTS, REPORTS, ETC. In the case of the Company, furnish to the Administrative Agent and each Lender: (a) as soon as available, but in any event within 90 days after the end of each fiscal year, its consolidated balance sheet and the related statements of operations, stockholders' equity and cash flows showing the consolidated financial condition of the Company and its Subsidiaries as of the close of such fiscal year and the results of its operations and the operations of such Subsidiaries during such year, all audited by Price Waterhouse LLP or other independent certified public accountants of recognized national standing and accompanied by an opinion of such accountants (which shall not be qualified in any material respect) to the effect that such consolidated financial statements fairly present its financial condition and results of 46 52 operations on a consolidated basis in accordance with GAAP (it being agreed that the requirements of this paragraph may be satisfied by the delivery pursuant to paragraph (f) below of an annual report on Form 10-K containing the foregoing); (b) as soon as available but in any event within 45 days after the end of each of the first three fiscal quarters of each fiscal year, its consolidated balance sheet and related statements of operations, stockholders' equity and cash flows, showing the financial condition of the Company and its Consolidated Subsidiaries as of the close of such fiscal quarter and the results of its operations and the operations of such Subsidiaries during such fiscal quarter and the then elapsed portion of the fiscal year, all certified by one of its Financial Officers as fairly presenting its financial condition and results of operations on a consolidated basis in accordance with GAAP, subject to normal year-end audit adjustments (it being agreed that the requirements of this paragraph may be satisfied by the delivery pursuant to paragraph (f) below of a quarterly report on Form 10-Q containing the foregoing); (c) as soon as available but in any event within 90 days after the close of each fiscal year, (i) a copy of the annual Convention Statement of each Insurance Subsidiary for such fiscal year and as filed with the Applicable Insurance Regulatory Authority certified by a Responsible Officer of such Insurance Subsidiary to the effect that such statements present fairly the statutory assets, liabilities, capital and surplus, results of operations and cash flows of such Insurance Subsidiary in accordance with SAP consistently applied, (ii) the Statement of Actuarial Opinion and Management Discussion and Analysis of each Insurance Subsidiary for such fiscal year and as filed with the Applicable Insurance Regulatory Authority; provided that, if such statements are required by any Applicable Insurance Regulatory Authority having jurisdiction over such Insurance Subsidiary to be certified by accountants or actuaries, such statements shall be delivered to the Administrative Agent and the Lenders so certified promptly after the filing date required by such Applicable Insurance Regulatory Authority with respect thereto; (d) as soon as available but in any event within 60 days after the close of each of the first three fiscal quarters of each fiscal year, a copy of the quarterly Convention Statement of each Insurance Subsidiary for such fiscal quarter and as filed with the Applicable Insurance Regulatory Authority, certified by a Responsible Officer of the Company as fairly presenting the statutory assets, liabilities, capital and surplus, results of operations and cash flows of such Insurance Subsidiary; (e) concurrently with any delivery of financial statements under paragraph (a) or (b) above, a certificate of a Financial Officer (i) opining on or certifying such statements (which certificate, when furnished by such Financial Officer, may be 47 53 limited to accounting matters and disclaim liability for legal interpretations), (ii) certifying that no Event of Default or Default has occurred or, if such an Event of Default or Default has occurred, specifying the nature and extent thereof and any corrective action taken or proposed to be taken with respect thereto; and (iii) setting forth computations in reasonable detail satisfactory to the Administrative Agent demonstrating compliance with the covenants referred to in Sections 5.18 through 5.23 (inclusive). (f) promptly after the same become publicly available, copies of all reports on Forms 10-K, 10-Q and 8-K filed by it with the SEC, or any Governmental Authority succeeding to any of or all the functions of the SEC, or, in the case of the Company, copies of all reports distributed to its shareholders, as the case may be; (g) as soon as practicable, copies of all regular or periodic financial and other reports, if any, which the Company or any of its Subsidiaries shall provide to any Governmental Authority, including any Applicable Insurance Regulatory Authority; (h) promptly after delivery to a Insurance Subsidiary, final copies of all regular and periodic reports of examinations of such Insurance Subsidiary, delivered to such Insurance Subsidiary by the Applicable Insurance Regulatory Authority; and (i) promptly, from time to time, such other information as any Lender shall reasonably request through the Administrative Agent. 5.4 INSURANCE LICENSES. Furnish to the Administrative Agent and each Lender prompt notice of the actual suspension, termination or revocation of any License, or any restriction on License authority or limitation on premiums written, of any Insurance Subsidiary by any relevant Governmental Authority or of receipt of notice from any relevant Governmental Authority notifying any Insurance Subsidiary of a hearing relating to such a suspension, termination, revocation, restriction or limitation, including any request by a relevant Governmental Authority that commits any Insurance Subsidiary to take, or refrain from taking, any action, which materially and adversely affects the authority of any Insurance Subsidiary to conduct its Insurance Business. 5.5 INSURANCE. Keep its insurable properties adequately insured at all times by financially sound and reputable insurers, and maintain such other insurance, to such extent and against such risks, including fire and other risks insured against by extended coverage, as is customary with companies similarly situated and in the same or similar businesses, including public liability insurance against claims for personal injury or death or property damage occurring upon, in, about or in connection with the use of any 48 54 properties owned, occupied or controlled by it; and maintain such other insurance as may be required by law. 5.6 OBLIGATIONS AND TAXES. Pay its Indebtedness and other obligations promptly and in accordance with their terms and pay and discharge promptly when due all taxes, assessments and governmental charges or levies imposed upon it or upon its income or profits or in respect of its property, before the same shall become delinquent or in default as well as all lawful claims for labor, materials and supplies or otherwise which, if unpaid, might give rise to a Lien upon such properties or any part thereof; provided, however, that such payment or discharge shall not be required with respect to any such tax, assessment charge, levy or claim so long as the validity or amount thereof shall be contested in good faith by appropriate proceedings and adequate reserves with respect thereto shall, to the extent required by GAAP, have been set aside. 5.7 LITIGATION AND OTHER NOTICES. Give the Administrative Agent prompt written notice of the following: (a) the filing or commencement of, or any threat or notice of intention of any person to file or commence, any action, suit, proceeding or inquiry by or before any Governmental Authority or arbitrator against the Company or any Subsidiary which could reasonably be expected to result in a Material Adverse Effect; (b) any Event of Default or Default, specifying the nature and extent thereof and the action (if any) that is proposed to be taken with respect thereto; (c) any default or event of default by the Company or any of its Subsidiaries under any contract, agreement, lease or other instrument of, or binding on, the Company or any of its Subsidiaries which could reasonably be expected to result in a Material Adverse Effect; (d) any change in any of the Ratings; (e) any actual or proposed material change in any insurance code which might reasonably be expected to result in a Material Adverse Effect; and (f) any development that has resulted in, or could reasonably be expected to result in, a Material Adverse Effect and the action (if any) that is proposed to be taken with respect thereto. 5.8 EMPLOYEE BENEFITS. (a) Comply in all material respects with the applicable provisions of ERISA and the Code and the regulations and published interpretations 49 55 thereunder and (b) furnish to the Administrative Agent and each Lender as soon as possible after, and in any event within 30 days after any Responsible Officer of the Company or any ERISA Affiliate knows that, any ERISA Event has occurred that, alone or together with any other ERISA Event known to have occurred, could reasonably be expected to result in liability of the Company in an aggregate amount exceeding $1,000,000 in any year, a statement of a Responsible Officer of the Company setting forth details as to such ERISA Event and the action, if any, that the Company proposes to take with respect thereto. 5.9 USE OF PROCEEDS. Use the proceeds of the Loans only for the purposes set forth in the recitals to this Agreement or, in the case of the first Borrowing hereunder, to pay in full the principal of and accrued and unpaid interest on any loans outstanding under, and all other amounts due in respect of, the Existing Credit Facility. 5.10 MAINTAINING RECORDS; ACCESS TO PROPERTIES AND INSPECTIONS. Maintain financial records in accordance with GAAP and, with respect to any Insurance Subsidiary, SAP, and, upon reasonable notice, at all reasonable times, permit any authorized representative designated by the Administrative Agent to visit and inspect the properties of the Company and of any Subsidiary and to discuss the affairs, finances and condition of the Company and the Subsidiaries with a Financial Officer of the Company and such other officers as the Company shall deem appropriate. 5.11 OWNERSHIP OF SUBSIDIARIES. In the case of the Company, own directly and beneficially and of record 100% of the capital stock of ABIC, ABLAC and any other Material Subsidiary or any of their respective successors. 5.12 COMPLIANCE WITH ENVIRONMENTAL LAWS. Comply, and cause all lessees and other persons occupying its properties to comply, in all material respects with all Environmental Laws and Environmental Permits applicable to its operations and Properties; obtain and renew all material Environmental Permits necessary for its operations and Properties; and conduct any Remedial Action in accordance with Environmental Laws. 5.13 PREPARATION OF ENVIRONMENTAL REPORTS. If a default caused by reason of a breach of Section 3.15 or 5.12 shall have occurred and be continuing, at the request of the Required Lenders through the Administrative Agent, provide to the Lenders within 45 days after such request, at the expense of the Company, an environmental site assessment report for the properties that are the subject of such default prepared by an environmental consulting firm acceptable to the Administrative Agent, indicating the presence or absence of Hazardous Materials and the estimated cost of any compliance or Remedial Action in connection with such Properties. 50 56 B. NEGATIVE COVENANTS. The Company covenants and agrees with each Lender and the Administrative Agent that so long as this Agreement shall remain in effect or the principal of or interest on any Loan, any Fees or any other amounts payable hereunder shall be unpaid, unless the Required Lenders shall otherwise consent in writing, it will not, and will not cause or permit any of the Subsidiaries to: 5.14 LIMITATIONS ON LIENS. Directly or indirectly, create, incur, assume or permit to exist any Lien on any asset or property owned by the Company, except for Liens on assets or property (other than the capital stock of any Subsidiary, any investment by the Company in any Subsidiary or any promissory note, indebtedness or other similar instrument of any Subsidiary evidencing indebtedness owed by such Subsidiary to the Company) the value of which in the aggregate does not exceed $5,000,000. 5.15 PROHIBITION OF FUNDAMENTAL CHANGES. Enter directly or indirectly into any merger or consolidation or amalgamation, or liquidate, wind up or dissolve itself (or suffer any liquidation or dissolution), or directly or indirectly convey, sell, lease, transfer or otherwise dispose of, in one transaction or a series of transactions, all or a substantial part of its business or assets or any stock of any Subsidiary, except that: (a) the Company may dispose of any Subsidiary or its assets, other than a Significant Insurance Subsidiary or its assets, either through (i) the merger of such Subsidiary (provided that the surviving person resulting from such merger is not a Subsidiary), (ii) the sale of all or substantially all of the assets of such Subsidiary or (iii) the sale of the capital stock of such Subsidiary; provided that no Default or Event of Default has occurred and is continuing or would occur as a result of any disposition pursuant to the foregoing clauses (i), (ii) or (iii); (b) any Subsidiary may sell, lease, transfer or otherwise dispose of any or all of its assets (upon voluntary liquidation or otherwise) to the Company or another wholly-owned Subsidiary; provided that a Significant Insurance Subsidiary may only sell, lease, transfer or otherwise dispose of a substantial part of its assets (upon voluntary liquidation or otherwise), other than in the ordinary course of business consistent with past practice, to another Significant Insurance Subsidiary; and (c) subject to Section 5.17, provided that no Default or Event of Default has occurred and is continuing or would occur as a result thereof, any person may be merged or consolidated with or into the Company (provided that the Company shall be the continuing or surviving corporation) or with any one or more Subsidiaries (provided that the Subsidiary shall be the continuing or surviving corporation). 51 57 5.16 DIVIDENDS AND DISTRIBUTIONS. (a) In the case of the Company, declare or pay, directly or indirectly, any dividend or make any other distribution (by reduction of capital or otherwise), whether in cash, property, securities or a combination thereof, with respect to any shares of its capital stock or directly or indirectly redeem, purchase, retire or otherwise acquire for value (or permit any Subsidiary to purchase or acquire) any shares of any class of its capital stock or set aside any amount for any such purpose if there is then continuing any Default or Event of Default (or a Default or Event of Default would result therefrom or exist after giving effect thereto). (b) In the case of any Subsidiary, create or otherwise cause or suffer to exist or become effective any consensual encumbrance or restriction on the ability of any Subsidiary to (i) pay dividends or make any other distribution on its capital stock or (ii) pay any Indebtedness owed to the Company or a Subsidiary. 5.17 NATURE OF BUSINESS. (a) Permit any Significant Insurance Subsidiary to engage at any time in any business or business activity other than the Insurance Business, other businesses currently conducted by such Significant Insurance Subsidiaries and financial service businesses reasonably related thereto, including the provision of asset management services. (b) In the case of the Company, engage at any time in any business or business activity other than owning all the capital stock of its Subsidiaries and business activities reasonably incidental thereto. 5.18 STOCKHOLDER'S EQUITY. Permit Consolidated Net Worth to be less than the sum of (i) $350,000,000 plus (ii) 25% of the positive Consolidated Net Income of the Company and its Subsidiaries for all periods commencing after December 31, 1995 plus (iii) any additions to Consolidated Net Worth other than from earnings for all periods commencing after December 31, 1995. 5.19 CONSOLIDATED TOTAL DEBT. Permit the ratio of (i) Consolidated Total Debt to (ii) the sum of (a) Consolidated Total Debt plus (b) Consolidated Tangible Net Worth, to exceed 0.5 to 1. 5.20 INTEREST CHARGE COVERAGE. As of the end of each fiscal quarter, permit the ratio of (i) Consolidated Income Available for Interest Charges for the four fiscal quarters then ended to (ii) Interest Charges for such period to be less than 2.5 to 1. 5.21 STATUTORY SURPLUS OF ABIC AND ABLAC. Permit the Statutory Surplus of ABIC and ABLAC to be less than $115,000,000 and $70,000,000, respectively. 52 58 5.22 RISK-BASED CAPITAL RATIO. (a) As of the end of each fiscal year, permit ABLAC's Total Adjusted Capital to be less than 150% of its Company Action Level RBC; and (b) as of the end of each fiscal year, permit ABIC's Total Adjusted Capital to be less than 125% of its Company Action Level RBC. 5.23 LIMITATIONS OF SUBSIDIARY INDEBTEDNESS. Permit at any time the aggregate amount of Indebtedness of all Subsidiaries (excluding, for purposes of this Section 5.23 only, (i) any undrawn amount of a letter of credit issued in connection with insurance agreements entered into in the ordinary course of business, (ii) any obligation to reimburse an amount drawn under any such letter of credit which is reimbursed within five Business Days immediately following the drawing thereunder, and (iii) Indebtedness owing to the Company) to exceed $10,000,000. ARTICLE VI EVENTS OF DEFAULT In case of the happening of any of the following events (each an "EVENT OF DEFAULT"): (a) any representation or warranty made or deemed made in or in connection with the execution and delivery of this Agreement, the Borrowings hereunder or any certificate, financial statement, report, notice or other instrument prepared by the Company or any Subsidiary, in each case furnished by the Company to the Administrative Agent or any Lender pursuant hereto, shall prove to have been false or misleading in any material respect when so made, deemed made or furnished; (b) default shall be made in the payment of any principal of any Loan when and as the same shall become due and payable, whether at the due date thereof or at a date fixed for prepayment thereof or by acceleration thereof or otherwise; (c) default shall be made in the payment of any interest on any Loan or any Fee or any other amount (other than an amount referred to in paragraph (b) above) due hereunder, when and as the same shall become due and payable, and such default shall continue unremedied for a period of three days; 53 59 (d) default shall be made in the due observance or performance of any covenant, condition or agreement contained in Sections 5.1, 5.11, or 5.14 through 5.23 (inclusive); (e) default shall be made in the due observance or performance of any covenant, condition or agreement contained herein (other than those specified in (b), (c) or (d) above) and such default shall continue unremedied for a period of 5 days after notice thereof from the Administrative Agent or any Lender to the Company; (f) the Company or any Subsidiary shall (i) fail to pay any principal or interest, regardless of amount, due in respect of (A) any single obligation of Indebtedness in a principal amount in excess of $5,000,000, or (B) any Indebtedness in an aggregate principal amount in excess of $15,000,000, in each case when and as the same shall become due and payable, or (ii) fail to observe or perform any other term, covenant, condition or agreement contained in any agreement or instrument evidencing or governing any such Indebtedness if the effect of any failure referred to in this clause (ii) is to cause, or to permit the holder or holders of such Indebtedness or a trustee on its or their behalf (with or without the giving of notice, the lapse of time or both) to cause, such Indebtedness to become due prior to its stated maturity; (g) an involuntary proceeding shall be commenced or an involuntary petition shall be filed in a court of competent jurisdiction seeking (i) relief in respect of the Company or any Subsidiary, or of a substantial part of the property or assets of the Company or any Subsidiary, under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership or similar law, (ii) the appointment of a receiver, trustee, custodian, sequestrator, conservator, rehabilitator or similar official for the Company or a Subsidiary or for a substantial part of the property or assets of the Company or any Subsidiary or (iii) the winding up or liquidation of the Company or any Subsidiary; and such proceeding or petition shall continue undismissed for 60 days or an order or decree approving or ordering any of the foregoing shall be entered; (h) the Company or any Subsidiary shall (i) voluntarily commence any proceeding or file any petition seeking relief under Title 11 of the United States Code, as now constituted or hereafter amended, or any other Federal or state bankruptcy, insolvency, receivership, rehabilitation or similar law, (ii) consent to the institution of, or fail to contest in a timely and appropriate manner, any proceeding or the filing of any petition described in (g) above, (iii) apply for or consent to the appointment of a receiver, trustee, custodian, sequestrator, conservator or similar official for the Company or any Subsidiary or for a substantial part of the property or assets of the Company or any Subsidiary, (iv) file an answer admitting the 54 60 material allegations of a petition filed against it in any such proceeding, (v) make a general assignment for the benefit of creditors, (vi) become unable, admit in writing its inability or fail generally to pay its debts as they become due or (vii) take any action for the purpose of effecting any of the foregoing; (i) (i) one or more judgments for the payment of money in an aggregate amount (not paid or fully covered by insurance) of $5,000,000 or more entered against the Company or any Subsidiary shall not have been vacated, satisfied, discharged or stayed pending appeal within 30 days from the entry thereof, or, in the event of such a stay, such judgments shall not be discharged within 30 days after such stay expires; or (ii) the judgment creditor shall have legally commenced execution proceedings upon such judgment; (j) an ERISA Event shall have occurred that, in the reasonable opinion of the Required Lenders, when taken together with all other such ERISA Events that have occurred could reasonably be expected to result in a Material Adverse Effect; (k) any Applicable Insurance Regulatory Authority shall issue with respect to any Insurance Subsidiary (i) any order of liquidation, rehabilitation, conservation, supervision or any other order of like effect or (ii) any plan of action that would result in the control or direction by such Applicable Insurance Regulatory Authority of the management, policies or ongoing business activities of such Insurance Subsidiary, or (iii) any other order that is reasonably likely to result in a Material Adverse Effect or an impairment of the rights of or benefits available to the Administrative Agent or any of the other Lenders under this Agreement; (l) (i) any party to any Reinsurance Agreement (whether entered into as of the date hereof or hereafter entered into) to which any Insurance Subsidiary is a party shall fail to comply with any material provision thereof or (ii) any reinsurer under any Reinsurance Agreement shall become or shall be declared insolvent or any order of liquidation, rehabilitation, conservation or supervision or other order of like effect shall be entered against any such reinsurer, or any other kind of delinquency proceeding shall be commenced against any such reinsurer, if any event contemplated by clause (i) or (ii) could reasonably be expected to result in a Material Adverse Effect; (m) the actual or asserted invalidity of this Agreement or any related loan documentation or of any material agreement hereunder; 55 61 (n) any default under any other material agreement of the Company or any Subsidiary that, in the reasonable judgment of the Required Lenders, would result in a Material Adverse Effect; or (o) a Change in Control shall occur; then, and in every such event (other than an event with respect to the Company described in paragraph (g) or (h) above), and at any time thereafter during the continuance of such event, the Administrative Agent, at the request of the Required Lenders, shall, by notice to the Company, take either or both of the following actions, at the same or different times: (i) terminate forthwith the Commitments and (ii) declare the Loans then outstanding to be forthwith due and payable in whole or in part, whereupon the principal of the Loans so declared to be due and payable, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Company accrued hereunder, shall become forthwith due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding; and, in any event with respect to the Company described in paragraph (g) or (h) above, the Commitments shall automatically terminate and the principal of the Loans then outstanding, together with accrued interest thereon and any unpaid accrued Fees and all other liabilities of the Company accrued hereunder shall automatically become due and payable, without presentment, demand, protest or any other notice of any kind, all of which are hereby expressly waived, anything contained herein to the contrary notwithstanding. ARTICLE VII THE ADMINISTRATIVE AGENT In order to expedite the transactions contemplated by this Agreement, Chemical Bank is hereby appointed to act as Administrative Agent on behalf of the Lenders. Each of the Lenders hereby irrevocably authorizes the Administrative Agent to take such actions on behalf of such Lender or holder and to exercise such powers as are specifically delegated to the Administrative Agent by the terms and provisions hereof, together with such actions and powers as are reasonably incidental thereto. The Administrative Agent is hereby expressly authorized by the Lenders, without hereby limiting any implied authority, (a) to receive on behalf of the Lenders all payments of principal of and interest on the Loans and all other amounts due to the Lenders hereunder, and promptly to distribute to each Lender its proper share of each payment so received; (b) to give notice on behalf of each of the Lenders to the Company of any Event of Default of which the Administrative Agent has actual knowledge acquired in connection with its agency hereunder, and (c) to distribute to each Lender copies of all 56 62 notices, financial statements and other materials delivered by the Company pursuant to this Agreement as received by the Administrative Agent. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall be liable as such for any action taken or omitted by any of them except for its or his or her own gross negligence or willful misconduct, or be responsible for any statement, warranty or representation herein or the contents of any document delivered in connection herewith, or be required to ascertain or to make any inquiry concerning the performance or observance by the Company of any of the terms, conditions, covenants or agreements contained in this Agreement. The Administrative Agent shall not be responsible to the Lenders for the due execution, genuineness, validity, enforceability or effectiveness of this Agreement or other instruments or agreements. The Administrative Agent may deem and treat the Lender which makes any Loan as the holder of the indebtedness resulting therefrom for all purposes hereof until it shall have received notice from such Lender, given as provided herein, of the transfer thereof. The Administrative Agent shall in all cases be fully protected in acting, or refraining from acting, in accordance with written instructions signed by the Required Lenders and, except as otherwise specifically provided herein, such instructions and any action or inaction pursuant thereto shall be binding on all the Lenders. The Administrative Agent shall, in the absence of knowledge to the contrary, be entitled to rely on any instrument or document believed by it in good faith to be genuine and correct and to have been signed or sent by the proper person or persons. Neither the Administrative Agent nor any of its directors, officers, employees or agents shall have any responsibility to the Company on account of the failure of or delay in performance or breach by any Lender of any of its obligations hereunder or to any Lender on account of the failure of or delay in performance or breach by any other Lender or the Company of any of their respective obligations hereunder or in connection herewith. The Administrative Agent may execute any and all duties hereunder by or through agents or employees and shall be entitled to rely upon the advice of legal counsel selected by it with respect to all matters arising hereunder and shall not be liable for any action taken or suffered in good faith by it in accordance with the advice of such counsel. The Lenders hereby acknowledge that the Administrative Agent shall be under no duty to take any discretionary action permitted to be taken by it pursuant to the provisions of this Agreement unless it shall be requested in writing to do so by the Required Lenders. Subject to the appointment and acceptance of a successor Administrative Agent as provided below, the Administrative Agent may resign at any time by notifying the Lenders and the Company. Upon any such resignation, the Required Lenders shall have the right to appoint a successor Administrative Agent acceptable to the Company. If no 57 63 successor shall have been so appointed by the Required Lenders and shall have accepted such appointment within 30 days after the retiring Administrative Agent gives notice of its resignation, then the retiring Administrative Agent may, on behalf of the Lenders, appoint a successor Administrative Agent which shall be a bank with an office in New York, New York, having a combined capital and surplus of at least $500,000,000 or an Affiliate of any such bank. Upon the acceptance of any appointment as Administrative Agent hereunder by a successor bank, such successor shall succeed to and become vested with all the rights, powers, privileges and duties of the retiring Administrative Agent and the retiring Administrative Agent shall be discharged from its duties and obligations hereunder. After the Administrative Agent's resignation hereunder, the provisions of this Article and Section 8.5 shall continue in effect for its benefit in respect of any actions taken or omitted to be taken by it while it was acting as Administrative Agent. With respect to the Loans made by it hereunder, the Administrative Agent in its individual capacity and not as Administrative Agent shall have the same rights and powers as any other Lender and may exercise the same as though it were not the Administrative Agent, and the Administrative Agent and its Affiliates may accept deposits from, lend money to and generally engage in any kind of business with the Company or any Subsidiary or other Affiliate thereof as if it were not the Administrative Agent. Each Lender agrees (i) to reimburse the Administrative Agent, on demand, in the amount of its pro rata share (based on its Commitment hereunder or, if the Commitments shall have been terminated, the amount of its outstanding Loans) of any expenses incurred for the benefit of the Lenders by the Administrative Agent, including counsel fees and compensation of agents and employees paid for services rendered on behalf of the Lenders, which shall not have been reimbursed by the Company and (ii) to indemnify and hold harmless the Administrative Agent and any of its directors, officers, employees or agents, on demand, in the amount of such pro rata share, from and against any and all liabilities, taxes, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever which may be imposed on, incurred by or asserted against it in its capacity as the Administrative Agent in any way relating to or arising out of this Agreement or any action taken or omitted by it under this Agreement to the extent the same shall not have been reimbursed by the Company, provided that no Lender shall be liable to the Administrative Agent for any portion of such liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements resulting from the gross negligence or willful misconduct of the Administrative Agent or any of its directors, officers, employees or agents. 58 64 Each Lender acknowledges that it has, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it has deemed appropriate, made its own credit analysis and decision to enter into this Agreement. Each Lender also acknowledges that it will, independently and without reliance upon the Administrative Agent or any other Lender and based on such documents and information as it shall from time to time deem appropriate, continue to make its own decisions in taking or not taking action under or based upon this Agreement or any related agreement or any document furnished hereunder or thereunder. ARTICLE VIII MISCELLANEOUS 8.1 NOTICES. Notices and other communications provided for herein shall be in writing and shall be delivered by hand or overnight courier service, mailed or sent by telecopy, as follows: (a) if to the Company, to American Bankers Insurance Group, Inc., 11222 Quail Roost Drive, Miami FL 33157-6987, Attention of Floyd G. Denison, (Telecopy No. (305) 252-7068); (b) if to the Administrative Agent, to Chemical Bank Agency Services Corp., 140 East 45th Street, 29th Floor, New York, New York 10017, Attention of Janet Beldon, (Telecopy No. (212) 662-0002), with a copy to Chemical Bank at 270 Park Avenue, New York, New York 10017, Re: American Bankers Insurance Group, Inc.; and (c) if to a Lender, to it at its address (or telecopy number) set forth in Schedule 2.1 or in the Assignment and Acceptance pursuant to which such Lender became a party hereto. All notices and other communications given to any party hereto in accordance with the provisions of this Agreement shall be deemed to have been given on the date of receipt if delivered by hand or overnight courier service or sent by telecopy to such party as provided in this Section or in accordance with the latest unrevoked direction from such party given in accordance with this Section. 8.2 SURVIVAL OF AGREEMENT. All covenants, agreements, representations and warranties made by the Company herein and in the certificates or other instruments prepared or delivered in connection with or pursuant to this Agreement shall be considered to have been relied upon by the Lenders and shall survive the making by the 59 65 Lenders of the Loans regardless of any investigation made by the Lenders or on their behalf, and shall continue in full force and effect as long as the principal of or any accrued interest on any Loan or any Fee or any other amount payable under this Agreement is outstanding and unpaid or the Commitments have not been terminated. 8.3 BINDING EFFECT. This Agreement shall become effective when it shall have been executed by the Company and the Administrative Agent and when the Administrative Agent shall have received copies hereof (telecopied or otherwise) which, when taken together, bear the signature of each Lender, and thereafter shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Company shall not have the right to assign any rights hereunder or any interest herein without the prior consent of all the Lenders. 8.4 SUCCESSORS AND ASSIGNS. (a) Whenever in this Agreement any of the parties hereto is referred to, such reference shall be deemed to include the successors and assigns of such party; and all covenants, promises and agreements by or on behalf of any party that are contained in this Agreement shall bind and inure to the benefit of its successors and assigns. (b) Each Lender may assign to one or more assignees all or a portion of its interests, rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans at the time owing to it), provided that (i) the Company must give its prior written consent to such assignment, which consent shall not to be unreasonably withheld, (ii) the parties to each such assignment shall execute and deliver to the Administrative Agent an Assignment and Acceptance, and a processing and recordation fee of $3,000, and (iii) the assignee, if it shall not be a Lender, shall deliver to the Administrative Agent an Administrative Questionnaire. Upon acceptance and recording pursuant to paragraph (e) of this Section, from and after the effective date specified in each Assignment and Acceptance, which effective date shall be at least five Business Days after the execution thereof, (A) the assignee thereunder shall be a party hereto and, to the extent of the interest assigned by such Assignment and Acceptance, have the rights and obligations of a Lender under this Agreement and (B) the assigning Lender thereunder shall, to the extent of the interest assigned by such Assignment and Acceptance, be released from its obligations under this Agreement (and, in the case of an Assignment and Acceptance covering all or the remaining portion of an assigning Lender's rights and obligations under this Agreement, such Lender shall cease to be a party hereto (but shall continue to be entitled to the benefits of Sections 2.13, 2.15, 2.19 and 8.5, as well as to any Fees accrued for its account hereunder and not yet paid)). Notwithstanding the foregoing, any Lender assigning its rights and obligations under this Agreement may retain any Competitive Loans made by it outstanding at such time, and 60 66 in such case shall retain its rights hereunder in respect of any Loans so retained until such Loans have been repaid in full in accordance with this Agreement. (c) By executing and delivering an Assignment and Acceptance, the assigning Lender thereunder and the assignee thereunder shall be deemed to confirm to and agree with each other and the other parties hereto as follows: (i) such assigning Lender represents and warrants that it is the legal and beneficial owner of the interest being assigned thereby free and clear of any adverse claim, (ii) except as set forth in (i) above, such assigning Lender makes no representation or warranty and assumes no responsibility with respect to any statements, warranties or representations made in or in connection with this Agreement, or the execution, legality, validity, enforceability, genuineness, sufficiency or value of this Agreement or any other instrument or document furnished pursuant hereto or the financial condition of the Company or the performance or observance by the Company of any obligations under this Agreement or any other instrument or document furnished pursuant hereto; (iii) such assignee represents and warrants that it is legally authorized to enter into such Assignment and Acceptance; (iv) such assignee confirms that it has received a copy of this Agreement, together with copies of the most recent financial statements delivered pursuant to Sections 5.3 and 5.4 and such other documents and information as it has deemed appropriate to make its own credit analysis and decision to enter into such Assignment and Acceptance; (v) such assignee will independently and without reliance upon the Administrative Agent, such assigning Lender or any other Lender and based on such documents and information as it shall deem appropriate at the time, continue to make its own credit decisions in taking or not taking action under this Agreement; (vi) such assignee appoints and authorizes the Administrative Agent to take such action as agent on its behalf and to exercise such powers under this Agreement as are delegated to the Administrative Agent by the terms hereof, together with such powers as are reasonably incidental thereto; and (vii) such assignee agrees that it will perform in accordance with their terms all the obligations which by the terms of this Agreement are required to be performed by it as a Lender. (d) The Administrative Agent shall maintain at one of its offices in The City of New York a copy of each Assignment and Acceptance delivered to it and a register for the recordation of the names and addresses of the Lenders, and the Commitment of, and the principal amount of the Loans owing to, each Lender pursuant to the terms hereof from time to time (the "REGISTER"). The entries in the Register shall be conclusive in the absence of manifest error and the Company, the Administrative Agent and the Lenders may treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement. The Register shall be available for inspection by each party hereto, at any reasonable time and from time to time upon reasonable prior notice. 61 67 (e) Upon its receipt of a duly completed Assignment and Acceptance executed by an assigning Lender and an assignee together with an Administrative Questionnaire completed in respect of the assignee (unless the assignee shall already be a Lender hereunder), the processing and recordation fee referred to in paragraph (b) above and, if required, the written consent of the Company to such assignment, the Administrative Agent shall (i) accept such Assignment and Acceptance and (ii) record the information contained therein in the Register. (f) Each Lender may sell participations to one or more banks or other entities in all or a portion of its rights and obligations under this Agreement (including all or a portion of its Commitment and the Loans owing to it), provided that (i) such Lender's obligations under this Agreement shall remain unchanged, (ii) such Lender shall remain solely responsible to the other parties hereto for the performance of such obligations, (iii) each participating bank or other entity shall be entitled to the benefit of the cost protection provisions contained in Sections 2.13, 2.15 and 2.19 to the same extent as if it were the selling Lender (and limited to the amount that could have been claimed by the selling Lender had it continued to hold the interest of such participating bank or other entity), except that all claims made pursuant to such Sections shall be made through such selling Lender, and (iv) the Company, the Administrative Agent and the other Lenders shall continue to deal solely and directly with such selling Lender in connection with such Lender's rights and obligations under this Agreement. (g) Any Lender or participant may, in connection with any assignment or participation or proposed assignment or participation pursuant to this Section, disclose to the assignee or participant or proposed assignee or participant any information relating to the Company furnished to such Lender, provided that prior to any such disclosure, each such assignee or participant or proposed assignee or participant shall execute an agreement whereby such assignee or participant shall agree (subject to customary exceptions) to preserve the confidentiality of any such information. (h) The Company shall not assign or delegate any rights and duties hereunder without the prior written consent of all Lenders. (i) Any Lender may at any time pledge all or any portion of its rights under this Agreement to a Federal Reserve Bank, provided that no such pledge shall release any Lender from its obligations hereunder or substitute any such Bank for such Lender as a party hereto. In order to facilitate such an assignment to a Federal Reserve Bank, the Company shall, at the request of the assigning Lender, duly execute and deliver to the assigning Lender a promissory note or notes evidencing the Loans made to the Company by the assigning Lender hereunder. 62 68 8.5 EXPENSES; INDEMNITY. (a) The Company agrees to pay all reasonable out-of-pocket expenses incurred by the Administrative Agent in connection with entering into this Agreement or in connection with any amendments, modifications or waivers of the provisions hereof, or incurred by the Administrative Agent or any Lender in connection with the enforcement of their rights in connection with this Agreement or in connection with the Loans made hereunder, including the fees and disbursements of counsel for the Administrative Agent or, in the case of enforcement, the Lenders. (b) The Company agrees to indemnify the Administrative Agent, each Lender, each of their Affiliates and the directors, officers, employees and agents of the foregoing (each such person being called an "INDEMNITEE") against, and to hold each Indemnitee harmless from, any and all losses, claims, damages, liabilities and related expenses, including reasonable counsel fees and expenses, incurred by or asserted against any Indemnitee arising out of (i) the consummation of the transactions contemplated by this Agreement, (ii) the use of the proceeds of the Loans or (iii) any claim, litigation, investigation or proceeding relating to any of the foregoing, whether or not any Indemnitee is a party thereto, provided that such indemnity shall not, as to any Indemnitee, be available to the extent that such losses, claims, damages, liabilities or related expenses are determined by a final judgment of a court of competent jurisdiction to have resulted from the gross negligence or willful misconduct of such Indemnitee. (c) The provisions of this Section shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement, the consummation of the transactions contemplated hereby, the repayment of any of the Loans, the invalidity or unenforceability of any term or provision of this Agreement or any investigation made by or on behalf of the Administrative Agent or any Lender. All amounts due under this Section shall be payable on written demand therefor. 8.6 APPLICABLE LAW. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. 8.7 WAIVERS; AMENDMENT. (a) No failure or delay of the Administrative Agent or any Lender in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power. The rights and remedies of the Administrative Agent and the Lenders hereunder are cumulative and are not exclusive of any rights or remedies which they would otherwise have. No waiver of any provision of this Agreement or consent to any departure therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then 63 69 such waiver or consent shall be effective only in the specific instance and for the purpose for which given. No notice or demand on the Company or any Subsidiary in any case shall entitle such party to any other or further notice or demand in similar or other circumstances. (b) Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Company and the Required Lenders, provided that no such agreement shall (i) decrease the principal amount of, or extend the maturity of or any scheduled principal payment date or date for the payment of any interest on any Loan, or waive or excuse any such payment or any part thereof, or decrease the rate of interest on any Loan, without the prior written consent of each Lender affected thereby, (ii) increase the Commitment or decrease the Facility Fee or Utilization Fee of any Lender without the prior written consent of such Lender, or (iii) amend or modify the provisions of Section 2.16 or Section 8.4(h), the provisions of this Section or the definition of the "Required Lenders", without the prior written consent of each Lender, provided further, that no such agreement shall amend, modify or otherwise affect the rights or duties of the Administrative Agent hereunder without the prior written consent of the Administrative Agent. Each Lender shall be bound by any waiver, amendment or modification authorized by this Section and any consent by any Lender pursuant to this Section shall bind any assignee of its rights and interests hereunder. 8.8 ENTIRE AGREEMENT. This Agreement constitutes the entire contract among the parties relative to the subject matter hereof. Any previous agreement among the parties with respect to the subject matter hereof is superseded by this Agreement. Nothing in this Agreement, expressed or implied, is intended to confer upon any party other than the parties hereto any rights, remedies, obligations or liabilities under or by reason of this Agreement. 8.9 SEVERABILITY. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. 8.10 COUNTERPARTS. This Agreement may be executed in two or more counterparts, each of which shall constitute an original but all of which when taken together shall constitute but one contract, and shall become effective as provided in Section 8.3. 64 70 8.11 HEADINGS. Article and Section headings and the Table of Contents used herein are for convenience of reference only, are not part of this Agreement and are not to affect the construction of, or to be taken into consideration in interpreting, this Agreement. 8.12 RIGHT OF SETOFF. If an Event of Default shall have occurred and be continuing, each Lender is hereby authorized at any time and from time to time, to the fullest extent permitted by law, to set off and apply any and all deposits (general or special, time or demand, provisional or final) at any time held and other indebtedness at any time owing by such Lender to or for the credit or obligations of the Company now or hereafter existing under this Agreement held by such Lender, irrespective of whether or not such Lender shall have made any demand under this Agreement and although such obligations may be unmatured. Each Lender agrees promptly to notify the Company after such setoff and application made by such Lender, but the failure to give such notice shall not affect the validity of such setoff and application. The rights of each Lender under this Section are in addition to other rights and remedies (including other rights of setoff) which such Lender may have. 8.13 JURISDICTION: CONSENT TO SERVICE OF PROCESS. (a) The Company hereby irrevocably and unconditionally submits, for itself and its property, to the nonexclusive jurisdiction of any New York State court or Federal court of the United States of America sitting in The City of New York, and any appellate court from any thereof, in any action or proceeding arising out of or relating to this Agreement, or for recognition or enforcement of any judgment, and each of the parties hereto hereby irrevocably and unconditionally agrees that all claims in respect of any such action or proceeding may be heard and determined in such New York State or, to the extent permitted by law, in such Federal court. Each of the parties hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. Subject to the foregoing and to paragraph (b) below, nothing in this Agreement shall affect any right that any party hereto may otherwise have to bring any action or proceeding relating to this Agreement against any other party hereto in the courts of any jurisdiction. (b) The Company hereby irrevocably and unconditionally waives, to the fullest extent it may legally and effectively do so, any objection which it may now or thereafter 0have to the laying of venue of any suit, action or proceeding arising out of or relating to this Agreement in any New York State or Federal court. Each of the parties hereto hereby irrevocably waives, to the fullest extent permitted by law, the defense of an inconvenient forum to the maintenance of such action or proceeding in any such court. 65 71 (c) Each party to this Agreement irrevocably consents to service of process in the manner provided for notices in Section 8.1. Nothing in this Agreement will affect the right of any party to this Agreement to serve process in any other manner permitted by law. 8.14 WAIVER OF JURY TRIAL. EACH PARTY HERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY APPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LITIGATION DIRECTLY OR INDIRECTLY ARISING OUT OF, UNDER OR IN CONNECTION WITH THIS AGREEMENT. EACH PARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT OR ATTORNEY OF ANY OTHER PARTY HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH OTHER PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT AND OTHER PARTIES HERETO HAVE BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATION IN THIS SECTION. 66 72 IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officers as of the day and year first above written. AMERICAN BANKERS INSURANCE GROUP, INC., as Borrower, By /s/ Floyd G. Denison ------------------------------- Name: Floyd G. Denison Title: Executive Vice President CHEMICAL BANK, individually and as Administrative Agent, By /s/ Heather Lindstrom ------------------------------- Name: Heather Lindstrom Title: Vice President BARCLAYS BANK PLC, NEW YORK BRANCH individually and as Co-Agent By /s/ C. Cathcart ------------------------------- Name: C. Cathcart Title: Vice President ABN AMRO BANK N.V. By /s/ Andres von Dincklage ------------------------------- Name: Andres von Dicklage Title: Group Vice President By /s/ Richard Lavina ------------------------------- Name: Richard Lavina Title: Vice President 67 73 AMSOUTH BANK OF ALABAMA By /s/ Robert B. DeHaven ------------------------------- Name: Robert B. DeHaven Title: Vice President THE BANK OF NEW YORK By /s/ Frederick E. Ball II ------------------------------- Name: Frederick E. Ball II Title: Vice President THE BANK OF NOVA SCOTIA By /s/ Carolyn A. Lopez ------------------------------- Name: Carolyn A. Lopez Title: Relationship Manager THE BANK OF TOKYO TRUST COMPANY By /s/ Joseph P. Devoe -------------------------------- Name: Joseph P. Devoe Title: Vice President BARNETT BANK OF SOUTH FLORIDA, N.A. By /s/ Gene Schaefer -------------------------------- Name: Gene Schaefer Title: Vice President CREDIT LYONNAIS, NEW YORK BRANCH By /s/ Renand Herbes -------------------------------- Name: Renand Herbes Title: Senior Vice President 68 74 DEUTSCHE BANK AG, NEW YORK BRANCH and/or CAYMAN ISLANDS BRANCHES By /s/ Louis Caltavuturo -------------------------------- Name: Louis Caltavuturo Title: Associate By /s/ Cynthia A. Gavenda -------------------------------- Name: Cynthia A. Gavenda Title: Associate THE FIRST NATIONAL BANK OF CHICAGO By /s/ J. J. Winn Jr. --------------------------------- Name: J. J. Winn Jr. Title: Senior Vice President THE FUJI BANK, LIMITED, NEW YORK BRANCH By /s/ Gina Kearns ---------------------------------- Name: Gina Kearns Title: Vice President & Manager SHAWMUT BANK CONNECTICUT, N.A. By /s/ Jeffrey A. Simpson ---------------------------------- Name: Jeffrey A. Simpson Title: Assistant Vice President STATE STREET BANK AND TRUST COMPANY By /s/ Edward M. Anderson ---------------------------------- Name: Edward M. Anderson Title: Vice President SUNTRUST BANK, MIAMI, N.A. By: /s/ J. Kevin Tinny --------------------------------- Name: J. Kevin Tinny Title: Senior Vice President 69 75 EXHIBIT A-1 FORM OF COMPETITIVE BID REQUEST Chemical Bank, as Administrative Agent for the Lenders referred to below, 270 Park Avenue New York, NY 10017 Attention: [ ] Dear Ladies and Gentlemen: The undersigned, American Bankers Insurance Group, Inc. (the "BORROWER"), refers to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of ___________, 1995 (as it may hereafter be amended, modified, extended or restated from time to time, the "CREDIT AGREEMENT"), among the Company, the Lenders named therein and Chemical Bank, as Administrative Agent and Barclays Bank PLC, New York Branch, as Co-Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby gives you notice pursuant to Section 2.3(a) of the Credit Agreement that it requests a Competitive Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Competitive Borrowing is requested to be made: (A) Date of Competitive Borrowing (which is a Business Day) ------------- (B) Principal amount of Competitive Borrowing(1) ------------- (C) Interest rate basis(2) ------------- (D) Interest Period and the last day thereof(3) ------------- - ------------------------------ (1) Not less than $5,000,000 (and in integral multiples of $1,000,000) or greater than the Total Commitment then available. (2) Eurodollar Loan or Fixed Rate Loan. (3) Which shall be subject to the definition of "Interest Period" and end not later than the Maturity Date. 76 Upon acceptance of any or all of the Loans offered by the Lenders in response to this request, the Company shall be deemed to have represented and warranted that the conditions to lending specified in Section 4.1(b) and (c) of the Credit Agreement have been satisfied. Very truly yours, AMERICAN BANKERS INSURANCE GROUP, INC. By: ------------------------- Name: Title: [Financial Officer] 2 77 EXHIBIT A-2 FORM OF NOTICE OF COMPETITIVE BID REQUEST [Name of Lender] [Address] New York, New York [Date] Attention: [ ] Dear Ladies and Gentlemen: Reference is made to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of [___________], 1995 (as it may hereafter be amended, modified, extended or restated from time to time, the "CREDIT AGREEMENT"), among American Bankers Insurance Group, Inc. (the "BORROWER"), the Lenders named therein and Chemical Bank, as Administrative Agent, and Barclays Bank PLC, New York Branch, as Co-Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company made a Competitive Bid Request on ____________, 19[ ], pursuant to Section 2.03(a) of the Credit Agreement, and in that connection you are invited to submit a Competitive Bid by [Date]/[Time].1 Your Competitive Bid must comply with Section 2.03(b) of the Credit Agreement and the terms set forth below on which the Competitive Bid Request was made: (A) Date of Competitive Borrowing ------------- (B) Principal amount of Competitive Borrowing ------------- - ------------------------ (1) The Competitive Bid must be received by the Administrative Agent (i) in the case of Eurodollar Loands, not later than 9:30 a.m., New York City time, three Business Days before a proposed Competitive Borrowing, and (ii) in the case of Fixed Rate Loans, not later than 9:30 a.m., New York City time, on the Business Day of a proposed Competitive Borrowing. 78 (C) Interest rate basis ------------- (D) Interest Period and the last day thereof. ------------- Very truly yours, CHEMICAL BANK, as Administrative Agent, By: ------------------------- Name: Title: 2 79 EXHIBIT A-3 FORM OF COMPETITIVE BID Chemical Bank, as Administrative Agent for the Lenders referred to below, 270 Park Avenue New York, N.Y. 10017 [Date] Attention: [ ] Dear Ladies and Gentlemen: The undersigned, [Name of Lender], refers to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of [________], 1995 (as it may hereafter be amended, modified, extended or restated from time to time, the "CREDIT AGREEMENT"), among American Bankers Insurance Group, Inc. (the "BORROWER"), the Lenders named therein and Chemical Bank, as Administrative Agent Agent, and Barclays Bank PLC, New York Branch, as Co-Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The undersigned hereby makes a Competitive Bid pursuant to Section 2.3(b) of the Credit Agreement, in response to the Competitive Bid Request made by the Company on __________, 19[ ], and in that connection sets forth below the terms on which such Competitive-Bid is made: (A) Principal Amount(1) ------------- (B) Competitive Bid Rate(2) ------------- (C) Interest Period and last day thereof ------------- - ---------------------------- (1) Not less than $5,000,000 or greater than the requested Competitive Borrowing and in integral multiples of $1,000,000. Multiple bids will be accepted by the Administrative Agent. (2) i.e., Adjusted LIBO Rate + or - __%, in the case of Eurodollar Loans or __%, in the case of Fixed Rate Loans. 80 The undersigned hereby confirms that it is prepared, subject to the conditions set forth in the Credit Agreement, to extend credit to the Company upon acceptance by the Company of this bid in accordance with Section 2.3(d) of the Credit Agreement. Very truly yours, [NAME OF LENDER], By: ------------------------- Name: Title: 81 EXHIBIT A-4 FORM OF COMPETITIVE BID ACCEPT/REJECT LETTER [Date] Chemical Bank, as Administrative Agent for the Lenders referred to below 270 Park Avenue New York, N.Y. 10017 Attention: [ ] Dear Ladies and Gentlemen: The undersigned, American Bankers Insurance Group, Inc. (the "BORROWER"), refers to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of [________], 1995 (as it may hereafter be amended, modified, extended or restated from time to time, the "CREDIT AGREEMENT"), among the Company, the Lenders named therein and Chemical Bank, as Administrative Agent for the Lenders, and Barclays Bank PLC, New York Branch, as Co-Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. In accordance with Section 2.3(c) of the Credit Agreement, we have received a summary of bids in connection with our Competitive Bid Request dated ___________, 19[ ], and in accordance with Section 2.3(d) of the Credit Agreement, we hereby accept the following bids for maturity on [date]:
Principal Amount Fixed Rate/Margin Lender - ---------------- ----------------- ------ $ [%]/[+/-. %] $
We hereby reject the following bids:
Principal Amount Fixed Rate/Margin Lender - ---------------- ----------------- ------ $ [%]/[+/-. %] $
82 The $__________ should be deposited in Chemical Bank account number [ ] on [date]. We hereby represent and certify that this Competitive Bid Accept/Reject Letter has been executed on behalf of the Borrower by its duly authorized representative at a location outside the State of Florida. Very truly yours, AMERICAN BANKERS INSURANCE GROUP, INC. By: -------------------------- Name: Title: 2 83 EXHIBIT A-5 FORM OF STANDBY BORROWING REQUEST Chemical Bank, as Administrative Agent for the Lenders referred to below, 270 Park Avenue New York, N.Y. 10017 [Date] Attention: [ ] Dear Ladies and Gentlemen: The undersigned, AMERICAN BANKERS INSURANCE GROUP, INC. (the "BORROWER"), refers to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of [__________], 1995 (as it may hereafter be amended, modified, extended or restated from time to time, the "CREDIT AGREEMENT"), among the Company, the Lenders named therein and Chemical Bank, as Administrative Agent and Barclays Bank PLC, New York Branch, as Co-Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. The Company hereby gives you notice pursuant to Section 2.4 of the Credit Agreement that it requests a Standby Borrowing under the Credit Agreement, and in that connection sets forth below the terms on which such Standby Borrowing is requested to be made: (A) Date of Standby Borrowing (which is a Business Day) ------------- (B) Principal amount of Standby Borrowing(1) ------------- (C) Interest rate basis(2) ------------- - ------------------------------- (1) Not less than $5,000,000 (and in integral multiples of $1,000,000) or greater than the Total Commitment then available. (2) Eurodollar Loan or ABR Loan. 84 EXHIBIT A-5 (D) Interest Period and the last day thereof(1) ------------- Upon acceptance of any or all of the Loans made by the Lenders in response to this request, the Company shall be deemed to have represented and warranted that the conditions to lending specified in Sections 4.1(b) and (c) of the Credit Agreement have been satisfied. Very truly yours, AMERICAN BANKERS INSURANCE GROUP, INC. By: --------------------------- Name: Title: [Financial Officer] - --------------------------- (1) Which shall be subject to the definition of "Interest Period" and end not later than the Maturity Date. 2 85 EXHIBIT B [CHEMICAL BANK LOGO] CHEMICAL BANK 140 East 45th Street New York, NY 10017-3162 212 622-0001 Fax 212/622-0002 Telex 353006 ABSC AMERICAN BANKERS INSURANCE GROUP, INC. ADMINISTRATIVE QUESTIONNAIRE Please accurately complete the following information and return via FAX to the attention of Janet Belden at Chemical Bank as soon as possible. FAX Number: 212-622-0122 LEGAL NAME TO APPEAR IN DOCUMENTATION: - -------------------------------------- ________________________________________________________________ GENERAL INFORMATION - DOMESTIC LENDING OFFICE: - ---------------------------------------------- Institution Name: ______________________________________________ Street Address: ______________________________________________ City, State, Zip Code: _________________________________________ GENERAL INFORMATION - EURODOLLAR LENDING OFFICE: - ----------------------------------------------- Institution Name: ______________________________________________ Street Address: ______________________________________________ City, State, Zip Code: _________________________________________ CONTACTS/NOTIFICATION METHODS: - ----------------------------- CREDIT CONTACTS: Primary Contact: ______________________________________________ Street Address: ______________________________________________ City, State, Zip Code: _________________________________________ Phone Number: ________________________________________________ FAX Number: ______________________________________________ Backup Contact: ______________________________________________ Street Address: ______________________________________________ City, State, Zip Code: _________________________________________ Phone Number: _________________________________________________ FAX Number: ___________________________________________________ 86 TAX WITHHOLDING: Non Resident Alien ______ Y* ______ N * Form 4224 Enclosed Tax ID Number _______________________ CONTACTS/NOTIFICATION METHODS: ADMINISTRATIVE CONTACTS - BORROWINGS, PAYDOWNS, INTEREST, FEES, ETC. Contact: ___________________________________________________________ Street Address: ____________________________________________________ City, State, Zip Code: _____________________________________________ Phone Number: ______________________________________________________ FAX Number: ________________________________________________________ BID LOAN NOTIFICATION Contact: ___________________________________________________________ Street Address: ____________________________________________________ City, State, Zip Code:______________________________________________ Phone Number: ______________________________________________________ Fax Number: ______________________________________________________ PAYMENT INSTRUCTIONS: Name of Bank where funds are to be transferred: __________________________________________________________________ Routing Transit/ABA number of Bank where funds are to be transferred: ___________________________________________________________________ Name of Account, if applicable: ____________________________________________________________________ Account Number: ______________________________________________________ Additional Information: ______________________________________________ ______________________________________________ It is very important that ALL of the above information is accurately filled in and returned promptly. If there is someone other than yourself who should receive this questionnaire, please notify us of their name and FAX number and we will FAX them a copy of the questionnaire. If you have any questions, please call me on 212-622-0011. 87 EXHIBIT C [FORM OF] ASSIGNMENT AND ACCEPTANCE Dated: _____________, 19__ Reference is made to the 5-Year Competitive Advance and Revolving Credit Facility Agreement dated as of ____________, 1995 (the "CREDIT AGREEMENT"), among American Bankers Insurance Group, Inc. (the "BORROWER"), the Lenders named therein and Chemical Bank, as Administrative Agent for the Lenders, and Barclays Bank PLC, New York Branch, as Co- Agent. Capitalized terms used herein and not otherwise defined herein shall have the meanings assigned to such terms in the Credit Agreement. 1. The Assignor hereby sells and assigns, without recourse, to the Assignee, and the Assignee hereby purchases and assumes, without recourse, from the Assignor, effective as of the Effective Date set forth below, the interests set forth below (the "ASSIGNED INTEREST") in the Assignor's [right, title, interest and obligations in, to and under the Credit Agreement, including, without limitation, the interests set forth below in the Commitment of the Assignor on the Effective Date and the Competitive Loans and Standby Loans owing to the Assignor which are outstanding on the Effective Date. Each of the Assignor and the Assignee hereby makes and agrees to be bound by all the representations, warranties and agreements set forth in Section 8.4 of the Credit Agreement, a copy of which has been received by each such party. From and after the Effective Date, (i) the Assignee shall be a party to and be bound by the provisions of the Credit Agreement and, to the extent of the interests assigned by this Assignment and Acceptance, have the rights and obligations of a Lender thereunder and (ii) the Assignor shall, to the extent of the interests assigned by this Assignment and Acceptance, relinquish its rights and be released from its obligations under the Credit Agreement. 2. This Assignment and Acceptance is being delivered to the Administrative Agent together with (i) if the Assignee is organized under the laws of a jurisdiction outside the United States, the forms specified in Section 2.19(g) of the Credit Agreement, duly completed and executed by such Assignee, (ii) if the Assignee is not already a Lender under the Credit Agreement, an Administrative Questionnaire in the form of Exhibit B to the Credit Agreement and (iii) a processing and recordation fee of $________. 3. This Assignment and Acceptance shall be governed by and construed in accordance with the laws of the State of New York. 88 Date of Assignment: Legal Name of Assignor: Legal Name of Assignee: Assignee's Address for Notices: 2 89 Effective Date of Assignment (may not be fewer than 5 Business Days after the Date of Assignment):
Percentage Assigned of Facility/Commitment (set forth, to at least 8 decimals, as a Principal Amount Assigned (and percentage of the Facility and identifying information as to the aggregate Commitments of all Facility individual Competitive Loans) Lenders thereunder) -------- ------------------------------- --------------------------------- Commitment Assigned: $ % ----------- ----------- Standby Loans: $ % ----------- ----------- Competitive Loans: $ % ----------- ----------- The terms set forth and on the reverse ACCEPTED: side hereof are hereby agreed to: AMERICAN BANKERS INSURANCE GROUP, INC. - ----------------------------, as By:------------------------------------ Assignor, Name: Title: By:------------------------- Name: Title: - ----------------------------, as Assignee, By:------------------------- Name: Title:
3 90 EXHIBIT D [FORM OF] OPINION OF COUNSEL FOR AMERICAN BANKERS INSURANCE GROUP, INC.1 1. American Bankers Insurance Group, Inc. and each of its Material Subsidiaries (i) is a corporation duly organized, validly existing and in good standing under the laws of Florida, (ii) has all requisite power and authority to own its property and assets and to carry on its business as now conducted, (iii) is qualified to do business in every jurisdiction within the United States where such qualification is required, except where the failure so to qualify would not result in a Material Adverse Effect on American Bankers Insurance Group, Inc., and (iv) has all requisite corporate power and authority to execute, deliver and perform its obligations under the Agreement and to borrow funds thereunder. 2. The execution, delivery and performance by American Bankers Insurance Group, Inc. of the Agreement and the borrowings of American Bankers Insurance Group, Inc. thereunder (collectively, the "TRANSACTIONS") (i) have been duly authorized by all requisite corporate action and (ii) will not (a) violate (1) any provision of law, statute, rule or regulation (including, without limitation, the Margin Regulations), or of the certificate of incorporation or other constitutive documents or by-laws of American Bankers Insurance Group, Inc. or any Material Subsidiary, (2) any order of any Governmental Authority or (3) any provision of any indenture, agreement or other instrument to which American Bankers Insurance Group, Inc. or any Material Subsidiary is a party or by which any of their property is bound, (b) be in conflict with, result in a breach of or constitute (alone or with notice or lapse of time or both) a default under any such indenture, agreement or other instrument or (c) result in the creation or imposition of any Lien upon any property or assets of American Bankers Insurance Group, Inc. or any Subsidiary. 3. The Agreement has been duly executed and delivered by American Bankers Insurance Group, Inc. and constitutes a legal, valid and binding obligation of American Bankers Insurance Group, Inc. enforceable against American Bankers Insurance Group, _________________________________ (1) Capitalized terms used but not otherwise defined herein shall have the meanings assigned to such terms in the Competitive Advance and Revolving Credit Facility Agreement (the "AGREEMENT") dated as of [________], 1995, among American Bankers Insurance Group, Inc., the lenders listed in Schedule 2.1 thereto, and Chemical Bank, as Administrative Agent and Barclays Bank PLC, as Co-Agent. 1 91 Inc. in accordance with its terms, subject as to the enforceability of rights and remedies to any applicable bankruptcy, reorganization, insolvency, moratorium or other similar laws of general application relating to or affecting the enforcement of creditors' rights from time to time in effect. 4. No action, consent or approval of, registration or filing with, or any other action by, any Government Authority is or will be required in connection with the Transactions, except such as have been made or obtained and are in full force and effect. 5. Neither American Bankers Insurance Group, Inc. nor any of its Material Subsidiaries is (a) an "investment company" or a company "controlled" by an "investment company" as defined in, or subject to regulation under, the Investment Company Act of 1940, as amended or (b) a "holding company" as defined in, or subject to regulation under, the Public Utility Holding Company Act of 1935, as amended. 6. Except as set forth in Schedule 3.8 of the Agreement, there are no actions, suits or proceedings at law or in equity or by or before any Governmental Authority now pending or, to the best of our knowledge, threatened against or affecting the Company or any Material Subsidiary or any business, property or rights of any such person (i) which involve this Agreement or the Transactions or (ii) as to which there is a reasonable probability of an adverse determination and which, if adversely determined, could, individually or in the aggregate, result in a Material Adverse Effect. 7. No Insurance Subsidiary is subject to (i) any order of liquidation, rehabilitation, conservation, supervision or any other order of like effect issued by any Applicable Insurance Regulatory Authority or (ii) any plan of action of any Applicable Insurance Regulatory Authority which would result in the control or direction by such Applicable Insurance Regulatory Authority of the management, policies or ongoing business activities of such Insurance Subsidiary. 8. No License is the subject of, or to the best of our knowledge threatened to be the subject of, a proceeding for suspension, revocation, restriction on License authority or limitation on premiums written or any similar proceedings, and to the best of the our knowledge there exists no sustainable basis for any such suspension, revocation, restriction on License authority or limitation on premiums written, except where such suspension, revocation, restriction, or limitation would not individually or in the aggregate result in a Material Adverse Effect. 9. The common stock of each of the Material Subsidiaries listed on Schedule 3.7 of the Agreement has been duly authorized and validly issued, is fully paid and 2 92 nonassessable, constitutes all of the issued and outstanding shares of the capital stock of such corporation, and is owned, of record and beneficially, by the Company. 10. Except as set forth in Schedule 3.16 of the Agreement and as required by law, rule or regulation or by any Governmental Authority, including any Applicable Insurance Regulatory Authority, to the best of our knowledge no indenture, certificate of designation for preferred stock, agreement or instrument to which any Material Subsidiary is a party will, directly or indirectly, prohibit or restrain the payment of dividends by such Material Subsidiary. As of the Closing Date, no such indenture, certificate, agreement or instrument to which the Company or any Material Subsidiary is a party will require the repayment of any amounts owed by the Company or such Material Subsidiary as a result of the consummation of the Transactions. 3 93 SCHEDULE 2.1
Name and Address of Lender Contact Person, Fax and Commitment -------------------------- ----------------------- ---------- Telephone Nos. -------------- Chemical Bank Heather Lindstrom $ 22,000,000 270 Park Avenue Fax: (212) 270-1789 New York, New York 10017 Tel: (212) 270-9839 Barclays Bank PLC, New York Branch Chris Cathcart $ 21,000,000 222 Broadway, 12th Floor Fax: (212) 412-5610 New York, New York 10038 Tel: (212) 412-7622 ABN AMRO Bank, N.V. Rick Lavina $ 11,000,000 200 South Biscayne Blvd. Fax: (305) 372-2397 Suite 2200 Tel: (305) 579-9760 Miami, Florida 33131 AmSouth Bank of Alabama Judy Fry $ 11,000,000 1900 Fifth Avenue, North Fax: (205) 326-5601 Birmingham, Alabama 35203 Tel: (205) 581-7015 The Bank of New York Frederick E. Ball, II $ 19,000,000 1 Wall Street, 17th Floor Fax: (212) 809-9520 New York, New York 10286 Tel: (212) 635-6466 The Bank of Nova Scotia Frank Sandler $ 19,000,000 600 Peachtree Street, N.E. Fax: (404) 888-8998 Suite 2700 Tel: (404) 877-1505 Atlanta, Georgia 30308 The Bank of Tokyo Trust Company Joe Devoe $ 19,000,000 1251 Avenue of the Americas Fax: (212) 782-6440 12th Floor Tel: (212) 782-4318 New York, New York 10005 Barnett Bank of South Florida, N.A. Gene Schaefer $ 19,000,000 701 Brickell Avenue Fax: (305) 350-7005 Miami, Florida 33131 Tel: (305) 789-3054
1 94 Credit Lyonnais Peter Rasmussen $ 11,000,000 1301 Avenue of the Americas Fax: (212) 261-3401 17th Floor Tel: (212) 261-7718 New York, New York 10019 Deutsche Bank AG, New York Branch Susan Maros $ 19,000,000 31 West 52nd Street Fax: (212) 474-8108 New York, New York 10019 Tel: (212) 474-8104 The First National Bank of Chicago Paul Schultz $ 19,000,000 One First National Plaza Fax: (312) 732-4033 Suite 0085 Tel: (312) 732-7074 Chicago, Illinois 60670-0085 The Fuji Bank, Limited Mike Imperiale $ 19,000,000 2 World Trade Center Fax: (212) 912-0516 79th Floor Tel: (212) 898-2080 New York, New York 10048 with copy to: The Fuji Bank, Limited Ray Juncosa 200 S. Biscayne Blvd. Fax: (305) 381-8338 Suite 3440 Tel: (305) 374-2226 Miami, Florida 33131 Shawmut Bank Connecticut, N.A. Jeff Simpson $ 11,000,000 777 Main Street Fax: (860) 986-1264 Hartford, CT 06115 Tel: (860) 986-2688 State Street Bank & Trust Company Edward M. Anderson $ 11,000,000 108 Myrtle Street Fax: (617) 985-5082 North Quincy, MA 02171 Tel: (617) 985-5301 SunTrust Bank, Miami N.A. J. Kevin Tinny $ 19,000,000 777 Brickell Avenue Fax: (305) 579-7133 4th Floor Tel: (305) 579-7340 Miami, Florida 33131
2 95 SCHEDULE 3.6 Capital Leases None. 96 SCHEDULE 3.7 Subsidiaries See attached. 97 AMERICAN BANKERS INSURANCE GROUP, INC. ORGANIZATIONAL STRUCTURE NOVEMBER, 1995 AMERICAN BANKERS INSURANCE GROUP, INC. ABIG Servicios de Mexico, S.A. AB Warranty Company AB Warranty Company of Florida American Bankers Capital, Inc. American Bankers Financial Services (50%) AFBS Insurance Agency, Inc. (50%) Grand General Insurance Agency (50%) American Bankers Insurance Company of Florida American Bankers General Agency, Inc. Caydeaux Group, Ltd. (54%) Caydeaux Life Assurance Company, Ltd. (54%) Caydeaux Insurance Company, Ltd. (54%) Roadgard Motor Club, Inc. (Canada) American Bankers Life Assurance Company of Florida ABL Agents' Services, Inc. Caribbean American Life Assurance Company Condeaux Life Insurance Company (79%) American Bankers Management Company, Inc. Consumer Assist Network Association, Inc. American Reliable Insurance Company American Summit General Agency, Inc. Caravanner Insurance, Inc. Aseguradora Maya, S.A. de C.V. Associated Insurance Agency Bankers Atlantic Reinsurance Company Bankers American Life Assurance Company Bankers Insurance Company, Ltd. Bankers Insurance Group Mgmt. (IOM) Ltd. Bankers Insurance Service Company, Ltd. Caribbean American Property Insurance Co. Caribbean American Insurance Agency Company Federal Warranty Service Corporation Federal Warranty Service Corporation (Canada) Financial Exchange, Inc. Attorney-in-Fact for Financial Insurance Exchange Green Streak Incorporated Guardian Investment Services, Inc. H&D Graphics, Inc. National Insurance Agency Roadgard Motor Club, Inc,. Sureway, Inc. Guardian Travel, Inc. Voyager Group, Inc. Voyager American Insurance Company, Ltd. Voyager Indemnity Insurance Company Voyager Service Programs, Inc. Voyager Service Warranties, Inc. Voyager Life and Health Insurance Company Voyager Life Insurance Company Voyager Property & Casualty Insurance Company ownership is 100% unless otherwise noted. 98 SCHEDULE 3.8 None. 99 SCHEDULE 3.15 Environmental Matters None. 100 SCHEDULE 3.16 Certain Restrictions None. EX-10.E 4 ISSUANCE AND PAYING AGENT AGREEMENT 1 EXHIBIT 10(e) CORPORATE COMMERCIAL PAPER MASTER NOTE December 1, 1995 ---------------------------------- (Date of Issuance) American Bankers Insurance Group ("Issuer"), for value received, hereby promises to pay to Cede & Co., as nominee of The Depository Trust Company, or to registered assigns: (i) the principal amount, together with unpaid accrued interest thereon, if any, on the maturity date of each obligation identified on the records of Issuer (the "Underlying Records") as being evidenced by this Master Note, which Underlying Records are maintained by Chemical Bank ("Paying Agent"); (ii) interest on the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records; and (iii) the principal amount of each such obligation that is payable in installments, if any, on the due date of each installment, as specified on the Underlying Records. Interest shall be calculated at the rate and according to the calculation convention specified on the Underlying Records. Payments shall be made by wire transfer to the registered owner from Paying Agent without the necessity of presentation and surrender of this Master Note. REFERENCE IS HEREBY MADE TO THE FURTHER PROVISIONS OF THIS MASTER NOTE SET FORTH ON THE REVERSE HEREOF. This Master Note is a valid and binding obligation of Issuer. Not Valid Unless Countersigned for Authentication by Paying Agent. /s/ Chemical Bank American Bankers Insurance Group ------------------------------ ----------------------------------- (Paying Agent) (Issuer) By: /s/ Floyd Denison ------------------------------ ----------------------------------- (Authorized Countersignature) (Authorized Signature) Floyd Denison, Exec. Vice President ----------------------------------- (Guarantor) By: -------------------------------- (Authorized Signature) 8 2 ISSUANCE AND PAYING AGENT AGREEMENT (FOR COMMERCIAL PAPER) AGREEMENT dated as of 21st day of November 1995 by and between American Bankers Insurance Group (the "Corporation") and CHEMICAL BANK ("Chemical"). WHEREAS, the Corporation has authorized the establishment of a commercial paper note program pursuant to which the Corporation proposes from time to time to issue its short term commercial paper notes (having maturities of 270 days or less) (the "Notes"); and WHEREAS, the Corporation wishes to designate Chemical as depository for the safekeeping of the Notes and agent with respect to the issuance, delivery and payment of the Notes. NOW THEREFORE, the parties hereto agree as follows: 1. Appointment. The Corporation hereby designates and appoints Chemical as depository for the safekeeping of the Notes and agent with respect to the issuance, delivery and payment of the Notes. 2. Authorized Officers. Attached hereto as Exhibit A is a certified copy of a duly adopted corporate resolution from the Board of Directors of the Corporation and a certificate of incumbency with specimen signatures attached marked Exhibit B hereto, of those officers of the Corporation authorized to take such action with respect to the Notes as is provided herein (each such officer hereinafter referred to as an "Authorized Officer"). Also attached and marked as Exhibit C is the form of the Note. 1 3 3. Certificated Notes. (a) The Corporation will forward or cause to be forwarded to Chemical from time to time a supply of certificated Notes, serially numbered, with the order party, amount, date of issuance and maturity date left blank. Each certificated Note will have been presigned by one or more manual or facsimile signatures of Authorized Officers on behalf of the Corporation as authorized by the resolution. These certificated Notes shall be accompanied by two copies of a transmittal letter. When the certificated Notes are delivered to Chemical, Chemical will inspect and count them. If the certificated Notes meet Chemical's specifications and conform in number to the transmittal letter, Chemical shall acknowledge receipt by having one of its officers or employees designated for that purpose sign in the space provided and, as hereinafter provided, return a copy of such transmittal letter to the Corporation or such other party delivering the certificated Notes to Chemical. (b) Chemical, upon receipt of instructions given as hereinafter provided, will withdraw the necessary certificated Notes from safekeeping and, in accordance with such instructions, will: (1) complete each certificated Note as to the amount (including interest, if Notes are interest bearing), date of issue, and maturity date; (2) countersign each certificated Note (by at least one officer or employee designated for that purpose); and (3) deliver each certificated Note as instructed. All certificated Notes will be issued to the order of "Bearer" unless an order party is provided in the Corporation's instructions to Chemical. 2 4 (c) Each of the certificated Notes shall be countersigned for authentication by such officers or employees of Chemical as Chemical may from time to time designate. Should any certificated Notes have been countersigned by one of Chemical's authorized officers or employees, and said officer or employee not be designated at the time said certificated Note is to be paid, Chemical is authorized to pay the certificated Note notwithstanding that the authority of said officer or employee has been terminated between the time of authentication and the time of payment. (d) When Chemical is instructed to deliver a certificated Note against payment, it will be understood to mean delivery against a receipt. Pursuant to the customary commercial practice prevailing in the commercial paper market, the delivery and receipt of payment are not completed simultaneously. Therefore, Chemical will deliver the certificated Note(s) to the office of the purchaser or the designated consignee for the account of the purchaser (provided such office is located in the Borough of Manhattan in the City of New York below Chambers Street) and take back the purchaser's or the consignee's receipt signed or stamped acknowledging receipt for the delivery. Later the same day and after the purchaser or the consignee has verified the delivery against its contracts, payment by such purchaser or consignee is then effected by wire transfer of funds to Chemical's account at the Federal Reserve Bank of New York. Pursuant to customary commercial practice, the Corporation shall bear any risk of non-payment by a purchaser to whom or for whose account a certificated Note is delivered. (e) All spoiled or voided certificated Notes will be cancelled and returned to the Corporation against a signed receipt. 4. Instructions. (a) Chemical is authorized to act with respect to the Notes and to other duties provided for herein upon instructions it may receive from an Authorized Officer of the Corporation or by any employee, commercial paper dealer or other agent designated by the Corporation in a letter signed by one of the Authorized Officers. These instructions may be in written form 3 5 (including instructions given by telecopier, through CPMS (hereinafter defined) or through a CPU to CPU link between Chemical and selected commercial paper dealers) or may be given orally by telephone except where this Agreement specifically provides for written instructions. (b) Should the Corporation or its designated agent use Chemical's Commercial Paper Management Service ("CPMS") or a CPU to CPU link with Chemical for the transmission to Chemical of the Corporation's instructions for the issuance of Notes, the Corporation understands that such transmission shall effect automated preparation of the Notes for issuance and shall be equivalent to the giving of a duly authorized written and signed instruction which Chemical may act upon without liability. 5. Book Entry Notes. (a) Should the Corporation elect to make its commercial paper program eligible for the book entry commercial paper program of The Depository Trust Company ("DTC"), Chemical may be instructed to issue book entry Notes through DTC instead of, or in addition to, certificated Notes as hereinbefore provided. Chemical is authorized and directed to issue and settle through DTC book entry Notes in accordance with the procedures established by DTC and Chemical for such Notes, and all references in this Agreement to "Notes" shall apply to and shall include any book entry Notes issued hereunder by the Corporation, except to the extent that DTC's and Chemical's procedures for the issuance and payment of book entry Notes differs from the procedures described herein for certificated Notes. (b) In accordance with DTC's book entry commercial paper program, Chemical shall obtain from the CUSIP Service Bureau a written list of CUSIP numbers for the book entry Notes that will be issued through DTC, and Chemical shall deliver such list to DTC. Chemical shall instruct the CUSIP Service Bureau to bill the Corporation for the fee or fees payable to the CUSIP Service Bureau for the list of CUSIP numbers for book entry Notes, and Chemical will include such fees in its billing to the Corporation for services provided herein. The CUSIP numbers, as required by DTC's commercial paper program will be assigned to the Corporation's book entry Notes upon issuance and 4 6 used to identify the Corporation's outstanding book entry Notes in DTC's system. (c) Whenever the Corporation's Note program becomes eligible for DTC's book entry commercial paper program, Chemical shall commence executing all Note issuance instructions from the Corporation by issuing and delivering only book entry Notes through DTC, except where Chemical has been specifically instructed by the Corporation to complete and deliver one or more certificated Notes. (d) Should the Corporation agree with a book entry Note-holder to prepay such holder's book entry Note(s) on deposit with DTC prior to their scheduled maturity, the Corporation shall make arrangements with the holder and Chemical for the delivery through the DTC system of such Note(s) by the DTC participant holding the Note(s) to Chemical's designated account at DTC for payment. (e) In the event the Corporation for any reason shall discontinue its participation in DTC's book entry commercial paper program the Corporation and Chemical shall cooperate in taking appropriate action, including, if necessary, making one or more certificated Notes available to any DTC participant having book entry Notes credited to its DTC account. Discontinuance of the Corporation's participation in DTC's book entry program with respect to the Notes shall not constitute notice of termination of Chemical's duties as issuing and paying agent for certificated Notes under this Agreement. 6. Proceeds of Sale of Notes. Funds received by Chemical in payment for Notes on each settlement date shall be credited to the Corporation's account number 144-056329 at Chemical (or to such other account of the Corporation on Chemical's books as the Corporation and Chemical may agree) (the "Account"). If Chemical, in its sole discretion, permits the Corporation to have use of the funds payable on the Notes issued prior to Chemical having collected from purchasers the proceeds of 5 7 sale of the Notes, it is understood that such use of funds by the Corporation shall constitute an advance to be promptly repaid to Chemical from the proceeds of sale of the Notes. If the amount of the advance is not repaid in full on the same day as it is used, the unpaid balance of such advance shall be repaid by the Corporation to Chemical on the next business day together with interest thereon (computed on the basis of the actual number of days elapsed in a year of 360 days) at Chemical's prime lending rate (the "Prime Rate") in effect from time to time from and including the date of the advance to the date of repayment, and if another rate has been agreed to with Chemical such other rate shall be applied to such advance. 7. Payment of Notes. (a) The Corporation shall provide Chemical with immediately available funds sufficient to pay the principal, and interest if any, due on maturing Notes by 2:30 p.m. (New York time) on the maturity date for such Notes. If by such time Chemical has not received such funding or if the Corporation has not made other arrangements to the satisfaction of Chemical for the payment of such Notes Chemical may without liability to the Corporation refuse to settle and pay for such Notes. (b) Should Chemical, at its sole discretion, advance funds for the Corporation's account in payment of any Notes payable at maturity to purchasers and, if payment is not received by Chemical either from the sale of new Notes, or directly from the Corporation, on the same day as payment is made by Chemical to purchasers, the Corporation shall repay the amount of such advance to Chemical on the next business day together with interest thereon (computed on the basis of the actual number of days elapsed in a year of 360 days) at the Prime Rate in effect from time to time, from and including the date of any such advance to the date of repayment by the Corporation, and if another rate has been agreed to with Chemical such other rate shall be applied to such advance. (c) No prior action or course of dealing on the part of Chemical with respect to the payment of Notes shall be used by or give rise to any claim or action by the Corporation against 6 8 Chemical for Chemical's refusal to pay or settle for Notes the Corporation has not timely funded as provided for herein. 8. Representations and Warranties. (a) The Corporation represents and warrants that it has the right, capacity and authority: (i) to enter into this Agreement; (ii) if its Notes become eligible for deposit as book-entry only in DTC's program, to issue its Notes in book entry form through DTC; and (iii) to comply with all of its obligations and duties under this Agreement. The Corporation further represents and agrees that each Note issued and distributed upon its instruction as provided for herein shall constitute the Corporation's representation and warranty that such Note is a legal, valid and binding obligation of the Corporation, and that such Note is being issued in a transaction which is exempt from registration under the Securities Act of 1933, as amended. (b) Chemical represents and warrants that it has the right, capacity and authority to be an issuing and paying agent for the Corporation's Notes and that Chemical can perform issuance and paying agency activities provided for herein for such Notes. 9. Liability and Indemnity. Neither Chemical nor any of its officers, employees or agents shall be liable for any action or omission to act taken or made in connection with this Agreement, except for Chemical's or their gross negligence or wilful misconduct. The Corporation agrees to indemnify and hold harmless Chemical, its officers, employees and agents from and against any and all losses, liabilities, claims, penalties, charges and expenses (including counsel fees) suffered or incurred by or asserted or assessed against Chemical or any of them arising out of Chemical or any of them acting as the Corporation's agent for the Notes under this Agreement, except for such loss, liability claim, penalty, charge or expense resulting from Chemical's or their gross negligence or wilful misconduct. This indemnity includes, but is not limited to, any action taken or omitted upon, electronic, written or telephone instructions received or purported to have been received from any authorized person for the Corporation. ANYTHING IN THIS AGREEMENT TO THE CONTRARY NOTWITHSTANDING, 7 9 IN NO EVENT SHALL CHEMICAL, ITS OFFICERS, EMPLOYEES AND AGENTS BE LIABLE UNDER THIS AGREEMENT TO THE CORPORATION OR ANY THIRD PARTY FOR INDIRECT, SPECIAL, PUNITIVE, INCIDENTAL OR CONSEQUENTIAL LOSS OR DAMAGE OF ANY KIND WHATSOEVER, INCLUDING LOST PROFITS WHETHER OR NOT THE LIKELIHOOD OF SUCH LOSS OR DAMAGE WAS KNOWN TO CHEMICAL, OR ANY OF THEM. 10. Termination of Agreement. Either the Corporation or Chemical may terminate this Agreement on not less than ten (10) days written notice to the other. With respect to any Notes outstanding at the time of termination of this Agreement, this Agreement shall remain in effect until all such Notes are paid or other arrangements for the payment of such Notes have been provided to the satisfaction of the Corporation and Chemical. 11. Use of CPMS. The following additional terms shall be applicable hereunder when the Corporation uses CPMS. (a) The Corporation will use CPMS (i) to initiate Note issuance instructions (ii) to receive reports concerning Note issuances, (iii) to receive electronic messages from Chemical, and (iv) for other incidental services Chemical may make available from time to time through CPMS. (b) Chemical will deliver or disclose confidential security procedures materials for accessing CPMS to an Authorized Officer or to any employee or agent designated as authorized by an Authorized Officer or the Corporation. The Corporation shall be responsible for any unauthorized use or disclosure of the security materials delivered to it. All access through CPMS is subject to verification by Chemical pursuant to the security procedures. Chemical will allow access to CPMS reports and act upon instructions received through the service if verified pursuant to the security procedures. 8 10 (c) If CPMS is unavailable for any reason the Chemical customer service representative should be notified, and until CPMS is made available for use the Corporation should follow the alternate procedures for issuance of the Corporation's Notes as provided for herein and in the CPMS service materials. The Corporation should not issue and Chemical will not act upon cancellation or override instruction transmitted through CPMS. (d) The liability of the Corporation and Chemical for any act or omission in connection with CPMS shall be determined or limited in accordance with the terms of this Agreement. 12. Corporation Fees. Chemical shall be entitled to such compensation as may be agreed upon with the Corporation for all services rendered hereunder, and the Corporation agrees to pay such compensation within 30 days from the date of Chemical's invoice. 13. Reliance. (a) Chemical shall not incur any liability to the Corporation for acting upon instructions which Chemical believes in good faith to have been properly given. (b) Chemical may act pursuant to instructions of the Corporation's Authorized Officers, designated employees and agents, until Chemical has been notified by the Corporation in writing signed by an Authorized Officer that the authority of any such person or entity has been terminated or withdrawn. If while Notes signed by any such person are in Chemical's possession or have been delivered, then with respect to these Notes the authority of any such person shall be deemed to remain in full force and effect. 14. Amendments. No amendment, modification or wavier of any provision of this Agreement shall be effective unless the same shall be in writing and signed by the Corporation and Chemical. Any such amendment, modification or wavier shall be effective only in the specific instance and for the purpose for which given. 9 11 15. Governing Law. This Agreement shall be governed by the laws of the State of New York without regard to its principles of conflict of laws. 16. Assignment. This Agreement may not be assigned by either party without the express written consent of the other party. 17. Merger or Consolidation. Any corporation or association into which Chemical may be converted or merged, or with which it may be consolidated, or to which it may sell or transfer its commercial paper agency business as a whole or substantially as a whole, or any corporation or association resulting from any such conversion, sale, merger, consolidation or transfer to which it is a party, shall be and become successor to Chemical hereunder vested with all of the rights, powers, trusts, duties and obligations of Chemical hereunder, without the execution or filing of any instrument or any further act. 18. Survival. Chemical's rights to compensation, reimbursement and indemnification shall survive the termination of this Agreement. 19. Advice of Counsel. Chemical may consult with counsel (including Chemical's in-house counsel) and the advice of such counsel shall be full and complete authorization and protection in respect of any action taken, suffered or omitted by it hereunder in good faith in reliance thereon. 20. Ownership of Notes. Chemical, in its individual or any other capacity, may become the owner or pledgee of Notes. 21. Recording. Chemical is authorized but not obligated to record electronically and to retain telephone conversations between the Corporation's officers, employees and agents and Chemical. 10 12 22. Business Day. Whenever any payment to be made hereunder shall be due on a day which is not a business day for Chemical, then such payment shall be made on the next succeeding business day. 23. Force Majeure. Chemical shall not be responsible for liability, loss or damage of any kind resulting from any delay in the performance of or failure to perform responsibilities hereunder which is caused by an act of God, any catastrophe, electrical, computer or mechanical failure, delay or failure to act of any carrier, correspondent or agent or, without limiting the generality of the foregoing, any other cause beyond Chemical's direct control. 24. Rules and Procedures. This Agreement shall be subject to such administrative rules as Chemical may establish and disseminate from time to time governing its commercial paper services such as time limits by which issuance instructions and requests for same day funds transfers must be received, specific telephone numbers for various types of transfer requests and other rules. 25. Notices. All notices, confirmations and other communication required or permitted shall be in writing (except as otherwise provided herein), and all other documents required to be furnished under the terms and provisions hereof, shall be sent by first-class mail (postage prepaid), by telecopier or delivered to the addresses specified below: If to Corporation: American Bankers Insurance Group 11222 Quail Roost Drive Miami, Fla. 33157 Attn: Floyd Denison/Manola Gutierrez Telephone No.: (305) 253-2244 Telecopier No.: (305) 252-7068 11 13 If to Chemical: Chemical Bank- ATT: Money Market Operations 450 West 33rd Street - 8th Floor Telephone No.: (212) 613-7934 Telecopier No.: (212) 613-7904 or to such other address as the same may designate from time to time by notice duly given to the other party hereto. Each party will advise the other party from time to time of their current telephone and telecopier numbers. 26. Entire Agreement. The parties hereto acknowledge that each has read this Agreement, understands it, and agrees to be bound by its terms. The parties further agree that this Agreement and any modifications made pursuant to it constitute the complete and exclusive expression of the terms of this Agreement between the parties, and supersedes all prior or contemporaneous proposals, oral or written, understandings, representations, conditions, warranties, covenants, and all other communications between the parties relating to the subject matter of this Agreement. 27. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original and such counterparts together shall constitute but one instrument. 28. Headings. The headings in this Agreement are for purposes of reference only and shall not in any way limit or otherwise effect the meaning or interpretation of any of the terms hereof. Accepted and agreed to as of the date first above written. 12 14 By: Manola Gutierrez --------------------------------- Title: Assistant Secretary, American Bankers Insurance Group ------------------------------ CHEMICAL BANK By: --------------------------------- Title: ------------------------------ 13 15 3(a)(3) COMMERCIAL PAPER AGREEMENT This will confirm our arrangement whereby CS First Boston Corporation ("CS First Boston") will act as dealer in sales of commercial paper of American Bankers Insurance Group, Inc., a Florida corporation (the "Company"). In that connection, CS First Boston may purchase such commercial paper from the Company as principal. It is understood that the commercial paper will have a maturity at the time of issuance not to exceed nine months (exclusive of days of grace) and be denominated in notes (either in separate physical form or in global form ("book-entry notes") held through the facilities of The Depository Trust Company ("DTC")) not less than $100,000 each. Book-entry Notes will be represented by master notes registered in the name of a nominee of DTC and recorded in the book-entry system maintained by DTC. CS First Boston understands that, in connection with any issuance and sale of commercial paper by the Company, the Company will obtain the prior advice of its counsel that all action required by any regulatory body or bodies has been duly taken. The Company has authorized the use of a Commercial Paper Memorandum ("Memorandum") prepared by CS First Boston on the basis of information furnished by the Company. Such Memorandum may be used in connection with the sale of the Company's commercial paper until the Company advises CS First Boston that an updated or revised Memorandum in a form approved by the Company should be substituted. The Company will promptly advise CS First Boston of any change in its ratings, its financial condition or the results of its operations which may make such updating or revision advisable, in which case the Company will cooperate in preparing such updated or revised Memorandum. With respect to the original Memorandum, and each updated or revised Memorandum approved by the Company, the Company will indemnify CS First Boston and hold CS First Boston harmless against any loss, claim, liability or expense (including reasonable costs of defense) arising out of or based upon any allegation that such Memorandum includes an untrue statement of a material fact or omits to state any material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. The foregoing indemnity shall survive any termination of this Agreement. Each acceptance by the Company of an offer to purchase commercial paper notes pursuant to this Letter Agreement shall be deemed to constitute a representation and warranty to CS First Boston that (a) such notes, when issued, will constitute valid and legally binding obligations of the Company, enforceable in accordance with their terms, (b) the Memorandum (including any documents incorporated therein by reference) at such time does not contain an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading, (c) the Company is not an open-end investment company, unit investment trust or face-amount certificate company that is or is required to be registered under Section 8 of the Investment Company Act of 1940, as amended, and (d) the Notes will be exempt from the registration requirements of the Securities Act of 1933, as amended (the "Act"), by reason of Section 3(a)(3) thereof. The representations, warranties and understandings set forth in this paragraph and in the second paragraph of this Agreement shall survive any termination of this Agreement. 14 16 No commercial paper shall be issued until the Company and CS First Boston have received an opinion of Jorden Burt Berenson & Johnson LLP to the effect that the commercial paper will be exempt from the registration requirements of the Act by reason of Section 3(a)(3) thereunder and qualification of an indenture in respect thereof under the Trust Indenture Act of 1939, as amended, is not required, and covering such additional matters as CS First Boston may reasonably request. The Company agrees promptly from time to time to take such action as CS First Boston may reasonably request to qualify the commercial paper for offering and sale under the securities laws of such jurisdictions as CS First Boston may designate and to comply with such laws as long as may be necessary for the offer and sale of commercial paper as contemplated by this Agreement; provided, however, that the Company shall not be required in connection therewith to qualify as a foreign corporation or to file a general consent to service of process in any jurisdiction. The Company agrees to reimburse CS First Boston for all of its costs and expenses (including reasonable attorneys' fees) incurred in connection with the foregoing. In addition, the Company agrees to furnish promptly to CS First Boston (mailed directly to the attention of its Short-Term Finance Department) the following information: 1. All reports filed by the Company and its parent (if applicable) with the Securities and Exchange Commission pursuant to Section 13(a) of the Exchange Act (or reasonably comparable information if the Company and its parent (if applicable) is not subject to such filing requirements; 2. All reports mailed to the Company's public stockholders (if any); 3. All information generally provided to securities analysts; and 4. Copies of reports submitted by the Company to the rating agencies showing the amounts of commercial paper outstanding and the bank lines and other liquidity sources supporting such commercial paper. The information described above shall be in addition to information provided to other individuals at CS First Boston or its affiliates. The Company also agrees to provide such other information as CS First Boston's Short-Term Finance Department may reasonably request. The Company will notify CS First Boston promptly, to the attention of its Short-Term Finance Department, of any change (or any advice from a rating agency of a contemplated change) in any of its debt ratings, any change in the aggregate size of its commercial paper program and any other development in its affairs or in the industry or industries in which it is engaged which has or may be expected to have a material impact on the results of its operations, its financial condition or the marketability of its commercial paper. This Agreement shall be governed by and construed in accordance with the law of the State of New York. All communications and notices pursuant to this Agreement shall be in writing or confirmed in writing and shall be addressed (i) if to the Company, to the Company at American Bankers Insurance Group, Inc., 11222 Quail Roost Drive, Miami, FL 33157-6596, Attention: Floyd G. Denison, or at such other address as may from time to time be designated by notice by the Company in writing; and (ii) if to CS First Boston, to CS First Boston at Park Avenue Plaza, New York, New York 10055, Attention: Short-Term Finance Department, or at such other address as many from time to time be designated by notice by CS First Boston in writing. 15 17 This Agreement may be terminated by the Company or by CS First Boston upon one business day's written notice to the other party hereto; provided, however, that any such termination shall not affect any provisions that this Agreement provides shall survive any termination, and such provisions shall continue in effect following any such termination. AMERICAN BANKERS INSURANCE GROUP, INC. By: --------------------------------- Title: Assistant Secretary ------------------------------ Date: ------------------------------ CS FIRST BOSTON CORPORATION By: --------------------------------- Title: ------------------------------ Date: ------------------------------ 16 EX-10.V 5 EXECUTIVE COMPENSATION AGREEMENT 1 EXHIBIT 10(v) AMERICAN BANKERS INSURANCE GROUP EXECUTIVE COMPENSATION AGREEMENT This agreement is hereby entered into between American Bankers Insurance Group, Inc., a corporation organized under the laws of Florida (hereinafter the "Corporation") and (hereinafter "Employee"). In consideration of the mutual covenants set forth herein, the parties to this contract agree as follows: 1. Definitions As used herein, the term: (a) "Merged" or "Sold" shall mean the consummation of any transaction or series of transactions in which a person or group of related or affiliated persons obtains ownership of stock of the Corporation sufficient to exercise control over the operations of the Corporation and such person or group does not presently have the ability to exercise such control. Such a merger or sale shall be deemed to have taken place if: (i) a tender offer or series of offers has been made to and accepted by 50 percent or more of the Corporation's stockholders; or (ii) a transfer of stock has occurred which is sufficient to allow the new purchaser (or group of related or affiliated purchasers) to elect a majority of directors other those proposed by the management of the Corporation. (ii) a majority of the Board of Directors of the Corporation is replaced in any one year; or (iv) a merger or reorganization is consummated which results in existing shareholders of the Corporation owning less than 50 percent of the voting stock of the corporation acquiring the Corporation (or, if the Corporation is the acquiring corporation, results in existing shareholders of the Corporation owning less than 50 percent of the voting stock of the Corporation); or (v) more than 50 percent of the assets of the Corporation are sold. While a merger or sale shall be deemed to have taken place in the circumstances described in (i) through (v) above, these circumstances shall not be construed to be exclusive but rather as examples of circumstances described in the first sentence of this subparagraph 1. (a). 2 (b) "Current Annual Salary" shall mean the total amount of salary (excluding any bonus or deferred compensation) to which Employee was entitled during the last twelve months prior to the Triggering Event, as defined in paragraph 3. If Employee was not employed full-time by the Corporation for the full twelve months before the Triggering Event, then his Current Annual Salary shall be the total amount of salary to which Employee was entitled in the last consecutive or nonconsecutive twelve months of full time employment by the Corporation prior to the Triggering Event. (c) "Retirement" shall mean termination of employment with the Corporation at or after attainment of age 65. (d) "Termination for convenience of the Corporation" shall mean termination of employment at the behest of the Corporation, whether by dismissal or by requested resignation, but shall not include termination for cause or an unsolicited voluntary resignation. A decrease in Employee's salary for any year to a level which is less than eighty (80) percent of his salary for any prior year shall, if Employee resigns after such decrease, be deemed a termination for the convenience of the Corporation. (e) "Termination for cause" shall, as defined herein and solely for purposes of this agreement, mean termination of employment for reasons of abuse of alcohol or drugs, or the like; or such illness, disability, or personal family problems as preclude Employee from rendering satisfactory services for a period of three months or more. (f) "Termination for malfeasance" shall mean termination of employment for reasons of fraud, misappropriation, embezzlement, or other malfeasance. (g) "Net Portfolio Rate" of the Corporation shall mean the rate of return on new investments of American Bankers Life, Assurance Company for the year in which the Triggering Event with respect to the Employee occurs, net of all federal, state or local taxes applicable to income from such investments. (h) "He" or "his" shall include "she" or "her," respectively. 2. Obligations of Employee Employee agrees to continue to serve the Corporation in the capacity held by him on the date of this agreement, or in such capacity as may from time to time be mutually agreed, until the first occurrence of a Triggering Event, devoting his full time and best efforts to the needs and interests of the Corporation. 3 3. Obligations of Corporation Upon the first occurrence of any of the following conditions (hereinafter called "Triggering Events", the Corporation agrees to pay the amount specified in this paragraph (hereinafter called the "Designated Amount"), in addition to any other compensation otherwise owing, in accordance with the provisions of paragraphs 4 and 5 hereof: (a) If, while the Employee is employed by the Corporation, the Corporation is Merged or Sold, the Designated Amount shall be an amount equal to twice the Employee's Current Annual Salary. In any such merger or sale, the Corporation agrees to ensure that the surviving company or the purchaser assumes the obligation to pay such amount to the extent that it has not otherwise been paid. (b) If the Employee dies while still employed by the Corporation, the Designated Amount (to be paid to his Designated Beneficiary described in paragraph 8 below) shall be an amount equal to one and one-half the Employee's Current Annual Salary. (c) Upon the Retirement of the Employee, the Designated Amount shall be an amount equal to the Employee's Current Annual Salary. (d) If the Employee is terminated for the convenience of the Corporation but not for cause, the Designated Amount shall be an amount equal to the Employee's Current Annual Salary. (e) If the Employee is terminated for cause, the Designated Amount shall be an amount equal to the Employee's Current Annual Salary. (f) If the Employee is terminated for malfeasance or voluntarily terminates employment in circumstances other than those described in subparagraphs l(c) or (d), the Designated Amount shall be zero. 4. Method of Payment The Designated Amount shall, upon the occurrence of a Triggering Event, be credited to an account on the books of the Corporation. Such account shall be for bookkeeping purposes only, and neither Employee nor his Designated Beneficiary shall have any right, title, interest or priority therein. Such account shall also be credited not less than annually with interest on the unpaid amount credited thereto at the Corporation's Net Portfolio Rate. Except as provided below, the amounts credited to such account shall be paid to Employee ore upon his death to his Designated Beneficiary, in monthly installments. Such installments, the precise amounts of which shall be determined in accordance with this agreement by the Planning and Compensation Committee of the Board of Directors of the Corporation (hereinafter "the Committee"), shall be as nearly 4 equal in amount as is feasible, and shall commence on February 1 of the calendar year immediately following the year in which the Triggering Event occurs. At the time of entering into this agreement, Employee may, by executing the election contained in paragraph 11 hereof, elect to have any amount to which he or his Designated Beneficiary may become entitled under this agreement paid as a lump sum (rather than in monthly installments) either as soon as practical after the occurrence of the Triggering Event or on February 1 of the calendar year immediately following the year in which the Triggering Event occurs. If at any time, the Internal Revenue Service determines that Employee or his Designated Beneficiary are subject to federal income tax an unpaid amounts to which Employee or his Designated Beneficiary have become entitled under this agreement, and Employee or his Designated Beneficiary agree to such determination, then all such unpaid amounts shall be paid forthwith to Employee or his Designated Beneficiary. 5. Right to Request Modification of Method of Payment Employee, or in the event of his death his Designated Beneficiary, may at any time request that the Corporation alter the method of payment applicable under paragraph 4 of this agreement with respect to the payment of any amounts not yet due. Any such request should be in writing, addressed to the Committee, and should specify the alteration in the otherwise applicable method of payment requested. The Committee shall have absolute discretion to determine whether to grant or deny any such request. 6. Source of Payment All amounts paid hereunder shall be paid in cash from the general funds of the Corporation and no special or separate fund shall be established and no segregation of assets shall be made to assure the payment of such amounts, nor shall the existence of any bookkeeping account with respect to such amounts be construed to imply the existence of any such separate fund or segregation of assets. Employee and his Designated Beneficiary shall have no right, title, interest, or priority whatever in or to any investments which the Corporation may make to aid it in meeting its obligations hereunder. Nothing contained in this agreement, and no action taken pursuant to its provisions, shall create or be construed to create a trust of any kind, or a fiduciary relationship, between the Corporation and Employee or any other person. To time extent that any person acquires a right to receive payments from the Company, such right shall be no greater than the right of an unsecured creditor. 7. Employment by Subsidiary For purposes of this agreement, employment with any corporation or other entity more than one-half of the ownership interest in which is held by the Corporation shall be treated as employment with the Corporation. 5 8. Designated Beneficiary (a) Employee shall designate in a written statement delivered to the Committee the person (or persons), herein referred to as his Designated Beneficiary, entitled to receive any amounts due under this agreement in the event of Employee's death. Employee shall have the right to change his Designated Beneficiary at any time. (b) Employee may name more than one person as Designated Beneficiary to share in such proportion as Employee elects. (c) Employee may name a hierarchy of persons as Designated Beneficiary, each level becoming entitled to the rights of a Designated Beneficiary only if all persons on higher levels shall predecease Employee. (d) If Employee fails to name a Designated Beneficiary or if all such persons predecease Employee, then upon the death of the Employee any amounts payable under this agreement shall be paid to Employee's estate in a lump sum. (e) If the Designated Beneficiary dies while receiving payments under an annuity payout option, then such payments shall continue to the next living level of the hierarchy described in subparagraph (c) of this paragraph, if any. If no such person or persons are alive, then payments shall continue to any person the Designated Beneficiary may have designated while alive. If none exists, then the balance of the account shall be paid to the estate of the Designated Beneficiary. 9. This agreement is a personal agreement, and the rights of Employee or his Designated Beneficiary hereunder may not be sold, transferred, assigned, pledged, hypothecated, or otherwise encumbered. This agreement shall be binding on and inure to the benefit of the successors and assigns of the Corporation. During Employee's lifetime the parties hereto by mutual agreement may amend, modify, or rescind this agreement without the consent of any other person. 10. If Employee voluntarily terminates his employment with the Corporation in circumstances other than those described in paragraph 1.(d) before the occurrence of a Triggering Event, all his rights hereunder shall be forfeited. 11. [Optional Election] I hereby elect in accordance with paragraph 4 of this agreement to have any amount to which I may become entitled under this agreement paid to me or to any Designated Beneficiary as a lump sum. 6 as soon as feasible after the occurrence of the - ------------------- Triggering Event or (Employee initials) on February I of the calendar year immediately - ------------------- following the year in which the Triggering (Employee initials) Event occurs. In witness whereof, the parties hereto have executed this agreement on this day of , Nineteen Hundred and Eighty-eight. American Bankers Insurance Group, Inc. By: --------------------------------------------- (Title) - ------------------------------------------------ Employee EX-10.W 6 AMENDMENT TO 1991 STOCK OPTION PLAN 1 EXHIBIT 10(w) AMENDMENT TO 1991 STOCK OPTION/RESTRICTED STOCK AWARD PLAN WHEREAS, that with respect to the American Bankers Insurance Group, Inc. 1991 Stock Option/Restricted Stock Award Plan, as amended May 25, 1993 (the "Plan"), employees entitled to receive Restricted Shares, as defined therein, shall be given the right, during a limited period of time, to defer the vesting of such Restricted Shares under each Option granted under the Plan for an additional one, two or three year period, at the employee's election; and WHEREAS, Section XIV of the Plan permits the Committee to amend the Plan without shareholder approval because the amendments set forth below will not (a) increase the aggregate number of shares which may be issued in connection with Options; (b) change the Option exercise price; (c) increase the maximum period during which Options may be exercised; (d) extend the term of the Plan; or (e) materially modify the requirements as to eligibility for participation in the Plan; NOW, THEREFORE, IT IS HEREBY RESOLVED, that the definition of "Restricted Period" appearing in Section II of the Plan is hereby amended to read as follows: "Restricted Period" means a five-year period from the date an Option is exercised and Restricted Shares are issued until the date that the restrictions lapse and the full ownership rights of the Restricted Shares are transferred to the Employee, provided, however, in the case where the Committee has granted the right to elect a longer Restricted Period of six, seven or eight years to a grantee and where the grantee has so elected, the Restricted Period shall be such six, seven or eight year period. RESOLVED FURTHER, that Section VII.(e) of the Plan is hereby amended to read as follows: (e) Release of Transfer Restrictions During the Restricted Period in the Events of Death, Long-Term Disability or Retirement. In the events of Death, Long-Term Disability, or Retirement of the Employee during the Restricted Period, the Transfer Restrictions with respect to the Restricted Shares shall lapse with respect to 20% of the Restricted Shares for each year in the Restricted Period commencing on the first day of the Restricted 2 Period (i.e., if one of the events occurs during the second year of the Restricted Period, 40% of the Restricted Shares shall have no restrictions and the employee or his or her designated beneficiaries shall have the right to receive such shares without restrictions); provided, however, that where the grantee has elected a Restricted Period other than five years, then with respect to retirement, the Transfer Restrictions for the Restricted Shares shall lapse as to 16.67% of the Restricted Shares if a six year Restricted Period is elected, 14.29% of the Restricted Shares if a seven year Restricted Period is elected, or 12.5% of the Restricted Shares if an eight year Restricted Period is elected. All remaining Restricted Shares shall be forfeited. RESOLVED FURTHER, that the employees listed on Schedule A attached shall have the right to elect to defer vesting of Restricted Shares under the Plan for a limited time ending November 17, 1995. RESOLVED, that the officers of the Company are hereby authorized to do or cause to be done any and all such further acts or things and to exercise and deliver any and all such documents and papers that are necessary or desirable in order to carry into effect the purposes and intent of the foregoing resolutions. EX-11 7 COMPUTATION OF EARNINGS PER SHARES 1 EXHIBIT 11 STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE FOR THE YEARS ENDED DECEMBER 31, (IN THOUSANDS EXCEPT PER SHARE DATA)
1995 1994 1993 ---- ---- ---- Primary: Weighted average shares outstanding 20,746 20,596 18,670 ======== ======== ======== Net income before cumulative effect of change in accounting $ 72,260 $ 56,544 $ 53,300 Cumulative effect of change in accounting for income taxes -- -- (1,005) -------- -------- -------- Net income $ 72,260 $ 56,544 $ 52,295 ======== ======== ======== Per share amount: Net income before cumulative effect of change in accounting $ 3.48 $ 2.74 $ 2.85 Cumulative effect of change in accounting for income taxes (.05) -------- -------- -------- Net income $ 3.48 $ 2.74 $ 2.80 ======== ======== ======== Fully diluted: Weighted average shares outstanding 20,746 20,596 18,670 Assumed conversion of convertible subordinated debentures and stock options 77 17 647 -------- -------- -------- Total 20,823 20,613 19,317 ======== ======== ======== Net income before cumulative effect of change in accounting $ 72,260 $ 56,544 $ 53,300 Add convertible debenture interest, net of federal income tax effect 260 470 -------- -------- -------- Total before cumulative effect of change in accounting 72,520 56,544 53,770 Cumulative effect of change in accounting for income taxes (1,005) -------- -------- -------- Total $ 72,520 $ 56,544 $ 52,765 ======== ======== ======== Per share amount: Net income before cumulative effect of change in accounting $ 3.48 $ 2.74 $ 2.78 Cumulative effect of change in accounting for income taxes (.05) -------- -------- -------- Net income $ 3.48 $ 2.74 $ 2.73 ======== ======== ========
E - 3 EX-21 8 SUBSIDIARIES OF THE REGISTRANT 1 EXHIBIT 21 SUBSIDIARIES OF THE REGISTRANT
STATE OF PERCENT OF VOTING SIGNIFICANT SUBSIDIARIES INCORPORATION SECURITIES OWNED ----------------------------------------------------------------------------------------------------- American Bankers Insurance Company of Florida Florida 100% American Bankers Life Assurance Company of Florida 100% Florida American Reliable Insurance Company Arizona 100% Bankers American Life Assurance Company New York 100% Bankers American Reinsurance Company Turks & Caicos 100% Bankers Insurance Company Limited United Kingdom 100% Caribbean American Life Assurance Company Puerto Rico 100% Caribbean American Property Insurance Company Puerto Rico 100% Voyager Group, Inc. Florida 100% Voyager Life and Health Insurance Company Georgia 100% Voyager Life Insurance Company Georgia 100%
E - 4 EX-23 9 CONENT OF PRICE WATERHOUSE LLP 1 EXHIBIT 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We hereby consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No.33-77564) and in the Registration Statements on Form S-8 (No. 33-28936, No. 33-40802 and No. 33-82342) of American Bankers Insurance Group, Inc. of our report dated March 8, 1996 appearing on page 37 of this Form 10-K. /s/ Price Waterhouse LLP PRICE WATERHOUSE LLP Miami, Florida March 29, 1996 E - 5 EX-27 10 FINANCIAL DATA SCHEDULE
7 1,000 U.S. DOLLARS YEAR DEC-31-1995 JAN-01-1995 DEC-31-1995 1 793,277 594,277 613,749 113,028 11,793 0 1,688,410 23,257 0 310,879 2,987,734 275,250 1,178,867 404,745 7,113 235,981 0 0 20,384 492,613 2,987,734 1,240,713 99,400 721 20,014 1,256,653 0 0 104,195 31,935 72,260 0 0 0 72,260 3.48 3.48 137,978 269,623 332 173,937 71,654 162,342 (5,507)
EX-99 11 INSURANCE REPORTS 1 EXHIBIT 99 Information from Reports furnished to Insurance Regulatory Authorities for American Bankers Insurance Group, Inc., Domestic Property and Casualty Subsidiaries. Note: This Exhibit has been submitted in Paper Format on Form SE. (pursuant to Rule 311(c) of Regulation S-T) E - 7 -----END PRIVACY-ENHANCED MESSAGE-----